We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for real-time alerts, custom portfolio, and market movers
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Homeserve Plc | LSE:HSV | London | Ordinary Share | GB00BYYTFB60 | ORD 2 9/13P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1,198.00 | 1,198.00 | 1,199.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Jul 2019 to Jul 2024
TIDMHSV
RNS Number : 8029D
Homeserve Plc
22 May 2012
HomeServe plc
Preliminary results for the year ended 31 March 2012
Hot Features
Premium
2012 2011 Change
-------------------- ---------- ---------- -------
Revenue GBP534.7m GBP467.1m +14%
Adjusted Operating
profit(1) GBP128.2m GBP119.2m +8%
Adjusted Profit
before tax(2) GBP126.0m GBP117.1m +8%
Adjusted Earnings
per share(3) 28.0p 25.9p +8%
Statutory Profit
before tax GBP138.0m GBP104.8m +32%
Basic Earnings
per share 35.4p 24.0p +48%
Dividend per share 11.3p 10.3p +10%
-- Financial summary
- Revenue up 14% to GBP535m
- Adjusted group operating profit(1) up 8% to GBP128m
- EstablishedInternational businesses adjusted operating profit(1) up 78% to GBP29m
- Free cashflow of GBP64m with net debt of GBP66m at 31 March 2012
- Statutory results include GBP24m of one-off UK costs
-- Restoring our customer focus in the UK
- Retention rate is strong and stable at 80%
- Addressing sales and marketing, complaints handling and governance and controls
- Constructive relationship with the FSA; commencement of investigation into past issues
- Customer numbers down 9% as a result of reduced marketing activity and effectiveness
- Planned reduction in customers to 2.2-2.4m during FY2013
-- Strong growth in International earnings and customer numbers
- International customers up 14% to 2.2m, including a 16% increase to 1.1m in the USA
- Retention rate remains strong at 83% across our International businesses
- Acquired full control of Domeo in France
- Customer and policy numbers in Spain up over 50% in the past 12 months
- Signed a test marketing agreement with BS Energy in Germany
Richard Harpin, Chief Executive, commented:
"It has been a challenging year for our UK business, however, we continue to make strong progress in developing our International businesses.
We took swift and comprehensive action to address the issues that we identified in the UK and are totally committed to restoring our customer focus. We are strengthening our management teams, retraining staff and continuing to make significant investments in customer service.
In the UK we are planning to create a smaller, more focused and sustainable business from which to grow. We remain excited about the growth opportunities in our International markets.
We carried out over 1.6m repairs for customers last year, demonstrating that our products and services continue to meet real customer needs both in the UK and our International markets."
1. Excluding amortisation of acquisition intangibles, joint venture taxation and exceptional expenditure, see Financial review and note 3.
2. Excluding amortisation of acquisition intangibles, joint venture taxation, exceptional expenditure and re-measurement of joint venture interest on acquisition of control, see Financial review.
3. Excluding amortisation of acquisition intangibles, exceptional expenditure and re-measurement of joint venture interest on acquisition of control, see Financial review and note 7.
Enquiries
A presentation for analysts and investors will take place at 9am this morning at UBS, 1 Finsbury Avenue, London, EC2M 2PP.
There will be a listen-only conference call via +44 203 140 0668, pin code 818709#, and also a live webcast available via www.homeserveplc.com.
HomeServe plc Tel: 01922 427979 Richard Harpin, Chief Executive David Bower, Interim Chief Financial Officer Mark Jones, Head of Investor Relations Tulchan Group Tel: 0207 353 4200 Christian Cowley Ed Orlebar Martin Robinson
CHAIRMAN'S STATEMENT
The identification of the regulatory issues in our UK business in October 2011 has made this the most challenging year in HomeServe's history. We took immediate action to address these issues and have implemented a thorough and extensive change programme in our UK business. While this is taking longer and costing more to implement than originally planned, we are pleased with the progress we have made.
Our International businesses have continued to make strong progress throughout the past 12 months with 12 new affinity partnerships agreed, customer numbers growing by 14% to 2.2m and adjusted operating profit(1) from our established businesses in the USA, France and Spain increasing to GBP28.5m (2011: GBP16.0m).
HomeServe's policies continue to free customers from the worry and inconvenience of home emergencies and repairs with over 1.6m emergency repairs carried out over the past 12 months. These jobs were carried out using a network of over 4,000 directly employed, franchised and sub-contract engineers and with a continued investment in our service delivery capabilities.
Results
In the year, revenue was up 14% to GBP534.7m (2011: GBP467.1m) and adjusted profit before tax(2) was up 8% to GBP126.0m (2011: GBP117.1m). The growth principally reflects continued development in our International businesses and the benefit of acquiring full control of Domeo in France in December 2011 (originally a joint venture), partially offset by a reduction in UK operating profit(1) as a result of the suspension of sales and marketing activity. Adjusted earnings per share(3) increased by 8% to 28.0p (2011: 25.9p).
The business continues to have a strong balance sheet and generates high levels of free cash flow. Net debt at 31 March 2012 was GBP66.0m (2011: GBP11.8m) and reflects the acquisition of the remaining 51% shareholding in Domeo for GBP82m.
On a statutory basis, revenue increased by 14% to GBP534.7m, profit before tax increased by 32% to GBP138.0m and earnings per share increased by 48% to 35.4p. The Group's statutory result includes a gain of GBP55m due to the re-measurement to fair value of our original 49% shareholding in Domeo at the time of the acquisition of the remaining 51% as well as GBP24m of one-off costs relating to addressing our UK issues.
UK
During the year, our UK business identified a number of potential failings in its sales and marketing, complaints handling and associated governance and controls. The UK business is making progress in implementing the necessary steps to restore its customer focus and ensure its customers are receiving the high standards of service that we expect to deliver. This includes strengthening the UK management team as well as the UK Board.
The UK management team has a constructive relationship with the Financial Services Authority (FSA), with regard to the business improvement initiatives being undertaken.
The FSA has informed us that they intend to investigate certain historic issues. The FSA's investigation will take a number of months to complete.
We re-started our UK sales and marketing activity on a phased basis, following its temporary suspension in October, as our retraining and process enhancements were completed and tested. As mentioned above, it has taken longer than we originally anticipated to re-start activity, but we remain confident that the actions we are implementing are in the long-term interest of all stakeholders.
International business development
We have achieved strong growth in our International businesses during the year.
HomeServe USA has continued to sign up new affinity partners, including EPCOR Utilities Inc. (EPCOR), our first Canadian water utility and Florida Public Utilities, a gas and electric utility. We now have over 1 million customers in the USA.
In France, we were very pleased to be able to take full control of Domeo in December 2011 with the purchase of the remaining 51% shareholding from Veolia, as well as agreeing a long-term marketing agreement with them. Owning 100% of Domeo will enable us to develop the product range further and to sign new utility and appliance manufacturer affinity partners in France in the future. The transition to full ownership by HomeServe has gone well and we are continuing to develop our plans for further growth in France.
In Spain, we have achieved strong growth in customer and policy numbers; whilst in our New Markets segment we are continuing to test acquisition marketing in Italy and have signed a test agreement with BS Energy in Germany.
Dividend
The Board is proposing a final dividend of 7.67p per share bringing the total dividend for the year to 11.3p (2011: 10.3p), an increase of 10%, reflecting its confidence in the long-term prospects of the business.
Management and Board changes
In July 2011, we announced that Jonathan King would return to the UK as Chief Executive Officer of our UK business, replacing Jon Florsheim. Also in July we announced the appointment of Tom Rusin as Chief Executive Officer of HomeServe USA.
Following the announcement in October that Andrew Sibbald had stepped down as a Non-Executive Director, we announced the appointment of Ben Mingay to the Board as a Non-Executive Director in December 2011. Ben is a Managing Partner of Smith Square Partners, an independent corporate finance advisory firm, and has more than 20 years' experience as a corporate finance adviser. I would like to thank Andrew for his support and contribution to HomeServe over the past four years and welcome Ben to the Board.
In January 2012, we announced the creation of the new Board position of Chief Operating Officer and the appointment of Martin Bennett, previously Chief Financial Officer, to this new position. Martin now has responsibility for the effective and efficient delivery of HomeServe's operating model, IT systems, best practice and risk management across all our geographies working closely with the country Chief Executive Officers. Martin's initial priority is to support Jonathan King (UK Chief Executive Officer) and the UK business on claims and network management, underwriting, systems and efficiency.
We have today announced the forthcoming appointment of Johnathan Ford as Chief Financial Officer. Johnathan is currently the Group Finance Director of NWF Group plc, an AIM listed specialist agricultural and distribution group. Johnathan is expected to join HomeServe on 1 October 2012. Until this time David Bower, Group Finance Director, will continue as Interim Chief Financial Officer and I would like to thank David for stepping into this role during this challenging period.
People
It has been a difficult year for HomeServe, and particularly our staff in the UK. The actions we are implementing to restore our customer focus are resulting in significant changes within the UK business, including a reduction in the number of people. I would like to thank all of the UK team for their professionalism during this period of change and am confident that the actions we are taking will strengthen the quality and consistency of our service to customers and result in increased employee engagement in the future.
In our International businesses, we continue to increase the number of people we employ as we grow our customer and policy numbers.
On behalf of the Board, I would like to thank all of our people for their contribution in what has been a challenging year for the Company.
Summary and outlook
HomeServe's products continue to meet clear customer needs and our business model continues to deliver long-term value. We are addressing the shortfall in standards that we identified in our UK business and have already taken a number of actions to improve the business.
We are confident that we can create a smaller, more customer focused UK business from which to grow, whilst achieving strong progress in our International markets.
JM Barry Gibson
Chairman
22 May 2012
CHIEF EXECUTIVE'S REVIEW
HomeServe is committed to providing a membership service which frees our customers from the worry and inconvenience of home emergencies and repairs both in the UK and internationally. At HomeServe our values are to put the customer at the heart of everything we do, develop and engage great people who are passionate about taking responsibility and making things happen, combine relentless innovation with integrity and professionalism and strive to be the best in the world at what we do. It was therefore disappointing to identify sales and marketing, complaints handling and governance and control issues in our UK business during the year.
Having identified the issues in our UK business, we took immediate action to address the root cause of the problems. The temporary suspension of our sales and marketing activity in the second half of the year has had a significant impact on our UK customer and policy numbers and the extensive change programme we are now implementing in the UK business has resulted in a high level of exceptional costs. We believe that these actions were the right ones to take, despite the impact on our reported results.
We have made significant changes to our UK board and management team during the second half of the year. We have also changed the way in which we incentivise management and staff across both the UK and International businesses to ensure that customer service and quality metrics have an appropriate weighting. We have introduced two customer service goals focused on increasing customer satisfaction and minimising complaints.
The issues in our UK business have not impacted our International businesses' results which have shown strong growth over the past 12 months. Our International customer numbers have increased by 14% to 2.2m and profits(1) from our established International businesses, in the USA, Spain and France, increased by 78% to GBP28.5m.
