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| 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 May 2019 to May 2024
TIDMHSV
RNS Number : 8200H
Homeserve Plc
20 November 2018
HomeServe plc
Interim results for the six months ended 30 September 2018
Hot Features
Premium
Six months Six months
ended ended
----------
30 September 30 September
2018 2017 Change(1)
---------------------------- ------------- ------------- ----------
Revenue GBP404.3m GBP366.0m +10%
Statutory operating profit GBP24.6m GBP27.5m -11%
Statutory profit before
tax GBP19.3m GBP21.2m -9%
Basic earnings per share 4.6p 5.1p -10%
EBITDA GBP60.5m GBP56.1m +8%
Adjusted(2) operating
profit GBP37.1m GBP35.3m +5%
Adjusted(2) profit before
tax GBP31.8m GBP29.0m +10%
Adjusted(2) earnings per
share 7.5p 6.8p +10%
Ordinary dividend per
share 5.2p 4.7p +11%
Net debt GBP291.9m GBP304.0m -4%
Total customers 8.3m 7.8m +5%
----------------------------- ------------- ------------- ----------
Strong operational performance and good progress on growth initiatives across the business
-- Adjusted PBT up 10% in the seasonally quieter first half to GBP31.8m; statutory PBT down 9%, reflecting straight-line amortisation charges linked to prior period acquisitions
-- Improved performance in the UK, with adjusted operating profit up 11% to GBP10.2m and three new energy partners signed
-- Continued strong growth in North America, with adjusted operating profit up 28% to $18.9m
-- Good progress with business development in France, with a new long-term contract signed with Veolia
-- Adjusted operating profit in Spain up 9% to EUR9.8m, in line with expectations
-- Excellent progress in Home Experts, with Trades subscribers up 17% to 54k and website visits up 17% to 51.7m, indicating increased consumer engagement
-- Strong financial position: over GBP200m headroom against total debt facilities at 30 September 2018; additional GBP174.2m arranged via a US private placement on 25 October 2018
-- Interim dividend up 11% to 5.2p
Richard Harpin, Founder and Group Chief Executive, HomeServe plc, commented: "We have delivered a strong first half and remain confident in our growth prospects for the full year. Business performance has been good in all our geographies and we have made progress on strategic initiatives in all four of our global business lines.
"HomeServe has just celebrated its 25(th) anniversary. I am as excited as ever by the opportunities to continue to build our business so that we can help homeowners with every job, in every home."
(1) Percentage movements throughout this announcement are based on full underlying results, not the rounded figures in the tables
(2)HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. APMs used in this announcement are non-GAAP measures which address profitability, leverage and liquidity and together with operational KPIs give an indication of the current health and future prospects of the Group. Definitions of APMs and the rationale for their usage are included in the Glossary at the end of this announcement with a reconciliation, where applicable, back to the equivalent statutory measure.
Results presentation
A presentation for analysts and investors will take place at 10am this morning at UBS, 5 Broadgate, London EC2M 2QS. There will be an audio webcast with a facility to ask questions, available via www.homeserveplc.com.
This is accompanied by a listen-only conference call with details as follows;
- United Kingdom 0800 358 9473 PIN: 65922933#
Toll-Free
- United Kingdom +44 3333 000 804 PIN: 65922933#
Toll
----------------- ---------------
Enquiries
HomeServe Tulchan Group
Miriam McKay - Group Communications Martin Robinson
and IR Director Lisa Jarrett-Kerr
Miriam.McKay@homeserve.com
+44 7795 062564
homeserve@tulchangroup.com
Simon Lewis - Head of Investor Relations +44 207 353 4200
Simon.Lewis@homeserve.com
+44 7970 840694
About HomeServe
HomeServe is an international home repairs and improvements business which provides people with access to tradespeople and technology to run their homes more easily. HomeServe is listed on the London Stock Exchange, with a market capitalisation of c.GBP3.1 billion.
Performance metrics for the six months ended 30 September
Affinity partner Customer
households (m) numbers (m) Policy retention
rate
2018 2017 2018 2017 2018 2017
---------------- ------------------- ----- ----------------- ----- ------------ -----------
UK 26 24 2.1 2.2 79% 80%
North America 55 53 3.7 3.1 83% 82%
France 15 15 1.1 1.0 88% 89%
Spain - 12 1.2 1.3 80% 78%
New Markets 1 1 0.2 0.2 - -
---------------- ------------------- ----- ----------------- ----- ------------ -----------
Group 97 105 8.3 7.8 82% 82%
---------------- ------------------- ----- ----------------- ----- ------------ -----------
Financial performance for the six months ended 30 September
Statutory operating Adjusted operating
Revenue profit/(loss) profit/(loss)
GBPmillion 2018 2017 2018 2017 2018 2017
--------------- ------ ------- ------------ ------------ ------------ -----------
UK 155.7 142.8 9.1 8.2 10.2 9.1
North America 130.5 117.8 8.4 8.0 14.0 11.4
France 36.8 35.3 4.2 6.2 7.5 9.4
Spain 65.8 67.6 8.6 7.8 8.6 7.9
New Markets 18.2 5.4 (5.7) (2.7) (3.2) (2.5)
Inter-segment (2.7) (2.9) - - - -
--------------- ------ ------- ------------ ------------ ------------ -----------
Group 404.3 366.0 24.6 27.5 37.1 35.3
--------------- ------ ------- ------------ ------------ ------------ -----------
Inter-segment revenue principally includes royalty charges between the UK and international businesses.
Strategic update
In the course of the first half, HomeServe made good progress expanding its four global, recurring revenue business lines - Membership, HVAC, Home Experts and Smart Home. The Membership business under Tom Rusin's leadership is looking to accelerate growing its utility partners, particularly amongst municipalities and energy companies. In HVAC, the Group's buy and build strategy is off to a good start, with acquisitions of small, well-established local installation specialists in France, Spain and the US. In Smart Home, there has been further progress in developing a subscription-based business model for LeakBot, with a test partnership now in place with UK insurer Hiscox and small scale testing under way in the US. In Home Experts, the Checkatrade management team has been strengthened with the arrival of Mike Fairman, previously CEO of giffgaff, in October. Total web visitors to Checkatrade and Habitissimo have increased by 17% to 51.7m, the total number of subscription paying Trades has increased by 17% to 54k and underlying revenue in Checkatrade increased by 30%.
Financing and leverage
Net debt at 30 September was GBP291.9m (HY18: GBP304.0m). Headroom against the Group's total debt facilities was over GBP200m and leverage of 1.4x was within the Group's target range of 1.0x to 2.0x
net debt: EBITDA. After the half year on 25 October 2018, HomeServe arranged an additional GBP174.2m of funding via a US Private Placement. This expands the Group's existing facilities, locks in a proportion of its interest charge at fixed rates and creates a balanced maturity profile.
Dividend
The interim dividend of 5.2p per share (HY18: 4.7p), an increase of 11%, will be paid on 7 January 2019 to shareholders on the register on 7 December 2018.
Change in directors' responsibilities
In a separate announcement this morning, HomeServe confirmed that Johnathan Ford, Group COO, will step down from the Board and leave the business on 31 December 2018. Chris Havemann will step down as a Non-Executive Director at the end of his three year term on 1 December 2018.
Outlook
HomeServe re-iterates its outlook from its Preliminary Results in May 2018. HomeServe has good prospects for growth in FY19 with attractive opportunities in all its geographies.
UK
UK results GBPmillion HY19 HY18 Change
------------------------------ -------- -------- -------
Revenue
Net policy income 86.5 83.6 +3%
Repair network 51.7 46.8 +11%
------------------------------- -------- -------- -------
Membership 138.2 130.4 +6%
Other 17.5 12.4 +41%
Total revenue 155.7 142.8 +9%
------------------------------- -------- -------- -------
Adjusted operating costs (145.5) (133.7) +9%
------------------------------- -------- -------- -------
Adjusted operating profit 10.2 9.1 +11%
------------------------------- -------- -------- -------
Adjusted operating margin 7% 6% +1ppt
------------------------------- -------- -------- -------
UK Membership KPIs HY19 HY18 Change
----------------------------- ----- ----- ----- -------
Affinity partner households m 26 24 +8%
Customers m 2.1 2.2 -3%
Income per customer GBP 109 97 +13%
Policies m 5.8 5.5 +5%
Policy retention rate % 79 80 -1ppt
----------------------------- ----- ----- ----- -------
Financial performance
Total revenue increased by 9% to GBP155.7m, with increases in all income streams.
Net policy income increased by 3% to GBP86.5m due to a GBP12 increase in income per customer to GBP109 as customers built their coverage and moved off introductory pricing. Repair revenue increased 11% to GBP51.7m as a result of an 8% increase in completed jobs and an increased mix of higher value HVAC repairs, as customers continued to use their products more often and to benefit from their increased coverage.
Other income was up 41% to GBP17.5m principally due to a full six months of revenue from Help-Link, an HVAC business acquired in August 2017.
Adjusted operating costs increased 9% to GBP145.5m as a result of a full six months of Help-Link as well as the costs associated with higher repair volumes. The cost of HomeServe's directly employed engineer network is carried throughout the quieter first half of the year but becomes increasingly efficient as claims volumes rise over the winter.
Adjusted operating profit of GBP10.2m was 11% higher than HY18 due mostly to the decision taken in March 2018 to reduce headcount as part of an ongoing drive to reduce complexity and introduce further efficiency into the UK operations.
Adjusted operating margin of 7% was as expected, due to the seasonality of the business where the majority of profits are earned in the second half of the year.
Operational performance
Total customers were 2.1m (HY18: 2.2m). The UK customer base has been stable at 2.1m for a number of years and had grown to 2.2m with complementary M&A such as the AA and npower policy books. Small policy books that reside with utilities and other home assistance providers continue to be appraised as further potential inorganic opportunities.
HomeServe's UK customers are choosing more cover with the total number of policies increasing 5% to 5.8m. The resultant increase in policies per customer, combined with customers maturing through the introductory pricing journey and renewing on to full priced products, drove income per customer up 13% to GBP109. Customers choosing HomeServe's products are also using them more, with claims completed by HomeServe's network of 1,035 engineers and 249 subcontractors (HY18: 903 and 249 respectively) up 8% on the prior period to 0.5m. The retention rate of 79% (HY18: 80%) was in line with the last year end.
The business signed three new affinity partnerships in the energy sector with Green Star Energy, SO Energy and Tonik Energy. All three of these new partners are challenger brands in the retail energy space with a particular focus on providing energy from renewable sources. With consumer awareness and demand growing in this area, the new partnerships offer an interesting opportunity to develop a new channel by marketing HomeServe's products to the partners' existing customers and as part of their switching initiatives to attract new customers.
Last year's HVAC acquisition, Help-Link, has been integrated into the UK business and completed 5k installations in the first half. Private installations were up 7% year on year and there was a step up in BER (Beyond Economic Repair) work completed for the UK Membership customer base. Sharing the marketing capabilities of the Membership business and selling new boilers to HomeServe's existing customer base will be key to achieving the volumes that will enable Help-Link to grow its market share and profitability.
In Smart Home, progress continues towards creating a subscription-based commercial model with home insurers, with a new test agreement signed with Hiscox. There are now 10 active insurer partnerships which the LeakBot team is seeking to expand into larger deals. Initial testing has also begun in the US.
On 31 October 2018 the Financial Conduct authority (FCA) set out the issues it will focus on as part of a market study into how general insurance firms charge their customers for home and motor insurance. HomeServe is focussed on achieving the right customer outcome and fair pricing policies. Due to its comprehensive pricing disclosures whereby, after completing introductory offers, customers pay the same underlying premium regardless of their tenure, HomeServe considers any potential impact on its UK business to be immaterial but will continue to monitor the FCA's study closely.
