TIDMHSV
RNS Number : 6219Z
Homeserve Plc
21 May 2019
HomeServe plc
Preliminary results for the year ended 31 March 2019
2019 2018(1) Change(2)
--------------------------- ------------ ---------- ----------
Revenue GBP1,003.6m GBP899.7m +12%
Statutory operating
profit GBP152.6m GBP135.0m +13%
Statutory profit before
tax GBP139.5m GBP123.3m +13%
Basic earnings per
share 32.7p 30.2p +8%
Adjusted operating
profit(3) GBP174.8m GBP153.4m +14%
Adjusted profit before
tax(3) GBP161.7m GBP141.7m +14%
Adjusted earnings
per share(3) 37.5p 33.6p +12%
Adjusted EBITDA(3) GBP221.9m GBP197.6m +12%
Ordinary dividend
per share 21.4p 19.1p +12%
Net debt GBP304.7m GBP237.8m +28%
Total number of customers 8.4m 8.4m -
--------------------------- ------------ ---------- ----------
Strong results across the Group with North America now
HomeServe's largest business
-- Group revenue exceeded GBP1.0bn (FY18: GBP899.7m)
-- Adjusted operating profit up 14% to GBP174.8m with statutory
operating profit up 13% to GBP152.6m
-- UK adjusted operating profit up 8% to GBP66.0m, with income
per customer up 15% as the business continued its focus on
delivering additional products to customers
-- Adjusted operating profit in North America up 37% to $88.1m;
with an adjusted operating margin of 20% (FY18: 17%) as customers
reached 4.0m (FY18: 3.6m). France and Spain both delivered good
growth in adjusted operating profit, up 6% and 5% respectively
-- Established presence in Japan via a joint venture agreement with Mitsubishi Corporation
-- Pro forma revenue growth of 33% at Checkatrade and a 23% increase in trades to 36k
-- Group remains highly cash generative with a strong financial
position: 116% cash conversion(3); within target leverage range at
1.4x Net Debt: Adjusted EBITDA
-- Proposed final dividend of 16.2p, to take the total dividend
for the year to 21.4p, up 12%, in line with earnings
Richard Harpin, Founder and Chief Executive, HomeServe plc,
said: "HomeServe delivered another very good year with further
profit growth across the Group. North America was once again the
outstanding performer and our progress there continues at pace.
Allied to good performances in the UK, France and Spain, our
Membership business is strong and I remain excited about its
prospects.
"Checkatrade is already making great strides to strengthen its
position as the UK market leader and offer an even better trade and
consumer experience. In Home Experts we have a business line with
huge potential. The progress we have made this year has confirmed
that we are developing a winning model and gives us the confidence
to increase our annual investment.
"Our mission is to make home repairs and improvements easy for
both homeowners and trades and I remain as passionate as ever about
our efforts to provide great service to achieve this."
Outlook
HomeServe expects to deliver further strong growth in FY20, with
increased P&L investment in Home Experts expected to be offset
by strong performance in Membership, particularly North America.
HomeServe increased its P&L investment in Home Experts and New
Markets to GBP9.8m in FY19 (FY18: GBP4.4m), and expects to increase
it to between GBP12m to GBP15m across these two areas in FY20.
(1)The Group's results are being reported under IFRS 9 and IFRS
15 for the first time in 2019 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.
(2)Percentage movements throughout this announcement are based
on full underlying results, not the rounded figures in the
tables
(3)HomeServe uses a number of alternative performance measures
(APMs) to assess the performance of the Group and its individual
segments. Headline financial results and the operating reviews of
each segment within this announcement all refer to APMs. 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
reconciliations, where applicable, back to the equivalent statutory
measure.
Results presentation and Investor Day
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;
0800 358 9473 PIN: 49679995#
* United Kingdom Toll-Free
+44 3333 000 804 PIN: 49679995#
* United Kingdom Toll
HomeServe will hold an Investor Day for analysts and
institutional investors on 20 June 2019 at Checkatrade's new
offices in Portsmouth. To register attendance, please visit
https://homeserveevent.co.uk/investor
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
Forward Looking Statements
This report contains certain forward looking statements, which
have been made in good faith, with respect to the financial
condition, results of operations, and businesses of HomeServe plc.
These statements 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.
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.GBP3.6
billion.
CHIEF EXECUTIVE'S REVIEW
HomeServe made very good progress in FY19 on a number of fronts
as we continued to advance our strategic growth initiatives and
focused on our purpose of making home repairs and improvements
easy.
Our Membership business line remains the core of our business
today and it was great to see North America continue its strong
growth trajectory as it became our largest business as well as to
see good performances in our other Membership businesses with
increased profits across the board.
With our buy and build strategy in HVAC (our installations,
repairs and service business for heating, ventilation and air
conditioning) also taking shape and contributing to the Group's
performance, it was the combined team effort of all business lines
that gave me confidence to increase our annual Home Experts
investment. The potential of Home Experts is significant and we
have the right team in place at Checkatrade to deliver our
ambitions.
With all Membership businesses now under Tom Rusin's leadership
we are seeing greater collaboration and sharing of best practice
and we are becoming more sophisticated in how we test and learn
from new initiatives, as well as how we deploy our investments
across our businesses for the best returns. Membership and HVAC in
North America continue to be our principal near-term sources of
growth, but all of our Membership businesses have opportunities to
grow. New partners, products and channels drive top line growth and
the increasing use of data and technology transforms our customer
service and delivers greater operational scale and efficiency.
I was pleased to see our Membership businesses strengthening and
expanding their utility partnerships. France extended the Group's
single largest partnership, with Veolia, until 2026, and began a
partnership with Saur, France's third largest water utility. In the
UK we signed four new energy partners and Spain followed the UK
lead and is now witnessing the early signs of success with a small
challenger energy partner. With retention also increasing and the
Claims side of the business in good health, our Spanish business is
well placed as it seeks to bring on board new affinity partners in
place of Endesa. Finally, in North America we have further
accelerated our business development activity and are now signing
new partners at the rate of three a week.