The strong growth in the number of International customers has offset the reduction in the UK following the temporary suspension and phased restart of sales and marketing activity. Global customers at 31 March 2012 were 4.9m (2011: 4.9m) with policy numbers at 11.0m (2011: 11.4m), a reduction of 0.4m over the past year. Income per customer has increased by 9% to GBP86 (2011: GBP79) with adjusted profit before tax(2) growing by 8% to GBP126.0m (2011: GBP117.1m).
The table below shows our performance metrics on a global basis as at 31 March 2012.
UK International Total Change
2012 2011 2012 2011 2012 2011
---------------------- ------ ------ ------ ------- ------- ------ ------ ---------
Affinity partner
households m 24 23 47 45 71 68 +4%
Customers m 2.7 3.0 2.2 1.9 4.9 4.9 -
Penetration of
affinity households % 11.5 12.8 4.7 4.3 6.9 7.2 -0.3ppts
Income per customer GBP 99 89 71 64 86 79 +9%
Policies m 6.7 7.5 4.3 3.9 11.0 11.4 -3%
Policies per
customer 2.5 2.5 2.0 2.0 2.3 2.3 -
Retention rate % 80 83 83 86 81 84 -3ppts
Operating profit(1) GBPm 103.1 104.3 25.1 14.9 128.2 119.2 +8%
---------------------- ------ ------ ------ ------- ------- ------ ------ ---------
The following sections report on the performance of each of our business segments.
UK
At 31 March 2012, our UK business had 2.7m customers with 6.7m policies. In the past 12 months we have completed over 0.9m home emergency repairs through our network of over 750 directly employed plumbing and drainage and sub-contract engineers, with 94% of customers satisfied with the service they received.
During the year, our UK business identified a number of potential failings in its sales and marketing, complaints handling and associated governance and controls which are discussed in more detail below. Addressing these issues has had a significant impact on the UK's financial and operational results in the year.
Over the next 12 months the UK business will refocus on the partner markets of water utilities, manufacturers of installed appliances and financial services companies. We will reduce the number of customers acquired on high discounts and those where we have limited cross-sell potential and rebase the business to a level from which we will be able to grow higher quality and sustainable earnings in the future.
Customer complaints
The winter of 2010 saw the most extreme weather for over 100 years and, in the majority of cases, we believe that we provided the best service we could in light of the unprecedented demand from our customers. We did, however, receive an unusually high number of customer complaints, predominantly due to the number of customer calls and emergency repairs undertaken during the period. The majority of the complaints related to the grade of service in response to a customer's emergency and none went unanswered.
We have developed a plan to review all the complaints that were received during the period in which our procedures may not always have operated correctly. All customers that may not have received a fair outcome are being re-contacted and, where appropriate, compensated. The expected cost of this re-contact exercise, including any compensation payments, has been included in the UK exceptional expenditure.
The number of customer complaints has fallen significantly during the past 12 months, partly due to our winter planning which included the recruitment of an extra 140 call centre agents at our 24 hour claims centre in Preston. This gave us increased capacity over the 2011 winter period and was successful in ensuring that we maintained our service standards throughout the peak period.
In addition, we have invested GBP2.5m in our Claims operations systems, which improves the process for booking sub-contract engineers following a customer's call and enhances our ability to manage those jobs, improving the overall customer experience.
Sales and marketing activity
Sales and marketing is one of our core value drivers and is at the heart of our relationships with customers and our business partners. HomeServe is committed to operating to the highest standards of sales practices in respect of both our existing and potential customers.
During the year, our UK compliance function continued its monitoring activities and in order to supplement this work the business commissioned an independent report from external consultants. This report raised a number of points including a potential issue around the way in which 'Complete Cover' policies had been sold as an upgrade to existing customers by telesales staff. We took the decision on 28 October to temporarily suspend all sales and marketing activity in the UK and since then we have developed new telesales scripts, re-trained sales agents, improved compliance and monitoring processes across the whole business, and reviewed and revised how we incentivise our sales staff. We have also made improvements to the clarity of our sales and marketing materials.
We are re-contacting any customers where there is a risk that they may have suffered detriment as a result of the way in which they were sold their policy. The expected cost of this exercise has been included in the UK exceptional expenditure.
We re-started our inbound call centre activity in early November on a phased basis, while direct mail activity for new customer acquisition and cross-sell re-started from January. We have had mixed results to date from our direct mail activity, with the acquisition campaigns under-performing our response rate expectations, while cross-sell has delivered good results. We will continue to test alternative marketing approaches over the next few months as we aim to improve the response rates and meet our internal targets, while maintaining clarity in all our communications.
We have also reviewed our channel strategy and concluded in February that our outbound telephony channel would, in the future, focus primarily on cross-selling policies to existing customers. While this will reduce the number of new customers acquired in the short-term, we believe the benefits in terms of retention, reputation and value will offset this in the long-term.
We are pleased to confirm that we recommenced outbound cross-sell activity with a pilot in early April. We are monitoring the results of this pilot closely and expect to roll out further activity over the coming weeks.
In July 2011 Ofcom announced an investigation into outbound marketing calls made on behalf of HomeServe by one specific outsourced supplier. This concerned non-compliance with rules regarding silent, abandoned or repeat calls between 1 February 2011 and 21 March 2011. As a result of the investigation Ofcom imposed a fine of GBP750,000 in April 2012. We can confirm that all of our dialler systems have been fully compliant with Ofcom regulations since 22 March 2011.
UK management changes
In August, Jonathan King returned from the US, where he had served as CEO of HomeServe USA for six years, to take over the leadership of the UK business. The UK management team has seen significant change since the first half of FY2012. We have appointed an experienced Compliance Director, a new Customer Relations Director and are in the process of appointing a new Marketing Director who has extensive experience in financial services. The UK team is also benefitting from the support of Martin Bennett, Chief Operating Officer, who is supporting the UK on claims and network management, underwriting, systems and efficiency.
We also further enhanced the Board of Directors of the UK business. In November, we appointed Diana Miller, who was previously Compliance Director at Legal & General, as a Non-Executive Director and we are in the process of finalising the appointment of an Independent Non-Executive Chairman, who will provide significant experience of working in the financial services industry.
Improving controls & governance
We have commissioned an external review of our governance and controls and a number of measures have already been implemented, including the strengthening of the UK board and the implementation of new incentive schemes.
We believe that Jonathan King and his management team, supported and challenged by the new independent Non-Executive Directors, will be able to identify and complete the implementation of the changes necessary to improve our controls and governance procedures and put the customer back at the centre of the business. The team has developed a constructive relationship with the FSA over the past nine months with regard to the business improvement initiatives being undertaken and our future plans in the UK.
UK performance
-- Lower customer and policy numbers as a result of less sales and marketing activity in the second half of the year
-- Retention rate remains high at 80% UK performance metrics 2012 2011 Change ----------------------------- ----- ----- ----- --------- Affinity partner households m 24 23 +1% Customers m 2.7 3.0 -9% Penetration of affinity households % 11.5 12.8 -1.3ppts Income per customer GBP 99 89 +11% Total policies m 6.66 7.53 -12% Policies per customer 2.46 2.52 -0.06 Policy retention rate % 80 83 -3ppts ----------------------------- ----- ----- ----- --------- UK policies split by 2012 2011 type -------------------------- ------ ------ ------ Water '000 3,731 4,227 Electrical '000 674 777 Heating, ventilation, air conditioning (HVAC) '000 773 928 Manufacturer warranties '000 520 503 Other '000 963 1,095 -------------------------- ------ ------ ------ Total policies '000 6,661 7,530 -------------------------- ------ ------ ------
UK revenue reduced by GBP5.4m to GBP353.5m (2011: GBP358.9m) principally due to the temporary suspension of sales and marketing activity in October. In addition, revenues in the prior year included GBP8m from the sale of furniture warranties, which we ceased selling in June 2011.
Income per customer has increased, primarily as a result of the favourable mix impact of fewer new customers in the year, where policy prices are heavily discounted, together with the benefit of the annual increase in prices. Adjusted operating profit(1) in the UK was GBP103.1m, a reduction of GBP1.2m compared to the prior year (2011: GBP104.3m). There was also exceptional one-off expenditure of GBP24.2m which reflects the cost of addressing the issues identified in the UK business during the year.
We were pleased to announce in December that we had signed a new long-term partnership with Sembcorp Bournemouth Water (SBW) with whom we did not previously work. The addition of SBW as an affinity partner increased our UK affinity partner marketable households to 23.6m UK households.
Our UK gross new policy sales, and customer and policy numbers have all reduced during the year as a result of significantly lower sales and marketing activity in the second half of the year. We initially suspended all of our sales and marketing activity at the end of October before re-starting activity on a phased basis when we were confident that our processes were able to deliver the standards of service that we and our customers expect.
As already noted, it took longer than we originally expected to restart our sales and marketing operations and the results of this activity during the final quarter of the year have been mixed. Customer numbers at 31 March 2012 were down 9% to 2.7m (2011: 3.0m) whilst policy numbers fell 12% on a year ago to 6.7m (2011: 7.5m), resulting in an average number of policies held of 2.46 (2011: 2.52). Gross new policy sales were 0.7m, significantly below the 1.8m policies sold in the prior year.
We announced plans to reduce the UK headcount by around 200 in February and announced yesterday plans for a further reduction of 250, as we align our sales and support functions with our marketing plans and the lower customer base.
The retention rate for policies which have been held for two or more years has remained stable and continues to be significantly above the overall reported rate of 80% (2011: 83%). The reduction in the reported rate primarily reflects a lower retention rate on policies renewing for the first time and the effect of suspending our retention call centre agent incentive schemes for the majority of the second half of the year.
United States of America
-- 8 new affinity partnerships signed during the year -- 1 million customer milestone reached -- Expanded US footprint - now operating in 41 US states and Alberta, Canada USA performance metrics 2012 2011 Change ----------------------------- --- ----- ----- --------- Affinity partner households m 21 21 +3% Customers m 1.1 0.91 +16% Penetration of affinity households % 5.0 4.4 +0.6ppts Income per customer $ 113 85 +33% Total policies m 1.71 1.39 +23% Policies per customer 1.62 1.52 +0.1 Policy retention rate % 79 82 -3ppts ----------------------------- --- ----- ----- --------- USA policies split by 2012 2011 type -------------------------- ------ ------ ------ Water '000 833 689 Electrical '000 103 93 Heating, Ventilation, Air Conditioning (HVAC) '000 324 212 Other '000 449 391 -------------------------- ------ ------ ------ Total policies '000 1,709 1,385 -------------------------- ------ ------ ------
Revenues in the USA were GBP82.3m (2011: GBP52.6m), 56% higher than a year ago, and adjusted operating profit(1) was GBP9.0m (2011: GBP6.1m), up GBP2.9m. The growth reflects a full 12 months of income from the National Grid businesses acquired in August 2010 and a 16% increase in customer numbers.
During the past year, we have signed a record number of new affinity partners in the USA. We announced new utility partner agreements with Middlesex Water in New Jersey, Contra Costa in California, Biddeford & Saco in Maine, Water One in Kansas and EPCOR in Canada; and manufacturer warranty partnerships with A O Smith and Rinnai. We have also recently signed a marketing agreement with Florida Public Utilities (FPU) a gas and electric utility serving 0.1m households.
