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RNS
Homeserve Plc   -  HSV   

Half-year Report

Released 07:00 19-Nov-2019

RNS Number : 8270T
Homeserve Plc
19 November 2019
 

 

HomeServe plc

Interim results for the six months ended 30 September 2019

 

 

 

Six months ended

Six months ended

Change²

 

 

30 September 2019¹

30 September 2018

Revenue

 

£457.7m

£404.3m

+13%

Statutory operating profit

 

£28.8m

£24.6m

+17%

Statutory profit before tax

 

£19.7m

£19.3m

+2%

Basic earnings per share

 

5.0p

4.6p

+9%

 

 

 

 

 

Adjusted EBITDA

 

£70.9m

£60.5m

+17%

Adjusted³ operating profit

 

£37.7m

£37.1m

+2%

Adjusted³ profit before tax

 

£28.6m

£31.8m

-10%

Adjusted³ earnings per share

 

6.5p

7.5p

-13%

 

 

 

 

 

Ordinary dividend per share

 

5.8p

5.2p

+12%

Net debt

 

£451.4m

£291.9m

+55%

Total customers

 

8.2m

8.3m

-1%

 

 

 

 

 

Strong financial performance in Membership enables further investment in growth initiatives.

 

·    Revenue up 13% with strong organic growth and benefits from HVAC (Heating, Ventilation and Air Conditioning) M&A

 

·    Adjusted operating profit up 2% to £37.7m reflecting good operational performance in the seasonally quieter first half across Membership and a modest FX benefit, together with planned investment in Home Experts

 

·    Continued profitable growth in North America with customers up 13% to 4.2m and adjusted operating profit up 24% to $23.4m

 

·    Other Membership businesses performing well: efficiency driven growth in UK (adjusted operating profit up 38% to £14.0m);  strongest customer growth in France for four years (up 5%); promising business development and continuing co-operation with Endesa in Spain

    

·    Checkatrade revenue up 34%: trades up 21% to 38k; web visitors up 28% to 11.5m

 

·    Agreement to acquire 79% of eLocal for c.$140m on a "debt free, cash free" basis provides a profitable entry to Home Experts in the US: $5m uplift to adjusted operating profit expected in FY20; $16m in FY21.

 

·    Statutory operating profit up 17% to £28.8m reflecting exceptional gains of c.£7m on sale of Italian associate and acquisition of remaining 30% of Habitissimo, partially offset by increases in amortisation charges as a result of prior period M&A activity

 

·    Reductions in adjusted PBT and adjusted EPS due principally to expected increase in interest charges from fixed rate borrowings agreed in the prior period, together with higher net debt: net debt increase reflects inclusion of lease liabilities in accordance with IFRS 16 and investments in growth opportunities

 

·    Basic EPS up 9% to 5.0p with strong operating performance and exceptional items offsetting Home Experts investment and increased amortisation and interest charges

 

·    Strong financial position: within target leverage range at 1.9x Net Debt: Adjusted EBITDA

 

·    Interim dividend up 12% to 5.8p, reflecting continued confidence in the Group's growth prospects.
 

 

Richard Harpin, Founder and Group Chief Executive, HomeServe plc, commented: "I am very pleased with our financial performance and strategic progress in the first half of this year. All of our Membership businesses performed well, with North America continuing to deliver strong growth, and interesting opportunities in all our European businesses to develop new partnerships, harness new technology and continue to improve customer service and efficiency. Our buy-and-build approach to HVAC added five profitable new acquisitions and will become a significant business line for us for the first time this year. In Home Experts, we have another business line with global appeal. Checkatrade and Habitissimo are both market leaders and in eLocal, we have agreed to acquire a majority stake in a high growth business which gives us a profitable entry into Home Experts in North America."

                                                                                                                                          

Outlook

The Membership and HVAC businesses are performing at the top end of HomeServe's expectations, giving scope to increase net P&L investment in New Markets and Home Experts in FY20 from £12-15m to around £19m. This additional investment will fund the new commercial plan for Habitissimo being developed by the incoming CEO, further testing of the Home Experts model in France, and continued international business development. Given the strong performance of Membership and HVAC, the only change to HomeServe's overall outlook for FY20 is the addition of $5m of adjusted operating profit from eLocal.

  

¹These are the first results which HomeServe has presented under IFRS 16. HomeServe has adopted IFRS 16 using the modified retrospective 'Asset = Liability' approach with a date of initial application of 1 April 2019. Comparative information provided in this announcement has not been restated.

²Percentage movements throughout this announcement are based on full underlying results, not the rounded figures in the tables.

³HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. APMs used in this announcement are non-GAAP measures which address profitability, leverage and liquidity and together with operational KPIs give an indication of the current health and future prospects of the Group. Definitions of APMs and the rationale for their usage are included in the Glossary at the end of this announcement with a reconciliation, where applicable, back to the equivalent statutory measure.

 

Results presentation

A presentation for analysts and investors will take place at 9am this morning at UBS, 5 Broadgate, London EC2M 2QS. There will be an audio webcast with a facility to ask questions, available via www.homeserveplc.com.

 

This is accompanied by a listen-only conference call with details as follows;

 

- United Kingdom Toll-Free

0800 358 9473

PIN: 73976523#

- United Kingdom Toll

+44 3333 000 804

PIN: 73976523#

 

Enquiries

HomeServe

Tulchan Group

Miriam McKay - Group Communications and IR Director

Miriam.McKay@homeserve.com

+44 7795 062564

 

Simon Lewis - Head of Investor Relations

Simon.Lewis@homeserve.com

+44 7970 840694

Martin Robinson

Lisa Jarrett-Kerr

 

 

homeserve@tulchangroup.com

+44 207 353 4200

 

Forward Looking Statements

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 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. 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.

 

About HomeServe

HomeServe is an international home repairs and improvements business which provides homeowners with access to tradespeople and technology to make home repairs and improvements easy. HomeServe is listed on the London Stock Exchange, with a market capitalisation of c.£4.0 billion.

 

Strategic update

 

HomeServe continues to make strong progress on all its strategic initiatives and specifically the milestone targets set at the Investor Day in June of $230m adjusted operating profit from Membership and HVAC in North America and £45-90m adjusted operating profit from Checkatrade. 

 

In Membership, the largest opportunity remains North America. The 13% growth in customers and 24% increase in adjusted operating profit illustrates that the North American business is well on track to deliver its medium to long-term profit targets.

 

The other Membership businesses also performed well. The UK delivered a notable increase in profitability as it benefitted from changes made in the prior year to make it a leaner and more efficient business. The UK is also leading the development of the HomeServe Now initiative aimed at using technology to transform the customer experience and further improve the efficiency of the network.

 

In France, there was a 5% increase in customer numbers to 1.1m, reflecting the strength of both HomeServe's core water utility partnerships with Veolia, Suez and Saur and also new partnerships with retail energy providers and online aggregators such as Mint Energy, Hellowatt, JeChange and Papernest. This is the strongest customer growth in France for four years.

 

In Spain, revenue increased, reflecting higher volumes in the Claims business and HVAC acquisitions, partially offset by the expected run off of the Endesa policy book. The relationship with Endesa remains productive, with a new agreement signed in July to secure billing arrangements on the renewal book for another five years. Improvements in the retention rate, the extension of billing arrangements with Endesa and the continued strength of the Claims business mean that Spain will maintain its current levels of profitability on a full year basis through FY21.

 

HomeServe's HVAC buy-and-build strategy creates an opportunity in all established territories to grow installation revenue from new customers and the existing Membership customer base and to sell policies and services to new customers following an installation. There are over 100,000 HVAC providers in North America alone and HomeServe is building a pipeline of quality acquisition targets. In the first half HomeServe completed two HVAC acquisitions in North America and a further three acquisitions in Spain for a combined total consideration of £11.1m.

 

Checkatrade has the management, resources and expertise in place to test, learn and develop a business model with global appeal. Checkatrade's most important short-term objective is to expand its reach by growing numbers of trades and consumer visits outside its stronghold in the South East of England. Total trades increased by 21% to 38k as the business continued to refine its trade acquisition model. The current offer including a free trial period is proving attractive and is driving record numbers of inbound sales.

 

At Habitissimo, the acquisition of the remaining 30% of the business and the appointment of Sarah Harmon as its CEO have already given the business fresh impetus and direction, with Habitissimo soon to launch Directory Extra, the model being developed by Checkatrade and tested by Home Experts France.

 

As announced separately today, the agreement to acquire 79% of eLocal for c.$140m on a "debt free, cash free" basis, reached on 18 November gives HomeServe a profitable foundation on which to build a Home Experts business in North America. eLocal has a network of 11,600 paying trades plus a directory of 3.3m home services businesses and is expected to generate c.$80m revenue and c.$14m of adjusted operating profit this calendar year. It is expected to add $5m adjusted operating profit in FY20, rising to around $16m in FY21 and delivering high single digit percentage profit growth after investment thereafter. The impact on Group PBTA post transaction and interest costs is expected to be c.£2m in FY20 and c.£6m in FY21. The founders are staying with the business to help build HomeServe's Home Experts business in North America. The transaction is anticipated to close in early December 2019, subject to US competition clearance (Hart-Scott-Rodino).

 

HomeServe's Smart Home initiative, LeakBot, has reached another key milestone with its first operational roll out agreed in the UK, in partnership with high net worth insurer Hiscox. The search for a strategic partner is under way, to support scaling the LeakBot business in the US.

 

 

Financing and leverage

 

From a financial perspective, the Group's balance sheet is strong and with its high free cash flow generation, HomeServe retains the capacity for further M&A such as HVAC businesses or policy books, should any become available. Net debt at 30 September increased to £451.4m (HY19: £291.9m) due principally to the inclusion of £57.4m of IFRS 16 lease liabilities and further M&A activity. Headroom against the Group's total debt facilities was over £300m and leverage of 1.9x was within the Group's target range of 1.0x to 2.0x net debt: adjusted EBITDA.

 

These are the first results published since the Group adopted IFRS 16 which, as noted above, had a £57.4m effect on net debt, a c.£6m impact on adjusted EBITDA and a 0.1x impact on leverage.

 

Dividend

 

The interim dividend of 5.8p per share (HY19: 5.2p), an increase of 12%, will be paid on 7 January 2020 to shareholders on the register on 6 December 2019.

 

 

SEGMENTAL OVERVIEW

 

Financial performance for the six months ended 30 September

 

 

 

      Revenue

Statutory operating profit/(loss)

Adjusted operating profit/(loss)

£million

HY20

HY19

HY20

HY19

HY20

HY19

UK

147.7 

155.7 

12.4 

9.1 

14.0 

10.2 

North America

179.6 

130.5 

9.9 

8.4 

18.5 

14.0 

France

40.4 

36.8 

4.5 

4.2 

7.9 

7.5 

Spain

69.2 

65.8 

7.4 

8.6 

7.6 

8.6 

New Markets

1.5 

0.3 

(2.3)

0.3 

Home Experts

23.8 

18.2 

(6.9)

(6.0)

(8.0)

(3.5)

Inter-segment

(3.0)

 (2.7)

Group

457.7 

404.3 

28.8 

24.6 

37.7 

37.1 

 

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

 

Membership KPIs

 

 

Customer

numbers (m)

Income per

customer

 

Policy retention rate

 

HY20

HY19

HY20

HY19

HY20

HY19

UK

1.9

2.1

£129

£109

78%

79%

North America

4.2

3.7

$98

$93

82%

83%

France

1.1

1.1

€110

€108

89%

88%

Spain

1.0

1.2

€60

€51

81%

80%

New Markets

0.2

-

-

-

Group

8.2

8.3

n/a 

n/a

82%

82%

 

 

Home Experts KPIs

 

 

 

Trades

(000)

Website hits

(m)

 

 

 

HY20

HY19

HY20

HY19

Checkatrade

 

 

38

31

11.5

9.0

Habitissimo

 

 

28

28

42.8

42.7

Group

 

 

66

59

54.3

51.7

 

 

UK

 

UK results £million

 

HY20

HY19

Change

Revenue 

 

 

 

 

Net policy income

 

88.0 

86.5 

+2% 

Repair network

 

43.4 

51.7 

-16% 

Membership

 

131.4 

138.2 

-5% 

HVAC

 

10.7 

12.0 

-11% 

Other

 

5.6 

5.5 

+3% 

Total revenue

 

147.7 

155.7 

-5% 

Adjusted operating costs

 

(133.7)

(145.5)

-8% 

Adjusted operating profit

 

14.0 

10.2 

+38% 

Adjusted operating margin

 

9% 

7% 

+2ppts 

 

 

UK Membership KPIs

 

HY20 

HY19 

Change

Affinity partner households

m

26 

26 

Customers

m

1.9 

2.1 

-11%

Income per customer

£ 

129 

109 

+18%

Policies

m

5.1 

5.8 

-13%

Policy retention rate

%

78 

79 

-1ppt

 

 

Financial performance 

UK financial performance was strong with adjusted operating profit up 38% to £14.0m as the business benefitted from organisational changes made in the prior year and a continued focus on service efficiency.

 

Net policy income increased to £88.0m (HY19: £86.5m) driven by an 18% uplift in income per customer to £129. This continued the trend of recent years whereby customers who value the high levels of service provided by HomeServe continued to select and renew onto fuller product coverage.

 

Repair network revenue decreased by 16% reflecting a 19% reduction in job volumes as a result of a lower policy base year on year and benign weather throughout the first half. There was no material impact on profitability as a result of the lower volume of jobs, with the employed network of engineers completing a higher proportion of claims in-house.

 

HVAC revenue reduced by 11%, as the business focused on higher margin work, completing fewer installs in total (HY20: 4.8k installs, HY19: 5.0k). With the Help-Link business now fully integrated within the UK Membership business, HomeServe is building a pipeline of further HVAC buy-and-build opportunities in the UK.

 

Other revenue of £5.6m (HY19: £5.5m) principally included transactions with other Group companies and income for uninsured, on demand jobs.

 

Adjusted operating costs decreased by 8% as a result of the lower number of claims and due to organisational changes made in the prior year. Headcount reductions made in the final quarter of FY19 and a continuing focus on improved efficiency have resulted in a £3.8m increase in adjusted operating profit and a 2ppts increase in the margin to 9%.