As well as initiatives to grow our revenue, we are equally
focused on transforming our service for ever evolving customer
demands and needs. Better use of technology can offer HomeServe a
real competitive advantage and increased scale and efficiencies. By
freeing our people from simpler tasks, such as routine claims
handling and appointment scheduling, we can retain them for more
interesting and challenging calls. This not only improves job
satisfaction and engagement but also ensures our best people are
available to provide the best service when our customers need their
direct intervention the most.
Adding to our Membership highlights this year was our joint
venture with Mitsubishi Corporation. The Japanese market meets all
of the search criteria we apply to new markets, notably a strong
economy, a large and high quality housing stock and the potential
to form strong utility partnerships. Mitsubishi is not itself a
utility but has unrivalled market knowledge and is well placed to
introduce the new JV to potential utility partners.
FY19 was our first year of full ownership of Checkatrade, our UK
Home Experts business, and we have used this to start accelerating
some fundamental changes. Over the last 12 months the number of
trade members has grown by 23% to 36k and consumer web visits are
up by 11% to 18m a year. This demonstrates strong progress, but we
have plans to step change this growth. To support this, the
business has moved to new offices at Lakeside, Portsmouth Harbour
and it was great that so many of Checkatrade's experienced people
who have been with the company for many years chose to move with
the business. They join us on the next phase of Checkatrade's
journey as we look to transform the business under the leadership
of a new senior management team with experience in fast growing
digital businesses.
I firmly believe that an online directory of trusted and vetted
trades is the winning solution for our trade members and for
consumers who use the site. Checkatrade's vetting process is unique
and highly valued by consumers and has helped make it the UK market
leader today. We do, however, need new functionality and new
products in order to improve the experience for consumers and
trades alike. We are developing new initiatives such as "search for
me" for consumers who simply want us to select a trade on their
behalf and Checkatrade Now, a solution for obtaining an emergency
repair. We are pursuing our plans to accelerate trade numbers and
to increase web visitors so that ultimately we 'make the phone
ring' even more for our members and help them improve and grow
their own businesses.
Habitissimo had a good year but it is clear from our experiences
with Checkatrade and our Home Experts market research that an
online directory combined with a "search for me" facility is the
best model. We intend to introduce our preferred model into
Habitissimo's markets over the course of the next year.
On Smart Home we have a leak detection device that works well,
is easy to install and we have the plumbing network to detect and
fix the identified leaks. With the WIFI version of LeakBot now
proven, we are targeting 3.6m homes in the UK where we know we have
an attractive model for both the home insurer and HomeServe. These
are larger homes where the savings the home insurer makes from
preventing sizeable water damage claims will cover the rental and
service charges the home insurer pays to HomeServe for the LeakBot
units and the leak finding and fixing service.
Three insurance partners to date have moved out of test and in
to a wider roll-out. We continue to work with other insurers to
highlight the consumer benefits of LeakBot and to demonstrate the
returns insurers can achieve by reducing water damage claims when
adopting our end to end solution.
People and leadership
HomeServe has a strong history of growth in all of its
businesses and we have ambitious plans in place for the future.
Having the right people is key to achieving our goals and
HomeServe's success owes much to the dedication of our people
around the world. I am proud and thankful for the service they
provide to our customers every day. I believe that HomeServe is a
great place to develop a rewarding and fulfilling career and look
forward to seeing our people share in HomeServe's success.
There have been significant changes in personnel across the
group in the past year, which have been overseen carefully by the
Board. Martin Bennett, CEO, HomeServe UK, and Johnathan Ford, COO,
both departed with our good wishes and I also recently made changes
to HomeServe's Executive Committee, introducing greater diversity
and stronger representation from operational management.
Deb Dulsky (Global CEO, HVAC), Fernando Prieto (CEO Spain), Greg
Reed (CEO UK), John Kitzie (CEO North America) and Mike Fairman
(CEO Checkatrade) joined my HomeServe plc Executive Committee with
effect from 1 April 2019. They join existing members David Bower
(Chief Financial Officer), Guillaume Huser (CEO France), H Stephen
Phillips (CEO Global Partnerships) and Tom Rusin (Global CEO
Membership). The change will bring fresh perspectives to the
Executive Committee and also serves to demonstrate the depth of
management we now have in the business.
Outlook
HomeServe expects to deliver further strong growth in FY20, with
increased P&L investment in Home Experts expected to be offset
by strong performance in Membership, particularly North America.
HomeServe increased its P&L investment in Home Experts and New
Markets to GBP9.8m in FY19 (FY18: GBP4.4m), and expects to increase
it to between GBP12m to GBP15m across these two areas in FY20.
Richard Harpin
Founder and Chief Executive
BUSINESS REVIEW
HomeServe had another very good year, and continues to serve
over 8m customers around the world as the Group delivered 14%
growth in adjusted profit before tax to GBP161.7m (FY18:
GBP141.7m). North America, in particular, enjoyed another very
successful 12 months and is now the Group's largest business.
Total customers at the year end were 8.4m (FY18: 8.4m) as strong
growth in North America was offset by expected declines in Spain
following the end of the Endesa partnership in May 2018 and in the
UK, in the absence of a policy book acquisition this year. France
grew slightly with 1.1m customers (FY18: 1.1m). The Group retention
rate remained strong at 82% (FY18: 82%).