During the year, we have successfully integrated the policies acquired from Middlesex Water and South Jersey Energy Services Plus as they have come due for renewal. Acquiring existing home emergency programmes run by a number of utilities in the USA remains one of our key strategies for accelerating the growth of our business alongside signing more organic marketing agreements. We continue to meet whenever possible with the management team of each of the programmes where we believe there is the greatest likelihood of a potential transaction so that we are ready to progress a partnership as and when the catalyst for change occurs.
We now work with partners that have access to over 21m marketable households in the US and Canada and are also targeting around 7m households in 39 states who we market to under our own name until we sign a utility in the area. We are building a truly national business and are now licensed to operate in 49 states with work already underway to gain approval for the final state of Wisconsin.
We have made good progress in getting our partners' agreement to broaden the range of sales channels and products that we can use and promote to their customers. As a result, gross new policy sales during the year were 0.6m (2011: 0.4m). This growth, together with a good retention performance, has resulted in customer numbers increasing by 16% to 1.1m (2011: 0.9m) and policy numbers increasing by 23% to 1.71m (2011: 1.39m). As a result, policies per customer have increased from 1.52 to 1.62.
The increasing proportion of higher value heating, ventilation, and air conditioning (HVAC) policies, together with the growth in the number of policies per customer, has resulted in income per customer increasing by 33% to $113 (2011: $85).
The US retention rate was 79% (2011: 82%) and reflects a combination of the growing proportion of own brand policies, the increased proportion of first year renewing policies and an increased proportion of 'off-bill' customers, principally following the acquisition of National Grid, where retention rates are lower.
We are continuing to develop our product range in the USA and are currently working on electrical surge protection and appliance protection products. In addition, we have recently started to market our manufacturer warranty policies to the water heater customers of A O Smith and Rinnai.
As part of our plans to continue the growth of our own brand marketing activity, we are implementing a new programme to raise the awareness of homeowners of their responsibilities for the pipes and wires in and around their homes. As part of this activity we also highlight HomeServe's products and service standards to key stakeholders in each community, in advance of entering a new territory.
In the USA, we completed 0.24m jobs during FY2012 with customer satisfaction averaging over 96%. These jobs were completed by our 139 directly employed technicians in the National Grid territories and our network of over 700 high quality sub-contractors covering the rest of the country. Over the past 12 months we have expanded our network of sub-contractor engineers, establishing networks in eight new US States and Canada to service our new affinity partner households as well as the growth in our Own Brand policies.
Domeo
-- Acquired full control of the business, buying the 51% shareholding from Veolia for GBP82m -- High retention rate of 88% maintained Domeo performance metrics 2012 2011 Change ----------------------------- ----- ----- ----- --------- Affinity partner households (excluding apartments) m 14 14 - Customers m 0.89 0.86 +4% Penetration of affinity households % 6.3 6.0 +0.3ppts Income per customer EUR 96 93 +3% Total policies m 2.33 2.22 +5% Policies per customer 2.61 2.60 +0.01 Policy retention rate % 88 88 - ----------------------------- ----- ----- ----- --------- Domeo policies split 2012 2011 by type ---------------------- ------ ------ ------ Water '000 1,903 1,831 Electrical '000 253 257 Other '000 169 136 ---------------------- ------ ------ ------ Total policies '000 2,325 2,224 ---------------------- ------ ------ ------
Domeo was originally established as a joint venture with Veolia in 2001 and has grown successfully over the past 10 years. In December 2011 we were delighted to announce that we had reached agreement with Veolia to acquire their 51% share of Domeo and take full control of the business. As part of the acquisition we also agreed a long-term marketing agreement with Veolia, providing Domeo with continued use of their brands in France. This acquisition completed on 7 December with net cash consideration amounting to GBP82m for the 51% shareholding.
While HomeServe has historically provided the majority of the day to day management expertise to Domeo, we have not been able to significantly expand its affinity partner relationships beyond Veolia. However, by obtaining full control of Domeo, we now have a good opportunity to develop the product range further and broaden the range of affinity partners in France. In particular, we can now discuss potential agreements with heating manufacturers as well as other water utilities, neither of which were possible under the original joint venture shareholder agreement. In addition, Domeo and our other French business, SFG, will be able to work much more closely together to maximise cross-sell opportunities and share expertise where appropriate.
Domeo contributed revenues for the eight months during which it was a joint venture and the four months during which it was wholly owned of GBP51.8m (2011: GBP32.3m). French customers continue to remain very loyal with the policy retention rate remaining high at 88% (2011: 88%). This, together with increased renewal revenues, has resulted in Domeo's adjusted operating profit(1) contribution increasing to GBP16.7m (2011: GBP8.2m).
Customer numbers increased by 4% to 0.89m (2011: 0.86m) during the year, with policy numbers growing by 5% to 2.3m (2011: 2.2m). Customers in France continue to have the highest number of polices per customer of any of our regions with 2.61 policies (2011: 2.60). Income per customer increased by 3% to EUR96 (2011: EUR93), reflecting the growth in customer and policy numbers, partly offset by the mix of policies held by customers.
Domeo achieved gross new policy sales of 0.4m (2011: 0.5m) with strong sales of water supply pipe policies and coverage relating to taps. We are continuing to test different marketing initiatives in order to make further progress with the apartment segment of the market, which is significant in France, as well as increasing the number of Veolia call centres that transfer calls into our sales teams.
All of our repairs in France are managed through our network of 980 sub-contract engineers with over 96% of customers who have had a claim being satisfied with the service they received.
Spain
-- Customer and policy numbers up over 50%
-- Gross new policy sales up over 48%, with strong growth in 'Club' policies
Spain performance metrics 2012 2011 Change ----------------------------- --- ----- ----- --------- Affinity partner households m 12 10 +17% Customers m 0.26 0.17 +55% Penetration of affinity households % 2.2 1.7 +0.5ppts Total policies m 0.34 0.22 +57% Policies per customer 1.31 1.29 +0.02 ---------------------------------- ----- ----- ---------
As the Spanish policy book is relatively small and growing quickly we do not currently report the retention rate
and income per customer metrics
Spain policies split 2012 2011 by type ---------------------- ------ ----- ----- Water '000 97 30 Electrical '000 128 107 Other '000 112 78 ---------------------- ------ ----- ----- Total policies '000 337 215 ---------------------- ------ ----- -----
In Spain, revenue increased by 23% to GBP60.2m (2011: GBP48.8m) and adjusted operating profit(1) by 65% to GBP2.8m (2011: GBP1.7m) reflecting growth in customer numbers as well as higher claims handling volumes and margins, despite the very difficult economic conditions in Spain.
We increased our investment in marketing in Spain over the past twelve months as we rolled out activity to Agbar, whilst continuing to target sales to Endesa households. This has resulted in gross new policy sales increasing by 48% to 239k (2011: 161k). We continue to find outbound telesales particularly successful in Spain with around 46% of gross new policy sales coming through this channel.
Customer and policy numbers continue to show strong growth. Customer numbers have increased by 55% to 258k (2011: 167k) and policy numbers are up 57% to 337k (2011: 215k).
We continue to have particular success in selling our 'Club' product in Spain. Club provides customers with access to our repair network and one hour's free labour per annum across a range of 25 trades. The Club product is essentially an 'entry' level product and our goal for the future is to retain and up sell these customers a full water or electrical emergency cover policy thereby increasing income per customer and the membership operating margin.
Our claims handling business in Spain continues to perform well with continued growth in the number of claims managed and a tight control on margins.
Our network of 1,450 sub-contract and Reparalia franchised engineers completed over 0.35m repairs over the past twelve months, with 91% of customers satisfied with the service they received.
New Markets
-- Continuing to test acquisition marketing activity in Italy -- Good progress in developing SFG's manufacturer warranty operation -- Exited Belgium, as a result of being unable to sign a large utility partner -- Signed a test marketing agreement in Germany
Our New Markets segment now includes our developing businesses in France, via our warranty business Societe Francaise de Garantie (SFG), Italy and Germany.
Despite positive discussions with a number of potential affinity partners in Belgium, we have been unable to reach agreement on any long-term partnership. We have therefore sold the businesses we acquired to enter Belgium and refocused our European management efforts and marketing spend on France, Italy and on launching in Germany with our first utility partner, BS Energy.
The New Markets businesses, including those in Belgium, reported revenue of GBP11.6m (2011: GBP9.9m) and an adjusted operating loss(1) of GBP3.4m which was in line with our expectations (2011: GBP1.1m) and reflects additional investment in marketing activity in SFG and our Italian businesses. We expect to maintain this level of investment in our New Markets businesses in future years as we aim to grow in Italy, Germany and the French warranty market.
Our test marketing with Enel in Italy has proved successful in acquiring new customers and we have therefore extended our original test agreement to ensure that we can also test renewal activity. In parallel, we are discussing the opportunity to agree a long-term affinity partnership with access to an increased number of households. We have also achieved encouraging results from our marketing with Veolia Acqua, a small Italian water utility, in addition to discussing potential agreements with a number of other Italian water companies.
In SFG, we have continued to invest in the development of a post-point of sale and manufacturer warranty operation with marketing activity with Indesit and Mistergooddeal. We are making good progress in developing the manufacturer warranty operation and are pleased to have signed a new longer-term agreement with Indesit. Revenues from the original retail warranty customer base have, as we expected, reduced during the year.
We are pleased to have signed BS Energy (part of the Veolia group) as our first partner in Germany and will shortly start our test marketing activity. We will be promoting plumbing, electric and gas home emergency services to BS Energy's 150k water, gas and electric households in Lower Saxony.
The Future
We are confident that our membership business model can continue to deliver value for customers, affinity partners and shareholders. We believe that we can make the necessary changes to our UK business while at the same time growing and investing in our International operations. The business remains very cash generative and we are confident of continuing to deliver a robust financial performance.
UK
The next 12 months will be a year of transition as we refocus on the partner markets of water utilities, manufacturers of installed appliances and financial services companies. By reducing the use of high discounts and focusing on these markets, we expect the number of new customers acquired to reduce and for total UK customer numbers to fall from 2.7m to between 2.2m and 2.4m by the end of FY2013. We expect the underlying UK retention rate to remain stable in FY2013 and to increase in the next few years as we focus more on the value of customers and less on the quantity.
The customer need is unchanged, with customers wanting to buy plumbing cover from their water utility and heating cover from the appliance manufacturer. We will be developing and testing a number of new propositions over the next 12 months, including offering our pay on use services under water company names for plumbing and boiler manufacturer names for heating emergencies.
We are planning to improve our cost efficiency by reducing the complexity of the UK business. The continued investment in new technology and system improvements will be just one of the ways in which we aim to achieve this goal. Whilst we test new marketing activity in FY2013, we will manage this expenditure carefully. Savings in marketing costs will also be supported by other initiatives, as we align our people, infrastructure and marketing activity with our smaller customer base.
Our expectations for UK profit remain unchanged for FY2013. As a result of the lower customer numbers at the end of FY2013, we expect FY2014 renewals revenue to reduce accordingly, partly offset by lower operating costs.