 

 

Operational performance

 

Total UK customers were 1.9m (HY19: 2.1m) with retention broadly in line at 78% (HY19: 79%). HomeServe's customer proposition remains as popular as ever with homeowners who want a reliable, easy way to deal with home repairs and emergencies. The UK business continues to focus on serving its core customer base, and is placing less emphasis on attracting and retaining marginal customers through deep discounts. Future growth in the UK customer book is most likely to be driven by policy book M&A.

 

Technology is already improving and will go on to transform both the customer experience and the efficiency of HomeServe's operations. HomeServe's new core customer management system went live with c.5k customers, and larger volumes will now move over from the legacy system. The new system offers an enhanced customer experience, with faster identification of customer needs, more intuitive screens and fewer clicks helping to shorten call times and improve agent interaction with customers. An enhanced ability to upgrade and downgrade cover will offer even more customer choice and enable more flexibility to tailor products to customers' changing needs.

 

HomeServe Now has the potential to transform how customers schedule a repair in their home. First demonstrated at HomeServe's investor day in June, HomeServe Now uses Natural Language Processing and App-based technologies to swiftly identify a customer's need and directly connect them with an available engineer in close proximity to their home without the need for intervention from a contact centre. HomeServe Now has been successfully trialled for electrics, plumbing and drainage and gas claims in certain regions in the UK and will now be trialled in North America.  

 

In October 2019 the FCA released a report on pricing practices in General Insurance with a detailed market study into pricing in home and motor insurance. While HomeServe was not specifically included in the original study, there is a read-across to its own business activity and certain General Insurance themes discussed in the report are relevant at HomeServe, for example discounts offered to attract and retain customers as well as auto-renewal. HomeServe's base product price remains the same for all customer vintages once customers have completed the introductory pricing journey. HomeServe promotes clear communication with its customers and exceeds current regulatory disclosure requirements to ensure customers are fully aware of pricing changes and their auto-renewal timetable. HomeServe notes the study and awaits publication of the final report, scheduled for Q1 2020.

 

HomeServe's focus on developing products that customers value ensured customer satisfaction remained high in the period with scores of 4.4 on Trustpilot (HY19: 4.4) and 96% on Reevoo (HY19: 96%). The 0.5m jobs in the period (HY19: 0.6m) were completed by HomeServe's network of 904 directly employed engineers (HY19: 1,035) and 317 contractors (HY19: 249).

 

 

 

 

North America

North America results US$million

 

HY20

HY19 

Change

Revenue 

 

 

 

 

Net policy income

 

179.0 

158.7 

+13% 

Repair network

 

30.7 

4.9 

+526% 

Membership

 

209.7 

163.6 

+28% 

HVAC

 

15.6 

8.5 

+83% 

Other

 

0.6 

1.6 

-62% 

Total revenue

 

225.9 

173.7 

+30% 

Adjusted operating costs

 

(202.5)

(154.8)

+31% 

Adjusted operating profit

 

23.4 

18.9 

+24% 

Adjusted operating margin

 

10%

11%

-1ppt 

 

North America results £million

 

HY20

HY19 

Change

Revenue 

 

 

 

 

Net policy income

 

142.3 

119.2 

+19% 

Repair network

 

24.4 

3.6 

+578% 

Membership

 

166.7 

122.8 

+36% 

HVAC

 

12.4 

6.4 

+94% 

Other

 

0.5 

1.3 

+-61% 

Total revenue

 

179.6 

130.5 

+38% 

Adjusted operating costs

 

(161.1)

(116.5)

+38% 

Adjusted operating profit

 

18.5 

14.0 

+32% 

Adjusted operating margin

 

10%

11%

-1ppt 

 

North America Membership KPIs

 

HY20 

HY19 

Change

Affinity partner households

m

62 

55 

+12%

Customers

m

4.2 

3.7 

+13%

Income per customer

US$

98 

93 

+5%

Policies

m

7.1 

5.9 

+20%

Policy retention rate

%

82 

83 

-1ppt

 

 

Financial performance

 

Total revenue increased by 30% to $225.9m driven by strong increases in all income streams. Net policy income increased by 13% to $179.0m, driven by a 13% increase in customers and a 5% increase in income per customer. Average policies per customer increased to 1.7 (HY19: 1.6) and total policies exceeded 7m for the first time.

 

Repair network revenue (up 526% to $30.7m) and HVAC revenue (up 83% to $15.6m) both grew strongly due to the FY19 acquisitions of Cropp Metcalfe, Gregg Mechanical and Geisel and the current year acquisitions of Fred's Home Services and Fab Electric. These acquisitions increased the number of HVAC installations completed in the period by 78% to c.3.9k. Due to their location in existing areas of high policy density, engineers were also utilised to complete repairs for the Membership customer base.

 

Other revenue principally comprised on demand repair work and services undertaken for non Membership customers.

 

Adjusted operating profit rose 24% to $23.4m with a 1ppt reduction in margin to 10% due to the higher proportion of lower margin HVAC revenue in the first half.

 

 

Operational performance

 

HomeServe made very good progress towards the new milestone targets set out at its Investor Day in June 2019. Over the medium to long term HomeServe sees its North American business generating c.$230m of adjusted operating profit from a Membership customer base of 6m to 7m and with a contribution from its growing HVAC business in the range of $30m to $45m.

 

Total customers increased 13% on the prior year to 4.2m. The increase reflects the continued success of HomeServe's marketing campaigns with its utility partners, c.150k customers acquired with the second tranche of the policy book of Dominion Products and Services (DPS) in October 2018 and a small policy book (13k customers) acquired in the period.

 

HomeServe achieves strong take up rates on all its North American marketing campaigns but the best returns continue to be made on activity with new partners. Total affinity partner households increased to 62m, including c.3m from DPS. HomeServe now works with over 750 utility providers out of a target list of c.8,000. The pipeline of new partners remains very strong and HomeServe anticipates maintaining a run rate of c.5-6m new households added through its business development activities for the full year.

 

Retention remained high at 82% (HY19:83%) and is expected to remain around this level for the full year. The appeal of HomeServe's offer to its partners is not just the ongoing commission income stream but also the high standards of customer service which HomeServe provides to the shared customer base.

 

Income per customer grew 5% to $98 and HomeServe aims to grow this to $120 - $125 as it progresses towards its milestone targets. Year 2+ customers already generate $123 today and there is the potential to increase this further following the launch of HomeServe's Total Home Warranty proposition.

 

Whole Home Warranty is a large, fragmented market with very mixed levels of customer service from other providers. HomeServe believes there is an opportunity to differentiate based on its strong customer satisfaction and its 750 utility partnerships. Traditionally competitor products have been sold via real estate channels but with recent growth online and via TV advertising there is also the opportunity to reach a younger homeowner who wants a cover-all, hassle free approach to home maintenance. HomeServe launched its own Total Home Warranty product during the period and is accompanying this with its own TV campaign. HomeServe's acquisition of American Home Guardian in June 2019 for total consideration of $4.2m brought 5k policies and existing expertise, particularly in the real estate channel. This has been supplemented after the half year by the acquisition of Nations Home Warranty, with 10k policies, which operates in the same territory.

 

Key to attracting and retaining younger homeowners is a more rounded digital experience that encompasses an enriched HomeServe App. The investment in Centriq in January 2019 enabled HomeServe to launch a new App in North America. The App is free to all consumers, not just HomeServe customers, and offers a facility to catalogue appliances around the home and provide users with product recall alerts, self-help guides to remedy problems and a facility to contact an appropriate technician when the need arises. App downloads are growing month on month following a soft launch and reached 24k at the half year. Demographic analysis shows that HomeServe App users are younger and more affluent than the current HomeServe customer base. This analysis will be applied to position in-App offers as the product is marketed more overtly in the second half through HomeServe's digital channels and utility partnerships.

 

During the period HomeServe acquired two HVAC providers, FAB Electric and Fred's Home Services, for total combined gross consideration of $5.7m. There are over 100,000 HVAC providers in North America and HomeServe is building a pipeline of potential acquisitions. Key targets are comparatively small, profitable businesses, most with their own local policy book and all with an engineer network. HVAC is highly complementary to the Membership business with installations a channel for new policy sales and the existing Membership base presenting an opportunity to generate installation volumes and repair work to fully utilise the employed networks. With an average lifespan of 15 years, around 280k of HomeServe's 4.2m customers replace their HVAC appliance every year.

 

 

 

 

France

 

France results €million

 

HY20

HY19 

Change

Revenue 

 

 

 

 

Net policy income

 

42.0 

39.5 

+6% 

Repair network

 

0.2 

0.2 

-9% 

Membership

 

42.2 

39.7 

+6% 

HVAC

 

2.8 

1.7 

+66% 

Other

 

0.5 

0.2 

+131% 

Total revenue

 

45.5 

41.6 

+9% 

Adjusted operating costs

 

(36.6)

(33.0)

+11% 

Adjusted operating profit

 

8.9 

8.6 

+4% 

Adjusted operating margin

 

20%

21%

-1ppt 

 

France results £million

 

HY20

HY19 

Change

Revenue 

 

 

 

 

Net policy income

 

37.2 

34.9 

+7% 

Repair network

 

0.2 

0.2 

-9% 

Membership

 

37.4 

35.1 

+7% 

HVAC

 

2.5 

1.5 

+69% 

Other

 

0.5 

0.2 

+119% 

Total revenue

 

40.4 

36.8 

+10% 

Adjusted operating costs

 

(32.5)

(29.3)

+11% 

Adjusted operating profit

 

7.9 

7.5 

+6% 

Adjusted operating margin

 

20%

20%

- 

 

 

France Membership KPIs

 

HY20 

HY19 

Change

Affinity partner households

m

18 

15 

+20% 

Customers

m

1.1 

1.1 

+5% 

Income per customer

110 

108 

+1% 

Policies

m

2.4 

2.3 

+3% 

Policy retention rate

%

89 

88 

+1ppt 

 

 

Financial performance

 

Total revenue increased by 9% to €45.5m driven by higher customer numbers in Membership and increasing HVAC activity.

 

Net policy income grew 6% to €42.0m due to a 5% increase in customer numbers. HVAC revenue increased by 66% to €2.8m, due largely to acquisitions in the prior year including V.B. Gaz.

 

Operating costs increased 11% to €36.6m due to direct costs associated with HVAC and additional marketing costs for new customer acquisition activity.

 

The adjusted operating margin of 20% reflects the usual seasonality, with the full year margin expected to remain the highest in the Group at around 30%.

 

Operational performance

 

The first half of FY20 has seen the highest level of customer growth in France in four years and also saw an increase in the retention rate to 89% (HY19: 88%) as total customers increased by 5%.

 

Direct sales via Veolia's HomeFriend initiative continues to be the largest, most successful channel, but Suez and Saur, France's third largest utility and HomeServe's newest water partner in France, are also performing very well. Partnerships with online aggregators and retail energy partners are also showing encouraging early results, giving confidence in continued higher customer growth in France for the full year.

 

HomeServe France signed a partnership with JeChange at the end of FY19, launching activity early in FY20. JeChange is a leading online site for switching services, helping consumers to reduce their bills across insurance, telecoms, energy and other sectors. HomeServe has partnered with JeChange to offer electric and gas Membership products, a new product for protecting smart devices around the home and also on demand repairs. Around eight thousand customers joined via this channel in HY20 and HomeServe is hopeful of replicating this success with other switching sites and directly with challenger energy partners. Agreements have so far been signed with the switching site Papernest and with challenger companies Mint and Hellowatt.

 

France is leading on HomeServe's on demand to policy initiative which seeks to use HomeServe's network to provide a solution for non HomeServe customers in urgent need of a repair. A successful job then creates a channel to cross sell an annual Membership product to cover the customer in the event of any future repair. A product offer is live on the HomeServe website and also on co-branded websites with Suez, JeChange and Selectra. It is anticipated that Veolia and Saur will launch in the second half.

 

HomeServe acquired two HVAC providers in the prior year which are being integrated with the existing HVAC operations and expertise is being shared by Electrogaz, HomeServe France's first HVAC acquisition and by the core Membership team to improve marketing and sales success. The pipeline of HVAC opportunities is strong and HomeServe expects to add further similar sized providers as part of its HVAC buy-and-build strategy.

 

 

 

Spain

 

Spain results €million

 

HY20

HY19 

Change

Revenue 

 

 

 

 

Net policy income

 

28.0 

30.0 

-7% 

Repair network

 

46.3 

43.6 

+6% 

Membership

 

74.3 

73.6 

+1% 

HVAC

 

3.6 

0.8 

+355% 

Total revenue

 

77.9 

74.4 

+5% 

Adjusted operating costs

 

(69.3)

(64.6)

+7% 

Adjusted operating profit

 

8.6 

9.8 

-13% 

Adjusted operating margin

 

11%

13%

-2ppts 

 

Spain results £million

 

HY20

HY19 

Change

Revenue 

 

 

 

 

Net policy income

 

24.8 

26.5 

-6% 

Repair network

 

41.2 

38.5 

+7% 

Membership

 

66.0 

65.0 

+1% 

HVAC

 

3.2 

0.8 

+352% 

Total revenue

 

69.2 

65.8 

+5% 

Adjusted operating costs

 

(61.6)

(57.2)

+4% 

Adjusted operating profit

 

7.6 

8.6 

-12% 

Adjusted operating margin

 

11%

13%

-2ppts 

 

 

Spain Membership KPIs

 

HY20 

HY19

Change

Affinity partner households

m

Customers

m

1.0 

1.2 

-16% 

Income per customer

€ 

60 

51 

+18% 

Policies

m

1.2 

1.4 

-18% 

Policy retention rate

%

81 

80 

+1ppt

 

 

Financial performance

 

Net policy income was €28.0m compared to €30.0m in the prior year due to the expected fall in the total customer number as a result of the end of Endesa partnership in May 2018.

 

Repair network revenue increased by 6% to €46.3m as the Claims business completed 423k jobs, up 7% on the prior half year for its bancassurer partners.

 

HVAC revenue rose significantly to €3.6m due to the acquisition of Oscagas which occurred at the end of July 2018 and therefore contributed only two months of revenue in the prior period.

 

Adjusted operating profit was €8.6m with additional business development investment in the Claims business and lower margin HVAC revenue diluting the overall margin to 11% (HY19: 13%).

 

Operational performance

 

The Membership business continues to perform well with retention up to 81% (HY19: 80%) and income per customer up 18% to €60. Both KPIs have improved due to the increasing maturity of the policy book and lower levels of new customer acquisition following the end of the Endesa contract.