North America
North America results US$million HY19 HY18 Change
---------------------------------- -------- -------- -------
Revenue
Net policy income 158.7 142.1 +12%
Repair network 4.9 3.5 +40%
----------------------------------- -------- -------- -------
Membership 163.6 145.6 +12%
Other 10.1 6.7 +51%
Total revenue 173.7 152.3 +14%
----------------------------------- -------- -------- -------
Adjusted operating costs (154.8) (137.6) +13%
----------------------------------- -------- -------- -------
Adjusted operating profit 18.9 14.7 +28%
----------------------------------- -------- -------- -------
Adjusted operating margin 11% 10% +1ppt
----------------------------------- -------- -------- -------
North America results GBPmillion HY19 HY18 Change
---------------------------------- -------- -------- -------
Revenue
Net policy income 119.2 110.0 +8%
Repair network 3.6 2.7 +32%
----------------------------------- -------- -------- -------
Membership 122.8 112.7 +9%
Other 7.7 5.1 +50%
Total revenue 130.5 117.8 +11%
----------------------------------- -------- -------- -------
Adjusted operating costs (116.5) (106.4) +10%
----------------------------------- -------- -------- -------
Adjusted operating profit 14.0 11.4 +22%
----------------------------------- -------- -------- -------
Adjusted operating margin 11% 10% +1ppt
----------------------------------- -------- -------- -------
North America Membership KPIs HY19 HY18 Change
------------------------------- ----- ----- ----- -------
Affinity partner households m 55 53 +5%
Customers m 3.7 3.1 +19%
Income per customer US$ 93 97 -4%
Policies m 5.9 4.8 +23%
Policy retention rate % 83 82 1ppt
------------------------------- ----- ----- ----- -------
Financial performance
Total revenue increased 14% to $173.7m. Membership revenue increased 12% driven by higher customer numbers and offset slightly by an expected reduction in income per customer. Other income increased by 51% to $10.1m due to the continued growth of the HVAC business and a higher number of installations.
HomeServe continues to invest in business development and marketing to grow the customer base. Other investments made in recent years in, for example, claims and network management systems, a new Chattanooga call centre and a strong support team are now resulting in increased operating leverage. Adjusted operating profit increased by 28% to $18.9m with a resultant one percentage point increase in first half margin to 11%. HomeServe remains committed and on course to achieve a future target margin of 20%.
Operational performance
North America has enjoyed another successful six months as the business continued its very strong progress. Total customers increased by 19% to 3.7m, with 10% of this growth being organic and 9% (0.3m customers) acquired with tranche 1 of Dominion Products and Services Inc. (DPS), which completed in December 2017.
Successful business development activities continued with 74 new partners added to take total partners in North America to over 600. Total households increased by 2m to 55m.
Tranche 2 of the acquisition of the DPS policy book completed after the half year on 26 October 2018, resulting in a c.$56m cash outflow and will add another 0.2m customers and 3m households. As with tranche 1, the second tranche is being integrated quickly and effectively and at minimal additional cost to the business. Marketing to tranche 2 customers is expected to commence in late November.
Income per customer was $93 (HY18: $97) due to the dilutive effect of recent M&A with USP and DPS. The medium term target of $100 remains achievable with the underlying income per customer excluding the customers of USP and DPS already at $101.
The functionality to book jobs via Interactive Voice Response (Smart IVR) over the phone without agent intervention went live in the first half and the launch of online claims will go live in the second half of the year. Smart IVR offers an efficient way to automate the booking process and together with online functionality will further improve the efficiency of the claims and network operations.
In June the North American business acquired Gregg Mechanical, a HVAC company based in the New York area. Gregg Mechanical is a well run HVAC business with a strong local reputation and represents HomeServe's latest step in capturing a piece of the estimated $29 billion annual HVAC business opportunity in the US.
France
France results EURmillion HY19 HY18 Change
------------------------------ ------- ------- -------
Revenue
Net policy income 39.5 39.9 -1%
Repair network 0.2 0.2 -3%
------------------------------- ------- ------- -------
Membership 39.7 40.1 -1%
Other 1.9 - -
Total revenue 41.6 40.1 +4%
------------------------------- ------- ------- -------
Adjusted operating costs (33.0) (29.8) +11%
------------------------------- ------- ------- -------
Adjusted operating profit 8.6 10.3 -17%
------------------------------- ------- ------- -------
Adjusted operating margin 21% 26% -5ppts
------------------------------- ------- ------- -------
France results GBPmillion HY19 HY18 Change
------------------------------ ------- ------- -------
Revenue
Net policy income 34.9 35.1 -1%
Repair network 0.2 0.2 -4%
------------------------------- ------- ------- -------
Membership 35.1 35.3 -1%
Other 1.7 - -
Total revenue 36.8 35.3 +4%
------------------------------- ------- ------- -------
Adjusted operating costs (29.3) (25.9) +13%
------------------------------- ------- ------- -------
Adjusted operating profit 7.5 9.4 -20%
------------------------------- ------- ------- -------
Adjusted operating margin 20% 27% -7ppts
------------------------------- ------- ------- -------
France Membership KPIs HY19 HY18 Change
----------------------------- ----- ----- ----- -------
Affinity partner households m 15 15 -
Customers m 1.1 1.0 +1%
Income per customer EUR 108 103 +5%
Policies m 2.3 2.3 -2%
Policy retention rate % 88 89 -1ppt
----------------------------- ----- ----- ----- -------
Financial performance
Total revenue increased by 4% to EUR41.6m as a result of EUR1.9m other income principally generated by Electrogaz, which was not owned in the prior interim period.
Net policy income was EUR39.5m (HY18: EUR39.9m). The benefit of higher customer numbers and an increase in income per customer will be mostly realised in the second half as customers reach their renewal dates.
Adjusted operating costs rose by 11% to EUR33.0m (HY18: EUR29.8m) principally due to the consolidation of Electrogaz and further investment to grow the HVAC business. Additional marketing and business development costs are expected to drive customer acquisition and revenue in the second half. Adjusted operating margin was 21% (HY18: 26%) as a result of these investments but is expected to remain the highest in the Group at around 30% for the full year.
Operational performance
Customers increased by 1% to 1.1m and retention remained the highest in the Group at 88% (HY18: 89%).
The growth of the French business over the past 17 years has been founded on the strength of the partnership with Veolia, and this has now been extended until 2026. The deal not only secures the current shape of the affinity partner agreement, with Veolia providing its support for direct mail and renewal activities; but also introduces new channels and opportunities to drive further growth through Veolia's "HomeFriend" subsidiary.
HomeFriend is Veolia's initiative to transform its operations by improving customer experience and accelerating the use of digital and AI (Artificial Intelligence) tools. The partnership enables HomeServe to drive new customer acquisition not only by direct mail but also telephony and digital channels with HomeFriend's agents selling HomeServe products directly in its own call centre. Such sales will drive similar partner payments within capital expenditure as seen with Suez (also in France) and previously with Endesa (in Spain).
The affinity partner pipeline remains strong and new initiatives have also begun to open up the municipal water market. Small / mid-size municipals provide water to over 4m French households and HomeServe is now applying the experience and approach used for the municipal water market in the US to France.
Electrogaz, the French HVAC business acquired in December 2017, has delivered incremental revenue and is combining well with the core Membership business to add value to its existing operations through cross selling plumbing and electrical products to its heating customers, and by marketing heating products and installations to the Membership customer base. The French HVAC strategy took another step forward on 1 October with a small asset purchase from a business based close to Electrogaz, extending Electrogaz's local reach.
Spain
Spain results EURmillion HY19 HY18 Change
------------------------------ ------- ------- -------
Revenue
Net policy income 30.0 29.8 +1%
Repair network 43.6 47.1 -7%
------------------------------- ------- ------- -------
Membership 73.6 76.9 -4%
Other 0.8 - -
Total revenue 74.4 76.9 -3%
------------------------------- ------- ------- -------
Adjusted operating costs (64.6) (67.9) -5%
------------------------------- ------- ------- -------
Adjusted operating profit 9.8 9.0 +9%
------------------------------- ------- ------- -------
Adjusted operating margin 13% 12% +1ppt
------------------------------- ------- ------- -------
Spain results GBPmillion HY19 HY18 Change
------------------------------ ------- ------- -------
Revenue
Net policy income 26.5 26.1 +2%
Repair network 38.5 41.5 -7%
------------------------------- ------- ------- -------
Membership 65.0 67.6 -4%
Other 0.8 - -
Total revenue 65.8 67.6 -3%
------------------------------- ------- ------- -------
Adjusted operating costs (57.2) (59.7) -4%
------------------------------- ------- ------- -------
Adjusted operating profit 8.6 7.9 +9%
------------------------------- ------- ------- -------
Adjusted operating margin 13% 12% +1ppt
------------------------------- ------- ------- -------
Spain Membership KPIs HY19 HY18 Change
----------------------------- ----- ----- ----- -------
Affinity partner households m - 12 -100%
Customers m 1.2 1.3 -7%
Income per customer EUR 51 46 +12%
Policies m 1.4 1.5 -5%
Policy retention rate % 80 78 +2ppts
----------------------------- ----- ----- ----- -------
Financial performance
Net policy income of EUR30.0m (HY18: EUR29.8m) was in line with the prior period as reduced customer numbers were offset by a greater number of renewals and higher income per customer.
Claims revenue of EUR43.6m (HY18: EUR47.1m) was 7% lower due to a lower average income per job caused by the mix of claims completed.
Adjusted operating costs of EUR64.6m were 5% lower as a result of an expected reduction in marketing costs from the cessation of activity with Endesa. HomeServe continues to expect no change to profit estimates for Spain for the next two years following the end of the Endesa contract.
Operational performance
Discussions are ongoing with Endesa to agree the future terms for the existing customer book following the end of the affinity partner agreement in May 2018. The retention rate rose from 78% to 80% and, without the dilution of newly acquired customers who renew at a lower rate, is expected to remain at this level going forward.
The end of the contract with Endesa removed the exclusivity agreement that was in place and has freed HomeServe to speak to other partners in the energy industry. Discussions are only at a very early stage but contact has already been made with a number of prospects and a small test agreement has been signed with a new challenger energy brand.
A significant proportion of the water supply in Spain is provided by local municipals and there is the opportunity to apply the experience and lessons from the approach to municipal partners in North America to agree new partnerships in Spain. HomeServe is also in discussion with potential partners in the telecommunications industry.
The Claims business completed 0.4m jobs (HY18: 0.4m) and has an active pipeline of potential partners.
In July, Spain made its first move into HVAC with the acquisition of Oscagas for EUR5.8m, a business located in North Eastern Spain with a strong reputation for domestic installations of boilers and heating and air conditioning systems.
New Markets
New Markets results - GBPm HY19 HY18 Change ---------------------------- -------- ------ ---------- Total revenue 18.2 5.4 +238% ----------------------------- ------- ------ -------- Adjusted operating costs (21.4) (7.9) +171% ----------------------------- ------- ------ -------- Adjusted operating loss (3.2) (2.5) +28% ----------------------------- ------- ------ -------- Home Experts KPIs HY19 HY18(1) Change ---------------------------- --- ----- -------- ------- Checkatrade Trades k 31 26 +19% Habitissimo Trades k 23 20 +15% Checkatrade website visits m 9.0 8.0 +12% Habitissimo website visits m 42.7 36.3 +18% ---------------------------- --- ----- -------- -------
(1) Checkatrade became a subsidiary on 17 November 2017. KPIs provided as a comparative.
Financial Performance
HomeServe's New Markets segment contains the results of its Italian operations, activities associated with prospecting new countries, and the results of Habitissimo and Checkatrade, its two Home Experts businesses.
Total revenue increased due to the full consolidation of Checkatrade's results after HomeServe acquired 100% and took full control on 17 November 2017. On an underlying basis, revenue increased by 30% due to higher Trades numbers and new pricing initiatives.
HomeServe accounts for its Italian operations as an associate, therefore there is no revenue recorded and the net result for the period is included within adjusted operating costs.
Operational performance
Marketing activity continued with Edison Energia in Italy, with HomeServe's products sold as part of an energy bundle for new customers switching to Edison being the most successful channel.
Prospecting efforts in new countries have been reinvigorated with a new International Development team. Discussions continue in countries identified for creating possible joint ventures with established utilities and efforts have also recently been undertaken to uncover HomeServe 'lookalikes' in prospective countries with a dozen possibilities identified to date.