International
In our established International businesses we will be targeting continued growth by increasing the penetration of existing partner households, new partner signings and the acquisition of policy books.
We expect to increase our marketing activity in our established International businesses in FY2013 as we build on the progress achieved over the past 12 months.
We will also be continuing to invest in the development of our New Markets businesses with the expected operating loss in FY2013 increasing as a result of an additional GBP2m of marketing investment in Italy and Germany.
Summary
2012 was a challenging year for HomeServe with continued growth in our International businesses being overshadowed by issues in our UK business.
We took significant, pro-active action to tackle the UK problems. We are determined to put the customer at the heart of everything we do and deliver against all our values.
Our International businesses were not affected by our UK issues and delivered strong growth. We are planning to invest in additional marketing expenditure in both our established and new International businesses over the next 12 months as we target continued customer and policy growth.
We are confident that HomeServe can complete the necessary changes in our UK business and at the same time continue to grow our International operations and deliver a robust financial performance.
Richard Harpin
Chief Executive
22 May 2012
FINANCIAL REVIEW
These financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) and the accounting policies used are consistent with those at 31 March 2011.
Segmental Results
The Group has five operating segments - UK, USA, Domeo, Spain, and New Markets. The New Markets division combines the results of our businesses in Belgium, SFG in France, Italy and Germany. The revenue and adjusted operating profit(1) for each of these segments are set out in the table below.
GBPmillion Revenue Adjusted operating Adjusted operating
profit / (loss)(1) margin
2012 2011 2012 2011 2012 2011
------------------- ------- ------- ---------- ---------- ---------- ---------
UK 353.5 358.9 103.1 104.3 29.2% 29.1%
USA 82.3 52.6 9.0 6.1 11.0% 11.6%
Domeo 51.8 32.3 16.7 8.2 32.2% 25.4%
Spain 60.2 48.8 2.8 1.7 4.7% 3.5%
New Markets 11.6 9.9 (3.4) (1.1) -29.8% -12.0%
JV/inter-division (24.7) (35.4) - - - -
------------------- ------- ------- ---------- ---------- ---------- ---------
Group 534.7 467.1 128.2 119.2 24.0% 25.5%
------------------- ------- ------- ---------- ---------- ---------- ---------
Group revenue has increased by 14% to GBP534.7m (2011: GBP467.1m), and adjusted operating profit(1) by 8% to GBP128.2m (2011: GBP119.2m), principally due to the growth in our International businesses and the full ownership of Domeo from December 2011.
UK revenue has reduced by GBP5.4m to GBP354m as result of the 9% reduction in customer numbers and the exit from the sale of furniture warranties in June 2011. The growth in our International revenues reflects higher customer numbers as well as the benefit of owning 100% of Domeo from December 2011 (previously 49%).
The Group adjusted operating margin (adjusted operating profit/(loss)(1) divided by revenue) has reduced from 25.5% to 24.0% principally as a result of the increased investment in marketing in our New Markets businesses.
UK
Our UK business reported revenue of GBP353.5m (2011: GBP358.9m), a reduction of GBP5.4m and adjusted operating profit(1) of GBP103.1m, a reduction of GBP1.2m compared to the prior year (2011: GBP104.3m). The reductions were principally due to the suspension of sales and marketing activity in October and the suspension of retention call centre incentives. In addition, revenues in the prior year included GBP8m from the sale of furniture warranties, which we ceased to sell from June 2011.
Revenue in the UK business can be analysed as 'net income' (income per customer multiplied by the number of customers) of GBP268m (2011: GBP267m), with the remaining income of GBP86m (2011: GBP92m) representing GBP71m of repair network revenue (2011: GBP66m) and other income of GBP15m (2011: GBP26m), including third party claims handling revenue.
Income per customer increased by GBP10 to GBP99 (2011: GBP89) driven by the mix impact of having a lower proportion of new customers in the year, where policies are heavily discounted, and a higher proportion of policies renewing in the year, where prices are higher.
Operating costs within the UK business reduced by GBP4m compared to the previous year. This was driven by lower marketing expenditure in the second half of the year and the exit from the sale and servicing of furniture warranties in June 2011, partially offset by the additional ongoing costs of maintaining our customer focus. Within the UK business the most significant costs are the repair network and marketing costs. The repair network costs are driven by the number of customers and policies whilst the marketing costs are variable and are driven by our customer acquisition and cross sell plans.
The UK adjusted operating margin was 29.2%, 0.1ppt increase compared to the previous year and has benefited from exiting the low margin furniture warranty sales and the cost savings from lower marketing activity in the second half of the year.
USA
In the USA, revenue has increased by 56% to GBP82.3m (2011: GBP52.6m) and adjusted operating profit(1) increased from GBP6.1m to GBP9.0m. This reflects the growth in customer and policy numbers as well as the full 12 month benefit from the National Grid businesses acquired in August 2010.
The ongoing investment in marketing with both new and existing partners and our own brand, as well as the investment in infrastructure and people, has resulted in the adjusted operating margin remaining broadly stable at 11.0% (2011: 11.6%).
Domeo
Domeo contributed revenue for the eight months during which it was our joint venture (49% owned by HomeServe) and the four months during which it was 100% owned by HomeServe of GBP51.8m (2011: GBP32.3m) and adjusted operating profit(1) of GBP16.7m (2011: GBP8.2m). GBP20.6m of the revenue reflects our 49% share of the joint venture prior to our acquisition of the remaining 51% shareholding in December 2011.
On a like for like basis, revenue and operating profit(1) increased by 11% and 25% respectively, where the growth reflects the increased renewal revenue as well as good cost control.
The adjusted operating margin has increased from 25.4% in 2011 to 32.2% in 2012. The adjusted operating margin on a like for like basis increased to 29.1%, reflecting the strong retention rate and increasing proportion of renewal revenue.
Spain
In Spain, revenue was GBP60.2m, GBP11.4m higher and adjusted operating profit(1) was GBP2.8m (2011: GBP1.7m), GBP1.1m higher compared to the same period last year. Membership revenue increased by over 50% to GBP8.6m (2011: GBP5.6m) reflecting the growth in customer and policy numbers. Claims handling revenue increased by around 20% as a result of increased volumes and a higher price per job.
Spain has reported an adjusted operating margin of 4.7% (2011: 3.5%). The increased margin reflects the growth in claims volumes and improved network management partially offset by increased investment in membership marketing activity.
New Markets
Our New Markets businesses reported revenue of GBP11.6m (2011: GBP9.9m) and an adjusted operating loss(1) of GBP3.4m (2011: GBP1.1m). The increased operating loss(1) reflects the increased investment in marketing activity in Italy and SFG in France, as well as set-up costs for our German business. Our Belgian businesses, which have now been sold, contributed GBP1.9m of revenue and GBP0.5m of adjusted operating profit(1) .
Cash flow and financing
Our business model continues to be highly cash generative with cash generated by operations in 2012 amounting to GBP114.3m, representing a cash conversion ratio of 134% (2011: 111%).
GBPmillion 2012 2011 Adjusted operating profit(1) 128.2 119.2 Exceptional items, tax on joint venture and amortisation of acquisition intangibles (42.9) (12.3) Operating profit 85.3 106.9 Depreciation, amortisation and other non-cash items 30.2 17.1 Increase in working capital (1.2) (5.0) Cash generated by operations 114.3 119.0 Net interest (3.2) (1.3) Taxation (33.3) (23.8) Capital expenditure (16.9) (11.5) Domeo dividend received 3.5 3.7 --------------------------------- ------- ---------------- Free cash flow 64.4 86.1 Acquisitions / disposals (87.8) (16.2) Equity dividends paid (34.2) (31.3) Issue of shares 2.2 2.4 --------------------------------- ------- ---------------- Net movement in cash and bank borrowings (55.4) 41.0 Impact of foreign exchange 2.2 0.1 Finance leases (1.0) - Opening net debt (11.8) (52.9) --------------------------------- ------- ---------------- Closing net debt (66.0) (11.8) --------------------------------- ------- ----------------
The reported increase in working capital is lower than previous years principally due to GBP21.0m of the costs relating to addressing the UK issues not being paid at 31 March 2012. Excluding the impact of these amounts, working capital increased by GBP22.2m. This is significantly higher than the increase in the prior period, as this was itself lower than usual due principally to the timing of the declaration of our second interim dividend for the year ended 31 March 2010.
During the year, we incurred net capital expenditure of GBP16.9m (2011: GBP11.5m) primarily in support of information systems and access rights to affinity partner customer databases.
Free cashflow during the period was GBP64.4m (2011: GBP86.1m). The reduction primarily reflects increased taxation payments, higher capital expenditure and certain of the one-off costs related to addressing the UK issues. Taxation payments in the prior period benefited from the utilisation of tax losses generated from the closure of certain parts of the discontinued Emergency Services division.
During the first half of the year we renewed our banking facilities. As part of the agreement we increased the size of the facility from GBP150m to GBP250m and increased the number of banks with whom we work. The new facility, which has a similar cost to the previous arrangement, will ensure we maintain our financial flexibility over the next few years.
Net debt at 31 March 2012 was GBP66.0m (2011: GBP11.8m), an increase of GBP54.2m over the 12 month period. The increase in net debt is primarily as a result of the GBP82m spent acquiring full control of our French subsidiary Domeo. We continue to have a strong balance sheet with our net debt significantly below our facility limit.
Group statutory results
The headline statutory financial results for the Group are presented below.
GBPmillion 2012 2011 ----------------------------- ------------- ------------- Total revenue 534.7 467.1 Operating profit 85.3 106.9 Net finance costs (2.2) (2.1) Gain on re-measurement 54.9 - of joint venture interest on acquisition of control ----------------------------- ------------- ------------- Adjusted Profit before tax(2) 126.0 117.1 Amortisation of acquisition intangibles (10.4) (9.3) Exceptional expenditure (31.1) - Gain on re-measurement 54.9 - of joint venture interest on acquisition of control Tax on JV (1.4) (3.0) ----------------------------- ------------- ------------- Statutory Profit before tax 138.0 104.8 Tax (23.7) (27.9) ----------------------------- ------------- ------------- Profit for the year, being attributable to equity holders of the parent 114.3 76.9 ----------------------------- ------------- -------------
Statutory profit before tax was GBP138.0m, up GBP33.2m (2011: GBP104.8m). Statutory profit before tax is after the amortisation of acquisition intangibles, exceptional costs, a gain on the re-measurement of our joint venture interest following the acquisition of the remaining 51% shareholding and tax on the earnings from Domeo during the period in which it was a joint venture.
Amortisation of acquisition intangibles and joint venture taxation
The amortisation of acquisition intangibles of GBP10.4m (2011: GBP9.3m) principally relates to customer and other contracts held by the acquired entities at the date of acquisition. The GBP1.1m increase in the amortisation charge principally reflects the acquisition of the 51% shareholding in Domeo in December 2011.
Domeo was a joint venture in France for the first eight months of the year and for this period the operating result is defined under IFRS as profit after tax and therefore a charge of GBP1.4m (2011: GBP3.0m) of joint venture tax is reported within statutory operating profit and statutory profit before tax.