In Membership, the Group continues to achieve its best returns
on marketing investment in North America. In order to benefit from
this, HomeServe is increasingly more sophisticated in how it makes
its investments, prioritising them for the best returns. In North
America, HomeServe will continue to drive customer acquisition and
grow HomeServe's customer base. Similarly in France, the extended
partnership with Veolia until 2026 and the new partnership with
Saur, France's third largest water utility, both present an
opportunity to invest for further customer growth. In Spain the
focus remains on establishing new partnerships for the Membership
business whilst the Claims business continues to grow the total
number of jobs completed for its bancassurer partners.
In the UK an improved, coordinated approach to pricing
'returning customers' contributed to the reduction in customer
numbers but drove a further strong increase in income per customer
as the business prioritised delivering additional products to
existing customers, rather than recruiting marginal customers who
frequently 'dip in' and 'drop out', and only ever on highly
discounted offers.
North America, France and Spain all made progress implementing
HomeServe's buy-and-build HVAC strategy, acquiring well-run, local
HVAC businesses, which provide standalone installation capability
and complement the Membership business with the opportunity to
provide annual services and assistance cover. Total consideration
in respect of HVAC acquisitions was c. GBP35m. Meanwhile the UK
continued to integrate the Help-Link business acquired in FY18 and
to develop channels to service the Membership customer base.
HomeServe now reports Home Experts as a separate segment,
reflecting the size of the opportunity and how management operates
and reviews the business. The segment contains the results of
Checkatrade in the UK, Habitissimo in Spain and our newly launched
Home Experts France. New Markets contains HomeServe's international
development initiatives, including its Italian associate and its
Japanese joint venture.
Financial performance for the year ended 31 March
Statutory operating Adjusted operating
Revenue profit/(loss) profit/(loss)
GBPmillion 2019 2018 2019 2018 2019 2018
------------------ -------- ------ ------------- ----------- ------------ -----------
UK 391.7 365.6 68.4 59.3 66.0 61.1
North America 333.4 282.1 54.7 40.5 67.6 48.6
France 104.6 100.0 26.8 25.1 33.3 31.5
Spain 140.8 141.3 17.5 16.5 17.7 16.6
Home Experts 40.4 18.6 (12.4) (4.8) (7.4) (2.8)
New Markets - - (2.4) (1.6) (2.4) (1.6)
Inter-segment(1) (7.3) (7.9) - - - -
------------------ -------- ------ ------------- ----------- ------------ -----------
Group 1,003.6 899.7 152.6 135.0 174.8 153.4
------------------ -------- ------ ------------- ----------- ------------ -----------
(1)Inter-segment revenues include transactions with other Group
companies removed on consolidation and principally comprise royalty
and other similar charges.
Membership performance metrics for the year ended 31 March
Customer numbers Policy retention
(m) Income per customer rate
2019 2018 2019 2018 2019 2018
--------------- --------- -------- ---------- ---------- --------- --------
UK 2.0 2.2 GBP122 GBP106 79% 79%
North America 4.0 3.6 $96 $91 83% 83%
France 1.1 1.1 EUR109 EUR106 89% 88%
Spain 1.1 1.3 EUR57 EUR47 80% 78%
New Markets 0.2 0.2 - - - -
--------------- --------- -------- ---------- ---------- --------- --------
Group 8.4 8.4 n/a n/a 82% 82%
--------------- --------- -------- ---------- ---------- --------- --------
UK
GBPmillion 2019 2018 Change
--------------------------- -------- -------- -------
Revenue
Net policy income 244.0 221.6 10%
Repair network 108.9 106.3 2%
---------------------------- -------- -------- -------
Membership 352.9 327.9 8%
HVAC 25.5 21.1 21%
Other 13.3 16.6 (20%)
Total revenue 391.7 365.6 7%
---------------------------- -------- -------- -------
Adjusted operating costs (325.7) (304.5) 7%
---------------------------- -------- -------- -------
Adjusted operating profit 66.0 61.1 8%
---------------------------- -------- -------- -------
Adjusted operating margin 17% 17% -
---------------------------- -------- -------- -------
Performance metrics 2019 2018 Change
----------------------------- ----- -------- ----- ----- -------
Affinity partner households M m 26 26 -
Customers M m 2.0 2.2 (10%)
Income per customer GBP GBP 122 106 15%
Policies M m 5.4 5.9 (8%)
Policy retention rate % % 79 79 -
----------------------------- ----- -------- ----- ----- -------
Financial performance
Net policy income increased by 10% as reduced customer numbers
were more than offset by a 15% increase in income per customer as
the depth of cover of the average policy holding of UK customers
continued to increase.
Repair network income was up 2% as HomeServe completed 1.2m jobs
(FY18: 1.2m) for its customers with a greater proportion of higher
value jobs completed this year.
HVAC revenue rose by 21% to GBP25.5m reflecting a full year's
ownership of Help-Link, a HVAC installation business acquired in
August 2017.
Other revenue of GBP13.3m (FY18: GBP16.6m) included transactions
with other Group companies and revenue from Leakbot sales to home
insurers.
Adjusted operating profit increased 8% to GBP66.0m due to the
higher revenue and the full year impact of cost reductions made in
the prior year. The adjusted operating margin was maintained at
17%.
The UK incurred two items recorded as exceptional in the year
due to their size and incidence; an exceptional gain of GBP10.1m
and an exceptional cost of GBP5.5m, both of which are excluded from
adjusted performance measures in the table above. A reconciliation
between the GBP66.0m adjusted operating profit and GBP68.4m
statutory operating profit is provided within the glossary at the
end of this announcement.
The exceptional gain related to contingent payments due to the
past-owners of Help-Link, which had been payable upon hitting
certain volumes of boiler installations. The business has now been
fully integrated with the UK Membership business and although the
volume of installs continues to increase, HomeServe does not expect
to achieve the stretch targets required to trigger the contingent
payments that would be due to the previous owners. As such, and in
accordance with IFRS, the fair value of the associated liability
has been reduced to nil and taken to the income statement as an
exceptional gain for the year.