The first half of FY19 saw very good progress on a number of strategic initiatives for Home Experts. In Checkatrade the priority on the supply side is to increase the number of trades on the platform in the Midlands, North and Scotland where coverage is currently limited. On the demand side the focus is on increasing consumer usage of the service.
A fresh approach to Trades acquisition since taking 100% control in November 2017 saw total Trades increase by 19% vs. the prior interim period to 31k. Plans to step change Trades growth further through outbound telesales are up and running and dedicated new teams have been created to support new Trades on-boarding and ongoing retention, ensuring all Trades are aware of the benefits of their membership and how to get the best value from the platform.
New pricing bands have been rolled out, linking subscriptions to the value of work generated by being on the platform. Monthly payment options have been introduced to help Trades with their own cash flow and the new Buying Club offers procurement discounts across a number of areas including fuel, insurance and vans, aimed at helping Trades make savings that amount to a significant proportion of their annual fee.
Additional revenue created by Trades growth and pricing initiatives is being reinvested into TV and radio advertising as well as sponsorship deals to drive up consumer awareness of Checkatrade and to encourage greater usage of Checkatrade.com. Expanding the coverage of the Checkatrade local directory leaflets across the country is another key focus in order to match the high Trades density that currently exists in the South across the rest of the UK.
Brand new product initiatives are also in development including Checkatrade Now, which allows consumers to receive a speedy response from an available Trade to deal with emergency job requests. Initial feedback has been excellent, so the next stage is to expand to other areas and Trades.
In October, Checkatrade took the decision to relocate its main office location from Selsey to Portsmouth Harbour with effect from April 2019 in order to improve facilities for staff, to open up a wider employment pool and to accommodate increased headcount to manage the planned growth. Retaining existing employees and recruiting new talent will be pivotal to the future expansion of the business and the new, larger offices will enable this. A new management team with experience in fast growing digital businesses headed by Mike Fairman, formerly CEO of giffgaff who began as Checkatrade CEO on 8 October 2018, is nearly complete.
Habitissimo continues to grow its Trades base and to test a number of new initiatives. Total Trades increased by 15% to 23k and the South American footprint was expanded with a launch in Peru. Website visits grew 18% in the period to 42.7m with broad content and home improvement stories continuing to drive traffic to the site.
A test of the Checkatrade model outside the UK is underway with a project launching in Lyon, France next year. Habitissimo will support the Lyon test by developing the technology to run the project.
Richard Harpin
Founder and Group Chief Executive
20 November 2018
FINANCIAL REVIEW
These financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
Group statutory results
The headline statutory financial results for the Group are presented below.
Six months ended Six months
30 September ended
2018 30 September
GBPmillion 2017
----------------------------------------- ----------------- --------------
Total revenue 404.3 366.0
Operating profit 24.6 27.5
Net finance costs (5.3) (6.3)
----------------------------------------- ----------------- --------------
Adjusted profit before tax 31.8 29.0
Amortisation of acquisition intangibles (12.5) (7.8)
Statutory profit before tax 19.3 21.2
Tax (4.6) (5.3)
----------------------------------------- ----------------- --------------
Profit for the period 14.7 15.9
----------------------------------------- ----------------- --------------
Attributable to:
Equity holders of the parent 15.3 16.0
Non-controlling interests (0.6) (0.1)
----------------------------------------- ----------------- --------------
14.7 15.9
----------------------------------------- ----------------- --------------
Statutory profit before tax was GBP19.3m, GBP1.9m lower than the prior period (HY18: GBP21.2m) due principally to higher straight-line amortisation charges as a result of the investments made in FY18. Statutory profit before tax is reported after the amortisation of acquisition intangibles as detailed below.
Amortisation of acquisition intangibles
The amortisation of acquisition intangibles of GBP12.5m (HY18: GBP7.8m) increased due to the acquisitions in the prior period of Checkatrade in the UK and the first tranche of the policy book of Dominion Products and Services (DPS) in North America.
Taxation
The tax charge in the period was GBP4.6m (HY18: GBP5.3m). The adjusted effective tax rate was 24% (HY18: 25%). UK corporation tax is calculated at 19% in FY19 and FY20, reducing to 17% in FY21. Taxation for other jurisdictions is calculated at the rates prevailing in the respective countries, all of which are higher than the UK rate.
Cash flow and financing
Cash generated by operations in the period to 30 September 2018 was GBP60.5m (HY18: GBP52.7m).
GBPmillion Six months ended Six months ended
30 September 30 September
2018 2017
------------------------------------------ ----------------- -----------------
Adjusted operating profit 37.1 35.3
Amortisation of acquisition intangibles (12.5) (7.8)
Operating profit 24.6 27.5
Depreciation and amortisation 35.9 28.6
Other non cash items 4.3 3.3
Increase in working capital (4.3) (6.7)
------------------------------------------ ----------------- -----------------
Cash generated by operations 60.5 52.7
Net interest (5.1) (6.0)
Taxation (11.3) (9.4)
Capital expenditure (30.4) (37.7)
Repayment of finance leases (0.1) (0.3) ------------------------------------------ ----------------- ----------------- Free cash flow 13.6 (0.7) Acquisition of subsidiaries (17.6) (9.6) Equity dividends paid (47.8) (35.0) Issue of shares 0.3 0.1 ------------------------------------------ ----------------- ----------------- Net movement in cash and bank borrowings (51.5) (45.2) Impact of foreign exchange (2.7) 2.3 Finance leases 0.1 0.3 Opening net debt (237.8) (261.4) ------------------------------------------ ----------------- ----------------- Closing net debt (291.9) (304.0) ------------------------------------------ ----------------- -----------------
During the period 1 April to 30 September 2018, net debt increased by GBP54.1m to GBP291.9m.
Net working capital increased by GBP4.3m in the period (HY18: GBP6.7m) reflecting the continued growth of the Group and the introduction of a monthly payment option for Trades in Checkatrade.
During the period capital expenditure was GBP30.4m, GBP7.3m lower than HY18, reflecting a reduction in partner payments made in Spain following the end of the Endesa partnership and lower spend on claims and network management software projects in North America which were largely completed last in the prior period. Full year capital expenditure is expected to reduce slightly from GBP71.1m in the prior full year.
The acquisition outflow of GBP17.6m (HY18:GBP9.6m) included a net outflow of GBP5.4m in relation to HVAC investments to acquire Oscagas in Spain and Gregg Mechanical in North America. Deferred and contingent consideration was also paid relating to previous business combinations and asset purchases of GBP12.2m. The GBP9.6m in the prior period principally related to the acquisition of Help-Link Limited in the UK.
The Group remains highly cash generative and full year cash conversion is expected to be in excess of 100% (FY18: 107%).
Earnings per share
Adjusted earnings per share of 7.5p was 10% up on the prior period (HY18: 6.8p). The weighted average number of shares increased from 312.0m to 331.2m as a result of the equity raise completed in October 2017. On a statutory basis, earnings per share decreased from 5.1p to 4.6p principally due to the higher acquisition amortisation charges and the higher weighted average number of shares.
Net debt and finance costs
Net debt at 30 September 2018 was GBP291.9m (FY18: GBP237.8m; HY18: GBP304.0m), well within the Group's total financial facilities of c.GBP500m at the half year. On 25 October 2018 HomeServe arranged a further GBP174.2m funding via a US Private Placement, with a number of notes totalling $125.0m and GBP80.0m and with maturity dates in the range of 7 to 12 years.
The Group targets leverage in the range of 1.0 to 2.0x adjusted EBITDA, measured at 31 March each year. At the half year the Group was in the middle of this range with net debt to last twelve months EBITDA of 1.4x (HY18: 1.9x). Following completion of the second tranche of the Dominion Products and Services (DPS) policy book acquisition on 26 October 2018, HomeServe expects to remain within its target leverage range at the year end before any further inorganic investment.
The Group's net interest paid was GBP5.1m, GBP0.9m lower than HY18, principally due to non recurring costs in the prior period in relation to the new RCF.
Foreign exchange impact
The impact of changes in the Euro and USD exchange rates between HY18 and HY19 has resulted in a GBP3.3m reduction in reported revenue and a GBP0.5m reduction in adjusted operating profit of the international businesses as summarised in the table below.
Effect on (GBPm)
Average exchange Revenue Adjusted operating
rate profit
--------------------- ----- ----------------------- -------- -------------------
HY19 HY18 Change HY19 HY19
--------------------- ----- ------ ------ ------- -------- -------------------
North America US$ 1.33 1.30 2% (3.9) (0.6)
France EUR 1.13 1.14 (1%) 0.2 -
Spain EUR 1.13 1.14 (1%) 0.4 0.1
New Markets EUR 1.13 1.14 (1%) - -
--------------------- ----- ------ ------ ------- -------- -------------------
Total International (3.3) (0.5)
---------------------------- ------ ------ ------- -------- -------------------
Due to the seasonality of the business and the weighting of profit to the second half, the full year translation impact of sterling being weaker than prior year is estimated to benefit adjusted operating profit by around GBP1.8m at current rates. A ten cent movement from current rates in the USD and the Euro would have approximately a GBP4.0m and GBP3.5m impact respectively on full year adjusted operating profit.
Brexit
HomeServe continues to believe the impact of the EU Referendum and subsequent decision to leave the EU on the underlying performance of the Group will be limited. All of HomeServe's businesses trade exclusively within their own borders and HomeServe is not exposed to any cross border transactional currency risk. The Group has a strong balance sheet and retains a range of financing facilities with medium to long term maturities, which provide access to additional resources across a range of currencies.
The Group remains subject to translation risk on the presentation of results in Sterling however this is within the ordinary course of business.
Principal risks and uncertainties
The principal risks and uncertainties, together with the mitigating activities, detailed on pages 26 - 33 of the Group's 2018 Annual Report & Accounts, continue to have the potential to impact the Group's performance and are as follows:
Strategic Risks
1. Market disruption 2. Commercial Partnerships 3. International Development 4. M&A Strategy 5. HVAC Integration
Operational Risks
6. IT & Cyber Security 7. Underwriting Capacity and Concentration 8. Regulation and Customer Focus 9. Recruitment and Talent
10. IT Investment
11. Digital and Innovation
Financial Risk (including interest rate, credit, liquidity and foreign exchange risks)
Information on financial risk management is also set out on pages 198-201 of the Annual Report, a copy of which is available on the Group's website www.HomeServeplc.com.
Condensed consolidated income statement
For the six months ended 30 September 2018
Six months
Six months ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
GBPmillion Note (Reviewed) (Reviewed)* (Audited)*
-------------------------------- ----- ----------------- -------------- -------------
Continuing operations
Revenue 3 404.3 366.0 899.7
Operating costs (380.0) (339.2) (765.7)
Share of results of associates 0.3 0.7 1.0
-------------------------------- ----- ----------------- -------------- -------------
Operating profit 24.6 27.5 135.0
Investment income - 0.1 0.1
Finance costs (5.3) (6.4) (11.8)
-------------------------------- ----- ----------------- -------------- -------------
Profit before tax and
amortisation of acquisition
intangibles 31.8 29.0 141.7
Amortisation of acquisition
intangibles (12.5) (7.8) (18.4)
Profit before tax 19.3 21.2 123.3
Tax 4 (4.6) (5.3) (27.4)
-------------------------------- ----- ----------------- -------------- -------------
Profit for the period 14.7 15.9 95.9
-------------------------------- ----- ----------------- -------------- -------------
Attributable to:
Equity holders of the
parent 15.3 16.0 96.3
Non-controlling interests (0.6) (0.1) (0.4)
-------------------------------- ----- ----------------- -------------- -------------
14.7 15.9 95.9
-------------------------------- ----- ----------------- -------------- -------------
Dividends per share 5 5.2p 4.7p 19.1p
Earnings per share
Basic 6 4.6p 5.1p 30.2p
Diluted 6 4.6p 5.0p 29.7p
-------------------------------- ----- ----------------- -------------- -------------
* The Group's results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April 2018. In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2.