 

Total customers reduced to 1.0m reflecting the expected run off of the Endesa back book, offset slightly by the acquisition of a small book of c.30k policies from Sareteknika.

 

The relationship with Endesa remains productive and in July an agreement was signed to secure the ongoing billing arrangements for the back book for a further five years. HomeServe has agreed to pay Endesa a higher renewal commission throughout this period in order to secure the use of on-bill arrangements for existing customers, which will support the ongoing strong retention rate.

 

The profitability of the Claims business reduced slightly in the period as a result of investments made to further enhance the service offering provided to larger bancassurer partners. The extra investment in dedicated account teams secures certain key contracts and enhances the offering as the business continues to focus on winning new partners. After the period end the Claims business signed a new partnership with Bansabadell Seguros Generales, which will deliver further job volume to the network.

 

Spain made three HVAC acquisitions for a total cash outflow of €5.6m. Somgas, Linacal and Tecno Arasat were acquired in July and will be integrated over the course of the second half and will contribute to further revenue growth for the full year.

 

 

 

New Markets

 

New Markets results - £m

 

HY20 

 HY19 

 Change

Adjusted operating (loss)/ profit

 

(2.3)

0.3 

 

               

 

New Markets KPIs

 

HY20 

HY19

Change

Customers

m

0.2 

-100%

 

Following the announcement of HomeServe's joint venture with Mitsubishi Corporation in Japan, an office has now been established and an initial team put in place with a combination of members from Mitsubishi, HomeServe and new recruits. The relationship with Mitsubishi is working very well, and is facilitating introductions to Japanese energy utilities.  

 

HomeServe saw limited opportunities for Membership growth in Italy, so in line with its discipline of focusing resources on the Group's largest opportunities, the decision was taken to exit the Italian operations. HomeServe sold its 49% share in its Italian associate and 0.2m customers to its partner and existing 51% shareholder Edison Energia for cash consideration of £8.4m, giving rise to a £3.8m exceptional gain.

 

The £2.3m adjusted operating loss represents HomeServe's share of the start-up costs of the Japanese operations, losses from its Italian associate and ongoing efforts to prospect other potential markets.

 

 

Home Experts

 

£million

 

HY20 

 HY19 

 Change

Revenue

 

 

 

 

 

Checkatrade

 

18.2 

13.6 

+34% 

 

Habitissimo

 

5.6 

4.6 

+20% 

 

Total revenue

 

23.8 

18.2 

+31% 

 

Adjusted operating costs

 

(31.8)

(21.7)

+46% 

 

Adjusted operating loss

 

(8.0)

(3.5)

+128% 

 

               

 

 

Performance metrics

 

HY20 

HY19 

Change

Checkatrade trades  

k

38 

31 

+21% 

Habitissimo trades

k

28 

28 

-1% 

Checkatrade website hits

m

11.5 

9.0 

+28% 

Habitissimo website hits

m

42.8 

42.7 

-  

 

 

Financial Performance

 

Home Experts revenue grew strongly by 31% to £23.8m with increases at both Checkatrade and Habitissimo as Checktrade grew its total trades and Habitissimo grew the number of leads and the average revenue per lead.

 

Adjusted operating costs grew by 46% to £31.8m principally as a result of the investments being made at Checkatrade to support future growth. Increased advertising and marketing spend will drive trade numbers and increase consumer awareness now that the right models for each have been successfully tested. Investments in people and technology will support product development and promote efficient and controlled growth.

 

Due to increasing revenue and the timing of marketing investments, the second half adjusted operating loss is expected to be lower than the £8.0m net loss incurred in the first half.

 

In acquiring its initial 70% stake in Habitissimo, HomeServe acquired a call option over the remaining 30% which was carried at a value of €12.9m in the Group's balance sheet. The acquisition of the remaining 30% for €8.6m gave rise to an exceptional gain of €3.9m (£3.6m), representing the difference between the cash paid, transaction costs incurred, and the value of the option liability at the time of exercise.

 

Checkatrade

 

HomeServe's milestone targets for Checkatrade include reaching 150k to 200k trades, average revenue per trade of between £1,200 and £1,300, an adjusted operating margin in the range of 25% to 35% and adjusted operating profit of £45-90m.

 

Key to achieving these targets is the development of attractive trade and consumer propositions. Trades want the flexibility to dial up or dial down their membership according to their work and growth aspirations and consumers want to be able to confidently find the vetted trade they need. The directory model is well suited for larger jobs and for consumers who wish to take time reading feedback and evaluating trades but there are certain jobs, for example emergency repairs, and certain consumers for whom the lead generation model is preferable.

 

Checkatrade's solution is the Directory Extra model. Directory Extra uses an open directory of checked and vetted trades, which Checkatrade's research shows that 70% of homeowners prefer compared to the lead generation model, which sells homeowner enquiries to trades and does not reveal the trade's details. The directory is enhanced with the added functionality of 'Shortlist' and 'Match' for the 30% of consumers who prefer lead generation and 'Now' for those who urgently need an available trade. These features and the ability to 'dial up or dial down' their visibility on the site will deliver the flexible membership options that will encourage trades to remain on the site even when they are busy and ensures that they do not need to go to another platform to find additional work.

 

Trades increased by 21% to 38k with a slower run rate in the quieter first half already accelerating subsequent to the half year. Testing of a range of trade recruitment offers has identified an offer with an initial free period that is now driving record numbers of inbound enquiries.

 

Striking the optimum balance between trade supply and consumer demand was a core part of HomeServe's "Mega City Trial" in the Granada TV region around the Manchester and Liverpool areas. Checkatrade has always been strong close to its roots on the South coast of England and the test also served to prove out the approach for Checkatrade's plans for geographic expansion. New trade sales in the test area rose 32% compared to the average monthly sales pre-launch and website visitors increased c.60% in the North West region¹.

 

Total web visits increased by 28% due to increased advertising on TV and radio and a higher volume of paid Google ads and pay per click activity. Latest brand tracking shows Checkatrade's high prompted brand awareness has grown to 77%². A new TV campaign launched in October 2019 showcasing Checkatrade's unrivalled vetting process and presenting the platform as THE place to find checked and vetted trades. The campaign should continue to drive up brand awareness and web visits whilst further educating homeowners on Checkatrade's competitive advantage.

 

Habitissimo

 

Total trades at Habitissimo remained broadly flat at 28k with a focus on driving more volume and higher value leads to trades to increase average revenue per trade (HY20: €35, HY19: €34). In June 2019 HomeServe acquired the remaining 30% of Habitissimo and appointed Sarah Harmon, previously CEO of LinkedIn Spain and Portugal, as its new CEO. Under Sarah's leadership, Habitissimo's priorities are to refine and improve the existing lead gen business through a focus on key accounts and affiliate programmes and to launch the Directory Extra model in Spain in the second half of the year.

 

Home Experts France

 

Home Experts France is making encouraging progress less than 6 months after going live, with the first trades signed up, local directory leaflets launched and a total of c.70k visits to the website in September.

 

Richard Harpin

Founder and Group Chief Executive

19 November 2019

 

¹Source: Google analytics June and July 2018 vs. June and July 2019

²Source: November 2019 survey of 1,227 respondents

 

 

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 2019

Six months ended

30 September 2018

Total revenue

 

457.7 

404.3 

Operating profit

28.8 

24.6 

Net finance costs

 

(9.1)

(5.3)

Adjusted profit before tax

28.6 

31.8 

Amortisation of acquisition intangibles

(16.3)

(12.5)

Exceptional Items

 

 

Gain on disposal of investment in associate

3.8 

Gain on acquisition of subsidiary non-controlling interest

3.6 

 

 

 

Statutory profit before tax

19.7 

19.3 

Tax

(3.0)

(4.6)

Profit for the period

16.7 

14.7 

 

 

 

Attributable to:

 

 

Equity holders of the parent

16.8 

15.3 

Non-controlling interests

(0.1)

(0.6)

 

16.7 

14.7 

 

 

Statutory profit before tax was £19.7m, £0.4m higher than the prior period (HY19: £19.3m) following a strong trading performance from Membership and exceptional gains relating to the Italy sale and purchase of the remaining 30% of Habitissimo. This was mostly offset by investment in Home Experts, higher finance costs and higher straight-line amortisation charges as a result of the investments made in FY19. Statutory profit before tax is reported after the amortisation of acquisition intangibles and exceptional items as detailed below.

 

Amortisation of acquisition intangibles

The amortisation of acquisition intangibles of £16.3m (HY19: £12.5m) increased due principally to the acquisition of the second tranche of the policy book of Dominion Products and Services (DPS) in North America in October 2018. 

                                                     

Exceptional items

An exceptional gain of £3.8m was recorded in relation to the sale of HomeServe's Italian associate, Assistenza Casa, principally representing the excess of the total £8.4m sale proceeds over the carrying value of the investment in the Group's balance sheet.

A further exceptional gain of £3.6m was recorded in relation to the purchase of the remaining 30% stake in Habitissimo, principally representing the lower consideration paid of £7.7m compared to the carrying value of the option liability in the Group's balance sheet.

 

IFRS 16

HomeServe has adopted IFRS 16 using the modified retrospective 'Asset = Liability' approach with a date of initial application of 1 April 2019. Comparative information provided in this announcement has not been restated. The effect of IFRS 16 on the income statement is to remove operating lease charges previously shown within 'operating costs', replacing them with depreciation and interest charges that now result from the capitalisation of "Right of Use Assets" and the recording of "Lease Liabilities" in the consolidated balance sheet (see Note 2 Accounting Policies).

 

There is no material impact on HY20 PBTA as a result of adopting IFRS 16. The effect on adjusted operating profit at a Group level is £0.1m with the segmental breakdown shown in the Glossary, at the end of this announcement.

 

Taxation

The tax charge in the period was £3.0m (HY19: £4.6m). The adjusted effective tax rate was 24% (HY19: 24%). UK corporation tax is calculated at 19% in FY20. 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 2019 was £61.4m (HY19: £60.5m).

 

 

 

 

£million

2020

2019 

Adjusted operating profit

37.7 

37.1 

Exceptional items

7.4 

Amortisation of acquisition intangibles

(16.3)

(12.5)

Operating profit

28.8 

24.6 

Impact of exceptional items

(7.4)

 - 

Depreciation and amortisation

49.5 

35.9 

Non-cash items

5.7 

4.3 

Increase in working capital

(15.2)

(4.3)

Cash generated from operations

61.4 

60.5 

Net interest paid (inclusive of lease liabilities payments)

(8.0)

(5.1)

Taxation

(15.9)

(11.3)

Free cash flow

37.5 

44.1 

Proceeds on disposal of fixed assets

0.2 

Purchases of intangible assets

(38.7)

(22.8)

Contract costs

(2.1)

(3.6)

Purchases of property, plant and equipment

(3.4)

(4.0)

Acquisitions of subsidiaries

(14.8)

(17.6)

Acquisition of non controlling interest

(7.7)

Proceeds on disposal of equity accounted investments

8.4 

Equity dividends paid

(54.1)

(47.8)

Repayment of lease principal

(6.0)

(0.1)

Purchase of own shares

(3.0)

-  

Proceeds on issue of share capital

0.1 

0.3 

Net movement in cash and bank borrowings

(83.6)

(51.5)

Impact of foreign exchange and other non-cash items

(5.7)

(2.6)

Lease liabilities - adoption of IFRS 16

(57.4)

-  

Opening net debt at 1 April

(304.7)

(237.8)

Closing net debt at 30 September

(451.4)

(291.9)

 

During the period 1 April to 30 September 2019, net debt increased by £146.7m to £451.4m, including £57.4m from lease liabilities as a result of the adoption of IFRS 16.

 

Cash generation remained strong with free cash flow of £37.5m (HY19: £44.1m). The primary uses for capital in the first half continued to be investment in capital expenditure, policy book acquisitions and the HVAC buy-and-build strategy.

 

Intangible capex of £38.7m (HY19: £22.8m) included £6.9m (HY19: £0.1m) for the acquisition of policy books in the Membership business. The balance of £31.8m included technology spend to continue to improve efficiency and the customer experience in the Membership business and further technology spend in Home Experts as Checkatrade delivers its two year roadmap to transform its systems into a more digital and scalable platform. Membership also invested £7.7m (HY19: £8.2m) in partner payments, principally in relation to customer acquisition activity in France.

 

A £14.8m outflow was incurred relating to acquisitions of subsidiaries, including £10.0m in relation to Membership and HVAC businesses in North America and Spain and £4.7m deferred and contingent consideration relating to business combinations in prior periods. The £17.6m investment in the prior period also related to HVAC investments and deferred and contingent consideration.

 

A £7.7m outflow was also incurred as the Group acquired the remaining 30% shareholding in Habitissimo and proceeds of £8.4m were received relating to the sale of HomeServe's Italian associate to Edison Energia.

 

The Group remains highly cash generative and full year cash conversion is expected to be in excess of 100% (FY19: 100%).

 

Earnings per share

Adjusted earnings per share of 6.5p was 13% down on the prior period (HY19: 7.5p) due to an expected increase in net interest charges to £9.1m (HY19: £5.3m).

 

On a statutory basis, earnings per share was up 9% from 4.6p to 5.0p with the exceptional gains recorded in relation to Habitissimo and Italy more than offsetting higher acquisition amortisation charges and a higher weighted average number of shares.

 

Net debt and finance costs

Net debt at 30 September 2019 was £451.4m (FY19: £304.7m; HY19: £291.9m) including the £57.4m effect of IFRS 16. The Group remained well within its total financial facilities of c.£728m at the half year.

 

The Group targets leverage in the range of 1.0 to 2.0x adjusted EBITDA, measured at 31 March each year. At the seasonally high half year, the Group was towards the top of this range with net debt to last twelve months adjusted EBITDA of 1.9x (HY19: 1.4x).

 

The additional depreciation and interest charges incurred due to the adoption of IFRS 16 have resulted in an increase to last six months adjusted EBITDA of c.£7m. Total lease liabilities outstanding at 30 September have increased net debt by £57.4m. The overall effect of the adoption of IFRS 16 on leverage is an increase of 0.1x.

 

The Group's net interest paid was £8.0m, £2.9m higher than HY19, principally due to the higher net debt figure year on year and the fixed interest on the c.£175m US Private Placement agreed in October 2018.