The exceptional cost mostly related to redundancies and other
associated charges incurred in respect of changes to the
organisational design of the UK business. Marketing and other
support headcount decreased, as the business reduces its reliance
on direct mail activity and prepares for the launch of new system
implementations and operational improvements.
Operational performance
UK customers were 2.0m (FY18: 2.2m) and retention remained
strong at 79% (FY18: 79%) with the lower customer count principally
reflecting the absence of policy book acquisitions in the year and
a focus on 'returning customers'. Policy book opportunities
continue to be appraised but no acquisitions were completed in FY19
as there had been in previous years.
A small proportion of customers each year take advantage of
HomeServe's introductory low pricing, but then go on to claim at
higher than average frequencies for what are often pre-existing
problems. These are generally customers who have already benefited
from an introductory offer in prior years. With improved insight
from new systems, HomeServe is better able to identify these
customers and tailor its offers to them. In particular, while such
returning customers are welcome to rejoin, introductory rates are
removed to prevent 'dipping in and dropping out' and, importantly,
to reduce the burden the associated higher costs place on its loyal
customer base. This change in strategy, together with the
termination of certain low priced stand-alone products, has
resulted in a reduction in customers this year, but has removed a
largely unprofitable element of the customer base and has
contributed to the 15% increase in income per customer.
During the year, the UK signed four new partners in the retail
energy sector: Co-Op Energy, Green Star Energy, SO Energy and
Tonik. There are an estimated 0.5m energy switchers in the UK each
month and the new partnerships present an exciting opportunity for
HomeServe to introduce its products within the switching
process.
Two new systems will go fully live in the UK in FY20: the core
customer management system and the claims / network management
system. As previously reported, the customer management system will
provide a single, holistic view of our customers, which in turn
will drive better conversations between agents and customers and
offer improved cross sell and retention tools as well as driving
down average call times. The network management system will improve
claims handling and job deployment and will drive efficiencies in
the field with both HomeServe's directly employed and subcontracted
engineers. While these systems will give rise to a higher ongoing
amortisation charge, this charge is expected to be offset by
operational benefits and efficiencies.
The UK network of 989 directly employed engineers and 315
subcontractors completed 1.2m jobs (FY18: 1.2m). The directly
employed network continues to fulfil almost 90% of water jobs and
60% of heating jobs with the remainder of work completed by the
subcontract network. In the HVAC business line, Help-Link completed
11.1k boiler installations (FY18: 9.5k).
Customer satisfaction remains high with Trustpilot and Reevoo
scores of 8.6 and 96% (FY18: 8.2 and 95%)
The focus for LeakBot has been on turning test relationships
with insurers into larger volume deals. The device itself is proven
and the wifi model delivers the potential to scale the opportunity.
HomeServe now has an approach which is attractive for both
HomeServe and home insurers based upon a rental model for the
LeakBot devices plus insurers paying HomeServe for a leak finding
and fixing service.
Looking forward the UK business will lead certain global
Membership initiatives aimed at reinventing customer service and
product offers. Already live is a test for HomeServe Now, a
technology-led claims process utilising Smart IVR and routing
customer calls directly to available engineers in a local radius
with engineers accepting the job on a 'fastest finger first' basis
and attending within an hour. This is a quick and easy experience
and one that can improve efficiency for HomeServe and the claims
experience for the customer.
North America
USD million 2019 2018 Change
--------------------------- -------- -------- -------
Revenue
Net policy income 396.8 349.1 14%
Repair network 20.5 12.0 69%
---------------------------- -------- -------- -------
Membership 417.3 361.1 16%
HVAC 17.6 14.1 27%
Other 1.3 - 100%
Total revenue 436.2 375.2 16%
---------------------------- -------- -------- -------
Adjusted operating costs (348.1) (310.8) 12%
---------------------------- -------- -------- -------
Adjusted operating profit 88.1 64.4 37%
---------------------------- -------- -------- -------
Adjusted operating margin 20% 17% 3ppts
---------------------------- -------- -------- -------
GBP million 2019 2018 Change
--------------------------- -------- -------- -------
Revenue
Net policy income 303.3 262.4 16%
Repair network 15.7 9.6 64%
---------------------------- -------- -------- -------
Membership 319.0 272.0 17%
HVAC 13.4 10.1 28%
Other 1.0 - 100%
Total revenue 333.4 282.1 18%
---------------------------- -------- -------- -------
Adjusted operating costs (265.8) (233.5) 14%
---------------------------- -------- -------- -------
Adjusted operating profit 67.6 48.6 39%
---------------------------- -------- -------- -------
Adjusted operating margin 20% 17% 3ppts
---------------------------- -------- -------- -------
Performance metrics 2019 2018 Change
----------------------------- --- ----- ----- -------
Affinity partner households m 60 55 11%
Customers m 4.0 3.6 13%
Income per customer $ 96 91 5%
Policies m 6.7 5.6 19%
Policy retention rate % 83 83 -
----------------------------- --- ----- ----- -------
Financial Performance
Total revenue increased by 16% to $436.2m driven by another
strong Membership performance. Net policy income increased by 14%
to $396.8m due principally to higher customer numbers year on year
as a result of continued strong growth and the successful
completion of the second tranche of the Dominion Products and
Services (DPS) policy book in October 2018.
Repair network revenue comprises jobs completed by the directly
employed network and reflects the growing volume of claims from the
larger customer base.
Total HVAC revenue grew 27% to $17.6m due principally to a 20%
increase in total installations to c. 5k and a rise in the average
revenue per install driven by an increased proportion of higher
value jobs.
With the DPS policy book now fully integrated and an increase in
the number of policies held per customer, income per customer rose
5% to $96.