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2018
Six months
Six months ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
GBPmillion (Reviewed) (Reviewed)* (Audited)*
-------------------------------------------- ----------------- -------------- -------------
Profit for the period 14.7 15.9 95.9
Items that will not be reclassified
subsequently to profit and
loss:
Actuarial gain on defined benefit
pension scheme 1.6 0.5 2.1
Deferred tax charge relating
to actuarial re-measurements (0.3) (0.1) (0.4)
Fair value gain on FVTOCI investment
in equity instruments 0.7 - -
Deferred tax charge relating
to fair value gain on FVTOCI
investment in equity instruments (0.1) - -
-------------------------------------------- ----------------- -------------- -------------
1.9 0.4 1.7
Items that may be reclassified
subsequently to profit and
loss:
Exchange movements on translation
of foreign operations 14.5 (1.7) (10.2)
Fair value losses on cash flow
hedges - - (0.5)
-------------------------------------------- ----------------- -------------- -------------
14.5 (1.7) (10.7)
-------------------------------------------- ----------------- -------------- -------------
Total other comprehensive income/(expense) 16.4 (1.3) (9.0)
-------------------------------------------- ----------------- -------------- -------------
Total comprehensive income
for the period 31.1 14.6 86.9
-------------------------------------------- ----------------- -------------- -------------
Attributable to:
Equity holders of the parent 31.7 14.7 87.3
Non-controlling interests (0.6) (0.1) (0.4)
-------------------------------------------- ----------------- -------------- -------------
31.1 14.6 86.9
-------------------------------------------- ----------------- -------------- -------------
* The Group's results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April 2018. In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2.
Condensed consolidated balance sheet
As at 30 September 2018
30 September 31 March
30 September 2018 2017 2018
GBPmillion Note (Reviewed) (Reviewed)* (Audited)*
----------------------------- ----- ------------------ ------------- ------------
Non-current assets
Goodwill 396.0 324.8 386.6
Intangible assets 7 355.7 292.2 384.8
Contract costs 7 34.8 - -
Property, plant and
equipment 39.8 37.3 39.9
Interests in associates 5.8 32.9 5.5
Other investments 9.5 8.7 8.7
Deferred tax assets 6.6 9.0 6.8
Retirement benefit assets 7.3 2.1 4.7
----------------------------- ----- ------------------ ------------- ------------
855.5 707.0 837.0
----------------------------- ----- ------------------ ------------- ------------
Current assets
Inventories 5.5 3.5 4.3
Trade and other receivables 484.5 382.1 515.7
Cash and cash equivalents 55.5 63.8 57.8
----------------------------- ----- ------------------ ------------- ------------
545.5 449.4 577.8
----------------------------- ----- ------------------ ------------- ------------
Total assets 1,401.0 1,156.4 1,414.8
----------------------------- ----- ------------------ ------------- ------------
Current liabilities
Trade and other payables (465.7) (381.9) (508.5)
Current tax liabilities (0.9) (5.1) (10.4)
Obligation under finance
leases (0.5) (0.5) (0.5)
Bank and other loans (36.3) (38.0) (38.0)
----------------------------- ----- ------------------ ------------- ------------
(503.4) (425.5) (557.4)
----------------------------- ----- ------------------ ------------- ------------
Net current assets 42.1 23.9 20.4
----------------------------- ----- ------------------ ------------- ------------
Non-current liabilities
Bank and other loans (310.3) (328.6) (256.7)
Other financial liabilities (22.2) (22.7) (23.4)
Deferred tax liabilities (25.7) (22.5) (25.5)
Obligations under finance
leases (0.3) (0.7) (0.4)
----------------------------- ----- ------------------ ------------- ------------
(358.5) (374.5) (306.0)
----------------------------- ----- ------------------ ------------- ------------
Total liabilities (861.9) (800.0) (863.4)
----------------------------- ----- ------------------ ------------- ------------
Net assets 539.1 356.4 551.4
----------------------------- ----- ------------------ ------------- ------------
Equity
Share capital 10 8.9 8.4 8.9
Share premium account 178.8 49.1 171.8
Share incentive reserve 19.2 18.5 22.1
Currency translation
reserve 30.6 24.6 16.1
Investment revaluation
reserve 2.4 1.8 1.8
Other reserves 82.2 72.2 82.2
Retained earnings 217.2 181.1 248.1
----------------------------- ----- ------------------ ------------- ------------
Attributable to equity
holders of the parent 539.3 355.7 551.0
Non-controlling interests (0.2) 0.7 0.4
----------------------------- ----- ------------------ ------------- ------------
Total equity 539.1 356.4 551.4
----------------------------- ----- ------------------ ------------- ------------
* The Group's results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April 2018. In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2.
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2018 (Reviewed)
Share Share Currency Investment Attributable
Share premium incentive translation revaluation Other Retained to equity Non-controlling Total
GBPmillion capital account reserve reserve reserve(2) reserves(1) earnings holders interest equity
--------------- --------- --------- ----------- ------------- ------------- ------------ --------- -------------- ----------------- --------
Balance at
1 April 2018 8.9 171.8 22.1 16.1 1.8 82.2 248.1 551.0 0.4 551.4
Opening
adjustment
for the
impact
of IFRS 15
(note 2) - - - - - - (2.1) (2.1) - (2.1)
Profit for
the period - - - - - - 15.3 15.3 (0.6) 14.7
Other
comprehensive
income for
the period - - - 14.5 0.6 - 1.3 16.4 - 16.4
--------------- --------- --------- ----------- ------------- ------------- ------------ --------- -------------- ----------------- --------
Total
comprehensive
income for
the period - - - 14.5 0.6 - 16.6 31.7 (0.6) 31.1
Dividends paid - - - - - - (47.8) (47.8) - (47.8)
Issue of share
capital - 7.0 - - - - - 7.0 - 7.0
Share-based
payments - - 4.0 - - - - 4.0 - 4.0
Share options
exercised - - (6.9) - - - 0.1 (6.8) - (6.8)
Basis
adjustments
on hedges
items - - - - - - - - - -
Tax on
exercised
share
options - - - - - - 2.1 2.1 - 2.1
Deferred tax
on share
options - - - - - - 0.2 0.2 - 0.2
Balance at
30 September
2018
(Reviewed) 8.9 178.8 19.2 30.6 2.4 82.2 217.2 539.3 (0.2) 539.1
--------------- --------- --------- ----------- ------------- ------------- ------------ --------- -------------- ----------------- --------
For the six months ended 30 September 2017 (Reviewed)*
Share Share Currency Investment Attributable
Share premium incentive translation revaluation Other Retained to equity Non-controlling Total
GBPmillion capital account reserve reserve reserve(2) reserves(1) earnings holders interest equity
--------------- --------- --------- ----------- ------------- ------------- ------------ --------- -------------- ----------------- --------
Balance at
1 April 2017 8.4 45.7 18.3 26.3 1.8 72.2 196.5 369.2 0.8 370.0
Profit for
the period - - - - - - 16.0 16.0 (0.1) 15.9
Other
comprehensive
expense for
the period - - - (1.7) - - 0.4 (1.3) - (1.3)
--------------- --------- --------- ----------- ------------- ------------- ------------ --------- -------------- ----------------- --------
Total
comprehensive
income for
the period - - - (1.7) - - 16.4 14.7 (0.1) 14.6
Dividends paid - - - - - - (35.0) (35.0) - (35.0)
Issue of share
capital - 3.4 - - - - - 3.4 - 3.4
Share-based
payments - - 3.6 - - - - 3.6 - 3.6
Share options
exercised - - (3.4) - - - 0.1 (3.3) - (3.3)
Tax on
exercised
share
options - - - - - - 2.4 2.4 - 2.4
Deferred tax
on share
options - - - - - - 0.7 0.7 - 0.7
Balance at
30 September
2017
(Reviewed) 8.4 49.1 18.5 24.6 1.8 72.2 181.1 355.7 0.7 356.4
--------------- --------- --------- ----------- ------------- ------------- ------------ --------- -------------- ----------------- --------
For the year ended 31 March 2018 (Audited)*
Share Share Currency Investment Attributable
Share premium incentive translation revaluation Other Retained to equity Non-controlling Total
GBPmillion capital account reserve reserve reserve(2) reserves(1) earnings holders interest equity
--------------- --------- -------- ---------- ------------ ------------- ------------ --------- ------------- ---------------- --------
Balance at
1 April 2017 8.4 45.7 18.3 26.3 1.8 72.2 196.5 369.2 0.8 370.0
Profit for
the year - - - - - - 96.3 96.3 (0.4) 95.9
Other
comprehensive
expense for
the year - - - (10.2) - (0.5) 1.7 (9.0) - (9.0)
--------------- --------- -------- ---------- ------------ ------------- ------------ --------- ------------- ---------------- --------
Total
comprehensive
income for
the year - - - (10.2) - (0.5) 98.0 87.3 (0.4) 86.9
Dividends paid - - - - - - (50.4) (50.4) - (50.4)
Issue of share
capital 0.5 126.1 - - - 10.0 - 136.6 - 136.6
Share-based
payments - - 8.1 - - - - 8.1 - 8.1
Share options
exercised - - (4.3) - - - 1.0 (3.3) - (3.3)
Basis
adjustments
on hedged
items - - - - - 0.5 - 0.5 - 0.5
Tax on
exercised
share
options - - - - - - 2.8 2.8 - 2.8
Deferred tax
on share
options - - - - - - 0.2 0.2 - 0.2
Balance at
31 March 2018
(Audited) 8.9 171.8 22.1 16.1 1.8 82.2 248.1 551.0 0.4 551.4
--------------- --------- -------- ---------- ------------ ------------- ------------ --------- ------------- ---------------- --------
(1)Other reserves comprise the Merger, Own Shares, Capital redemption and Hedging reserves.
(2) The available for sale reserve was renamed the investment revaluation reserve upon adoption of IFRS 9 on 1 April 2018.
* The Group's results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April 2018. In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2.
Condensed consolidated cash flow statement
For the six months ended 30 September 2018
Six months Six months
ended ended Year ended
30 September 30 September 31 March
2018 2017 2018
GBPmillion (Reviewed) (Reviewed)* (Audited)*
----------------------------------------- -------------- -------------- -------------
Operating profit 24.6 27.5 135.0
Adjustments for:
Depreciation of property, plant
and equipment 4.6 3.8 8.0
Amortisation of acquisition intangible
assets 12.5 7.8 18.4
Amortisation of other intangible
assets 10.9 17.0 36.2
Amortisation of contract costs 7.9 - -
Share-based payments expenses 4.5 4.3 9.1
Share of profit of associates (0.3) (0.7) (1.0)
Loss on disposal of property,
plant and equipment and software 0.1 - 2.1
Gain on re-measurement of associate
on acquisition on control - - (0.9)
Decrease in other financial liabilities - (0.3) (0.3)
Operating cash flows before movements
in working capital 64.8 59.4 206.6
Increase in inventories (0.6) (0.8) (1.4)
Decrease/(increase) in receivables 46.6 70.3 (60.7)
(Decrease)/increase in payables (50.3) (76.2) 19.7
Net movement in working capital (4.3) (6.7) (42.4)
Cash generated by operations 60.5 52.7 164.2
Incomes taxes paid (11.3) (9.4) (27.2)
Interest paid (5.1) (6.1) (7.5)
----------------------------------------- -------------- -------------- -------------
Net cash inflow from operating
activities 44.1 37.2 129.5
----------------------------------------- -------------- -------------- -------------
Investing activities
Interest received - 0.1 0.1
Proceeds on disposal of fixed
assets - - 0.6
Purchases of intangible assets (22.8) (33.7) (114.3)
Contract costs (3.6) - -
Purchases of property, plant
and equipment (4.0) (4.0) (11.0)
Dividend received from associate - - 0.4
Acquisition of subsidiaries (8.3) (9.6) (50.3)
----------------------------------------- -------------- -------------- -------------
Net cash used in investing activities (38.7) (47.2) (174.5)
----------------------------------------- -------------- -------------- -------------
Financing activities
Dividends paid (47.8) (35.0) (50.4)
Repayment of finance leases (0.1) (0.3) (0.6)
Acquisition of subsidiaries (9.3) - (3.9)
Proceeds on issue of share capital 0.3 0.1 124.1
Costs associated with issue of
share capital - - (0.8)
New bank and other loans raised - 221.0 221.0
Costs associated with new bank
and other loans raised - - (3.1)
----------------------------------------- -------------- -------------- -------------
Increase/(Decrease) in bank and
other loans 46.8 (157.7) (226.5)
----------------------------------------- -------------- -------------- -------------
Net cash (used in)/from financing
activities (10.1) 28.1 59.8
----------------------------------------- -------------- -------------- -------------
Net (decrease)/increase in cash
and cash equivalents (4.7) 18.1 14.8
----------------------------------------- -------------- -------------- -------------
Cash and cash equivalents at
beginning of period 57.8 46.2 46.2
Effect of foreign exchange rate
changes 2.4 (0.5) (3.2)
Cash and cash equivalents at
end of period 55.5 63.8 57.8
----------------------------------------- -------------- -------------- -------------
* The Group's results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April 2018. In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2.