Exceptional expenditure
The exceptional expenditure of GBP31.1m includes costs relating to addressing the issues in the UK, costs relating to the acquisition of the 51% shareholding in Domeo and a reduction in the carrying value of certain assets of our Belgian businesses, which have now been sold.
-- UK exceptional expenditure
The GBP24.2m one-off charge of addressing the issues in the UK include our estimated cost of re-contacting and, if appropriate, compensating customers who may have suffered any detriment as a result of the way in which complaints have been handled or their policy purchased. In addition, there are redundancy and reorganisation costs, costs related to reviewing and improving our controls and governance and sales and marketing materials and the Ofcom fine. At the end of 2012, we had incurred GBP3.2m of actual expenditure, with the remaining GBP21.0m expected to be spent over the next 12 - 18 months.
The costs of re-contacting customers and the extent of any compensation due has been based on our best estimates at this time using the results of internal and external reviews as well as the early results from initial pilots. It is possible that our assumptions regarding the number of customers, level of compensation payable, response rates and the upheld rate could be different to those currently assumed such that the amount currently recognised in this regard could be higher or lower.
Furthermore, there is currently no certainty as to the nature or extent of the action, if any, that the FSA may seek to take following the conclusion of its investigation and accordingly any related financial effect, which could include a fine, cannot be estimated reliably. As a result, no provisions have been made in this regard in the current year.
-- Domeo acquisition costs and Belgium asset values
The exceptional expenditure also includes GBP3m of costs related to the acquisition of the 51% shareholding in Domeo and a GBP3.9m reduction in the carrying value of certain assets of our Belgian businesses, which have now been sold.
-- Gain on re-measurement of joint venture interest on acquisition of control
As part of the acquisition of the remaining 51% shareholding in Domeo in December 2011 we are required to re-measure the value of our original 49% shareholding. This re-measurement has resulted in a reported gain of GBP54.9m.
Earnings per share
Adjusted earnings per share(3) for the period increased by 8% from 25.9p to 28.0p. The average number of shares in issue increased from 321m to 322m.
On a statutory basis, earnings per share increased by 47.8% to 35.4p.
Finance costs
The Group's net finance costs were GBP2.2m (2011: GBP2.1m). The cost of servicing the higher level of debt following the acquisition of the remaining 51% shareholding in Domeo was broadly offset by a lower level of debt in the first nine months of the year.
Taxation
The tax charge in the financial year, prior to adjusting for tax on joint ventures, was GBP23.7m (2011: GBP27.9m).
In order to calculate an effective tax rate that reflects the ongoing tax burden of the Group, it is necessary to take account of the effect of joint venture results, which are shown net of tax within statutory profit before tax, on the Group's profits and tax for the year and also exclude both the GBP54.9m exceptional one-off gain as a result of the re-measurement of our 49% shareholding in Domeo following the acquisition of full control and the GBP3.9m reduction in the carrying value of certain assets in our Belgian businesses.
Adjusting the tax rate to include the tax relating to joint ventures and excluding the above exceptional items (an adjusted tax charge of GBP25.1m) and similarly grossing up for the joint venture tax on the statutory profit before tax (excluding the above exceptional items), the underlying joint venture adjusted tax rate is 28.4% (2011: 28.6%). We expect the rate to gradually increase in future years as our International businesses, all of which are based in countries with a higher corporation tax rate than the UK, contribute an increasing proportion of profits.
Dividend
The proposed final dividend of 7.67p per share together with payment of the interim dividend of 3.63p per share brings the total dividend for the year to 11.3p (2011: 10.3p). The final dividend, subject to shareholder approval, will be paid on 1 August 2012 to shareholders on the register on 29 June 2012.
Foreign exchange impact
The impact of changes in the EUR and $ exchange rates between FY2011 and FY2012 has resulted in the reported adjusted operating profit(1) and revenue of our International businesses reducing by GBP0.1m. The impact of foreign exchange rate movements on the individual businesses is summarised in the table below.
Average exchange Effect on (GBPm)
rate
Revenue Adjusted
operating
profit(1)
2012 2011 Change 2012 2012
--------------------- ----- ----- ------- ------------ -----------
USA ($) 1.59 1.56 +0.03 (0.8) 0.2
Domeo (EUR) 1.16 1.18 -0.02 (0.1) (0.2)
Spain (EUR) 1.16 1.18 -0.02 0.6 (0.1)
New Markets
(EUR) 1.16 1.18 -0.02 0.2 -
--------------------- ----- ----- ------- ------------ -----------
Total International (0.1) (0.1)
--------------------- ----- ----- ------- ------------ -----------
Acquisitions
Acquisition spend during the period totalled GBP87.8m (2011: GBP16.2m). This expenditure includes the GBP82m spent acquiring full control of Domeo in December 2011 as well as deferred consideration of GBP4.5m in relation to acquisitions completed in prior periods.
Statutory and pro-forma reconciliations
The Group believes that adjusted operating profit(1) and adjusted profit before tax(2) , which exclude the amortisation of acquisition intangibles, tax on joint ventures, exceptional expenditure and the gain on re-measuring the value of our 49% shareholding in Domeo following the acquisition of the remaining 51%, are important performance indicators for monitoring the business.
This report uses a number of pro-forma measures to highlight the Group's results excluding the above amounts. The table below provides a reconciliation between the statutory and pro-forma items.
2012 2011
------------------------------- ------- --------------------
GBPmillion
Operating profit (statutory) 85.3 106.9
Amortisation of acquisition
intangibles 10.4 9.3
Tax on joint ventures 1.4 3.0
Exceptional expenditure 31.1 -
Adjusted operating profit(1) 128.2 119.2
------------------------------- ------- --------------------
GBPmillion
Profit before tax (statutory) 138.0 104.8
Amortisation of acquisition
intangibles 10.4 9.3
Tax on joint ventures 1.4 3.0
Exceptional expenditure 31.1 -
Gain on re-measurement of (54.9) -
joint venture interest on
acquisition of control
------------------------------- ------- --------------------
Adjusted profit before tax(2) 126.0 117.1
------------------------------- ------- --------------------
Pence per share
Earnings per share (statutory) 35.4 24.0
Amortisation of acquisition
intangibles 2.2 1.9
Exceptional expenditure 7.4 -
Gain on re-measurement of (17.0) -
joint venture interest on
acquisition of control
-------------------------------- ------- ---------------------
Adjusted earnings per share(3) 28.0 25.9
-------------------------------- ------- ---------------------
Principal Risks and Uncertainties
HomeServe has a risk management process which provides a structured and consistent framework for identifying, assessing and responding to risks. These risks are assessed in relation to the Group's business performance, financial condition, prospects, liquidity and results. Risk management operates at all levels throughout the Group, across geographies and business lines.
Risks to HomeServe's business are either specific to HomeServe's business model, such as affinity partner relationships and underwriting, or more general, such as the impact of competition and regulatory compliance.
The table below sets out what the Board believes to be the principal risks and uncertainties facing the Group, the mitigating actions for each, and an update on any change in the profile of each risk during the past year. These should be read in conjunction with the Chief Executive's and Financial reviews. Additional risks and uncertainties of which we are not currently aware or which we currently believe are immaterial may also adversely affect our business, financial condition, prospects, liquidity or results of operations in the future.
Risk Mitigation Change since 2011
Description / Impact Annual Report
--------------------------- ---------------------------- --------------------------
Financial cost
of customer re-contact
exercises
The cost of re-contacting The forecasts are This is a new risk
customers and the based on our best that was identified
possible compensation estimates including during FY2012.
that may be paid initial pilot exercises.
to them if any The charge included
detriment is identified The UK business in our FY2012 results
have been based is a cash generative, is based on our
on our best estimates. profitable business best estimates
It is possible which, if necessary, taking into account
that the actual could set aside the results of
number of customers, additional funds initial pilot exercises.
response rates to meet higher costs
and level of compensation if required.
could be different.
--------------------------- ---------------------------- --------------------------
Ability to implement
an updated strategy
successfully within
the UK business
The successful We have strengthened This is a new risk
implementation the UK management that was identified
of an updated strategy team and recruited during FY2012.
and the restoration a dedicated programme
of a customer focused director to oversee At the end of FY2012
culture in the the development, we believe we are
UK business is testing and implementation making progress
of considerable of the updated strategy. in re-invigorating
importance to our our UK customer
future. We are using a number focus, although
of third-party specialists the implementation
If we are not able to assist in the of initiatives
to implement the implementation of and revised processes
strategy or achieve projects which are is taking longer
the restoration designed to restore than originally
as effectively the customer focused expected.
or as rapidly as culture.
we intend, the
future performance The expected cost
of the UK business of restoring our
may be adversely customer focus has
affected, potentially been provided for
materially. in the FY2012 results
and the business
There is no certainty has the financial
as to scope and strength to incur
cost of the additional additional costs
activities that if necessary.
we may need to
undertake to achieve
our desired culture.
--------------------------- ---------------------------- --------------------------
Commercial relationships
--------------------------
Underpinning the We have regular We have continued
success in our contact and reviews to sign and renew
chosen markets with the senior affinity partnerships
are close commercial management of our with utilities
relationships (affinity affinity partners in the UK, France,
partner relationships) to ensure that we and USA during
with utility companies respond to their the past 12 months.
and household appliance needs and deliver
manufacturers. the service that We worked closely
The loss of one they expect. with all our UK
of these relationships partners to ensure
could impact our There are a number they understood
future customer of partnerships the UK issues that
and policy growth across our markets, we identified and
plans. mitigating, in part, the corrective
the impact of losing action we are implementing.
While these partnerships any single relationship.
are secured under
long-term contracts,
which increase
the security of
these relationships
over the medium-term,
they can be terminated
in the event of
non-compliance
with laws or regulations
and / or damage
to reputation.
-------------------------- -------------------------- -----------------------------
Competition
There are a number The market and the There has been
of businesses that activities of other no significant
provide services participants are change in the competitive
that are similar regularly reviewed landscape in any
to those of the to ensure that the of the countries
Group and could strategies and offerings in which we operate.
therefore compete of current and potential
in one or more competitors are
of our chosen markets. fully understood.
Increased competition
could affect our Both qualitative
ability to meet and quantitative
our expectations research is undertaken
and objectives to ensure that our
for the business products and services
in terms of the continue to meet
number of customers, the needs of our
policies or the customers whilst
financial returns retaining a competitive
achieved. position in the
market.
We believe we have
a compelling proposition
for customers, providing
them with real value.
This helps reduce
the impact of increased
competition.
-------------------------- -------------------------- -----------------------------
Customer loyalty
/ retention
-------------------------
A key element of The policy retention Retention remains
our business model rate is one of our high in all countries
is customer loyalty. Key Performance although the mix
Any reduction in Indicators. Any of new and older
the proportion variance to budget policyholders in
of customers renewing is carefully investigated the UK and the
their policies to identify why mix of utility
could significantly customer behaviour branded and own
impact our revenues. is changing and brand policyholders
to implement corrective in the USA have
action. resulted in lower
reported rates.