 

Foreign exchange impact

The impact of changes in the Euro and USD exchange rates between HY20 and HY19 has resulted in a £10.4m increase in reported revenue and a £1.3m increase in adjusted operating profit of the international businesses as summarised in the table below.

 

 

 

 

Effect on (£m)

 

 

 

Average exchange rate

Revenue

Adj. operating

profit

 

 

HY20

HY19

Change

HY20 

HY20 

North America

US$

1.26

1.33

(5%)

9.9 

1.2 

France

 1.13

 1.13

(1%)

0.2 

0.1 

Spain

 1.13

 1.13

(1%)

0.3 

Home Experts

 1.13

 1.13

(1%)

-             

New Markets

 1.13

 1.13

(1%)

Total International

 

 

 

 

10.4

1.3 

 

The second half translation impact of sterling at prevailing rates is currently expected to be immaterial. A ten cent movement from current rates in the USD and the Euro would have impacts of approximately £5.0m and £3.5m respectively on full year adjusted operating profit.

 

Brexit

 

Brexit is not one of HomeServe's enterprise risks (discussed below)  but it continues to be monitored at a local and a Group level and assessed for impacts on the core business model and other lower impact implications  e.g. on future intra-group funding arrangements or the mobility of key people.

 

Brexit is potentially one of the most significant economic events for the UK and at the date of this statement, the full range, scale and timing of potential outcomes and impacts are uncertain. However, HomeServe continues to believe the impact of the UK's decision to leave the EU and the current delay in implementing this decision until 31 January 2020 on the underlying performance of the Group will be limited.

 

The HomeServe business model is resilient and in previous periods of consumer uncertainty and economic downturn, for example during the financial crisis in c.2007 to 2009, no negative impact on business performance was observed. In addition, all of HomeServe's businesses trade exclusively within their own borders and HomeServe is not exposed to any cross border transactional currency risk. The Group has a strong balance sheet and retains a range of financing facilities with medium to long term maturities, which provide access to additional resources across a range of currencies. The Group remains subject to translation risk on the presentation of results in Sterling however this is within the ordinary course of business.

 

Principal risks and uncertainties

 

The principal risks and uncertainties, together with mitigating activities, are detailed on pages 20-24 of the Group's 2019 Annual Report & Accounts. In that Report, the Directors confirmed that they have carried out a robust assessment of the principal risks facing the Group. The risks which continue to have the potential to impact the Group's performance are summarised as follows:

 

Strategic Risks

 

Market disruption

There is a risk that competitors erode our market share, including utilities running Membership programmes in-house or new entrants investing heavily to enter the home services space.

 

Commercial partnerships

Underpinning HomeServe's success are close commercial relationships, such as utility companies and municipal utility providers. The loss of one or more of these relationships could impact on HomeServe's future growth plans.

 

International development

There is a risk that by attempting to enter new markets, HomeServe could divert investment and management time incurring not only losses in the new country but reduced performance in the existing core markets.

 

M&A strategy

Whilst our M&A strategy is principally focused on low-risk policy book M&A and smaller, well-run HVAC businesses, there is a risk that HomeServe could overpay for transactions or underestimate the time and resource required to integrate new businesses.

 

HVAC Integration

With the higher volume of HVAC acquisitions, there is a risk that failure to integrate acquisitions quickly and effectively could result in the business falling short on the delivery of synergies which could potentially lead to impairment.

 

Operational Risks

 

Cyber Security

In line with other businesses, HomeServe is subject to increased prevalence and sophistication of cyber-attacks, which could result in unauthorised access to customer and other data or cause business disruption to services.

 

 

 

Underwriting Capacity and Concentration

The Membership business line markets and administers policies that are underwritten by independent third party underwriters. If the business were unable to source sufficient underwriting capacity Homeserve would need to underwrite the risk directly, thereby exposing the business to underwriting risk, which is contrary to our preferred model.

 

Regulation & Customer Focus

HomeServe is subject to regulatory requirements relating to areas such as product design, marketing materials, sales processes and data protection. HomeServe is in regular dialogue with the FCA as part of the normal course of business. Failure to comply with regulatory requirements could result in a suspension of certain activities.

 

People

HomeServe's ability to meet growth expectations and compete effectively is, in part, dependent on the skills, experience and performance of its personnel. The inability to attract, motivate or retain key talent could impact business performance.

 

Investment in Technology

The Group relies on several key systems to manage its interactions with customers. Appropriate maintenance and investment is required to ensure systems continue to meet the changing needs of the business and its customers. There is a risk that failure to invest appropriately could impact on our ability to provide higher quality service.

 

Digital & Innovation

Consumers increasingly wish to engage with HomeServe by digital means. There is a risk that if Homeserve is not flexible enough to respond to changing needs, customers may explore competitor products.

 

Financial Risk

Key financial risks include the availability of short-term and long-term funding to meet business needs and take advantage of M&A opportunities, mitigate the risk of policyholders not paying monies owed and fluctuations in interest rates and exchange rates.

 

 

Information on financial risk management is set out on page 163 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 2019

 

 

 

 

£million

Note

Six months ended

30 September 2019

(Reviewed)

Six months ended

30 September 2018

(Reviewed)1

Year ended

31 March 2019

 (Audited)1

Continuing operations

 

 

 

 

Revenue

3

457.7 

404.3 

1,003.6 

Operating costs

 

(427.6)

(380.0)

(850.7)

Share of results of equity accounted investments

 

(1.3)

0.3 

(0.3)

Operating profit

 

28.8 

24.6 

152.6 

Investment income

 

0.3 

0.2 

Finance costs

 

(9.4)

(5.3)

(13.3)

Adjusted profit before tax

 

28.6 

31.8 

161.7 

Amortisation of acquisition intangibles

 

(16.3)

 

(12.5)

(26.8)

 

 

 

 

 

Exceptional items

4

7.4 

4.6 

Profit before tax

 

19.7 

19.3 

139.5 

Tax

5

(3.0)

(4.6)

(31.2)

Profit for the period

 

16.7 

14.7 

108.3 

 

 

 

 

 

Attributable to:

Equity holders of the parent

 

16.8 

15.3 

108.5 

Non-controlling interests

 

(0.1)

(0.6)

(0.2)

 

 

16.7 

14.7 

108.3 

 

 

 

 

 

Dividends per share

6

5.8p 

5.2p 

21.4p 

 

Earnings per share

 

 

 

 

Basic

7

5.0p 

4.6p 

32.7p 

Diluted

7

5.0p 

4.6p 

32.3p 

 

1 The Group's results are being reported under IFRS 16 for the first time in 2019 following the mandatory adoption of the standard from 1 April 2019. In accordance with the transitional provisions of IFRS 16, comparatives have not been restated. See Note 2.

 

 

 

 

 

 

 

 

Condensed consolidated statement of comprehensive income

 

For the six months ended 30 September 2019

 

 

 

£million

Six months ended

30 September 2019

 (Reviewed)

Six months ended

30 September 2018

(Reviewed)

Year ended

31 March 2019

 (Audited)

Profit for the period

16.7 

14.7 

108.3 

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

 

 

 

Actuarial gain/(loss) on defined benefit pension scheme

0.1 

1.6 

(0.4)

Deferred tax (charge)/credit relating to actuarial re-measurements

(0.3)

0.1 

Fair value gain on FVTOCI investment in equity instruments

0.7 

0.7 

Deferred tax charge relating to fair value gain on FVTOCI investment in equity instruments

(0.1)

(0.2)

 

0.1 

1.9 

0.2 

Items that may be reclassified subsequently to profit and loss:

 

 

 

Exchange movements on translation of foreign operations

17.7 

14.5 

6.8 

 

17.7 

14.5 

6.8 

 

 

 

 

Total other comprehensive income

17.8 

16.4 

7.0 

 

 

 

 

Total comprehensive income for the period

34.5 

31.1 

115.3 

 

 

 

 

Attributable to:

 

 

 

Equity holders of the parent

34.6 

31.7 

115.5 

Non-controlling interests

(0.1)

(0.6)

(0.2)

 

34.5 

31.1 

115.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed consolidated balance sheet

As at 30 September 2019

 

 

 

£million

Note

30 September 2019

(Reviewed)

30 September 2018

(Reviewed)2

31 March 2019

(Audited)

Non-current assets

 

 

 

 

Goodwill

 

422.4 

396.0 

407.9 

Intangible assets

8

440.9 

355.7 

418.6 

Contract costs

 

26.1 

34.8 

27.5 

Right of use assets

 

56.9 

Property, plant and equipment

 

40.3 

39.8 

42.8 

Equity accounted investments

 

5.0 

5.8 

10.6 

Other investments

 

9.5 

9.5 

9.2 

Deferred tax assets

 

6.4 

6.6 

7.4 

Retirement benefit assets

 

7.6 

7.3 

6.4 

 

 

1,015.1 

855.5 

930.4 

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

7.9 

5.5 

7.0 

Trade and other receivables

17

382.9 

343.7 

424.6 

Current tax asset

 

9.6 

- 

Cash and cash equivalents

 

67.0 

55.5 

72.6 

 

 

467.4 

404.7 

504.2 

Total assets

 

1,482.5 

1,260.2 

1,434.6 

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

17

(325.5)

(324.9)

(382.3)

Bank and other loans

 

(36.1)

(36.3)

(39.7)

Current tax liabilities

 

- 

(0.9)

(6.0)

Lease liabilities

 

(11.3)

(0.5)

(0.5)

Provisions

 

(1.0)

(5.7)

 

 

(373.9)

(362.6)

(434.2)

Net current assets

 

93.5 

42.1 

70.0 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Bank and other loans

 

(423.8)

(310.3)

(336.4)

Other financial liabilities

 

(14.0)

(22.2)

(23.3)

Deferred tax liabilities

 

(26.8)

(25.7)

(26.4)

Lease liabilities

 

(47.2)

(0.3)

(0.7)

 

 

(511.8)

(358.5)

(386.8)

Total liabilities

 

(885.7)

(721.1)

(821.0)

Net assets

 

596.8 

539.1 

613.6 

 

 

 

 

 

Equity

 

 

 

 

Share capital

13

9.0 

8.9 

9.0 

Share premium account

 

189.2 

178.8 

180.7 

Share incentive reserve

 

19.2 

19.2 

23.3 

Currency translation reserve

 

40.6 

30.6 

22.9 

Investment revaluation reserve

 

2.3 

2.4 

2.3 

Other reserves

 

79.2 

82.2 

82.2 

Retained earnings

 

257.3 

217.2 

293.0 

Attributable to equity holders of the parent

 

596.8 

539.3 

613.4 

Non-controlling interests

 

(0.2)

0.2 

Total equity

 

596.8 

539.1 

613.6 

 

2 A review of balance sheet classifications in the second half of FY19 has resulted in the prior half year trade and other receivables and payables being restated, refer to note 17 for more details.

 

 

Condensed consolidated statement of changes in equity

 

For the six months ended 30 September 2019 (Reviewed)

£million

 

Share capital

 

Share premium account

 

Share incentive reserve

 

Currency translation reserve

 

 

Investment

revaluation

reserve

Other reserves3

Retained earnings

 

Attributable to equity holders

 

Non-controlling interest

Total equity

Balance at 1 April 2019

9.0 

180.7 

23.3 

22.9 

2.3 

82.2 

293.0 

613.4 

0.2 

613.6 

Profit for the period

16.8 

16.8 

(0.1)

16.7 

Other comprehensive income for the period 

 

 

 

 

17.7 

 

 

 

0.1 

 

17.8 

 

 

 17.8 

Total comprehensive income for the period

 

 

 

 

17.7 

 

 

 

16.9 

 

34.6 

 

(0.1)

 

34.5 

Dividends paid

(54.1)

(54.1)

(54.1)

Issue of share capital

8.5 

 8.5 

 8.5 

Purchase of own shares

(3.0)

 (3.0)

(3.0)

Share-based payments

 4.4 

 4.4 

4.4 

Share options exercised

(8.5)

0.1 

 (8.4)

(8.4)

Tax on exercised share

options

 

 3.0 

 3.0 

 3.0 

Deferred tax on share

options

 

(1.6)

(1.6)

(1.6)

Acquisition of non-controlling interest

 

- 

(0.1)

(0.1)

Balance at 30 September 2019 (Reviewed)

9.0 

189.2

19.2 

40.6 

 

2.3 

79.2 

257.3 

596.8 

 

596.8 

 

For the six months ended 30 September 2018 (Reviewed)

£million

 

Share capital

 

Share premium account

 

Share incentive reserve

 

Currency translation reserve

Investment

revaluation

reserve

Other reserves¹

Retained earnings

 

Attributable to equity holders

 

Non-controlling interest

Total equity

Balance at 1 April 2018

8.9 

171.8 

22.1 

16.1 

1.8 

82.2 

248.1 

551.0 

0.4 

551.4 

Opening adjustment for the impact of IFRS 15

(2.1)

(2.1)

(2.1)

Opening balance under IFRS 15

8.9 

171.8 

22.1 

16.1 

1.8 

82.2 

246.0 

548.9 

0.4 

549.3 

Profit for the period

15.3 

15.3 

(0.6)

14.7 

Other comprehensive income for the period 

 

 

 

 

14.5 

 

0.6 

 

 

1.3 

 

16.4 

 

 

 16.4 

Total comprehensive income for the period

 

 

 

 

14.5 

 

0.6 

 

 

16.6 

 

31.7 

 

(0.6)

 

31.1 

Dividends paid

(47.8)

(47.8)

(47.8)

Issue of share capital

7.0 

 7.0 

 7.0 

Share-based payments

 4.0 

 4.0 

4.0 

Share options exercised

(6.9)

 0.1 

 (6.8)

(6.8)

Tax on exercised share

options

 

 2.1 

 2.1 

 2.1 

Deferred tax on share

options

 

0.2 

0.2 

0.2 

Balance at 30 September 2018 (Reviewed)

8.9 

178.8 

19.2 

30.6 

 

2.4 

82.2 

217.2 

539.3 

(0.2)

 

539.1 

 

For the year ended 31 March 2019 (Audited)

£million

 