Notes to the condensed set of financial statements
For the six months ended 30 September 2018
1. General information
HomeServe plc is a company incorporated in the United Kingdom and its shares are listed on the London Stock Exchange. The address of the registered office is Cable Drive, Walsall, WS2 7BN. The information for the year ended 31 March 2018 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor reported on those accounts, the report was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006. The condensed set of financial statements for the six months ended 30 September 2018 is unaudited, but has been reviewed by the auditor and their report to the Company is at the end of this statement. This condensed set of financial statements was approved by the Board of Directors on 20 November 2018.
2. Accounting policies
Basis of preparation
The condensed set of financial statements has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) and in accordance with International Accounting Standards (IAS) 34 "Interim Financial Reporting" as adopted by the European Union. The Group's annual financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the European Union and therefore comply with Article 4 of the EU IAS regulation.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.
Changes in accounting policy
The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest audited financial statements, with the exception of standards, amendments and interpretations effective as of 1 April 2018. The nature and effect of these changes are disclosed below:
a) IFRS 15 (and Clarifications to IFRS 15) Revenue from Contracts with Customers
IFRS 15 replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Group has adopted IFRS 15 from 1 April 2018 utilising the cumulative effect method (adopting all applicable practical expedients). The adoption of IFRS 15 has not had a material impact on the timing of revenue recognition and comparative information has not been restated.
The Group's revised accounting policies for revenue and associated balances are disclosed below:
Revenue recognition
The primary impact of IFRS 15's application has been the revision of accounting policies to reflect the standard's five-step approach:
1) Identify the contract with the customer 2) Identify the performance obligations in the contract 3) Determine the transaction price 4) Allocate the transaction price to the performance obligations 5) Recognise revenue when (or as) each performance obligation is satisfied
Revenue is recognised, net of discounts, VAT, Insurance Premium Tax and other sales related taxes, either at the point in time a performance obligation has been satisfied or over time as control of the asset associated with the performance obligation is transferred to the customer.
For all contracts identified, the Group determines if the arrangement with the customer creates enforceable rights and obligations. For contracts with multiple components to be delivered, such as those with underwriters to sell policies on behalf of the underwriter as well as deliver handling and administration services, management applies judgement to consider whether those promised goods and services are:
(i) distinct - to be accounted for as separate performance obligations;
(ii) not distinct - to be combined with other promised goods or services until a bundle is identified that is distinct; or
(iii) part of a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer.
At contract inception the total transaction price is estimated, being the amount to which the Group expects to be entitled and has present enforceable rights to under the contract. Where applicable, this includes management's best estimate of any variable consideration to be included in the transaction price based on the expected value or most likely amount approach, and only to the extent that it is highly probable that no significant revenue reversal will occur.
Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion to their relative standalone selling prices and recognises revenue when (or as) those performance obligations are satisfied.
Where available, observable prices of goods or services are utilised, when that good or service is sold separately, to similar customers in similar circumstances. Where stand-alone selling price is not directly observable the Group applies judgment to determine an appropriate estimated standalone selling price, typically using an expected cost plus margin, adjusted market assessment or residual approach.
Variable consideration is allocated to an entire contract or a specific part of a contract depending on:
i) whether allocating the variable amount entirely to part of the contract depicts the amount of consideration the Group expects to be entitled in exchange for transferring the promised good or service to the customer; or
ii) the terms of the variable payment relate specifically to satisfaction of an individual performance obligation
The Group's variable consideration primarily relates to intermediary commissions received on contracts with underwriters to sell policies and provide handling and administration services. Amounts are typically allocated to the entire contract.
Discounts are allocated proportionally across all performance obligations in the contract unless directly observable evidence exists that the discount relates to one or more, but not all, performance obligations.
For each performance obligation, the Group determines if revenue will be recognised over time or at a point in time. For each performance obligation to be recognised over time, the Group applies a revenue recognition method that faithfully depicts the Group's performance in transferring control of the goods or services to the customer. This decision requires assessment of the nature of the goods or services that the Group has promised to transfer to the customer. The Group applies the relevant output or input method, typically based on the expected profile of the deferral event (for example claims cost through the policy term or time elapsed).
Revenue by category
The Group disaggregates revenue from contracts with customers as set out below as management believe this best depicts how the nature, amount, timing and uncertainty of the Group's revenue and cash flows are effected by economic factors.
Net Policy Income
The Group principally derives net policy income from multiple-element arrangements entered into with underwriters under which the Group acts as an insurance intermediary in the policy sale and handling and administration processes. The Group satisfies its obligation to sell policies over time, recognising revenue as each policyholder is contracted on behalf of the underwriter. The transaction prices of the Group's insurance intermediary arrangements with underwriters are entirely variable and measured based on the commission due to the Group for the number of policies sold, net of a refund liability. This refund liability reflects management's best estimate of mid-term policy cancellations ensuring that a significant reversal of revenue will not arise in the future.
Handling and administration services principally relate to claims management. Such performance obligations are satisfied over the term of a policy, which is typically 12 months. The portion of the total transaction price allocated to these performance obligations is deferred, as a deferred income contract liability, and recognised as revenue over the expected profile of anticipated claims throughout the policy term. The determination of the amount of transaction price to allocate to claims handling services takes account of the expected numbers of claims and the estimated cost of handling those claims, which are validated through historic experience of actual costs, as well as incorporating an appropriate profit margin for the service provided to the underwriter. Revenue associated with the obligation to sell policies is allocated using the residual method.
Third-party costs incurred on behalf of the underwriter that are rechargeable under the contractual arrangement, or where the Group's role is only as an intermediary in the cash collection process, are not included in revenue. Consequently, net policy income consists of only a component of the overall policy price, representing the commission receivable for the services the Group provides to the underwriter, stated net of sales related taxes.
Net policy income also includes arrangements whereby the Group contracts directly with the end user to provide home assistance membership products. Under such agreements, which do not constitute insurance arrangements, the customer receives and consumes benefits over the term of the arrangement and as such control is obtained rateably over the life of the contract.
Repair Income
Repair revenue relates to repairs undertaken on behalf of third parties including underwriters and insurance companies subject to separate contractual arrangements. Control is obtained by the customer over time as repairs are completed.
Home Experts
Home Experts revenue relates to income arising from HomeServe's online, on demand services. Revenue is derived from website subscriptions, directory advertising fees and commissions received from trades-people for lead generation.
For website subscriptions and directory membership fees, control is obtained by the customer over time. For website subscriptions revenue is recognised evenly over the contractual term, for directory membership fees revenue is recognised as each directory is delivered throughout the contractual term. For lead generation, control is obtained at the point in time a lead is transferred.
Other
Other revenue related to the provision of boiler installation services and the provision of annual boiler services is recognised when control is obtained by the customer, at the point in time the installation or service is complete.
Other revenue associated with the sale or installation of leak detection and smart thermostat devices is recognised when control is obtained by the customer at the point in time the device is delivered or the installation is complete.
Contract related assets and liabilities
As a result of the contracts which the Group enters into with its customers, the following assets and liabilities are recognised on the Group's balance sheet:
- Contract assets derived from costs to obtain a contract
- Accrued income
- Deferred income
- Trade receivables
Capitalisation of costs to obtain a contract
The incremental costs of obtaining a contract with a customer are recognised as an asset if the Group expects to recover them. Primarily, such costs relate to fees payable to Affinity Partners or other third parties authorised to enter into new contracts on behalf of a Group entity. Only fees which are directly related to acquiring contracts with customers are capitalised.
Deferred and accrued income
Where payments made are greater than the revenue recognised at the period end date, the Group recognises a deferred income contract liability for this difference.
Where payments made are less than the revenue recognised at the period end date, the Group recognises an accrued income contract asset for this difference.
Trade receivables
Trade receivables do not carry interest and are stated at amortised cost as reduced by appropriate allowances for estimated irrecoverable amounts. They are recognised when the Group's right to consideration is only conditional on the passage of time. Allowances incorporate an expectation of life-time credit losses from initial recognition and are determined using an expected credit loss approach.
Revenue recognition - Impact on the opening balance sheet
IFRS 15 requires revenue to be recognised under a 'five-step' approach when a customer obtains control of goods or services in line with the performance obligations identified on the contract. Upon adopting this methodology no material changes to the timing of the Group's revenue recognition have been required. However certain adjustments were made to the opening balance sheet on transition, as summarised below:
IFRS 15 opening
Reported at IFRS 15 adjustments balance sheet
31 March 2018 1 April 2018 1 April 2018
GBPmillion Ref (Audited) (Reviewed) (Reviewed)
----------------------------- --------- --------------- -------------------- ----------------
Non-current assets
Intangible assets i) 384.8 (38.5) 346.3
Contract costs i) - 38.5 38.5
Deferred tax assets iii) 6.8 0.5 7.3
----------------------------- --------- --------------- -------------------- ----------------
391.6 0.5 392.1
--------------------------------------- --------------- -------------------- ----------------
Current assets
Trade & other receivables ii) 515.7 19.7 535.4
515.7 19.7 535.4
--------------------------------------- --------------- -------------------- ----------------
Total assets 907.3 20.2 927.5
---------------------------------------- --------------- -------------------- ----------------
Current liabilities
Trade and other ii)
payables & iii) (508.5) (22.3) (530.8)
(508.5) (22.3) (530.8)
--------------------------------------- --------------- -------------------- ----------------
Net current assets 7.2 (2.6) 4.6
---------------------------------------- --------------- -------------------- ----------------
Non-current liabilities - - -
----------------------------- --------- --------------- -------------------- ----------------
Total liabilities (508.5) (22.3) (530.8)
---------------------------------------- --------------- -------------------- ----------------
Net assets 398.8 (2.1) 396.7
---------------------------------------- --------------- -------------------- ----------------
Equity
Retained earnings 248.1 (2.1) 246.0
---------------------------------------- --------------- -------------------- ----------------
248.1 (2.1) 246.0
--------------------------------------- --------------- -------------------- ----------------
References
i) Historically the Group has capitalised the value attributable to the portfolios of renewable customer policies created by Affinity Partners through their own sales and marketing activity and subsequently purchased by the Group as intangible assets. Where these capitalised costs are incremental to the cost of obtaining the contract with HomeServe's direct customer they are now capitalised under IFRS 15, which provides specific guidance in this area. This resulted in the reclassification of GBP38.5m of capitalised commission costs from intangible assets to contract costs at 1 April 2018, with no change to the amortisation period.
ii) Under IAS 18 the Group held a cancellation provision in respect of policies that may be cancelled by the policyholder part way through the contractual term, to ensure the appropriate amount of revenue was recognised at the point the policy incepts. This balance reduced trade and other receivables on the balance sheet. Under IFRS 15 a refund liability is held in liabilities to ensure a significant revenue reversal does not occur in the future due to mid-term cancellations. At 1 April 2018 this resulted in increases to trade and other receivables and trade and other payables on the opening IFRS 15 balance sheet of GBP19.7m.
iii) IFRS 15 is applied to the contractual period in which parties to the contract have present enforceable rights and obligations. A small population of service agreements was identified whereby the Group's right to a portion of the contractual revenue is not deemed enforceable under IFRS 15 at the point the revenue was previously booked under IAS 18. At 1 April 2018 this adjustment resulted in a GBP2.6m increase to deferred income, a GBP2.1m decrease to retained earnings and a GBP0.5m increase to deferred tax assets.
b) IFRS 9 Financial Instruments
IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. The Group adopted IFRS 9 from 1 April 2018 and in accordance with the transitional provisions in the Standard, comparatives have not been restated.