We have a wide range
of tools available The UK rate did
to manage retention reduce slightly
rates including quicker than we
specific retention expected as a result
propositions. of the suspension
of call centre
There are also dedicated agent's incentive
retention call centre schemes in October.
agents who are trained In March 2012,
and experienced we implemented
in talking to customers new schemes which
who are considering reflect an improved
not renewing their balance between
policy. customer and commercial
outcomes and we
are confident that
these will enable
us to improve retention
rates in the future.
We have closely
monitored the impact
of the media coverage
on our reputation
following the identification
and announcement
of the UK's sales
and marketing issues.
To date, we do
not believe the
media coverage
has had a significant
impact on our customer
loyalty.
------------------------- --------------------------- ------------------------------
Marketing effectiveness
A significant reduction The performance In the UK, we have
in the response of each marketing reviewed all our
rates on direct campaign is regularly mailings and telesales
marketing or telesales reviewed, with any scripts and made
campaigns could significant deviation a number of changes
have a significant to the expected to give greater
impact on customer response rate quickly clarity to customers.
and policy numbers. identified and remedial
action taken for We have also decided
subsequent campaigns. to focus our UK
outbound telesales
activity on cross-selling
activity in the
future, thereby
reducing new customer
acquisition in
FY2013.
------------------------- --------------------------- ------------------------------
The take-ups on
the new UK direct
mail creative introduced
at the end of January
2012 were below
our initial expectations
and we will therefore
be undertaking
further test marketing
activity in FY2013.
We are closely
monitoring the
impact of the media
coverage on our
reputation following
the identification
and announcement
of the UK's sales
and marketing issues.
To date we do not
believe the media
coverage has had
a significant impact
on new customer
acquisition activity.
---------------------------- ---------------------------- ----------------------------
Exposure to legislation
or regulatory requirements
We are subject We have regulatory During FY2012 we
to a broad spectrum specialists and have been strengthening
of regulatory requirements compliance teams our UK governance
in each of the within each of our and control processes
markets in which businesses to help and management
we operate, particularly ensure that all team in our UK
relating to product aspects of the legislative business. This
design, marketing regime in each territory has included the
materials, sales are fully understood appointment of
processes and data and adopted as required. a new Compliance
protection. Director and a
We keep up to date stronger Board
Failure to comply on current government in the UK business
with the regulatory policies through with a new Non-Executive
requirements in our external advisors Director and good
any of our countries and this ensures progress towards
could result in products are designed, the appointment
us having to reduce marketed and sold of a Non-Executive
the effectiveness in accordance with Chairman.
or suspend either relevant legal and
temporarily or regulatory requirements. We have since November
permanently certain In the UK, we are 2011 reviewed all
activities. maintaining a regular of our UK sales
dialogue with the and marketing materials
Any changes in FSA and are ensuring and made a number
the legislative, that our actions of changes to ensure
regulatory or judicial are in line with they meet all the
environment in their feedback. regulatory requirements.
the countries in The FSA has informed
which we operate, us that they plan
or failure to comply to investigate
with regulations past issues, which
may adversely affect will take a period
our ability to of several months
deliver our growth to complete.
expectations.
The FSA have wide
ranging powers,
which include restrictions
on business activities,
customer redress
and fines if they
consider them appropriate
under the circumstances.
---------------------------- ---------------------------- ----------------------------
Availability of
underwriters
----------------------------
We use underwriters We use a number We continue to
to minimise the of underwriters, review our underwriting
impact of significant with the main partner relationships on
short-term deviations in the UK being a regular basis
in claims frequencies separate to those to ensure they
and costs. in rest of Europe provide the best
and the US. returns for customers
We need to ensure and shareholders.
that policy pricing Our principal underwriters
and claims frequency are subject to medium-term
represent an acceptable agreements, with
risk that the underwriters the rates subject
are prepared to to regular review.
price. In addition to this,
we maintain relationships
with a number of
other underwriters
and regularly review
the market to ensure
we understand current
market rates and
how these apply
to our policies.
---------------------------- ---------------------------- --------------------------
Quality of customer
service
Our reputation Processes have been Our engineer network
is heavily dependent established to ensure continues to provide
on the quality that all directly a high quality
of our customer employed engineers service, with high
service. and sub-contractors levels of customer
meet minimum standards. satisfaction with
Any failure to These include criminal the quality of
meet our service record checks and service provided.
standards or negative minimum qualification
media coverage requirements. During the year
of poor service we did, however,
could have a detrimental Service levels provided identify issues
impact on customer by both our directly with our UK complaints
and policy numbers. employed and sub-contract handling process.
engineers are monitored We have, therefore,
through the use undertaken a re-training
of customer telephone programme for all
call backs after our UK complaints
a repair has been handling agents
completed. Any failure and have reviewed
by the engineer all of our complaints
to adhere to processes handling processes.
or deliver the appropriate
standard of service Any customers who
is addressed by may have suffered
the engineer's line any detriment through
manager. the way in which
their complaint
was handled or
the way in which
they were sold
'Complete Cover'
via the telephone
are being re-contacted.
---------------------------- ---------------------------- --------------------------
Dependence on recruitment
and retention of
skilled personnel
-----------------------------
Our ability to Our employment policies, We have strengthened
meet growth expectations remuneration and our management
and compete effectively benefits packages teams during FY2012
is, in part, dependent and long-term incentives with key appointments
on the skills, are regularly reviewed in both the USA
experience and and designed to and UK.
performance of be competitive with
our personnel. other companies.
The inability to
attract, motivate Employee surveys,
or retain key talent performance reviews
could impact on and regular communication
our overall business of business activities
performance. are just some of
the methods used
to understand and
respond to employees'
views and needs.
Processes are in
place to identify
high performing
individuals and
to ensure that they
not only have fulfilling
careers, but we
are managing succession
planning.
----------------------------- --------------------------- -------------------------
Exposure to country
and regional risk
As a result of The criteria for We plan to undertake
our growing international entering a new country test marketing
footprint we are include a full assessment activity in Germany
subject to increased of the stability in FY2013, having
economic, political of its economy and signed a test marketing
and other risks political situation, agreement this
associated with together with a year.
operating in overseas review of the manner
territories. and way in which
business is conducted.
A variety of factors,
including changes When entering a
in a specific country's new country, we
political, economic generally do so
or regulatory requirements, with a small scale
as well as the test basis. This
potential for geographical low risk entry strategy
turmoil including minimises the likelihood
terrorism and war, of any loss.
could result in
the loss of service.
----------------------------- --------------------------- -------------------------
Financial strategy
and treasury risk
----------------------------
The main financial Interest rate risk
risks are the availability As a result of
of short and long-term Our policy is to our relatively
funding to meet manage our interest low level of bank
business needs, cost using a mix borrowings and
the risk of suppliers of fixed and variable a stable interest
and policyholders rate debts. Where environment we
not paying monies necessary, this have not entered
owed and fluctuations is achieved by entering into any swaps
in interest rates. into interest rate during FY2011 or
swaps for certain FY2012.
periods, in which
it agrees to exchange,
at specified intervals,
the difference between
fixed and variable
rate interest amounts
calculated by reference
to an agreed notional
principal amount.
These swaps are
designated to hedge
underlying debt
obligations.
----------------------------
Credit risk
HomeServe trades There has been
only with creditworthy no change in the
third parties. All creditworthiness
suppliers who wish of our third party
to trade on credit suppliers.
terms are reviewed
for financial stability.
The risk associated
with cash and cash
equivalents is managed
by only depositing
funds with reputable
and creditworthy
banking institutions.
The risk of a policyholder There has been
defaulting is mitigated no significant
as any policy cover change in the level
will cease as and of mid-term policy
when any premium cancellations.
fails to be paid.
Liquidity risk
HomeServe manages During FY2012,
liquidity risk by we renewed our
maintaining adequate banking facilities.
reserves and banking As part of the
facilities and continuously renewal, we increased
monitoring forecast our facility from
and actual cash GBP150m to GBP250m.
flows.
---------------------------- ----------------------------- -----------------------
Going concern and asset impairment
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's statement and Chief Executive's review. This Financial review also includes the headline financial results, cash flow and financing information as well as details on the principal risks and uncertainties.
The Directors have reviewed the Group's forecasts and cash flows, including reviewing a number of scenarios in connection with the future financial performance of the UK business, and 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 financial statements.
In addition, the Directors have considered the issues facing the UK business at this time in relation to the carrying value of goodwill and other assets and have concluded that there is no impairment of these assets.
David Bower
Interim Chief Financial Officer
22 May 2012
Responsibility statement
The responsibility statement below has been prepared in connection with the Company's full annual report for the year ending 31 March 2012. Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
-- the financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
-- the management report, which is incorporated into the Directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.