Share capital

Share premium account

Share incentive reserve

Currency translation reserve

Investment

revaluation

reserve

Other reserves3

Retained earnings

Attributable to equity holders

Non-controlling interest

Total equity

Balance at 1 April 2018

8.9 

171.8 

22.1 

16.1 

1.8 

82.2 

248.1 

551.0 

0.4 

551.4 

Opening adjustment for the impact of IFRS 15

(2.1)

(2.1)

(2.1)

Opening balance under IFRS 15

8.9 

171.8 

22.1 

16.1 

1.8 

82.2 

246.0 

548.9 

0.4 

549.3 

Profit for the year

108.5 

108.5 

(0.2)

108.3 

Other comprehensive income for the year 

 

 

 

 

6.8 

 

0.5 

 

 

(0.3)

 

7.0 

 

 

7.0 

Total comprehensive income for the year

 

 

 

 

6.8 

 

0.5 

 

 

108.2 

 

115.5 

 

(0.2)

 

115.3 

Dividends paid

(65.0)

(65.0)

(65.0)

Issue of share capital

0.1 

8.9 

 - 

 9.0 

 9.0 

Share-based payments

 8.8 

 - 

 8.8 

 8.8 

Share options exercised

(7.6)

0.8 

 (6.8)

 (6.8)

Tax on exercised share

options

 

 2.7 

 2.7 

 2.7 

Deferred tax on share

options

 

0.3 

0.3 

0.3 

Balance at 31 March 2019 (Audited)

9.0 

180.7 

23.3 

22.9 

 

2.3 

82.2 

293.0 

613.4 

0.2 

 

613.6 

3 Other reserves comprise the Merger, Own Shares and Capital Redemption reserves.
 

Condensed consolidated cash flow statement

For the six months ended 30 September 2019

 

 

 

£million

Note

Six months ended

30 September 2019

 (Reviewed)

Six months ended

30 September 2018

 (Reviewed)

Year ended

31 March 2019

 (Audited)

Net cash inflow from operating activities

14

37.2 

44.1 

162.0 

 

 

 

 

 

Investing activities

 

 

 

 

Interest received

 

0.3 

0.2 

Proceeds on disposal of fixed assets

 

0.2 

0.3 

Purchases of intangible assets

 

(38.7)

(22.8)

(99.1)

Contract costs

 

(2.1)

(3.6)

(7.9)

Purchases of property, plant and equipment

 

(3.4)

(4.0)

(9.0)

Acquisition of equity accounted investment

 

(5.4)

Disposal of equity accounted investment

11

8.4 

- 

Acquisition of subsidiaries

 

(14.8)

(8.3)

(37.5)

Net cash used in investing activities

 

(50.1)

(38.7)

(158.4)

 

 

 

 

 

Financing activities

 

 

 

 

Dividends paid

6

(54.1)

(47.8)

(65.0)

Repayment of lease principal

 

(6.0)

(0.1)

(0.6)

Acquisition of subsidiaries

 

- 

(9.3)

- 

Acquisition of non-controlling interest

10

(7.7)

- 

Purchase of own shares

 

(3.0)

- 

Proceeds on issue of share capital

 

0.1 

0.3 

2.2 

New bank and other loans raised

 

- 

174.2 

Costs associated with new bank and other loans raised

 

- 

(1.6)

Movement in existing bank and other loans

14

76.2 

46.8 

(98.9)

Net cash from/(used in) financing activities

 

5.5 

(10.1) 

10.3 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(7.4)

(4.7)

13.9 

Cash and cash equivalents at beginning of period

 

72.6 

57.8 

57.8 

Effect of foreign exchange rate changes

 

1.8 

2.4 

0.9 

Cash and cash equivalents at end of period

 

67.0 

55.5 

72.6 

 

 

 

Notes to the condensed set of financial statements

For the six months ended 30 September 2019

 

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 2019 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. This condensed set of financial statements for the six months ended 30 September 2019 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 19 November 2019.

 

2.         Accounting policies

 

Basis of preparation

This condensed set of financial statements has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) and in accordance with International Accounting Standard (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.

 

The Group's business activities, together with the factors likely to affect its future development, including the potential impact of Brexit, performance and position are set out in our 2019 Annual Report & Accounts.

 

The Directors have reviewed the Group's budget, forecast and cash flows for 2020 and beyond, and concluded that they are in line with expectations with regards to the Group's strategy and future growth plans. In addition, the Directors have reviewed the Group's position in respect of material uncertainties and have concluded that there are no items that would affect going concern or that should be separately disclosed.

 

The Directors have concluded that they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, 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, with the exception of standards, amendments and interpretations effective as of 1 April 2019. The nature and effect of these changes are disclosed below:

 

IFRS 16 Leases

 

IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or after 1 January 2019. The Group has adopted IFRS 16 using the modified retrospective approach with a date of initial application of 1 April 2019. Comparative information has not been restated.

 

Impact on lessee accounting

 

IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17. With the exception of low value assets (below £4k) and short term leases (with a term of 12 months or less), the Group now recognises right-of-use assets and lease liabilities in the consolidated balance sheet, initially measured at the present value of the future lease payments. The depreciation of the right-of-use asset and interest charges on the outstanding lease liability replace the IAS 17 straight-line rental expense previously booked to operating costs. Any lease incentives are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expenses on a straight line basis.

 

Under IFRS 16 the Group presents repayments of lease principal within financing activities and interest payments on lease liabilities within operating activities in the consolidated cash flow statement for leases that are on balance sheet. Under IAS 17 all operating lease payments were presented as operating cash outflows.

 

Right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts.

 

The Group is not party to any material leases where it acts as a lessor, but does contract as lessee for a significant number of property and vehicle leases, which aggregate to a material commitment.

 

Approach to transition and practical expedients adopted

 

In respect of those leases the Group previously treated as operating leases, the Group has elected to measure right-of-use assets using the approach set out in IFRS 16.C8(b)(ii). Under this approach right-of-use assets are calculated at an amount equal to the lease liability, adjusted by any prepaid or accrued lease payments relating to the lease that were recognised in the consolidated balance sheet at 31 March 2019.

 

At 1 April 2019 right-of-use assets of £52.8m and lease liabilities of £53.8m, inclusive of grandfathered finance lease assets and liabilities of £1.7m and £1.2m respectively, were recognised on the balance sheet. The Group's weighted average incremental borrowing rate applied to lease liabilities as at 1 April 2019 was 2.5%.

 

The table below presents a reconciliation from IAS 17 operating lease commitments disclosed at 31 March 2019 to IFRS 16 lease liabilities recognised at 1 April 2019.

 

£million

(Reviewed)

Operating lease commitments disclosed under IAS 17 at 31 March 2019

56.0 

Finance lease liabilities recognised under IAS 17 at 31 March 2019

1.2 

Discounting

(4.4)

Impact of lease term reassessments under IFRS 16 vs. IAS 17

2.0 

Short-term and low value lease commitments expensed through operating costs under IFRS 16

(0.6)

Other movements

(0.4)

IFRS 16 lease liabilities recognised at 1 April 2019

53.8 

   

The complete impact on the consolidated income statement during the six month period to 30 September 2019 is presented under 'Financial impact of adoption of IFRS 16' below. During that period the Group recognised a £6.8m depreciation charge in relation to right-of-use assets and a £0.7m finance expense in relation to interest on lease liabilities.

 

The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered into or modified before 1 April 2019.

 

As part of the Group's adoption of IFRS 16 and application of the modified retrospective approach to transition, the Group also elected to use the following practical expedients:

 

-     The Group has not made any adjustments on transition for leases for which the underlying asset is of low value (as described in paragraphs B3 - B8 of IFRS 16)

 

-     The Group has adjusted the carrying amount of right-of-use assets at 1 April 2019 by the carrying amount of onerous lease provisions at 31 March 2019 instead of performing impairment reviews under IAS 36

 

Details of the Group's accounting policies under IFRS 16 are set out below, followed by a presentation of the financial impact of adopting IFRS 16. Judgements applied in the adoption of IFRS 16 included determining the lease term for those leases with termination or extension options and determining an incremental borrowing rate where the rate implicit in a lease could not be readily determined.   

 

Accounting policy for leases (effective 1 April 2019)

 

The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (where the value of the asset is below £4k). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.

 

Lease liabilities

 

Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses a lease specific incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise:

 

·      fixed lease payments (including in substance fixed payments), less any lease incentives;

·      fixed service costs associated with the Group's property and vehicle lease portfolios (as the Group has elected to apply the expedient available under paragraph 15 of IFRS 16 not to separate non-lease components, and instead account for any lease and associated non-lease components as a single arrangement);

·      variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

·      the amount expected to be payable by the lessee under residual value guarantees;

·      the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and

·      payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

 

Lease liabilities are subsequently measured at amortised cost using the effective interest method by increasing the carrying amount to reflect interest on the lease liability and by reducing the carrying amount to reflect the lease payments made. The Group re-measures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

 

·      the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate

·      the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is re-measured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used)

·      a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is re-measured by discounting the revised lease payments using a revised discount rate.

 

The Group did not make any such adjustments during the periods presented.

 

Right-of-use assets

 

Right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Right-of-use assets are depreciated over the shorter period of lease term and the useful life of the underlying asset. Depreciation begins at the commencement date of the lease.

 

Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. The costs are included in the related right-of-use asset.

 

Variable rents

 

Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are included in the line "Other operating expenses" in the income statement.

 

Financial impact of adoption of IFRS 16

 

The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use assets and lease liabilities. Provisions for onerous lease contracts have been derecognised and operating lease incentives previously recognised as liabilities have been derecognised and factored into the measurement of the right-to-use assets and lease liabilities.

 

Condensed consolidated income statement

 

 

 

 

 

Ref

Reported at

30 September 2019

(Reviewed)

IFRS 16 adjustments

(Reviewed)

Amounts without adoption

Continuing Operations

 

 

 

 

Revenue

 

457.7 

457.7 

Operating costs

i)

(427.6)

(0.1)

(427.5)

Others

 

(1.3)

(1.3)

Operating profit

 

28.8 

(0.1)

28.9 

Investment income

 

0.3 

0.3 

Finance costs

i)

(9.4)

(0.7)

(8.7)

Adjusted profit before tax

 

28.6 

(0.8)

29.4 

Others

 

(8.9)

(8.9)

Profit before tax

 

19.7 

(0.8)

20.5 

Tax

ii)

(3.0)

0.2 

(3.2)

Profit for the period

 

16.7 

(0.6)

17.3 

 

 

 

 

 

Earnings per share

 

 

 

 

Basic

 

5.0p

(0.2)p

5.2p

Diluted

 

5.0p

(0.2)p

5.2p

 

 

 

Condensed consolidated balance sheet 

 

 

 

 

£million

Ref

Reported at

30 September 2019

(Reviewed)

IFRS 16 adjustments

(Reviewed)

Amounts without adoption

Non-current assets

 

 

 

 

Right of use assets

iii)

56.9 

56.9 

Others

iv)

958.2 

(1.7)

959.9 

 

 

1,015.1 

55.2 

959.9 

Current assets

ii), iv)

467.4 

(0.1)

467.5 

Total assets

 

1,482.5 

55.1 

1,427.4 

 

 

 

 

 

Current liabilities

 

 

 

 

Lease liabilities

iii)

(11.3)

(10.9)

(0.4)

Others

iv)

(362.6)

1.7 

(364.3)

 

 

(373.9)

(9.2)

(364.7)

 

 

 

 

 

Net current assets

 

93.5 

(9.3)

102.8 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Lease liabilities

iii)

(47.2)

(46.5)

(0.7)

Others

ii)

(464.6)

- 

(464.6)

 

 

(511.8)

(46.5)

(465.3)

Total liabilities

 

(885.7)

(55.7)

(830.0)

 

 

 

 

 

Net assets

 

596.8 

(0.6)

597.4 

 

 

 

 

 

Equity

 

 

 

 

Retained earnings

 

257.3 

(0.6)

257.9 

Others

 

339.5 

339.5 

 

 

596.8 

(0.6)

597.4 

 

 

Consolidated cash flow statement

 

 

 

 

 

Ref

Reported at

30 September 2019

(Reviewed)

IFRS 16 adjustments

(Reviewed)

Amounts without adoption

Operating profit

 

28.8 

(0.1)

28.9 

Adjustments for:

 

 

 

 

Depreciation of property plant and equipment

iv)

4.4 

(0.3)

4.7 

Depreciation of right of use assets

v)

6.8 

6.8 

Others

 

21.4 

- 

21.4 

Cash generated by operations

 

61.4 

6.4 

55.0 

 

 

 

 

 

Income taxes paid

 

(15.9)

(15.9)

Interest paid

v)

(8.3)

(0.7)

(7.6)

Net cash inflow from operating activities

 

37.2 

5.7 

31.5 

 

 

 

 

 

Net cash used in investing activities

 

(50.1)

(50.1)

 

 

 

 

 

Financing activities

 

 

 

 

Repayment of lease principal

v)

(6.0)

(5.7)

(0.3)

Others

 

11.5 

11.5 

Net cash from financing activities

 

5.5 

(5.7)

11.2 

 

 

 

 

 

Net movement in cash and cash equivalents

 

(7.4)

(7.4)

 

 

 

 

References

 

i)          Historically all rental charges were booked to operating costs on a straight line basis. Under IFRS 16 rental costs for all leases, other than those with an initial term of below 12 months and those of assets of approximately £4k in value, are recorded in the income statement as depreciation of right of use assets, in operating costs, and interest charges on lease liabilities, in financing costs. The impact of this change in accounting treatment during the period was to increase operating costs by £0.1m and increase finance costs by £0.7m.

 

ii)         Current tax impacts of changes detailed under i) above as well as deferred tax impacts in jurisdictions where the available deductions for tax do not align with the accounting charge in the income statement for the period.

 

iii)         Under IAS 17 lessees did not record assets and commitments associated with operating lease contracts on the balance sheet. IFRS 16 removes the distinction between operating and finance leases for lessees and requires that they recognise right of use assets and lease liabilities for all lease contracts. At 30 September 2019 this resulted in the recognition of right of use assets of £56.9m and lease liabilities of £58.5m.

 

iv)         Rent prepayments, deferred rent and IAS 17 finance lease assets of £0.3m, £1.3m and £1.7m respectively were set against opening right of use assets on transition. Additionally onerous lease balances of £0.4m were transferred to lease liabilities. 