Adjusted operating costs rose 12% to $348.1m due to continued
business growth, but at a lower rate than revenue, reflecting the
increasing scale and operational leverage of the North American
business. This resulted in an adjusted operating margin of 20%, up
by three percentage points compared to the prior year.
With the continued success of the North American business, its
stated target of $160m of adjusted operating profit is within sight
and with good progress in already achieving a 20% margin and income
per customer getting close to $100, it is clear that $160m will be
a milestone and not the end point for the North American
business.
Operational performance
North America is now HomeServe's largest business in terms of
both customer numbers and adjusted operating profit, overtaking the
UK. Customer numbers increased by 13% to 4.0m including 0.2m added
following the successful integration of the second tranche of
Dominion. US homeowners continue to be highly receptive to
HomeServe's products and 1.2m gross new customers were added in the
year through annual marketing campaigns.
The policy retention rate remained high at 83% (FY18: 83%), and
allied to a Better Business Bureau rating maintained at A+, is a
good indicator of high customer satisfaction. The business was also
honoured with 33 Stevie Awards for Sales & Customer Service and
received a Grand Stevie Award, recognising HomeServe as the third
most honoured organisation in the competition.
Utilities value the ongoing commission streams generated by
partnering with HomeServe but they also value the high levels of
service HomeServe provides to their customer base. This forms a key
part of the proposal to win new partnerships. Successful business
development led to an average of three new partners being signed
every week and HomeServe North America now works with almost 700
partners with access to 60m households under a utility brand. The
National League of Cities endorsement was renewed in the year and
HomeServe also works with 16 individual State Leagues, bringing
further endorsement at a more localised, State level.
HomeServe's network of c.5k contractors and 453 directly
employed engineers (FY18: c.4k contractors and 170 employees)
completed 0.5m jobs in FY19, up 21% on the prior year. HomeServe
provides a steady stream of work for its contractors and shares
technology (job scheduling, job routing software) that improves
their efficiency and service. Consequently there is high demand to
join the network, but of all contractors applying only c.10% are
approved; this means that HomeServe works with only the very best
contractors who provide the excellent levels of service that
HomeServe and its customers demand. The number of directly employed
engineers increased as a result of the HVAC acquisitions in the
year.
In January 2019 HomeServe made a strategic investment in
consumer technology company Centriq, purchasing a 20% stake for
$5m. Centriq's app makes it easy for users to capture the details
of items in their home, e.g. electronics and appliances simply by
taking a photo of the product label. Having captured details, the
app then provides users with resources to troubleshoot problems
themselves, or with the details to obtain repair help and access to
technicians when service is needed. A HomeServe branded version of
the app will prove valuable in further engaging the existing 4.0m
customer base and is a potential way to help acquire new
customers.
Centriq is one of several initiatives to engage more customers
digitally and to take advantage of technology that could improve
the customer journey or increase operating efficiency. A smart IVR
was launched during the year to enable customers to book tune-ups
over the phone without agent intervention. This has proven to be a
slick process for the customer and frees up agents to dedicate
their time to providing high levels of customer service on more
complicated calls. After its successful roll out in North America,
the technology is now being introduced into the UK, France and
Spain.
North America continues to lead on the Group's HVAC strategy and
acquired three new HVAC businesses in the year, of which Cropp
Metcalfe in March 2019 was the largest. The acquisition nearly
doubles HomeServe's employed HVAC workforce and is the next step in
building a share of the estimated $29bn annual HVAC market in the
US. Cropp Metcalfe meets HomeServe's criteria of a well-run,
owner-managed business with a strong local reputation and will
continue to provide its services to its existing customer base as
well as now also providing installation services and repairs in an
area (Washington D.C.) of existing high policy density.
France
EURuro million 2019 2018 Change
--------------------------- ------- ------- -------
Revenue
Net policy income 115.6 111.7 3%
Repair network 0.5 0.5 (2%)
---------------------------- ------- ------- -------
Membership 116.1 112.2 3%
HVAC 1.7 1.0 67%
Other 0.9 - 100%
Total revenue 118.7 113.2 5%
---------------------------- ------- ------- -------
Adjusted operating costs (80.9) (77.5) 4%
---------------------------- ------- ------- -------
Adjusted operating profit 37.8 35.7 6%
---------------------------- ------- ------- -------
Adjusted operating margin 32% 32% -
---------------------------- ------- ------- -------
GBP million 2019 2018 Change
--------------------------- ------- ------- -------
Revenue
Net policy income 101.9 98.6 3%
Repair network 0.4 0.4 (3%)
---------------------------- ------- ------- -------
Membership 102.3 99.0 3%
HVAC 1.5 1.0 50%
Other 0.8 - 100%
Total revenue 104.6 100.0 5%
---------------------------- ------- ------- -------
Adjusted operating costs (71.3) (68.5) 4%
---------------------------- ------- ------- -------
Adjusted operating profit 33.3 31.5 6%
---------------------------- ------- ------- -------
Adjusted operating margin 32% 32% -
---------------------------- ------- ------- -------
Performance metrics 2019 2018 Change
----------------------------- ----- ----- ----- -------
Affinity partner households m 18 15 20%
Customers m 1.1 1.1 2%
Income per customer EUR 109 106 3%
Policies m 2.3 2.3 -
Policy retention rate % 89 88 1ppt
----------------------------- ----- ----- ----- -------
Financial performance
Total revenue increased by 5% to EUR118.7m (FY18: EUR113.2m)
primarily due to the higher customer count and an increase in HVAC
revenue as a result of a full year's income from Electrogaz, a
business acquired part way through the prior year.
Adjusted operating costs rose slightly, by 4%, to EUR80.9m
largely linked to the HVAC growth. Adjusted operating margin was
32%, in line with the prior year, as adjusted operating profit grew
6% to EUR37.8m. The future adjusted operating margin is expected to
be around 30% as the business invests in its business development
opportunities, notably HVAC and customer acquisition with new
partners.