This responsibility statement was approved by the Board of Directors on 22 May 2012 and is signed on its behalf by:
Richard Harpin
Chief Executive
Martin Bennett
Chief Operating Officer
Group Income Statement
Year ended 31 March 2012
2012 2011
Note GBPm GBPm
------------------------------------------ ----- -------- --------
Continuing operations
Revenue 3 534.7 467.1
Operating costs (452.4) (365.7)
Share of profit of joint ventures 3.0 5.5
------------------------------------------ ----- -------- --------
Operating profit 85.3 106.9
Investment income 0.1 0.1
Finance costs (2.3) (2.2)
Gain on re-measurement of joint
venture interest on acquisition
of control 4 54.9 -
------------------------------------------ ----- -------- --------
Profit before tax, exceptional
expenditure, amortisation of
acquisition intangibles, re-measurement
gain and tax on joint ventures 126.0 117.1
Exceptional expenditure 4 (31.1) -
Amortisation of acquisition
intangibles (10.4) (9.3)
Gain on re-measurement of joint
venture interest on acquisition
of control 4 54.9 -
Tax on joint ventures (1.4) (3.0)
------------------------------------------ ----- -------- --------
Profit before tax 138.0 104.8
Tax 5 (23.7) (27.9)
------------------------------------------ ----- -------- --------
Profit for the year, being
attributable to equity holders
of the parent 114.3 76.9
------------------------------------------ ----- -------- --------
Dividends per share, paid and
proposed 6 11.3p 10.3p
Earnings per share 7
Basic 35.4p 24.0p
Diluted 34.6p 23.3p
------------------------------------------ ----- -------- --------
Group Balance Sheet
31 March 2012
2012 2011
Note GBPm GBPm
---------------------------------- ----- -------- --------
Non-current assets
Goodwill 260.9 192.1
Other intangible assets 142.3 65.6
Property, plant and equipment 37.5 38.5
Interests in joint ventures - 7.6
Deferred tax assets 3.7 5.6
---------------------------------- ----- -------- --------
444.4 309.4
---------------------------------- ----- -------- --------
Current assets
Inventories 1.5 2.0
Trade and other receivables 291.1 247.5
Cash and cash equivalents 8 52.8 16.1
---------------------------------- ----- -------- --------
345.4 265.6
---------------------------------- ----- -------- --------
Total assets 789.8 575.0
---------------------------------- ----- -------- --------
Current liabilities
Trade and other payables (230.8) (222.9)
Current tax liabilities (8.8) (16.1)
Provisions 9 (21.0) -
Obligations under finance leases (0.4) (0.3)
Bank and other loans 8 - (27.9)
---------------------------------- ----- -------- --------
(261.0) (267.2)
---------------------------------- ----- -------- --------
Net current assets/(liabilities) 84.4 (1.6)
---------------------------------- ----- -------- --------
Non-current liabilities
Bank and other loans 8 (117.8) -
Other financial liabilities (15.8) (19.4)
Retirement benefit obligation (0.6) (0.1)
Deferred tax liabilities (27.6) -
Obligations under finance leases (0.6) (0.1)
---------------------------------- ----- -------- --------
(162.4) (19.6)
---------------------------------- ----- -------- --------
Total liabilities (423.4) (286.8)
---------------------------------- ----- -------- --------
Net assets 366.4 288.2
---------------------------------- ----- -------- --------
Equity
Share capital 10 8.2 8.2
Share premium account 38.1 36.7
Merger reserve 71.0 71.0
Own shares reserve (19.1) (21.5)
Share incentive reserve 8.6 8.1
Capital redemption reserve 1.2 1.2
Currency translation reserve 3.9 7.8
Retained earnings 254.5 176.7
---------------------------------- ----- -------- --------
Total equity 366.4 288.2
---------------------------------- ----- -------- --------
Group Statement of Comprehensive Income
Year ended 31 March 2012
2012 2011
GBPm GBPm
----------------------------------- ------ ------
Profit for the year 114.3 76.9
Exchange movements on translation
of foreign operations (3.9) (0.9)
Actuarial (loss)/gain on defined
benefit pension scheme (1.2) 3.7
Tax credit/(charge) relating
to components of other
comprehensive income 0.1 (1.3)
----------------------------------- ------ ------
Total comprehensive income
for the year attributable to
equity holders of the parent 109.3 78.4
----------------------------------- ------ ------
Group Statement of Changes in Equity
Year ended 31 March 2012
Share Own Share Capital Currency
Share premium Merger shares incentive redemption translation Retained Total
capital account reserve reserve reserve reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- --------- --------- --------- ---------- ----------- ------------ --------- --------
Balance at
1 April 2011 8.2 36.7 71.0 (21.5) 8.1 1.2 7.8 176.7 288.2
Total
comprehensive
income - - - - - - (3.9) 113.2 109.3
Dividends
paid - - - - - - - (34.2) (34.2)
Issue of share
capital - 1.4 - - - - - - 1.4
Issue of trust
shares - - - 2.4 - - - (1.6) 0.8
Share-based
payments - - - - 1.7 - - - 1.7
Share options
exercised - - - - (1.2) - - 1.2 -
Tax on
exercised
share options - - - - - - - 1.1 1.1
Deferred tax
on share
options - - - - - - - (1.9) (1.9)
--------------- -------- --------- --------- --------- ---------- ----------- ------------ --------- --------
Balance at
31 March 2012 8.2 38.1 71.0 (19.1) 8.6 1.2 3.9 254.5 366.4
--------------- -------- --------- --------- --------- ---------- ----------- ------------ --------- --------
Year ended 31 March 2011
Share Own Share Capital Currency
Share premium Merger shares incentive redemption translation Retained Total
capital account reserve reserve reserve reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- --------- --------- --------- ---------- ----------- ------------ --------- --------
Balance at
1 April 2010 8.2 36.1 71.0 (24.9) 6.5 1.2 8.7 127.2 234.0
Total
comprehensive
income - - - - - - (0.9) 79.3 78.4
Dividends
paid - - - - - - (31.3) (31.3)
Issue of share
capital - 0.6 - - - - - - 0.6
Issue of trust
shares - - - 3.4 - - - (1.5) 1.9
Share-based
payments - - - - 2.9 - - - 2.9
Share options
exercised - - - - (1.3) - - 1.3 -
Tax on
exercised
share options - - - - - - - 1.7 1.7
--------------- -------- --------- --------- --------- ---------- ----------- ------------ --------- --------
Balance at
31 March 2011 8.2 36.7 71.0 (21.5) 8.1 1.2 7.8 176.7 288.2
--------------- -------- --------- --------- --------- ---------- ----------- ------------ --------- --------
Group Cash Flow Statement
Year ended 31 March 2012
2012 2011
Note GBPm GBPm
------------------------------------ ----- -------- -------
Operating profit 85.3 106.9
Adjustments for:
Depreciation of property, plant
and equipment 7.2 4.9
Amortisation of intangible
assets 20.4 15.0
Impairment 3.9 -
Share-based payments expense 1.7 2.8
Share of profit of joint ventures (3.0) (5.5)
Gain on disposal of property,
plant and equipment and software - (0.1)
------------------------------------ ----- -------- -------
Operating cash flows before
movements in working capital 115.5 124.0
Decrease/(increase) in inventories 0.5 (0.1)
Increase in receivables (0.4) (10.4)
(Decrease)/Increase in payables (1.3) 5.5
------------------------------------ ----- -------- -------
Net movement in working capital (1.2) (5.0)
Cash generated by operations 114.3 119.0
Income taxes paid (33.3) (23.8)
Interest paid (3.3) (1.4)
------------------------------------ ----- -------- -------
Net cash inflow from operating
activities 77.7 93.8
------------------------------------ ----- -------- -------
Investing activities
Interest received 0.1 0.1
Dividend from joint venture 3.5 3.7
Proceeds on disposal of property,
plant and equipment 0.7 0.9
Purchases of intangible assets (12.8) (5.0)
Purchases of property, plant
and equipment (4.8) (7.4)
Net cash outflow on acquisitions 11 (87.8) (16.2)
Net cash used in investing
activities (101.1) (23.9)
------------------------------------ ----- -------- -------
Financing activities
Dividends paid 6 (34.2) (31.3)
Issue of shares from the employee
benefit trust 0.8 1.8
Proceeds on issue of share
capital 1.4 0.6
Increase/(decrease) in bank
and other loans 92.7 (50.4)
------------------------------------ ----- -------- -------
Net cash from/(used in) financing
activities 60.7 (79.3)
------------------------------------ ----- -------- -------
Net increase/(decrease) in
cash and cash equivalents 37.3 (9.4)
------------------------------------ ----- -------- -------
Cash and cash equivalents at
beginning of year 16.1 25.4
Effect of foreign exchange
rate changes (0.6) 0.1
------------------------------------ ----- -------- -------
Cash and cash equivalents at
end of year 52.8 16.1
------------------------------------ ----- -------- -------
Notes to the condensed set of financial statements
1. General information
While the financial information included in this preliminary announcement has been computed in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) adopted for use by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. The Company will publish full financial statements that comply with IFRSs in June 2012.
The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 March 2012 or 31 March 2011, but is derived from those financial statements. Statutory financial statements for 2011 prepared under IFRSs have been delivered to the Registrar of Companies and those for 2012 will be delivered following the Company's Annual General Meeting. The auditors, Deloitte LLP, have reported on those financial statements; their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) Companies Act 2006. These financial statements were approved by the Board of Directors on 22 May 2012.
2. Accounting policies
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, except as described below.
Adoption of new or revised standards and accounting policies
IAS24 (2009) Related Party Disclosures, Amendments to IFRIC14 (2009), IFRIC19 and 'Improvements to IFRSs (2010)' have been adopted in the year but their adoption has not had any significant impact on the amounts reported in these financial statements.
3. Segmental analysis
IFRS8 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 Group Chief Executive, to allocate resources to the segments and to assess their performance.
New
UK Domeo Spain USA Markets Total
2012 GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------- ------- ------ ------ --------- -------
Revenue
Total revenue 353.5 51.8 60.2 82.3 11.6 559.4
Inter-segment (4.1) - - - - (4.1)
Joint venture revenue
not recognisable for statutory
reporting - (20.6) - - - (20.6)
---------------------------------- ------- ------- ------ ------ --------- -------
External revenue 349.4 31.2 60.2 82.3 11.6 534.7
---------------------------------- ------- ------- ------ ------ --------- -------
Result
Segment operating profit/(loss)
pre amortisation of acquisition
intangibles, exceptional
expenditure and tax on
joint ventures 103.1 16.7 2.8 9.0 (3.4) 128.2
Exceptional expenditure (24.2) (3.0) - - (3.9) (31.1)
Amortisation of acquisition
intangibles (1.1) (1.5) (1.7) (4.0) (2.1) (10.4)
Tax on joint ventures - (1.4) - - - (1.4)
---------------------------------- ------- ------- ------ ------ --------- -------
Operating profit/(loss) 77.8 10.8 1.1 5.0 (9.4) 85.3
---------------------------------- ------- ------- ------ ------ --------- -------
Investment income 0.1
Finance costs (2.3)
Gain on re-measurement
of joint venture interest
on acquisition of control 54.9
---------------------------------- ------- ------- ------ ------ --------- -------
Profit before tax 138.0
Tax (23.7)
---------------------------------- ------- ------- ------ ------ --------- -------
Profit for the year 114.3
---------------------------------- ------- ------- ------ ------ --------- -------
3. Segmental analysis (continued)
New
UK Domeo Spain USA Markets Total
2011 GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------ ------- ------ ------ --------- -------
Revenue
Total revenue 358.9 32.3 48.8 52.6 9.9 502.5
Inter-segment (3.1) - - - - (3.1)
Joint venture revenue
not recognisable for statutory
reporting - (32.3) - - - (32.3)
---------------------------------- ------ ------- ------ ------ --------- -------
External revenue 355.8 - 48.8 52.6 9.9 467.1
---------------------------------- ------ ------- ------ ------ --------- -------
Result
Segment operating profit/(loss)
pre amortisation of acquisition
intangibles and tax on
joint ventures 104.3 8.2 1.7 6.1 (1.1) 119.2
Amortisation of acquisition
intangibles (1.4) - (1.7) (2.6) (3.6) (9.3)
Tax on joint ventures - (3.0) - - - (3.0)
---------------------------------- ------ ------- ------ ------ --------- -------
Operating profit/(loss) 102.9 5.2 - 3.5 (4.7) 106.9
---------------------------------- ------ ------- ------ ------ --------- -------
Investment income 0.1
Finance costs (2.2)
Profit before tax 104.8
Tax (27.9)
---------------------------------- ------ ------- ------ ------ --------- -------
Profit for the year 76.9
---------------------------------- ------ ------- ------ ------ --------- -------
4. Exceptional items
Gain on re-measurement of joint venture interest on acquisition of control
The Group acquired the remaining 51% equity interest in Domeo (and its subsidiary Domeo Assistance) from its joint venture partner on 7 December 2011. As required by IFRS3 (2008) Business Combinations, this acquisition has resulted in the joint venture interest being re-measured to its fair value at the acquisition date. The deemed disposal of the former joint venture interest has generated a gain of GBP54.9m. The acquisition of control is shown in note 11.