 

v)         Historically all cash flows associated with operating leases were presented as operating cash flows. Under IFRS 16 repayments of lease principal are classified as financing cash flows. IAS 7 provides entities with an accounting policy choice as to whether they classify interest paid as an operating or financing cash flow. HomeServe's policy is to classify all interest paid within operating cash flows and consequently interest paid on lease liabilities recorded under IFRS 16 will be classified as such.

 

Depreciation of right of use assets is added back to operating profit as a non cash movement in the consolidated cash flow statement, in a similar manner to depreciation on property, plant and equipment or amortisation on intangible assets. 

 

Other standards issued, effective and adopted

 

In addition the Group has adopted the following new standards, IFRIC, amendments and improvements. None of these documents had any material impact on the condensed consolidated financial statements of the Group:

 

IFRIC 23

Uncertainty over Income Tax Treatments

Amendments to IFRS 9

Prepayment features and negative compensation

Amendments to IAS 19   

Plan Amendment, Curtailment or Settlement

Amendments to IAS 28

Long-term Interests in Associates and Joint Ventures

Annual Improvements to IFRSs

2015-2017 Cycle

 

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 17

Insurance Contracts

Amendments to IFRS 3   

Definition of a Business

Amendments to IAS 1 and IAS 8

Definition of Material

Conceptual Framework

Amendments to References to the Conceptual Framework in IFRS Standards

 

The Directors do not expect that the adoption of the Standards in issue not yet effective 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. During FY19 the Group's 'Home Experts' businesses met the definition of an operating segment under IFRS 8 and are now presented separately from 'New Markets'. Comparative information in this note has been re-presented to illustrate the impact of this change. The segment contains the results of Checkatrade, Habitissimo and Home Experts France. New Markets includes the Group's international development initiatives, including its former Italian associate and its Japanese joint venture.

Segment operating profit/(loss) represents the result of each segment including allocating costs associated with head office and shared functions, but without 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, except as set out in note 2. Group cost allocations are deducted in arriving at segmental operating profit. Inter-segment revenue relates to transactions with other Group companies, removed on consolidation, and principally comprises royalty and other similar charges charged at prevailing market prices. As illustrated in the tables below, the sale and renewal of policies across HomeServe's Membership businesses are more heavily weighted towards the second half of the financial year.

 

For the six months ended 30 September 2019 (Reviewed)

 

£million

UK 

North America

France

Spain

New Markets

Home

Experts

Total

Revenue by category:

 

 

 

 

 

 

 

Net policy income

88.0 

142.3 

37.2 

24.8 

292.3 

Repair income

43.4 

24.4 

0.2 

41.2 

109.2 

Home Experts

23.8 

23.8 

HVAC

10.7 

12.4 

2.5 

3.2 

 

28.8 

Other

5.6 

0.5 

0.5 

6.6 

Total revenue

 147.7 

 179.6 

 40.4 

 69.2 

23.8 

460.7 

Inter-segment

(3.0)

 - 

 - 

 - 

(3.0)

External revenue

 144.7 

 179.6 

 40.4 

 69.2 

23.8 

457.7 

 

 

 

 

 

 

 

 

Result

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

14.0 

18.5 

7.9 

7.6 

(2.3)

(8.0)

37.7 

Exceptional items

3.8 

3.6 

7.4 

Amortisation of acquisition intangibles

(1.6)

(8.6)

(3.4)

(0.2)

(2.5)

(16.3)

Operating profit/(loss)

 12.4 

9.9 

4.5 

 7.4 

1.5 

(6.9)

28.8 

Investment income

 

 

 

 

 

 

0.3 

Finance costs

 

 

 

 

 

 

(9.4)

Profit before tax

 

 

 

 

 

 

 19.7 

Tax

 

 

 

 

 

 

(3.0)

Profit for the period

 

 

 

 

 

 

 16.7 

 

 

 

3.         Business and geographical segments (continued)

 

For the six months ended 30 September 2018 (Reviewed)

 

£million

UK 

North America

France

Spain

New Markets

Home

Experts

Total

Revenue by category:

 

 

 

 

 

 

 

Net policy income

86.5 

119.2 

34.9 

26.5 

267.1 

Repair income

51.7 

3.6 

0.2 

38.5 

94.0 

Home Experts

18.2 

18.2 

HVAC

12.0 

6.4 

1.5 

0.8 

20.7 

Other

5.5 

1.3 

0.2 

7.0 

Total revenue

155.7 

130.5 

36.8 

65.8 

18.2 

407.0 

Inter-segment

(2.7)

(2.7)

External revenue

153.0 

130.5 

36.8 

65.8 

18.2 

404.3 

 

 

 

 

 

 

 

 

Result

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

10.2 

14.0 

7.5 

8.6 

0.3

(3.5)

37.1 

Amortisation of acquisition intangibles

(1.1)

(5.6)

(3.3)

(2.5)

(12.5)

Operating profit/(loss)

9.1 

8.4 

4.2 

8.6 

0.3

(6.0)

24.6 

Investment income

 

 

 

 

 

 

Finance costs

 

 

 

 

 

 

(5.3)

Profit before tax

 

 

 

 

 

 

19.3 

Tax

 

 

 

 

 

 

(4.6)

Profit for the period

 

 

 

 

 

 

14.7 

 

 

For the year ended 31 March 2019 (Audited)

 

£million

UK 

North America

France

Spain

New Markets

Home

Experts

Total

Revenue by category:

 

 

 

 

 

 

 

Net policy income

244.0 

303.3 

101.9 

55.3 

- 

704.5 

Repair income

108.9 

15.7 

0.4 

81.1 

- 

206.1 

Home Experts

- 

- 

- 

- 

- 

40.4 

40.4 

HVAC

25.5 

13.4 

1.5 

4.4 

 

44.8 

Other

13.3 

1.0 

0.8 

- 

- 

15.1 

Total revenue

 391.7 

 333.4 

 104.6 

 140.8 

40.4 

1,010.9 

Inter-segment

(7.3)

 - 

 - 

 - 

(7.3)

External revenue

 384.4 

 333.4 

 104.6 

 140.8 

40.4 

1,003.6 

 

 

 

 

 

 

 

 

Result

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

66.0 

67.6 

33.3 

17.7 

(2.4)

(7.4)

174.8 

Exceptional items

4.6 

4.6 

Amortisation of acquisition intangibles

(2.2)

(12.9)

(6.5)

(0.2)

(5.0)

(26.8)

Operating profit/(loss)

 68.4 

54.7 

26.8 

 17.5 

(2.4)

(12.4)

152.6 

Investment income

 

 

 

 

 

 

0.2 

Finance costs

 

 

 

 

 

 

(13.3)

Profit before tax

 

 

 

 

 

 

 139.5 

Tax

 

 

 

 

 

 

(31.2)

Profit for the year

 

 

 

 

 

 

 108.3 

 

 

4.         Exceptional items

 

Exceptional items, booked to operating costs, comprised the following:

 

 

 

 

 

 

 

Six months ended

Year ended

 

 

 

 

 

 

30 September 2019

(Reviewed)

30 September 2018

(Reviewed)

31 March 2019

(Audited)

Gain on acquisition of subsidiary non-controlling interest

3.6 

Gain on disposal of investment in associate

3.8 

Fair value movement on contingent consideration liabilities

10.1 

Restructuring costs

(5.5)

Exceptional items included within Group operating profit before tax

7.4 

4.6 

Net taxation on exceptional items

(0.2)

Net exceptional items after tax

 

 

7.4 

4.4 

 

Six months ended 30 September 2019

 

Gain on acquisition of subsidiary non-controlling interest

 

See note 10.

 

Gain on disposal of investment in associate

 

See note 11.

 

Year ended 31 March 2019

 

Fair value movement on contingent consideration liabilities

At 31 March 2019 the Group reassessed the fair value of outstanding consideration payments due to the previous owners of Help-Link Limited, conditional on the number of boiler installations performed from the point of acquisition until July 2020. At this point the Group determined that the likelihood of the conditions being met that would trigger either of the two outstanding payments (a gross undiscounted cash outflow totalling £10.5m) was now remote and therefore the fair value of the outstanding liabilities was £nil. At the point the fair value exercise was performed the balance held on the balance sheet of £10.1m, representing the original discounted value of the liabilities and any associated interest accreted to 31 March 2019, was released to the income statement in accordance with IFRS 3 and treated as exceptional due to its size and incidence.  

Restructuring costs

Charges of £5.5m were incurred during FY19, mostly related to redundancies and other associated charges incurred in respect of changes to the organisational design of the UK business. Marketing and other support headcount was reduced, as the business moves away from an over reliance on direct mail activity and prepares for the implementation of new systems. Costs related to these programmes have been treated as exceptional due to their size and incidence.

 

 

 

 

5.         Tax

 

 

£million

Six months ended

30 September 2019

  (Reviewed)

Six months ended

30 September 2018

 (Reviewed)

Year ended

31 March 2019

 (Audited)

Current tax

3.3 

4.0 

29.9 

Deferred tax

(0.3)

0.6 

1.3 

 

3.0 

4.6 

31.2 

 

The pre-exceptional effective tax rate for the six months ended 30 September 2019 was 24%. The post-exceptional effective tax rate for the same period was 15%. Tax rates for the comparative periods were, HY19: 24% and FY19: 22% on both a pre and post exceptional basis. For further detail on exceptional items see note 4. Prevailing taxation rates in the major jurisdictions in which the Group operates were as follows:

 

 

 

Jurisdiction

Six months ended

30 September 2019

  (Reviewed)

Six months ended

30 September 2018

 (Reviewed)

Year ended

31 March 2019

 (Audited)

United Kingdom

19%

19%

19%

United States of America

27%

27%

27%

France

31%

33%

33%

Spain

25%

25%

25%

 

 

6.         Dividends

The interim dividend of 5.8p per share will be paid on 7 January 2020 to shareholders on the register on 6 December 2019. The interim dividend has not been included as a liability in these financial statements.

 

 

 

£million

Six months ended

30 September 2019

  (Reviewed)

Six months ended

30 September 2018

 (Reviewed)

Year ended

31 March 2019

 (Audited)

Amounts recognised as distributions to equity holders in the period:

 

 

 

Final dividend for the year ended 31 March 2018 of 14.4p per share

-

47.8

47.8

Interim dividend for the year ended 31 March 2019 of 5.2p per share

-

-

17.2

Final dividend for the year ended 31 March 2019 of 16.2p per share

54.1

-

-

 

54.1

47.8

65.0

Interim dividend for the year ended 31 March 2020 of 5.8p per share

19.4

-

-

 

 

 

 

7.         Earnings per share

 

 

 

Earnings per share (pence)

Six months ended

30 September 2019

  (Reviewed)

Six months ended

30 September 2018

 (Reviewed)

Year ended

31 March 2019

 (Audited)

Basic

5.0p

4.6p

32.7p

Diluted

5.0p

4.6p

32.3p

 

 

 

 

Adjusted basic

6.5p

7.5p

37.5p

Adjusted diluted

6.4p

7.4p

37.0p

 

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 2019

  (Reviewed)

Six months ended

30 September 2018

(Reviewed)

Year ended

31 March 2019

 (Audited)

Basic

333.9 

331.2 

331.7 

Dilutive impact of share options

2.8 

4.0 

3.9 

Diluted

336.7 

335.2 

335.6 

 

Earnings

£million

 

 

 

Profit attributable to equity holders of the parent

16.8 

15.3 

108.5 

Amortisation of acquisition intangibles

16.3 

12.5 

26.8 

Exceptional items (note 4)

(7.4)

(4.6)

Tax impact of acquisition intangible amortisation and exceptional items

(4.1)

(3.1)

(6.4)

Adjusted profit for the period

21.6 

24.7 

124.3 

 

Basic and diluted earnings per ordinary share have been calculated in accordance with IAS 33 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, exceptional items and the associated tax impacts.

 

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 exceptional items, the amortisation of acquisition intangibles and the associated tax impacts. For further details refer to the 'Profitability' section of the Glossary.

 

Diluted earnings per share includes the impact of dilutive share options in issue throughout the period.

 

 

 

 

8.         Intangible assets

£million

Acquisition intangibles

Trademarks

& access rights

Customer Databases*

Software

Total intangibles

Cost

 

 

 

 

 

At 1 April 2018

293.1 

34.1 

94.1 

211.7 

633.0 

IFRS 15 reclassification

(85.0)

(85.0)

Additions

48.8 

1.3 

8.8 

42.0 

100.9 

Acquisition of subsidiaries

15.0 

15.0 

Disposals

(1.1)

(1.1)

Transfers

0.3 

0.6 

(0.9)

- 

Exchange Movements

8.1 

1.4 

(0.3)

1.9 

11.1 

At 1 April 2019

365.3 

37.4 

17.6 

253.6 

673.9 

Additions

7.8 

6.2 

21.5 

35.5 

Acquisition of subsidiaries

5.7 

5.7 

Disposals

(3.2)

(3.2)

Transfers

0.6 

0.6 

Exchange Movements

15.6 

0.8 

0.7 

3.5 

20.6 

At 30 September 2019

394.4 

38.2 

24.5 

276.0 

733.1 

 

Accumulated amortisation

At 1 April 2018

106.6 

27.0 

49.1 

65.5 

248.2 

IFRS 15 reclassification

(46.5)

(46.5)

Charge for the year

26.8 

3.0 

2.3 

17.8 

49.9 

Disposals

(0.1)

(0.1)

Transfers

0.1 

(0.1)

- 

Exchange movements

2.7 

0.5 

(0.1)

0.7 

3.8 

At 1 April 2019

136.2 

30.4 

4.8 

83.9 

255.3 

Charge for the period

16.3 

1.8 

1.6 

12.1 

31.8 

Disposals

(3.2)

(3.2)

Transfers

(0.3)

0.3 

0.2 

0.2 

Exchange movements

6.0 

0.5 

0.2 

1.4 

8.1 

At 30 September 2019

158.5 

32.4 

6.9 

94.4 

292.2 

 

 

 

 

 

 

Carrying Amount

 

 

 

 

 

At 30 September 2019

235.9 

5.8 

17.6 

181.6 

440.9 

At 1 April 2019

229.1 

7.0 

12.8 

169.7 

418.6 

 

* On 1 April 2018 assets with a total net book value of £38.5m were transferred out of customer databases and reclassified as contract cost assets under IFRS 15. 