Classification and measurement of financial instruments
IFRS 9 requires the use of two criteria to determine the classification of financial assets: the entity's business model for the financial assets and the contractual cash flow characteristics of the financial assets. The Standard identifies three categories of financial assets:
- amortised cost; - fair value through profit or loss (FVTPL); - fair value through other comprehensive income (FVTOCI).
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. The adoption of IFRS 9 has not had a significant effect on the Group's accounting policy related to financial liabilities.
A summary of all reclassifications, which have resulted in no change to the carrying value of any financial instrument, is shown below. All other financial instruments measurement categories and carrying amounts remain the same.
Carrying amount
at 1 April
Type of financial instrument IAS 39 classification IFRS 9 classification 2018 (GBPm)
-------------------------------- ----------------------- ----------------------- ----------------
Non-current financial
assets
Equity investments Available-for-sale FVTOCI 8.7
Current financial assets
Trade and other receivables Loans and Receivables Amortised cost 498.1
Cash and cash equivalents Loans and Receivables Amortised cost 57.8
-------------------------------- ----------------------- ----------------------- ----------------
Impairment
IFRS 9 mandates the use of an expected credit loss model to calculate impairment losses rather than an incurred loss model, and therefore it is not necessary for a credit event to have occurred before credit losses are recognised. The Group has elected to measure loss allowances utilising probability-weighted estimates of credit losses for trade receivables at an amount equal to lifetime expected credit losses. As the Group's financial assets primarily comprise its portfolio of current trade receivables which have a consistent history of low levels of impairment, the inclusion of specific expected credit loss considerations did not have a material impact on transition.
Hedging
The Group has no existing open hedging relationships at the transition or reporting date.
Other standards issued, effective and adopted
In addition the Group has adopted the following new amendments, improvements and IFRIC. None of these had any material impact on the condensed consolidated financial statements of the Group:
IFRIC 22 Foreign Currency Transactions and Advance
Consideration
Amendments to IFRS Classification and Measurement of Share-based
2 Payment Transactions
Annual Improvements 2014-2016 Cycle
to IFRSs
Standards in issue but not yet effective
At the date of authorisation of this condensed set of financial statements the following Standards and Interpretations, which have not been applied in these financial statements, were in issue but not yet effective (not all of which have been endorsed by the EU):
IFRS 16 Leases
IFRS 17 Insurance Contracts
IFRIC 23 Uncertainty over Income Tax Treatments
Amendments to IFRS Prepayment features and negative compensation
9
Amendments to IAS 19 Plan Amendment, Curtailment or Settlement
Amendments to IAS 28 Long-term Interests in Associates and Joint
Ventures
Conceptual Framework Amendments to References to the Conceptual
Framework in IFRS Standards
Annual Improvements 2015-2017 Cycle
to IFRSs
IFRS 16 Leases
IFRS 16 is applicable for the Group for the year ended 31 March 2020 and will have a significant impact on the Group Balance Sheet through the recognition of 'Right of Use' assets and liabilities for lease payments in respect of arrangements previously classified as operating leases under IAS 17. Additional disclosures will also be required. Although the standard is not expected to have a material impact on profit after tax, Group EBITDA will increase due to a reduction in operating rental costs, replaced by higher interest and depreciation charges. Further, while total cash flows will remain consistent, rental outflows will now be presented under financing activities, where they were previously recorded as operational outflows, increasing the Group's cash conversion percentage.
The Group's operating lease commitments under IAS 17 provide the best indication of the estimated size of Right of Use assets and lease liabilities to be recognised on transition. At 30 September 2018, these amounts, which represent undiscounted future cash flows, were as follows:
As at
30 September 2018
GBPmillion (Reviewed)
---------------------------------------- -------------------
Within 12 months 11.7
In the second to fifth years inclusive 32.2
After five years 6.6
50.5
---------------------------------------- -------------------
The transition values are subject to change due to:
- Judgements inherent in calculating lease liabilities (e.g. determining the lease term, the discount rate and assessing variable lease payments)
- The impact of the Group's operational activities on its lease obligations between 31 March 2018 and the date of transition to IFRS 16
Data collation, analysis and other implementation work has continued during the first half of FY19 and will be finalised during the second half. Based on work performed to date the Group expects to apply the Standard retrospectively on a modified basis. The Group will finalise its transition approach during the second half of FY19 and provide a final update in the FY19 Annual Report and Accounts ahead of adoption in FY20.
The Directors do not expect that the adoption of the other Standards and Interpretations listed above will have a material impact on the financial statements of the Group in future years.
3. Business and geographical segments
Business segments
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker, who is considered to be the Chief Executive, to allocate resources to the segments and to assess their performance.
Segment profit/(loss) represents the result of each segment including allocated costs associated with head office and shared functions, but before allocating investment income, finance costs and tax. This is the measure reported to the Chief Executive for the purposes of resource allocation and assessment of segment performance.
The accounting policies of the operating segments are the same as those described in Significant Accounting Policies in the Group's latest audited financial statements, except as set out in Note 2. Group cost allocations are deducted in arriving at segmental operating profit. Inter-segment revenue is charged at prevailing market prices. The sale and renewal of policies across HomeServe's business are more heavily weighted towards the second half of the financial year.
For the six months ended 30 September 2018 (Reviewed)
New
GBPmillion UK North America France Spain Markets Total
------------------------------ ------ -------------- ------- ------ --------- -------
Revenue by category:
Net policy income 86.5 119.2 34.9 26.5 - 267.1
Repair income 51.7 3.6 0.2 38.5 - 94.0
Home Experts - - - - 18.2 18.2
Other 17.5 7.7 1.7 0.8 - 27.7
------------------------------ ------ -------------- ------- ------ --------- -------
Total revenue 155.7 130.5 36.8 65.8 18.2 407.0
Inter-segment (2.7) - - - - (2.7)
------------------------------ ------ -------------- ------- ------ --------- -------
External revenue 153.0 130.5 36.8 65.8 18.2 404.3
------------------------------ ------ -------------- ------- ------ --------- -------
Result
Segment operating
profit/(loss) pre
amortisation of acquisition
intangibles 10.2 14.0 7.5 8.6 (3.2) 37.1
Amortisation of acquisition
intangibles (1.1) (5.6) (3.3) - (2.5) (12.5)
------------------------------ ------ -------------- ------- ------ --------- -------
Operating profit/(loss) 9.1 8.4 4.2 8.6 (5.7) 24.6
------------------------------ ------ -------------- ------- ------ --------- -------
Investment income -
Finance costs (5.3)
------------------------------ ------ -------------- ------- ------ --------- -------
Profit before tax 19.3
Tax (4.6)
------------------------------ ------ -------------- ------- ------ --------- -------
Profit for the period 14.7
------------------------------ ------ -------------- ------- ------ --------- -------
For the six months ended 30 September 2017 (Reviewed)*
North New
GBPmillion UK America France Spain Markets Total
---------------------------------- ------ --------- ------- ------ --------- ------
Revenue by category:
Net policy income 83.6 110.0 35.1 26.1 - 254.8
Repair income 46.8 2.7 0.2 41.5 - 91.2
Home Experts - - - - 5.4 5.4
Other 12.4 5.1 - - - 17.5
---------------------------------- ------ --------- ------- ------ --------- ------
Total revenue 142.8 117.8 35.3 67.6 5.4 368.9
Inter-segment (2.9) - - - - (2.9)
---------------------------------- ------ --------- ------- ------ --------- ------
External revenue 139.9 117.8 35.3 67.6 5.4 366.0
---------------------------------- ------ --------- ------- ------ --------- ------
Result
Segment operating profit/(loss)
pre amortisation of acquisition
intangibles 9.1 11.4 9.4 7.9 (2.5) 35.3
Amortisation of acquisition
intangibles (0.9) (3.4) (3.2) (0.1) (0.2) (7.8)
---------------------------------- ------ --------- ------- ------ --------- ------
Operating profit/(loss) 8.2 8.0 6.2 7.8 (2.7) 27.5
---------------------------------- ------ --------- ------- ------ --------- ------
Investment income 0.1
Finance costs (6.4)
---------------------------------- ------ --------- ------- ------ --------- ------
Profit before tax 21.2
Tax (5.3)
---------------------------------- ------ --------- ------- ------ --------- ------
Profit for the period 15.9
---------------------------------- ------ --------- ------- ------ --------- ------
For the year ended 31 March 2018 (Audited)*
North
GBPmillion UK America France Spain New Markets Total
---------------------------------- ------- --------- ------- ------- ------------ -------
Revenue by category:
Net policy income 221.6 262.4 98.6 55.6 - 638.2
Repair income 106.3 9.6 0.4 85.7 - 202.0
Home Experts - - - - 18.6 18.6
Other 37.7 10.1 1.0 - - 48.8
---------------------------------- ------- --------- ------- ------- ------------ -------
Total revenue 365.6 282.1 100.0 141.3 18.6 907.6
Inter-segment (7.9) - - - - (7.9)
---------------------------------- ------- --------- ------- ------- ------------ -------
External revenue 357.7 282.1 100.0 141.3 18.6 899.7
---------------------------------- ------- --------- ------- ------- ------------ -------
Result
Segment operating profit/(loss)
pre amortisation of acquisition
intangibles 61.1 48.6 31.5 16.6 (4.4) 153.4
Amortisation of acquisition
intangibles (1.8) (8.1) (6.4) (0.1) (2.0) (18.4)
---------------------------------- ------- --------- ------- ------- ------------ -------
Operating profit/(loss) 59.3 40.5 25.1 16.5 (6.4) 135.0
---------------------------------- ------- --------- ------- ------- ------------ -------
Investment income 0.1
Finance costs (11.8)
---------------------------------- ------- --------- ------- ------- ------------ -------
Profit before tax 123.3
Tax (27.4)
---------------------------------- ------- --------- ------- ------- ------------ -------
Profit for the year 95.9
---------------------------------- ------- --------- ------- ------- ------------ -------
* The Group's results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April 2018. In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2.
4. Tax
Six months ended Six months ended Year ended
30 September
30 September 2018 2017 31 March 2018
GBPmillion (Reviewed) (Reviewed) (Audited)
-------------- ------------------- ----------------- ---------------
Current tax 4.0 7.6 30.8
Deferred tax 0.6 (2.3) (3.4)
-------------- ------------------- ----------------- ---------------
4.6 5.3 27.4
-------------- ------------------- ----------------- ---------------
The effective tax rate for the six months ended 30 September 2018 was 24% (HY18: 25%, FY18: 22%). Prevailing taxation rates in the major jurisdictions in which the Group operates were as follows:
Six months ended Six months ended Year ended
30 September
30 September 2018 2017 31 March 2018
Jurisdiction (Reviewed) (Reviewed) (Audited)
-------------------------- ------------------- ----------------- ---------------
United Kingdom 19% 19% 19%
United States of America 27% 40% 38%
France 33% 33% 33%
Spain 25% 25% 25%
-------------------------- ------------------- ----------------- ---------------
5. Dividends
The interim dividend of 5.2p per share will be paid on 7 January 2019 to shareholders on the register on 7 December 2018. The interim dividend has not been included as a liability in these financial statements.