Exceptional expenditure
Exceptional expenditure of GBP31.1m has been incurred and provided in the following three areas:
UK matters
As a result of the sales, marketing and customer complaints handling issues identified during the year, there are a number of one-off charges amounting to GBP24.2m which include the following areas:
(i) re-organisation and redundancy costs have been incurred and provided for as a result of the extensive change programme that is now being implemented in the UK business;
(ii) additional third party support costs have been incurred and provided for in relation to reviewing scripts, policy documentation terms and conditions and call monitoring;
(iii) costs in relation to the re-contacting of customers including, where appropriate, compensation payments, have been provided for; and
(iv) the Ofcom regulatory fine imposed in April 2012 has been provided for.
The total costs settled in cash to date amount to GBP3.2m, the remainder is provided for as set out in note 9.
Items (i) to (iii) above are key sources of estimation uncertainty for the Group. There are a number of significant assumptions supporting the expected level of expenditure including the number of customers, the amount of compensation awarded, response rate and upheld rate. Moreover, these programmes of remediation are still in their early stages and hence there is limited comparable data available in the Group against which to assess these judgements. As a result, the exceptional expenditure recognised, whilst representing the Directors' best estimate at the time, is subject to uncertainty and the outcome may be different.
Disposal of Belgian businesses
During the year, a loss of GBP3.9m was incurred relating to the reduction in the carrying value of goodwill in the Group's Belgian operations. After recording this charge, the business disposal process completed at nil gain or loss.
Domeo acquisition costs
In respect of the acquisition of the Domeo business, there were costs of GBP3.0m relating to legal and financial advisory services and other related costs.
5. Tax
In order to calculate an effective tax rate that reflects the ongoing tax burden of the Group, it is necessary to take account of the effect of joint venture results (which are shown net of tax within statutory profit before tax) on the Group's profits and tax for the year and also exclude both the GBP54.9m exceptional one-off gain on re-measurement of joint venture interest on acquisition of full control and the GBP3.9m reduction in the carrying value of goodwill in our Belgian businesses. Adjusting the tax rate to include the tax relating to joint ventures and excluding the above exceptional items (an adjusted tax charge of GBP25.1m) and similarly grossing up for the joint venture tax on the statutory profit before tax (excluding the above exceptional items), the underlying joint venture adjusted tax rate is 28.4% (2011: 28.6%).
2012 2011
GBPm GBPm
------------------ ----- ------
Current tax 23.1 32.1
Deferred tax 0.6 (4.2)
------------------
Total tax charge 23.7 27.9
------------------ ----- ------
6. Dividends per share
An interim dividend of 3.63p per share amounting to GBP11.7m (2011: 3.3p per share amounting to GBP10.6m) was paid on 3 January 2012.
The proposed final dividend for the year ended 31 March 2012 of 7.67p per share amounting to GBP24.8m (2011: 7.0p per share amounting to GBP22.5m) will be paid on 1 August 2012 to the shareholders on the register at the close of business on 29 June 2012, subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
7. Earnings per share
Basic and diluted earnings per ordinary share have been calculated in accordance with IAS33 Earnings Per Share. Basic earnings per share is calculated by dividing the profit or loss in the financial year by the weighted average number of ordinary shares in issue during the period. Adjusted earnings per share is calculated excluding exceptional items (note 4), amortisation of acquisition intangibles and the gain on re-measurement of joint venture interest on acquisition of control. This is considered to be a better indicator of the performance of the Group. As profit for the year and adjusted profit for the year are stated after tax, it is not considered necessary to include in the reconciliation below the impact of the adjustment for the tax charge on joint ventures of GBP1.4m (2011: GBP3.0m). Diluted earnings per share includes the impact of dilutive share options in issue throughout the period.
2012 2011
pence pence
------------------ ------ ------
Basic 35.4 24.0
Diluted 34.6 23.3
------------------ ------ ------
Adjusted basic 28.0 25.9
Adjusted diluted 27.3 25.2
------------------ ------ ------
The calculation of the basic and diluted earnings per share is based on the following data:
Number of shares
2012 2011
m m
----------------------------------- ------ ------
Weighted average number of shares
Basic 322.5 320.8
Dilutive impact of share options 7.5 9.2
Diluted 330.0 330.0
----------------------------------- ------ ------
Earnings
2012 2011
GBPm GBPm
------------------------------------------- ------- ------
Profit for the year 114.3 76.9
Exceptional expenditure (note 4) 31.1 -
Amortisation of acquisition intangibles 10.4 9.3
Gain on re-measurement of joint venture
interest on acquisition of control (note
4) (54.9) -
Tax impact arising on amortisation of
acquisition intangibles and exceptional
costs (10.7) (3.0)
------------------------------------------- ------- ------
Adjusted profit for the year 90.2 83.2
------------------------------------------- ------- ------
8. Analysis of net debt
2012 2011
GBPm GBPm
---------------------------------- ----------- -------
Cash and cash equivalents (52.8) (16.1)
Bank loans 117.8 27.9
Obligations under finance leases 1.0 -
Net debt 66.0 11.8
---------------------------------- ----------- -------
9. Provisions and contingent liabilities
Provisions
UK matters GBPm --------------------- ------ At 1 April 2011 - Created in the year 24.2 Utilised (3.2) --------------------- ------ At 31 March 2012 21.0 --------------------- ------
The above provision represents management's best estimate of the Group's liability relating to the UK issues identified in the year. The provision is expected to be utilised within the next 12-18 months and is comprised of a number of one-off costs relating to re-organisation, redundancy, additional third party support, re-contacting of customers, compensation and the Ofcom fine. The provision has been based on management's forecasts which include initial pilot re-contact exercises. The assumptions used relating to the number of customers, level of compensation, response rate and upheld rate require the use of judgement and estimation.
Contingent liabilities
As set out in the Chairman's statement, Chief Executive's review and Financial review, we continue to develop our responses to the issues identified in our UK business, including being in regular dialogue with the FSA. There is currently no certainty as to the nature or extent of the action, if any, that the FSA may seek to take following the conclusion of its investigation and accordingly any related financial effect, which could include a fine, cannot be estimated reliably. As a result, no provisions have been made in this regard in the current year.
10. Share capital
2012 2011
GBPm GBPm
------------------------------------- ----- -----
Issued and fully paid:
329,873,000 ordinary shares of 2.5p
each (31 March 2011: 328,975,000
ordinary shares of 2.5p each) 8.2 8.2
------------------------------------- ----- -----
During the year, the Company issued 898,000 shares with a nominal value of 2.5p creating share capital of GBP22,000 and share premium of GBP1,382,000. In the prior year, the Company issued 270,000 shares with a nominal value of 2.5p (adjusted for share split) creating share capital of GBP7,000 and share premium of GBP559,000.
11. Business Combinations
On 7 December 2011, the Group acquired 51% of the issued share capital of Domeo SA, formerly its joint venture interest in France of which the Group owned 49% prior to the acquisition date. As a result of the acquisition, Domeo SA and its subsidiary Domeo Assistance SA (together Domeo) are now 100% owned by the Group. Domeo is a leader in the provision of insured home emergency policies in France with 0.89m customers and 2.33m policies. The acquisition provides the Group with full control of Domeo and will enable it to develop Domeo's product range further and broaden the range of affinity partners in France.
As part of the acquisition, Veolia agreed a long term marketing agreement providing Domeo with continued use of Veolia's brands in France.
The recognised amounts of identifiable assets acquired and liabilities assumed are set out in the table below:
Domeo Fair
Value
GBPm
------------------------------------------- -----------
Net assets acquired:
Intangible assets 86.9
Property, plant, equipment 1.8
Trade and other receivables 42.7
Cash and cash equivalents 1.4
Trade and other payables (32.7)
Current tax liabilities (4.5)
Deferred tax liabilities (28.0)
------------------------------------------- -----------
Total identifiable net assets 67.6
Goodwill 77.5
------------------------------------------- -----------
Total consideration 145.1
------------------------------------------- -----------
Satisfied by:
Cash 83.4
Fair value of joint venture interest
previously owned 61.7
------------------------------------------- -----------
145.1
------------------------------------------- -----------
Net cash outflow arising on acquisition:
Cash consideration 83.4
Cash and cash equivalents acquired (1.4)
------------------------------------------- -----------
82.0
------------------------------------------- -----------
The accounting for this business combination has been prepared on a provisional basis as new information regarding the identifiable assets and liabilities as at the acquisition date may arise during the measurement period, being a period of not more than one year from the date of acquisition.
The provisional fair value adjustments recognised on the acquisition of Domeo relate to accelerated depreciation of accounting software and tax adjustments. Goodwill of GBP77.5m arose from the acquisition.
The goodwill arising on the excess of consideration over the fair value of the assets and liabilities acquired represents future cross-sell opportunities, efficiency savings and synergies.
Costs in respect of the acquisition of the business, relating to legal and financial advisory services and other related costs of GBP3.0m, were expensed to the operating results and presented as an exceptional item. Refer to note 4 for more details.
Domeo contributed GBP31.2m in revenue and a profit after tax of GBP7.1m since acquisition on 7 December 2011. If the acquisition had been completed on the first day of the financial year, group revenues for the period would have been GBP576.7m and group profit after tax for the year would have been GBP117.5m.
In addition to the Domeo acquisition set out above, the Group has also completed a number of smaller acquisitions for total consideration of GBP1.3m which resulted in an equal amount of acquisition intangibles being recognised. Contingent and deferred consideration of GBP4.5m was also paid in the year which related to prior period acquisitions, resulting in a total net cash outflow of GBP87.8m.
12. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its related parties are disclosed below.
Trading transactions
During the year, Group companies entered into the following transactions with related parties which are not members of the Group:
Amounts
owed by Amounts owed
Provision Purchases related to
of services of services parties related parties
2012 2011 2012 2011 2012 2011 2012 2011
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- ------ ------- ------ ----- ----- --------- --------
Harpin Limited - - 0.2 0.5 - - - 0.1
Joint ventures 1.1 1.7 0.2 0.9 - 0.4 - 0.4
---------------- ------- ------ ------- ------ ----- ----- --------- --------
Harpin Limited is a related party of the Group because it is controlled by Richard Harpin, Chief Executive Officer of the Group and Director of the parent company of the Group.
In addition to the transactions above, Home Service USA Corp purchased advisory services of GBP0.1m in the prior year from Lexicon Partners (US) LLC. Lexicon Partners (US) LLC, is a New York (USA) based subsidiary of the Lexicon Partnership LLP, a UK based limited liability partnership of which Andrew Sibbald, a former Non-Executive Director, was a Senior Partner. Evercore Partners International Limited LLP acquired Lexicon Partners and Andrew Sibbald serves as a Senior Managing Director of the enlarged business.
Provision of services to and the purchase of services from related parties were made at arm's length prices. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
13. Events after the balance sheet date
There were no post balance sheet events between the balance sheet date and the signing of the financial statements.
14. Other information
The Annual Report and Accounts for the year ended 31 March 2012 was approved by the Board on 22 May 2012 and will be made available on the Company's website and posted to those shareholders who have requested it in June 2012. Copies will be available from the registered office at Cable Drive, Walsall, WS2 7BN.
Forward Looking Statements and Other Information
This preliminary announcement 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DGGDUGXDBGDB
1 Year Homeserve Chart |
1 Month Homeserve Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