 

 

 

9.         Business combinations

 

The Group has incurred a net cash outflow in respect of business combinations of £10.1m in the period in relation to the following seven acquisitions:

 

Membership

 

On 31 May 2019, HomeServe USA Repair Management Corp., a Group company, acquired 100% of the issued share capital and obtained control of American Home Guardian, Inc., (hereafter 'AHG').

 

The acquisition of AHG enhances the scale and scope of the Group's home warranty offering and increases the opportunity for future growth in this market.

 

HVAC

 

On 11 July 2019 Homeserve Spain S.L.U., a Group company, acquired 100% of the issued share capital and obtained control of Linacal S.L., (hereafter 'Linacal').

 

On 11 July 2019 Homeserve Spain S.L.U., a Group company, acquired 100% of the issued share capital and obtained control of Tecno Arasat Servicios de Mantenimiento S.L., (hereafter 'Tecno Arasat').

 

On 25 July 2019 Homeserve Spain S.L.U., a Group company, acquired 100% of the issued share capital and obtained control of Somgas Hogar S.L., (hereafter 'Somgas').

 

On 31 July 2019 Homeserve HVAC LLC, a Group company, acquired 100% of the issued share capital and obtained control of FAB Electric, Inc., (hereafter 'FAB').

 

On 17 September 2019 Homeserve HVAC LLC, a Group company, acquired 100% of the issued share capital and obtained control of Newcore, Inc., also known as Fred's Home Services, (hereafter 'Fred').

 

All HVAC acquisitions made during HY20 enhance the scale and scope of the Group's HVAC capabilities and increase the opportunity for future growth related to new HVAC system installations.

 

Home Experts

 

On 27 June 2019 HomeServe Home Experts SAS, a Group company, acquired a group of assets constituting a business under IFRS 3 from Sell Me Up SAS for a cash consideration of £0.1m.

 

 

 

9.         Business combinations (continued)

 

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

 

 

 

 

 

 

£million 

Membership

HVAC

Home Experts

Total

 

Property, plant and equipment

0.4 

0.4 

 

Right of use assets

0.1 

0.3 

- 

0.4 

 

Inventories

- 

0.5 

- 

0.5 

 

Cash and cash equivalents

0.4 

1.0 

- 

1.4 

 

Trade and other receivables

- 

0.5 

- 

0.5 

 

Trade and other payables

(0.1)

(0.6)

- 

(0.7)

 

Deferred income

(0.6)

- 

- 

(0.6)

 

Lease liabilities

(0.1)

(0.3)

- 

(0.4)

 

Intangible assets identified on acquisition

1.5 

4.2 

- 

5.7 

 

Net assets acquired

1.2 

6.0 

- 

7.2 

 

 

 

 

 

 

 

Goodwill

2.2 

5.1 

0.1 

7.4 

 

Total

3.4 

11.1 

0.1 

14.6 

 

 

 

 

 

 

 

Satisfied by:

 

 

 

 

 

Cash

2.7 

8.7 

0.1 

11.5 

 

Deferred consideration

0.7 

0.9 

- 

1.6 

 

Contingent consideration

1.5 

1.5 

 

 

3.4 

11.1 

0.1 

14.6 

 

 

 

 

 

 

 

Net cash outflow arising on acquisition

 

 

 

 

 

Cash consideration

2.7 

8.7 

0.1 

11.5 

 

Less: cash acquired

(0.4)

(1.0)

(1.4)

 

 

2.3 

7.7 

0.1 

10.1 

 

             

 

The goodwill arising on the excess of consideration over the fair value of the assets and liabilities acquired on HY20 acquisitions represents the expectation of synergistic benefits and efficiencies. 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.

 

Businesses acquired during HY20 contributed a combined £1.5m of revenue and a loss of £0.1m to the Group's adjusted profit before tax for the six months to 30 September 2019.

 

If all acquisitions had been completed on the first day of the financial year, Group revenue for the period would have been £463.9m and Group statutory profit before tax would have been £20.8m.

 

The information above is provisional with fair value assessment activities ongoing. Final acquisition disclosures will be included in the FY20 Group Annual Report and Accounts to be issued in May 2020.

 

In addition to the net cash outflow on the above acquisitions, deferred and contingent consideration was paid relating to previous business combinations and asset purchases of £4.7m (HY19: £12.2m).

 

Acquisition-related costs (included in operating costs) amounted to £0.3m (HY19: £0.2m).

 

The provisional fair values for the acquisition of Cropp Metcalfe Air Conditioning and Heating Company Inc. disclosed as part of the Group's FY19 Annual Report have been updated, resulting in a £0.3m increase to goodwill at 30 September 2019.

 

 

 

10.       Acquisition of subsidiary non-controlling interest

 

On 18 June 2019 HomeServe International Limited, a Group company, executed its call option (written on 27 January 2017, the point at which it acquired a 70% controlling interest in Habitissimo S.L.), to acquire the outstanding 30% non-controlling interest in Habitissimo S.L. for cash consideration of €8.6m (£7.7m). The transaction increased HomeServe International Limited's interest in Habitissimo S.L. to 100% of the issued share capital and did not give rise to a change in control.

 

The transaction resulted in a gain in the consolidated income statement of £3.6m. This represents the difference between the consideration paid and the value of the option liability, being the potential cash payment of the non-controlling interest's corresponding put option to sell the remaining 30% of their shareholding, held on the balance sheet immediately prior to the transaction, net of directly attributable transaction costs. The gain has been classified as exceptional in the consolidated income statement due to its size, nature and incidence (see note 4).

 

11.       Disposal of interest in associate

 

On 1 August 2019 HomeServe International, a Group company, disposed of its 49% equity accounted investment in Assistenza Casa Srl, by way of sale for cash consideration of €9.4m (£8.4m). At the point of disposal the carrying value of the Group's investment was £4.6m resulting in the recognition of a £3.8m gain in the consolidated income statement. The gain has been classified as exceptional due to its size, nature and incidence (see note 4).

 

12.       Financial instruments

Classification

The principal financial instruments used by the Group from which financial instrument risk arises are described in the Group's latest audited financial statements. Aside from the financial instruments discussed under 'financial instruments subsequently measured at fair value' below, all other financial assets and liabilities to which the Group is party are held at amortised cost and their carrying values approximate their fair values.

 

Financial instruments subsequently measured at fair value

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

At

30 September 2019

 (Reviewed)

At

30 September 2018

 (Reviewed)

Year ended

31 March 2019

 (Audited)

Level 2

 

 

 

Assets classified as fair value through other comprehensive income

 

 

 

Other investments

9.5 

9.5 

9.2 

 

 

 

 

Level 3

 

 

 

Contingent consideration at fair value through profit and loss

 

 

 

Current liabilities

(8.4)

Non-current liabilities

(1.5)

(4.4)

 

 

12.       Financial instruments (continued)

 

 

The fair value of Level 2 investments has been assessed at 30 September 2019 by analysing the future outlook for the business as well as reviewing valuations associated with recent comparable market transactions.

 

Contingent consideration liabilities are calculated using forecasts of future performance of acquisitions discounted to present value. Forecasts and discount rates are reviewed at least annually by the Directors as part of the valuation process. If discount rates were higher/lower than the Group's historical experience by 10%, the carrying amount of liabilities would decrease/increase by £nil.

Reconciliation of recurring Level 3 fair value measurements

 

 

£million

Six months ended

30 September 2019

  (Reviewed)

Six months ended

30 September 2018

 (Reviewed)

Year ended

31 March 2019

 (Audited)

Opening balance

20.6 

20.6 

Additions

1.5 

0.1 

0.1 

Payments

(7.7)

(10.7)

Impact of discounting

(0.2)

0.2 

Exceptional fair value re-measurement gain (note 4)

(10.1)

Extinguishment

(0.1)

 

1.5 

12.8 

 

The undiscounted range of outcomes associated with the contingent consideration potentially payable is from £nil to £2.9m for balances held at a fair value above £nil. Balances held at a fair value of £nil, as the likelihood of payment is considered remote, have a gross undiscounted maximum potential payout of £10.5m. 

 

13.       Share capital

 

 

 

At

30 September 2019

  (Reviewed)

At

30 September 2018

(Reviewed)

Year ended

31 March 2019

(Audited)

 

 

 

 

 

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

No.

334,617,565

331,894,902

332,490,377

 

 

 

 

 

£m

9.0

8.9

9.0

 

During the period from 1 April 2019 to 30 September 2019 the Company issued 2,127,188 shares with a nominal value of 2 9/13p creating share capital and share premium with a combined value of £8.5m.

 

During the period from 1 April 2018 to 30 September 2018 the Company issued 2,118,136 shares with a nominal value of 2 9/13p creating share capital and share premium with a combined value of £7.0m.

 

During the period from 1 April 2018 to 31 March 2019 the Company issued 2,713,611 shares with nominal value of 2 9/13p creating share capital and share premium with a combined value of £9.0m.

 

 

 

 

14.       Notes to the cash flow statement

 

 

 

£million

Six months ended

30 September 2019

 (Reviewed)

Six months ended

30 September 2018

 (Reviewed)

Year ended

31 March 2019

 (Audited)

 

 

 

 

Operating profit

28.8 

24.6 

152.6 

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

4.4 

4.6 

9.1 

Amortisation of acquisition intangible assets

16.3 

12.5 

26.8 

Amortisation of other intangible assets

15.5 

10.9 

23.1 

Amortisation of contract costs

6.5 

7.9 

14.9 

Depreciation of right of use assets

6.8 

Share-based payments expenses

4.4 

4.5 

9.8 

Share of equity accounted investees results

1.3 

(0.3)

0.3 

Loss on disposal of property, plant and equipment and software

0.1 

0.6 

Impact of exceptional items

(7.4)

(4.6)

Operating cash flows before movements in working capital

76.6 

64.8 

232.6 

 

 

 

 

Increase in inventories

(0.3)

(0.6)

(0.7)

Decrease in receivables (note 17)

58.4 

187.4 

104.0 

Decrease in payables (note 17)

(73.3)

(191.1)

(133.7)

Net movement in working capital

(15.2)

(4.3)

(30.4)

 

 

 

 

Cash generated by operations

61.4 

60.5 

202.2 

Incomes taxes paid

(15.9)

(11.3)

(31.7)

Interest paid (inclusive of payments on lease liabilities)

(8.3)

(5.1)

(8.5)

Net cash inflow from operating activities

37.2 

44.1 

162.0 

 

 

 

 

 

Analysis of movement in bank loans

 

 

 

£million

Six months ended

30 September 2019

 (Reviewed)

Six months ended

30 September 2018

 (Reviewed)

Year ended

31 March 2019

 (Audited)

 

 

 

 

Facilities with net inflows

87.3 

57.9 

Facilities with net outflows

(11.1)

(11.1)

(98.9)

Movement in existing bank and other loans

76.2 

46.8 

(98.9)

 

 

 

15.       Retirement benefit schemes

 

The defined benefit plan assets and liabilities have been updated as at 30 September 2019. 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.

 

 

 

 

16.       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 equity accounted investees

 

Related party transactions with equity accounted investees during HY20 principally related to recharged salaries, consultancy and contractor costs amounting to £0.2m (HY19: £0.1m) and the purchase of marketing services £0.1m (HY19: £nil).

 

Other related party transactions

 

Other related party transactions during HY20 were similar in nature to those in HY19 and amounted to £0.2m (HY19: £0.3m).

 

Full details of the Group's related party transactions for the year ended 31 March 2019 are included on page 172 of the Annual Report & Accounts 2019.

 

 

17.       Other items

 

Purchase of own shares

 

During the period 249,975 (HY19: nil) shares were repurchased at a cost of £3.0m (HY19: £nil) to fulfil awards made under share incentive schemes. No shares were transferred to individuals to satisfy awards (HY19: nil).

 

Presentation of comparatives

 

The comparative information in these condensed consolidated financial statements has been presented on a basis consistent with the information disclosed in 31 March 2019 accounts. This reflects the impact as at 30 September 2018 of the following balance sheet reclassifications identified during the second half of FY19 following transition to IFRS 15 that were not presented in the original 30 September 2018 results:

 

a)   Upon adoption of IFRS 15 the Group revised its balance sheet presentation of accrued and deferred income in accordance with the definitions provided for contract assets and liabilities under the standard. Under IFRS 15 paragraph 105 the Group must present each contract as either a contract asset or a contract liability, presenting any unconditional rights to consideration separately as receivables. This reclassification resulted in a reduction in closing trade and other receivables and trade and other payables of £38.9m respectively, on contracts presented with both an accrued and deferred income balance under IAS 18. There were no impacts on net assets, cash generated by operations or working capital.

 

b)   Under IFRS 15 a receivable cannot be recorded in relation to a cancellable contract until the Group has an unconditional right to consideration. HomeServe has historically recorded receivables in relation to the end user insurance premiums on cancellable contracts, alongside a corresponding payable, to recognise the corresponding liability due to the relevant underwriter. As these contracts are cancellable, receivables and payables are only recognised to the extent the policy has completed. At 30 September 2018 this net down decreased closing trade receivables and trade and other payables by £101.9m respectively, with no impact on net assets, cash generated by operations or working capital.

 

The above items have resulted in trade receivables at 30 September 2018 decreasing from an originally reported value of £484.5m to £343.7m. Trade and other payables at 30 September 2018 have decreased from an originally reported value of £465.7m to £324.9m. There was no impact on net assets, cash generated by operations or working capital.

  

 

 

18.       Events after the balance sheet date

 

Acquisition of eLocal Holdings LLC

 

On 18 November 2019 HomeServe USA Holdings Corp reached an agreement to acquire 79% of eLocal Holdings LLC for c.$140m on a "debt free, cash free" basis. The agreement also provides HomeServe with options to acquire the remaining 21% of eLocal by FY26.

 

eLocal has a network of 11,600 paying trades plus a directory of 3.3m home services businesses and gives HomeServe a profitable foundation on which to build a Home Experts business in North America. The transaction is expected to complete by early December 2019. 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

 

19 November 2019

 

 

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 2019 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 18. 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 Financial Reporting Council. 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 Guidance 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 Financial Reporting Council 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 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

 

 

Deloitte LLP

Statutory Auditor

Birmingham, United Kingdom

19 November 2019

 

GLOSSARY

HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. APMs used in this announcement address profitability, leverage and liquidity and together with operational KPIs give an indication of the current health and future prospects of the Group.