Operational performance
France had a strong year as it once again returned the highest
retention rate in the Group, up one percentage point to 89% (FY18:
88%), and total customers increased by 2% to 1.1m. For the third
year running, France's focus on maintaining high customer service
standards was reflected in the award of Élu Service Client de
l'Année.
A key component of HomeServe's success in France has been its
partnership with Veolia. The partnership began as a joint venture
when HomeServe first entered France in 2001, continued as a 10 year
affinity marketing agreement after HomeServe bought Veolia's share
in 2011 and has now been extended early until 2026. The deal
secures ongoing support for direct mail and renewal activities and
also introduces new channels and opportunities to drive further
growth through Veolia's HomeFriend initiative. As well as new
telephony and digital channels, Veolia, through HomeFriend, will
sell HomeServe's products directly in its own call centre, giving
rise to similar partner payments within capital expenditure as seen
with Suez (also in France) and previously Endesa in Spain.
The French business now works with the top three French water
utilities having signed a new partnership with the third largest
provider, Saur, in December 2018. The Saur relationship will enable
marketing campaigns under a fresh brand to c.4.0m households.
Having signed the partnership in December, test campaigns were
quickly launched in the final quarter of FY19 with encouraging
early results.
Approximately 10m French households receive their water supply
from small to mid-sized municipals and the French team has now
commenced attempts to access this channel by learning from the
successful programme in North America where HomeServe already works
with a large number of municipals.
Deregulation in the Energy sector in France is accelerating with
more than 40 energy retailers taking market share from the larger
incumbents and the French business has started to build a strong
business development pipeline to partner with the new
challengers.
Following the acquisition of Electrogaz, an HVAC business in the
south of France, last financial year, the French business made two
further HVAC acquisitions in FY19, Société V.B. Gaz and
Etablissements Descamps. Descamps adds to HomeServe's HVAC presence
in the South of France and complements last year's acquisition of
Electrogaz whilst V.B. Gaz is based just outside Paris. Annual
domestic boiler services are mandatory in France, so the HVAC
market is a particularly attractive opportunity and the two
acquisitions represent a further step in HomeServe's buy-and-build
strategy to capture more of the revenue generated in the HVAC
lifecycle from installation to annual service contract and one-off
repairs.
Spain
EURuro million 2019 2018 Change
--------------------------- -------- -------- -------
Revenue
Net policy income 62.7 63.0 (1%)
Repair network 92.0 97.1 (5%)
---------------------------- -------- -------- -------
Membership 154.7 160.1 (3%)
HVAC 5.0 - 100%
Total revenue 159.7 160.1 -
---------------------------- -------- -------- -------
Adjusted operating costs (139.9) (141.2) (1%)
---------------------------- -------- -------- -------
Adjusted operating profit 19.8 18.9 5%
---------------------------- -------- -------- -------
Adjusted operating margin 12% 12% -
---------------------------- -------- -------- -------
GBP million 2019 2018 Change
--------------------------- -------- -------- -------
Revenue
Net policy income 55.3 55.6 (1%)
Repair network 81.1 85.7 (5%)
---------------------------- -------- -------- -------
Membership 136.4 141.3 (3%)
HVAC 4.4 - 100%
Total revenue 140.8 141.3 -
---------------------------- -------- -------- -------
Adjusted operating costs (123.1) (124.7) (1%)
---------------------------- -------- -------- -------
Adjusted operating profit 17.7 16.6 5%
---------------------------- -------- -------- -------
Adjusted operating margin 13% 12% 1ppt
---------------------------- -------- -------- -------
Performance metrics 2019 2018 Change
----------------------------- ----- ----- ----- -------
Affinity partner households m - 12 (100%)
Customers m 1.1 1.3 (16%)
Income per customer EUR 57 47 19%
Policies m 1.3 1.5 (15%)
Policy retention rate % 80 78 2ppts
----------------------------- ----- ----- ----- -------
Financial performance
Total revenue was broadly flat at EUR159.7m as lower repair
network revenue was offset by new HVAC revenue generated by
Oscagas, a company acquired in July 2018.
Repair network revenue was down 5% principally due to the mix of
completed work as the Claims business closed 0.8m jobs (FY18:
0.8m).
Net policy income fell by 1% to EUR62.7m as the effect of the
lower customer count following the end of the Endesa partnership
was offset by a maturing policy book and a 19% increase in income
per customer to EUR57.
Adjusted operating costs fell 1% to EUR139.9m due to the mix of
work in the Claims business and lower marketing and commission
spend following the end of the Endesa partnership in May 2018,
offset by costs incurred in the new HVAC business.
Operational performance
As announced last year end, the Endesa partnership in Spain came
to an end in May 2018. Acquisition marketing ceased from this date
and Endesa was removed from the Spanish household count. As
expected total customers therefore reduced in Spain and at the year
end were down by 16% to 1.1m.
With a maturing book and fewer Year 1 customers, the retention
rate rose by 2 percentage points to 80%, and income per customer
increased by 19% to EUR57: a strong result which underpins the
Membership revenue in the short term as the business continues to
explore new partnership opportunities.
As well as attempting to unlock another sizeable partnership,
the Spanish business is also pursuing opportunities with retail
energy providers, water municipals and telcos. The retail energy
opportunity looks to exploit the nascent switching market in Spain
and although only small volumes so far, the take up rates with a
new partner, PODO, have been very encouraging.
The Spain team is also exploring opportunities in the water
sector as it looks to agree new partnerships with water
municipals.