Six months ended Six months Year ended
ended
30 September 30 September 31 March
2018 2017 2018
GBPmillion (Reviewed) (Reviewed) (Audited)
------------------------------------- ----------------- -------------- ------------
Amounts recognised as distributions
to equity holders in the
period:
Final dividend for the year
ended 31 March 2017 of 11.2p
per share - 35.0 35.0
Interim dividend for the
year ended 31 March 2018
of 4.7p per share - - 15.4
Final dividend for the year
ended 31 March 2018 of 14.4p
per share 47.8 - -
47.8 35.0 50.4
------------------------------------- ----------------- -------------- ------------
Interim dividend for the
year ended 31 March 2019
of 5.2p per share 17.3 - -
------------------------------------- ----------------- -------------- ------------
6. Earnings per share
Six months ended Six months Year ended
ended
30 September 30 September 31 March
2018 2017 2018
Earnings per share (pence) (Reviewed) (Reviewed) (Audited)
----------------------------- ----------------- -------------- ------------
Basic 4.6p 5.1p 30.2p
Diluted 4.6p 5.0p 29.7p
Adjusted basic 7.5p 6.8p 33.6p
Adjusted diluted 7.4p 6.7p 33.1p
----------------------------- ----------------- -------------- ------------
The calculation of basic and diluted earnings per share is based on the following:
Six months ended Six months Year ended
ended
Weighted average number of 30 September 30 September 31 March
ordinary shares (millions) 2018 2017 2018
(Reviewed) (Reviewed) (Audited)
--------------------------------- ----------------- -------------- ------------
Basic 331.2 312.0 318.9
Dilutive impact of share
options 4.0 4.8 5.0
--------------------------------- ----------------- -------------- ------------
Diluted 335.2 316.8 323.9
--------------------------------- ----------------- -------------- ------------
Earnings
GBPmillion
--------------------------------- ----------------- -------------- ------------
Profit attributable to equity
holders of the parent 15.3 16.0 96.3
Amortisation of acquisition
intangibles 12.5 7.8 18.4
Tax impact arising on the
amortisation of acquisition
intangibles (3.1) (2.7) (5.7)
One-off impacts to tax arising
on amortisation of acquisition
intangibles due to tax reforms
- USA and France - - (1.7)
--------------------------------- ----------------- -------------- ------------
Adjusted profit for the period 24.7 21.1 107.3
--------------------------------- ----------------- -------------- ------------
Basic and diluted earnings per ordinary share have been calculated in accordance with IAS 33 Earnings Per Share. Basic earnings per share is calculated by dividing the profit or loss in the financial period by the weighted average number of ordinary shares in issue during the period. Adjusted earnings per share is calculated excluding the amortisation of acquisition intangibles and the associated tax impact. In FY18 adjustment was also made for the one-off impact of tax reforms in the USA and France.
The Group uses adjusted operating profit, adjusted operating margin, EBITDA, adjusted profit before tax and adjusted earnings per share as its primary performance measures. These are non-IFRS measures which exclude the impact of the amortisation of acquisition intangibles and the associated tax effects. Acquisition intangible assets principally arise as a result of the past actions of the former owners of businesses in respect of marketing and business development activity. Therefore, the adjusted measures reflect the post acquisition revenue attributable to and operating costs incurred by, the Group.
Diluted earnings per share includes the impact of dilutive share options in issue throughout the period.
7. Intangible assets
Trademarks
Acquisition & access Customer
GBPmillion intangibles rights Databases* Software Total intangibles
--------------------------- ------------- ----------- ------------ --------- ------------------
Cost
At 1 April 2017 206.6 33.2 76.6 174.4 490.8
Additions 65.2 3.0 16.0 44.3 128.5
Acquisition of subsidiary 30.9 - - 0.9 31.8
Disposals - (0.9) - (4.4) (5.3)
Exchange Movements (9.6) (1.2) 1.5 (3.5) (12.8)
--------------------------- ------------- ----------- ------------ --------- ------------------
At 1 April 2018 293.1 34.1 94.1 211.7 633.0
Additions 0.1 0.8 4.5 17.2 22.6
Acquisition of subsidiary 0.9 - - - 0.9
IFRS 15 reclassification - - (85.0) - (85.0)
Transfers - 0.2 - (0.2) -
Exchange Movements 11.6 1.0 0.1 2.7 15.4
--------------------------- ------------- ----------- ------------ --------- ------------------
At 30 September 2018 305.7 36.1 13.7 231.4 586.9
--------------------------- ------------- ----------- ------------ --------- ------------------
Accumulated amortisation
At 1 April 2017 92.6 24.6 31.8 53.2 202.2
Charge for the year 18.4 3.5 16.8 15.9 54.6
Disposals - (0.3) - (2.5) (2.8)
Exchange movements (4.4) (0.8) 0.5 (1.1) (5.8)
-------------------------- ------ ------ ------- ------ -------
At 1 April 2018 106.6 27.0 49.1 65.5 248.2
Charge for the period 12.5 1.5 0.9 8.5 23.4 IFRS 15 reclassification - - (46.5) - (46.5) Exchange movements 4.6 0.4 - 1.1 6.1 -------------------------- ------ ------ ------- ------ ------- At 30 September 2018 123.7 28.9 3.5 75.1 231.2 -------------------------- ------ ------ ------- ------ ------- Carrying Amount At 30 September 2018 182.0 7.2 10.2 156.3 355.7 -------------------------- ------ ------ ------- ------ ------- At 1 April 2018 186.5 7.1 45.0 146.2 384.8 -------------------------- ------ ------ ------- ------ -------
* On 1 April 2018 assets with a total net book value of GBP38.5m were transferred out of customer databases and reclassified as contract cost assets under IFRS 15 (see Note 2).
8. Business combinations
The Group has incurred a net cash outflow in respect of business combinations of GBP5.4m in the period in relation to the following acquisitions:
On 29 June 2018, HomeServe USA Energy Services LLC, a Group company, acquired 100% of the issued share capital and obtained control of Gregg Mechanical Corp.
On 26 July 2018 Homeserve Spain, S.L.U, a Group company, acquired 100% of the issued share capital and obtained control of Oscagas Hogar, S.L.U (hereafter 'Oscagas').
The provisional fair values of identifiable assets acquired and liabilities assumed are set out in the table below:
GBPmillion Gregg Mechanical Oscagas Total
Inventories 0.1 0.4 0.5
Cash and cash equivalents 0.2 0.1 0.3
Trade and other receivables 0.1 1.2 1.3
Trade and other payables (0.2) (0.9) (1.1)
Intangible assets identified on
acquisition 0.5 0.4 0.9
Deferred taxation (0.1) (0.1) (0.2)
Net assets acquired 0.6 1.1 1.7
Goodwill 0.8 4.1 4.9
----------------------------------------- ----------------- -------- ------
Total 1.4 5.2 6.6
----------------------------------------- ----------------- -------- ------
Satisfied by:
Cash 0.6 5.1 5.7
Deferred consideration 0.8 - 0.8
Contingent consideration - 0.1 0.1
1.4 5.2 6.6
----------------------------------------- ----------------- -------- ------
Net cash outflow arising on acquisition
Cash consideration 0.6 5.1 5.7
Less: cash acquired (0.2) (0.1) (0.3)
----------------------------------------- ----------------- -------- ------
0.4 5.0 5.4
----------------------------------------- ----------------- -------- ------
The goodwill arising on the excess of consideration over the fair value of the assets and liabilities acquired represents the expectation of synergy savings, efficiencies, enhancing the scale and scope of Group's heating installation capability, together with future volume growth related to new heating system installations. None of the goodwill is expected to be deducted for income tax purposes.
The gross contracted amounts due are equal to the fair value amounts stated above for trade and other receivables. The undiscounted range of outcomes associated with the contingent consideration potentially payable is from GBPnil to GBP1.4m.
Gregg Mechanical Corp and Oscagas contributed a combined GBP1.4m of revenue and a profit of GBP0.1m to the Group's adjusted profit before tax for the six months to 30 September 2018.
If the acquisitions had been completed on the first day of the financial year, Group revenue for the period would have been GBP405.5m and Group statutory profit before tax would have been GBP19.4m
The information above is provisional with fair value assessment activities ongoing and the final acquisition disclosures will be included in the Group Annual Report and Accounts to be issued in May 2019.
In addition to the net cash outflow on the above acquisitions, deferred and contingent consideration was paid relating to previous business combinations and asset purchases of GBP12.2m (HY18: GBP2.9m). Cash flows resulting in the recognition of an asset at the point of payment are classified as investing cash flows. Those relating to the settlement of a liability are recognised within financing cash flows
Acquisition-related costs (included in operating costs) amounted to GBP0.2m (HY18: GBP0.5m).
9. Financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises are described in the Group's latest audited financial statements.
Classification of financial instruments in the consolidated balance sheet is as follows:
At At Year ended
30 September 30 September 31 March
2018 2017 2018
GBPmillion (Reviewed) (Reviewed)* (Audited)*
--------------------------- -------------- -------------- -------------
Financial Assets
Amortised cost 511.0 424.5 555.9
Fair value through other
comprehensive income 9.5 8.7 8.7
--------------------------- -------------- -------------- -------------
Financial Liabilities
Amortised cost 711.5 684.2 706.5
Fair value through profit
or loss 12.8 17.3 20.6
--------------------------- -------------- -------------- -------------
The Directors consider that the carrying values of financial assets and financial liabilities recorded at amortised cost in the financial statements are approximately equal to their fair values.
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
-- Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities
-- Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly
-- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.
The Group has no financial instruments with fair values that are determined by reference to Level 1 and there were no transfers of assets or liabilities between levels during the period. There are no non-recurring fair value measurements.
The Group held the following Level 2 and 3 financial instruments at fair value:
At At Year ended
30 September 30 September 31 March
2018 2017 2018
GBPmillion (Reviewed) (Reviewed)* (Audited)*
------------------------------------ -------------- -------------- -------------
Level 2
Assets classified as fair
value through other comprehensive
income
Other investments 9.5 8.7 8.7
------------------------------------ -------------- -------------- -------------
Level 3
Contingent consideration
at fair value through profit
and loss
Current liabilities (8.4) (4.8) (15.9)
Non-current liabilities (4.4) (12.5) (4.7)
------------------------------------ -------------- -------------- -------------
The fair value of Level 2 investments has been assessed at 30 September 2018 by analysing the future outlook for the business as well as reviewing valuations associated with recent comparable market transactions.
Contingent consideration liabilities are calculated using forecasts of future performance of acquisitions discounted to present value. Forecasts and discount rates are reviewed at least annually by the Directors as part of the valuation process. If discount rates were higher/lower than the Group's historical experience by 10%, the carrying amount of liabilities would decrease/increase by GBP0.1m.
Reconciliation of recurring Level 3 fair value measurements
Six months ended Six months ended Year ended
30 September 30 September
2018 2017 31 March 2018
GBPmillion (Reviewed) (Reviewed) (Audited)
------------------------------- ----------------- ----------------- ---------------
Opening balance 20.6 4.7 4.7
Additions 0.1 14.1 19.7
Payments (7.7) (1.9) (1.9)
Unwinding of discount
through the income statement (0.2) 0.4 0.7
Foreign exchange - - 0.1
Disposals - - (2.7)
12.8 17.3 20.6
------------------------------- ----------------- ----------------- ---------------
* Upon adoption of IFRS 9 certain financial assets of the Group were reclassified from available for sale, under IAS 39, to fair value through other comprehensive income. The Group's transition to IFRS 9 is discussed in Note 2.
10. Share capital
At At Year ended
30 September 30 September 31 March 2018
2018 2017
(Reviewed) (Reviewed) (Audited)
----------------------- ------ -------------- -------------- ---------------
Issued and fully paid
ordinary shares of
2 9/13p No. 331,894,902 312,713,579 329,776,766
GBPm 8.9 8.4 8.9
------------------------------ -------------- -------------- ---------------
During the period from 1 April 2018 to 30 September 2018 the Company issued 2,118,136 shares with a nominal value of 2 9/13p creating share capital of GBP57,027 and share premium of GBP6,939,022.
During the period from 1 April 2017 to 30 September 2017 the Company issued 2,024,031 shares with a nominal value of 2 9/13p creating share capital of GBP54,493 and share premium of GBP3,364,861.