 

Definitions of APMs and the rationale for their usage are included below with a reconciliation, where applicable, back to the equivalent statutory measure.

 

Profitability

The Group uses adjusted operating profit, adjusted EBITDA, adjusted profit before tax and adjusted earnings per share as its primary profit performance measures. These are non-IFRS measures which exclude the impact of the amortisation of acquisition intangible assets and exceptional items.

 

Exceptional items are those items that, in the judgement of the Directors, need to be disclosed separately by virtue of their size, nature or incidence.

 

Acquisition intangible assets are calculated using the estimated and discounted incremental future cash flows resulting from the affinity relationship or future policy renewals as appropriate, which will include the impact of the past actions of the former owners.  These past actions will include historic marketing and business development activity, including but not limited to, the staff and operational costs of the business.  In addition the specific construct of the policy terms and conditions and the current and expected future profitability to be derived from the acquired business or asset is also a factor in determining the valuation of acquisition intangible assets.

 

The on-going service and operating costs incurred by the Group in managing the acquired businesses or assets, including but not limited to print, postage, telephony, claims costs and overheads are recognised as operating costs within these adjusted measures in the reporting period in which they are incurred.

 

Accordingly, by excluding the amortisation of acquisition intangibles from the adjusted performance measures reported by the Group in each specific reporting period ensures that these measures only reflect the revenue attributable to, and costs incurred by, the Group in managing and operating those businesses and assets at that time in each reporting period and do not include the impact of the historic costs of the vendor or considerations of the future profits to be derived from the acquired business or assets. 

 

 

 

Reconciliations of statutory to adjusted profit measures

 

TOTAL GROUP

£million

HY20 

HY19 

Operating profit (statutory)

28.8 

24.6

Exceptional items

(7.4)

-

Amortisation of acquisition intangibles

16.3 

12.5

Adjusted operating profit

37.7 

37.1

 

Operating profit (statutory)

28.8 

24.6

Exceptional items

(7.4)

-

Depreciation

4.4 

4.6

Amortisation of other intangibles

15.5 

10.9

Amortisation of contract costs

6.5 

7.9

Depreciation of right of use assets

6.8 

-

Amortisation of acquisition intangibles

16.3 

12.5

Adjusted EBITDA

70.9 

60.5

 

 

 

Profit before tax (statutory)

19.7 

19.3

Exceptional items

(7.4)

-

Amortisation of acquisition intangibles

16.3 

12.5

Adjusted profit before tax

28.6 

31.8

 

Pence per share

 

 

Earnings per share (statutory)

5.0 

4.6

Exceptional items  (net of tax)

(2.2)

-

Amortisation of acquisition intangibles (net of tax)

3.7 

2.9

Adjusted earnings per share

6.5 

7.5

 

 

 

SEGMENTAL

 

HY20

£million

UK

North America

France

Spain

New Markets

Home  Experts

Revenue

147.7 

179.6 

40.4 

69.2 

23.8 

 

 

 

 

 

 

 

Statutory operating profit/(loss)

12.4 

9.9 

4.5 

7.4 

1.5 

(6.9)

Operating Margin %

8%

6%

11%

11%

 

 

 

 

 

 

 

Adjusting items

 

 

 

 

 

 

Exceptional items

(3.8)

(3.6 )

Amortisation of acquisition intangibles

1.6 

8.6 

3.4 

0.2 

2.5 

Total adjusting items

1.6 

8.6 

3.4 

0.2 

(3.8)

(1.1)

Effect on operating margin (ppts)

1%

4%

9%

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

14.0 

18.5 

7.9 

7.6 

(2.3)

(8.0)

Adjusted operating margin %

9%

10%

20%

11%

 

 

HY19

£million

UK

North America

France

Spain

New Markets

Home  Experts

Revenue

155.7

130.5

36.8

65.8

-

18.2 

 

 

 

 

 

 

 

Statutory operating profit/(loss)

9.1

8.4

4.2

8.6

0.3

(6.0)

Operating Margin %

6%

6%

11%

13%

-

-

 

 

 

 

 

 

 

Adjusting items

 

 

 

 

 

 

Exceptional items

-

-

-

-

-

-

Amortisation of acquisition intangibles

1.1

5.6

3.3

-

-

2.5 

Total adjusting items

1.1

5.6

3.3

-

-

2.5 

Effect on operating margin (ppts)

1%

5%

9%

-

-

-

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

10.2

14.0

7.5

8.6

0.3

(3.5)

Adjusted operating margin %

7%

11%

20%

13%

-

-

 

 

 

*There were no exceptional items recorded in the prior year

 

HY20

Local currency million

UK

£

North America

$

France

Spain

New Markets

£

Home  Experts

£

Revenue

147.7 

225.9 

45.5 

77.9 

23.8 

 

 

 

 

 

 

 

Statutory operating profit/(loss)

12.4 

12.6 

5.0 

8.4 

1.5 

(6.9)

Operating Margin %

8%

6%

11%

11%

 

 

 

 

 

 

 

Adjusting items

 

 

 

 

 

 

Exceptional items

 

 

 

(3.8)

(3.6)

Amortisation of acquisition intangibles

1.6 

10.8 

3.9 

0.2 

2.5 

Total adjusting items

1.6 

10.8 

3.9 

0.2 

(3.8)

(1.1)

Effect on operating margin (ppts)

1%

4%

9%

-

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

14.0 

23.4 

8.9 

8.6 

(2.3)

(8.0)

Adjusted operating margin %

9%

10%

20%

11%

 

 

HY19

Local currency million

UK

£

North America

$

France

Spain

New Markets

£

Home  Experts

£ 

Revenue

155.7

173.7

41.6

74.4

-

18.2 

 

 

 

 

 

 

 

Statutory operating profit/(loss)

9.1

11.3

4.9

9.8

0.3

(6.0)

Operating Margin %

6%

7%

12%

13%

-

-

 

 

 

 

 

 

 

Adjusting items

 

 

 

 

 

 

Exceptional items

-

 

 

 

-

-

Amortisation of acquisition intangibles

1.1

7.6

3.7

-

-

2.5 

Total adjusting items

1.1

7.6

3.7

-

-

2.5 

Effect on operating margin (ppts)

1%

4%

9%

-

-

-

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

10.2

18.9

8.6

9.8

0.3

(3.5)

Adjusted operating margin %

7%

11%

21%

13%

-

-

 

 

*There were no exceptional items recorded in the prior year

 

Leverage

 

The Group targets net debt in the range of 1.0 to 2.0x EBITDA measured at the year end.

 

The range reflects HomeServe's relatively low risk appetite. Due to the seasonality of the business and depending on M&A opportunities, HomeServe is able to operate outside 1.0 to 2.0x for periods of time but with a highly cash generative business model HomeServe will seek to return to its target range.  The leverage ratio is also important as it factors into the Group's banking covenants and the rolling 12 month rate at the half year influences the forward interest rates payable on the Group's Revolving Credit Facility.

 

Certain of the Group's segmental bonus measures relate to net cash. Net cash is defined and calculated in the same way as net debt but returns a positive closing balance.

                                                                     

The 2019 Annual Report provides a full reconciliation of the movements in liabilities arising from borrowings and finance leases for the year ended 31 March 2019.

 

The closing balances at 30 September were as follows:

 

£million

HY20 

HY19 

Current liabilities from borrowings and finance leases

 

 

Lease liabilities

11.3 

0.5 

Bank and other loans

36.1 

36.3 

 

47.4 

36.8 

Non-current liabilities from borrowings and finance leases

 

 

Lease liabilities

47.2 

0.3 

Bank and other loans

423.8 

310.3 

 

471.0 

310.6 

Total liabilities from borrowings and finance leases

518.4 

347.4 

 

 

 

Cash and cash equivalents

(67.0)

(55.5)

 

 

 

Net Debt

451.4 

291.9 

Adjusted EBITDA

70.9 

60.5 

Leverage

1.9x 

1.4x 

 

 

 

Liquidity

Cash conversion % is defined as cash generated by operations divided by adjusted operating profit. The measure demonstrates the cash generative nature of the ordinary trading operations of HomeServe's business model and the ability to produce positive cash flows that can be invested for future growth initiatives or in capital projects to maintain customer service initiatives, digital enhancements or efficiencies that benefit the long-term health of the business.

 

Free cash flow is stated after tax and interest obligations and is an indication of the strength of the business to generate funds to meet its liabilities and repay borrowings. It also shows the funds that are used for capital investment including funds that might be made available to pursue M&A activities and to pay dividends.

 

£million

HY20

HY19

Adjusted operating profit

37.7 

37.1

Exceptional items

7.4 

Amortisation of acquisition intangibles

(16.3)

(12.5)

Operating profit

28.8 

24.6

Impact of exceptional items

(7.4)

 - 

Depreciation and amortisation

49.5 

35.9

Non-cash items

5.7 

4.3

Increase in working capital

(15.2)

(4.3)

Operating cash flow

61.4 

60.5

Net interest paid (inclusive of lease liabilities payments)

(8.0)

(5.1)

Taxation

(15.9)

(11.3)

Free cash flow

37.5 

44.1 

 

 

Due to the seasonality of the business, HomeServe does not report a half year cash conversion figure. Cash conversion for the prior financial year is shown below.

 

£million

 

FY19 

Adjusted operating profit                      

 

174.8 

Cash generated by operations                        

 

202.2 

Cash conversion

 

116% 

 

 

 

 

IFRS 16 - Leases

 

HomeServe has adopted IFRS 16 using the modified retrospective approach with a date of initial application of 1 April 2019. Comparative information provided in this announcement has not been restated. The effect of IFRS 16 on the income statement is to remove operating lease charges previously shown within 'operating costs', replacing them with depreciation and interest charges that now result from the capitalisation of "Right of Use Assets" and the recording of "Lease Liabilities" in the consolidated balance sheet (see Note 2 Accounting Policies).

 

IFRS 16 - Impact on reported profits

 

There is no material impact on HY20 PBTA as a result of adopting IFRS 16. The effect on adjusted operating profit at a Group level is £0.1m with the segmental breakdown shown in the table below;

 

 

HY20

£million

UK

North America

France

Spain

New

Markets

Home  Experts

 

Total

Adjusted operating profit (IAS 17)

14.0 

18.5 

8.0 

7.5 

(2.3)

(7.9)

37.8

 

 

 

 

 

 

 

 

Operating lease charge (IAS 17)

2.9 

1.5 

0.7 

1.0 

-

0.3 

6.4 

Depreciation of finance lease assets (IAS 17)

- 

0.3 

- 

- 

- 

- 

0.3 

Depreciation on right of use assets (IFRS 16)

(2.9)

(1.8)

(0.8)

(0.9)

-

(0.4)

(6.8)

Adjusted operating profit (IFRS 16)

14.0 

18.5 

7.9 

7.6 

(2.3)

(8.0)

37.7 

Interest charge on lease liabilities outstanding (IFRS 16)

(0.2) 

(0.4) 

-

-

-

(0.1)

(0.7) 

Adjusted operating profit post IFRS 16 interest charges

13.8 

18.1 

7.9 

7.6 

(2.3)

(8.1)

37.0 

 

 

 

IFRS 16 - Impact on net debt and leverage

 

The additional depreciation and interest charges incurred due to the adoption of IFRS 16 have resulted in an increase to HY20 adjusted EBITDA of £6.4m. Total lease liabilities outstanding at 30 September have increased net debt by £57.4m.

 

The overall effect on leverage is an increase of 0.1x.

 

 

 

 

 

 

HY20

£m

12 month rolling adjusted EBITDA (IAS 17)

 

 

 

 

226.0

 

 

 

 

 

 

Operating lease rentals (IAS 17)

 

 

 

 

10.6

12 month rolling adjusted EBITDA (IFRS 16)

 

 

 

 

236.6

 

 

 

 

 

 

 

HY20

£m

Net debt (IAS 17)

 

 

 

 

394.0

IFRS 16 lease liabilities

 

 

 

 

57.4

Net debt (post IFRS 16)

 

 

 

 

451.4

 

HomeServe expects that the impact on leverage for the full financial year ended 31 March 2020 will remain at c.0.1x.

 

 

 

KPIs

The Group uses a number of operational key performance indicators that provide insight into past performance and are an indicator of the future prospects of the Group as a whole and its individual segments.

 

Affinity partner households tracks the growth in addressable market delivered through existing and new partnerships with utilities and municipals.

Customers tracks success in converting addressable market into revenue-generating customers, by delivering great products and service.

Retention rate reflects ability to deliver fit-for-purpose product and great service to customers.

Policies illustrates ability to grow the product line through customer focus and innovation.

Income per customer measures ability to design and market increasingly valuable products, and sell them efficiently. Due to currency differences, this measure is tracked at a geographic level.

Income per customer is calculated as the last 12 months' net policy income divided by customers.

Trades are customers in the Home Experts business. Growing the network of vetted and reviewed trades will enable HomeServe to meet consumer needs and grow its business.

Adjusted profit before tax is the key profit measure by which business growth, efficiency and sustainability are monitored.

Net debt to EBITDA is the key cash ratio, which is used to monitor usage of financial resources within agreed risk parameters.  

 

Customers

 

IFRS15 defines a customer as 'a party that has contracted with an entity to obtain goods or services'. In the Membership businesses where the Group acts as an intermediary selling contracts and insurance policies to end consumers, the 'IFRS 15 customer' is considered to be the underwriter with which the Group has contracted to sell policies.

 

This is different, however, from how the Group markets and communicates the value of its products and services to end consumers.  Here, the businesses strategy and communications (both internally and externally) refer to the end consumer as the customer.  As a result, for the purposes of describing the strategy and operational performance of the business, the Business review and the Group's KPIs refer to the end consumer as the customer of the Group, rather than the underwriter.  However, for the purposes of preparing the financial statements, the accounting transactions are recorded in accordance with IFRS 15 where the customer is the underwriter.

 

For all other sources of revenue, it is the party that has contracted with the Group to obtain goods and services that is classified as the customer.  The following table summarises this position:

 

Revenue Stream

IFRS 15 'contracted' customer

Customer as referred to in the Business and Operating Reviews

Policy Income - insurance intermediary commissions

Underwriters

 

End user of the service

 

Policy Income - repairs

Underwriters or other B2B contracted parties

Policy Income - home assistance

End user of the service

Home Experts

HVAC

Other

 

 


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