The Claims business ("Repair network") continued working with a
number of Spain's largest bancassurers, managing a large volume of
claims across multiple trades and is exploring business development
opportunities to expand its partnerships further. Jobs continue to
be completed by a network of over 1,907 sub contractors and 190
franchisees (FY18: 1,838 subcontractors and 192 franchisees).
The strong retention rate in the Membership business and the
continued strength of the Claims business means that HomeServe
expects no significant impact on adjusted operating profit through
FY21 as it continues to seek new partnerships.
Home Experts
GBPmillion 2019 2018 Change
-------------------------- -------- ------- ----------
Revenue
Checkatrade 29.8 8.3 +258%
Habitissimo 10.6 10.3 +2%
--------------------------- ------- ------- --------
Total revenue 40.4 18.6 +116%
--------------------------- ------- ------- --------
Adjusted operating costs (47.8) (21.4) +123%
--------------------------- ------- ------- --------
Adjusted operating loss (7.4) (2.8) +164%
--------------------------- ------- ------- --------
Performance metrics 2019 2018 Change
-------------------------- --- ----- ----- -------
Checkatrade trades k 36 29 +23%
Habitissimo trades k 28 29 (2%)
Checkatrade website hits m 17.9 16.1 +11%
Habitissimo website hits m 83.2 81.3 +2%
-------------------------- --- ----- ----- -------
Financial Performance
FY19 was the first year of full ownership of Checkatrade. On a
pro forma 12 month basis, revenue increased strongly by 33% from
GBP22.4m to GBP29.8m driven by pricing initiatives implemented in
the year and a 23% growth in the number of trades. The increased
revenue has been reinvested to drive future growth.
Habitissimo revenue was broadly flat year on year as HomeServe
focused on proving out the preferred subscription model with
Checkatrade. This model will be introduced to Habitissimo's core
market in Spain over the course of the next 12 months.
The increased adjusted operating loss of GBP7.4m (FY18: GBP2.8m)
was principally due to a full year's ownership of Checkatrade and
increased investment in initiatives to drive trades and consumer
growth as well as the launch of Home Experts in France.
Operating Performance
In FY19 Checkatrade made significant progress as it began to
position itself for future growth. Central to this has been the
recruitment of a new senior management team with experience in fast
growing digital businesses, under the leadership of new CEO Mike
Fairman, formerly CEO of giffgaff.
The Checkatrade model of a free to access directory of trusted,
local trades is the one preferred by consumers. In order to achieve
HomeServe's ambitious plans to expand and grow this model, the new
Checkatrade team is progressing a number of initiatives to increase
trades supply, increase consumer demand and transform its
operations into a fully digital business.
The balance of supply and demand is fundamental to recruiting
and retaining a satisfied trades base and Checkatrade is dedicated
to generating work and helping trades to grow their business.
Trades value the benefits their membership brings; the endorsement
of being extensively checked and approved, procurement discounts, a
webpage and online presence, but more than any other factor, trades
join Checkatrade to obtain a consistent flow of consumer enquiries
and jobs.
There are an estimated 600,000 trades in the UK, all of whom
could benefit from Checkatrade membership and Checkatrade has an
ambition to recruit 200,000 of these. Owning the supply of trades
will create a virtuous circle where consumers come to Checkatrade
because it has the most trusted, local trades and in turn trades
join and remain on Checkatrade because it is the site consumers
use.
Trades recruitment becomes much easier when trades can be shown
the consumer demand in their area that will generate work for them
and more than justify their monthly membership fee. FY19 saw an 11%
increase in website visits and a 23% increase in the number of
trades to 36k. Checkatrade has the largest number of active, paying
trades of any platform in the UK today. As the business grows
consumer demand, and with outbound telemarketing to trades now
live, the aim remains to step change the number of trades on the
platform towards the target of 200,000.
Checkatrade has built a market leading position from its
reputation for extensive background checks and vetting and by
building its brand through TV and radio advertising and sponsorship
of sporting events, e.g. the Checkatrade Trophy. Under the guidance
of the new management team, the business is becoming more
sophisticated in how it appraises marketing spend and more
selective as to where it allocates its investments. TV and radio
advertising will continue to build the brand and drive consumers
directly to the website but it is now accompanied by targeted
online marketing, e.g. purchase of search terms, and affiliate
referral arrangements to drive a greater proportion of existing
online searches for repairs and improvements to
Checkatrade.com.
Complementing extensive vetting and checks is the ongoing
independent feedback provided by consumers. There are now over 4.4m
reviews on Checkatrade.com with over 50k new reviews added every
month.
An element lacking in the consumer offer today is trade
availability. Trades are often booked up far in advance and
consumers may need to contact several trades before finding one
with availability. Checkatrade Now connects consumers with an
available trade for an urgent job request. Next to be developed is
a "search for me" function for consumers who simply want an
available trade and do not want to search the directory
themselves.
Shortly after the year end HomeServe launched Home Experts in
France, initially in Lyon. The Lyon test area will prove out the
Checkatrade model in a 'greenfield' market, growing supply and
demand in the Lyon area before expanding to other regions.
As well as helping to launch Home Experts in France, Habitissimo
continued to deploy its lead generation model in Spain and in its
other markets in Europe and LATAM. Trade and website visitor
numbers remained flat for FY19 but the focus will be on growing
these in FY20 as Habitissimo also starts to adopt the preferred
user experience.
New Markets
HomeServe's New Markets segment now contains the results of its
international development operations including its Italian
associate, Japanese joint venture and business development
initiatives in other new geographies.
New Markets (GBPmillion) 2019 2018 Change
-------------------------- ------ ------ --------
Adjusted operating loss (2.4) (1.6) +150%
--------------------------- ------ ------ --------
Total investment in New Markets was GBP2.4m (FY18: GBP1.6m) with
the increase principally driven by a larger international
development team and activities to agree the joint venture with
Mitsubishi Corporation in Japan. HomeServe expects an ongoing
annual investment of between GBP2m to GBP3m in this area.