On 19 October 2017, the Company placed 15,243,903 new ordinary shares at a price of 820 pence per share, raising gross proceeds of approximately GBP125.0m. The Placing Shares issued represented, in aggregate, approximately 4.9 per cent of HomeServe's issued ordinary share capital prior to the Placing. Transaction costs associated with the Placing of GBP3.4m were accounted for as a deduction from equity.
During the period from 1 April 2017 to 31 March 2018 the Company issued a further 3,843,315 shares with nominal value of 2 9/13p creating share capital of GBP103,474 and share premium of GBP4,907,972. Of this total, 1,193,317 shares, issued at 838 pence per share represented GBP10.0m of the fair value of the consideration for the acquisition of Sherrington Mews Limited on 17 November 2017.
11. Retirement benefit schemes
The defined benefit plan assets and liabilities have been updated as at 30 September 2018. Differences between the expected return on assets and movement on liabilities have been recognised as an actuarial gain or loss in the Consolidated Statement of Comprehensive Income in accordance with the Group's accounting policy.
12. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Transactions with associates
Related party transactions with associate interests during HY19 principally related to recharged consultancy and contractor costs and amounted to GBP0.1m (HY18: GBP0.2m).
Other related party transactions
Related party transactions during HY19 were similar in nature to those in HY18 and amounted to GBP0.3m (HY18: GBP0.2m).
Full details of the Group's related party transactions for the year ended 31 March 2018 are included on page 186 of the Annual Report & Accounts 2018.
13. Events after the balance sheet date
Private Placement
On 25 October 2018 the Group completed a financing transaction in the United States Private Placement market, issuing notes amounting to $125.0m and GBP80.0m as detailed below:
Title Principal Maturity
----------------------- ---------- ----------------
13(th) December
7 yr GBP Senior Notes GBP33.0m 2025
7 yr USD Senior Notes $29.0m 13(th) December
2025
10 yr GBP Senior Notes GBP23.0m 13(th) December
2028
10 yr USD Senior Notes $49.0m 13(th) December
2028
12 yr GBP Senior Notes GBP24.0m 13(th) December
2030
12 yr USD Senior Notes $47.0m 13(th) December
2030
Counterparties will provide the funding of the Sterling denominated notes in Sterling on 13 December 2018 at a fixed rate of 0.7538 GBP: 1 USD. The Sterling equivalent of all notes to be issued amounts to GBP174.2m based on the above exchange rate.
Purchase of certain trade and assets of Dominion Products and Services (Tranche 2)
On 26 October the Group completed its purchase of tranche 2 of the policy book of the home assistance cover business of Dominion Products and Services, first announced on 19 October 2017.
Responsibility statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).
By order of the Board
David Bower Chief Financial Officer 20 November 2018
Forward Looking Statements and Other Information
This interim management report has been prepared solely to provide additional information to shareholders as a body to assess the Company's strategies and the potential for those strategies to succeed. This report contains certain forward looking statements, which have been made in good faith, with respect to the financial condition, results of operations and businesses of HomeServe plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements have been made with reference to forecast price changes, economic conditions, the current regulatory environment and the current interpretations of IFRS applicable to past, current and future periods. Nothing in this announcement should be construed as a profit forecast.
Independent Review Report To HomeServe plc
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and related notes 1 to 13. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
20 November 2018
GLOSSARY
HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. APMs used in this announcement address profitability, leverage and liquidity and together with operational KPIs give an indication of the current health and future prospects of the Group.
Definitions of APMs and the rationale for their usage are included below with a reconciliation, where applicable, back to the equivalent statutory measure.
Profitability
The Group uses adjusted operating profit, EBITDA, adjusted profit before tax and adjusted earnings per share as its primary profit performance measures. These are non-IFRS measures which exclude the impact of the amortisation of acquisition intangible assets. Intangible assets principally arise as a result of the past actions of the former owners of businesses in respect of marketing and business development activity. Therefore, the adjusted measures reflect the post acquisition revenue attributable to, and operating costs incurred by, the Group.
TOTAL GROUP
GBPmillion HY19 HY18(1) ----------------------------------------- ----- -------- Operating profit (statutory) 24.6 27.5 Amortisation of acquisition intangibles 12.5 7.8 Adjusted operating profit 37.1 35.3 ----------------------------------------- ----- -------- Operating profit (statutory) 24.6 27.5 Depreciation 4.6 3.8 Amortisation of other intangibles 10.9 17.0 Amortisation of contract costs 7.9 - Amortisation of acquisition intangibles 12.5 7.8 EBITDA 60.5 56.1 ----------------------------------------- ----- ----- Profit before tax (statutory) 19.3 21.2 Amortisation of acquisition intangibles 12.5 7.8 Adjusted profit before tax 31.8 29.0 ----------------------------------------- ----- -----
(1)The Group's results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April 2018. In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2.
Pence per share --------------------------------------- ---- ---- Earnings per share (statutory) 4.6 5.1 Impact of amortisation of acquisition intangibles on earnings per share (net of tax) 2.9 1.7 Adjusted earnings per share 7.5 6.8 --------------------------------------- ---- ----
SEGMENTAL
HY19 North
GBPmillion UK America France Spain New Markets
----------------------------------- ------ --------- ------- ------ ------------
Revenue 155.7 130.5 36.8 65.8 18.2
Statutory operating profit/(loss) 9.1 8.4 4.2 8.6 (5.7)
Operating Margin % 6% 6% 11% 13% -
Add back
Amortisation of Acquisition
Intangibles 1.1 5.6 3.3 - 2.5
Effect on operating margin
% 1% 5% 9% - -
Adjusted operating profit/(loss) 10.2 14.0 7.5 8.6 (3.2)
Adjusted operating margin
% 7% 11% 20% 13% -
----------------------------------- ------ --------- ------- ------ ------------
HY18 North
GBPmillion UK America France Spain New Markets
----------------------------------- ------ --------- ------- ------ ------------
Revenue 142.8 117.8 35.3 67.6 5.4
Statutory operating profit/(loss) 8.2 8.0 6.2 7.8 (2.7)
Operating Margin % 6% 7% 18% 12% -
Add back
Amortisation of Acquisition
Intangibles 0.9 3.4 3.2 0.1 0.2
Effect on operating margin
% - 3% 9% - -
Adjusted operating profit/(loss) 9.1 11.4 9.4 7.9 (2.5)
Adjusted operating margin
% 6% 10% 27% 12% -
----------------------------------- ------ --------- ------- ------ ------------
North
HY19 UK America France Spain New Markets
Local currency million GBP $ EUR EUR GBP
---------------------------------- ------ --------- ------- ------ ------------
Revenue 155.7 173.7 41.6 74.4 18.2
Statutory operating
profit/(loss) 9.1 11.3 4.9 9.8 (5.7)
Operating Margin % 6% 7% 12% 13% -
Add back
Amortisation of Acquisition
Intangibles 1.1 7.6 3.7 - 2.5
Effect on operating
margin % 1% 4% 9% - -
Adjusted operating profit/(loss) 10.2 18.9 8.6 9.8 (3.2)
Adjusted operating margin
% 7% 11% 21% 13% -
---------------------------------- ------ --------- ------- ------ ------------
North
HY18 UK America France Spain New Markets
Local currency million GBP $ EUR EUR GBP
----------------------------------- ------ --------- ------- ------ ------------
Revenue 142.8 152.3 40.1 76.9 5.4
Statutory operating profit/(loss) 8.2 10.3 6.7 8.9 (2.7)
Operating Margin % 6% 7% 17% 12% -
Add back
Amortisation of Acquisition
Intangibles 0.9 4.4 3.6 0.1 0.2
Effect on operating margin
% - 3% 9% - -
Adjusted operating profit/(loss) 9.1 14.7 10.3 9.0 (2.5)
Adjusted operating margin
% 6% 10% 26% 12% -
----------------------------------- ------ --------- ------- ------ ------------
Leverage
In FY19 the Group targets net debt in the range of 1.0 to 2.0x EBITDA measured at the year end.
The range reflects HomeServe's relatively low risk appetite. Due to the seasonality of the business and depending on M&A opportunities, HomeServe is able to operate outside 1.0 to 2.0x for periods of time but with a highly cash generative business model HomeServe will seek to return to its target range. The leverage ratio is also important as it factors into the Group's banking covenants and the rolling 12 month rate at the half year influences the forward interest rates payable on the Group's Revolving Credit Facility.
Certain of the Group's segmental bonus measures relate to net cash. Net cash is defined and calculated in the same way as net debt but returns a positive closing balance.
The closing balances relating to leverage at 30 September were as follows:
GBPmillion HY19 HY18
----------------------------------------- ------- -------
Current liabilities from borrowings and
finance leases
Finance leases 0.5 0.5
Bank and other loans 36.3 38.0
----------------------------------------- ------- -------
36.8 38.5
Non-current liabilities from borrowings
and finance leases
Finance leases 0.3 0.7
Bank and other loans 310.3 328.6
----------------------------------------- ------- -------
310.6 329.3
----------------------------------------- ------- -------
Total liabilities from borrowings and
finance leases 347.4 367.8
----------------------------------------- ------- -------
Cash and cash equivalents (55.5) (63.8)
----------------------------------------- ------- -------
Net debt 291.9 304.0
----------------------------------------- ------- -------
Last twelve months EBITDA 201.9 162.4
----------------------------------------- ------- -------
Leverage 1.4x 1.9x
----------------------------------------- ------- -------
Liquidity
Cash conversion % is defined as cash generated by operations divided by adjusted operating profit. The measure demonstrates the cash generative nature of the ordinary trading operations of HomeServe's business model and the ability to produce positive cashflows that can be invested for future growth initiatives or in capital projects to maintain customer service initiatives, digital enhancements or efficiencies that benefit the long-term health of the business.
Free cash flow is stated after capital expenditure, tax and interest obligations and is an indication of the strength of the business to generate funds to meet its liabilities and repay borrowings. It also shows the funds that might be made available to pursue M&A activities and to pay dividends.
Due to the seasonality of HomeServe's business, cash conversion is not considered an appropriate measure for the half year period. The last full financial year comparatives are included for reference as follows:
GBPmillion 2018 2017 ----------------------------------------- ------- ------- Adjusted operating profit 153.4 118.8 Amortisation of acquisition intangibles (18.4) (14.1) ----------------------------------------- ------- ------- Operating profit 135.0 104.7 Depreciation and amortisation 62.6 49.5 Non-cash items 9.0 6.8 Increase in working capital (42.4) (21.1) ----------------------------------------- ------- ------- Cash generated by operations 164.2 139.9 Net interest (10.5) (6.4) Taxation (27.2) (20.0) Capital expenditure - Ordinary (54.6) (44.4) Capital expenditure - Partner Payments (16.5) (14.1) Repayment of finance leases (0.6) (1.0) ----------------------------------------- ------- ------- Free cash flow 54.8 54.0 GBPmillion 2018 2017 ------------------------------ ------ ------ Adjusted operating profit 153.4 118.8 Cash generated by operations 164.2 139.9 ------------------------------ ------ ------ Cash conversion 107% 118% ------------------------------ ------ ------
KPIs
The Group uses a number of operational key performance indicators that provide insight into past performance and are an indicator of the future prospects of the Group as a whole and its individual segments.
Affinity partner households tracks the growth in addressable market delivered through existing and new partnerships with utilities and municipals. Customers tracks success in converting addressable market into revenue-generating customers, by delivering great products and service. Retention rate reflects ability to deliver fit-for-purpose product and great service to customers. Policies illustrates ability to grow the product line through customer focus and innovation. Income per customer measures ability to design and market increasingly valuable products, and sell them efficiently. Due to currency differences, this measure is tracked at a geographic level. Income per customer is calculated as the last 12 months' net policy income divided by customers. Trades are customers in the Home Experts business. Growing the network of vetted and reviewed tradespeople will enable HomeServe to meet customer needs and grow its business. Adjusted profit before tax is the key profit measure by which business growth, efficiency and sustainability is monitored. Net debt to EBITDA is the key cash ratio, which is used to monitor usage of financial resources within agreed risk parameters.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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