The Italian associate, in partnership with Edison Energia, had
0.2m customers in line with the prior year.
On 14 February 2019, HomeServe entered into an agreement with
Mitsubishi Corporation to establish a joint venture in Japan. Japan
is the world's third largest economy with 53 million residential
households and recent liberalisation of the gas and electricity
markets, together with access to the water market for private
concessions, has created a positive environment for HomeServe's
utility branded home assistance model.
Mitsubishi Corporation is not itself a utility but it does have
wide ranging relationships with private and public utilities
throughout Japan, which should enable HomeServe Japan to agree
utility partnerships and build a business to provide home emergency
and repair services in electrics, plumbing, gas, heating,
ventilation and air conditioning. The business will be based on a
Membership model, and will also offer on-demand services to
residential customers.
HomeServe and Mitsubishi Corporation have each agreed an initial
cash investment of GBP2 million into the joint venture with the
ongoing annual investment by HomeServe to be covered within the
overall New Markets spend.
FINANCIAL REVIEW
These financial results have been prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted for
use by the European Union.
Group statutory results
The headline statutory financial results for the Group are
presented below.
GBPmillion 2019 2018
------------------------------------------------- -------- -------
Total revenue 1,003.6 899.7
Operating profit 152.6 135.0
Net finance costs (13.1) (11.7)
------------------------------------------------- -------- -------
Adjusted profit before tax 161.7 141.7
Amortisation of acquisition intangibles (26.8) (18.4)
Exceptional items
Restructuring costs (5.5) -
Fair value movement on contingent consideration 10.1 -
liabilities
------------------------------------------------- -------- -------
Statutory profit before tax 139.5 123.3
Tax (31.2) (27.4)
Profit for the year 108.3 95.9
------------------------------------------------- -------- -------
Attributable to:
Equity holders of the parent 108.5 96.3
Non-controlling interests (0.2) (0.4)
108.3 95.9
------------------------------ ------ ------
Profit before tax
The Group delivered 13% growth in profit before tax to GBP139.5m
driven principally by further strong growth in North America. The
performance of HomeServe's individual businesses is considered in
the Business Review.
Net finance costs
Net finance costs rose to GBP13.1m (FY18: GBP11.7m) due to the
unwinding of interest on deferred consideration in relation to
previous M&A activity, the higher average net debt balance year
on year and the fixing of a portion of interest as a result of the
new private placement.
Exceptional items
The Group incurred two exceptional items in the year (FY18:
nil).
An exceptional cost of GBP5.5m, mostly related to redundancies
and other associated charges incurred in respect of changes to the
organisational design of the UK business. Marketing and other
support headcount decreased, as the business reduces its reliance
on direct mail activity and prepares for the launch of new system
implementations and operational improvements.
Offsetting the charge was an exceptional gain of GBP10.1m
relating to a fair value movement on contingent consideration
payable to the previous owners of Help-Link upon hitting certain
stretch target volumes of boiler installations. At 31 March 2019
the Group determined that the likelihood of hitting these targets
was now remote and that the fair value of the outstanding
liabilities was GBPnil.
Amortisation of acquisition intangibles
Statutory profit before tax is reported after the amortisation
of acquisition intangibles and the exceptional items noted
above.
Such amortisation relates to customer and other contracts held
by businesses, which were acquired by HomeServe as part of business
combinations and asset purchases.
The amortisation of acquisition intangibles of GBP26.8m (FY18:
GBP18.4m) increased principally due to annual charges relating to
the acquisition of tranche 1 of the policy book of Dominion
Products and Service Inc. (DPS) in North America and Checkatrade in
the UK, which were acquired part way through the prior year
together with the completion of tranche 2 of DPS on 26 October
2018.
A reconciliation between adjusted and statutory amounts is
included with the Glossary at the end of this announcement along
with commentary on HomeServe's use of adjusted items as an
Alternative Performance measure.
Tax strategy
The Group has continued to operate within the tax strategy
approved by the Board in May 2018. The tax strategy is subject to
annual review and reflects HomeServe's status as a plc, and the
regulated nature of its business which requires strong governance
and consideration of reputation as well as compliance with local
laws, regulations and guidance. The UK elements of the tax strategy
document are publicly available on the Homeserve plc website as
required by UK legislation.
The Group tax strategy covers how HomeServe:
(i) applies tax governance on an ongoing basis and maintains
strong internal controls in order to substantially reduce tax
risk;
(ii) will not engage in artificial transactions the sole purpose of which is to reduce tax;
(iii) holds a strategic aim to retain its low tax risk rating as
determined by the UK Tax Authority's Business Risk Review process;
and
(iv) works with all tax authorities in an open, honest and transparent manner.
Tax charge and effective tax rate
The Group's tax charge in the financial year was GBP31.2m (FY18:
GBP27.4m), representing an effective tax rate of 22% (FY18: 22%).
The corporate income tax rates in the overseas countries in which
the Group operates continue to be higher than the UK corporate
income tax rate of 19% (FY18: 19%), which results in a Group
effective rate higher than the headline UK rate. As the proportion
of the Group's profits earned overseas continues to grow, the
effective tax rate is expected to increase slightly.
Cash flow and financing
HomeServe's business model continues to be highly cash
generative with cash generated by operations in FY19 of GBP202.2m
(FY18: GBP164.2m), representing a cash conversion ratio against
adjusted operating profit of 116% (FY18: 107%). The cash conversion
ratio is expected to remain in excess of 100%.
GBPmillion 2019 2018
----------------------------------------------- -------- --------
Adjusted operating profit 174.8 153.4
Exceptional items 4.6 -
Amortisation of acquisition intangibles (26.8) (18.4)
----------------------------------------------- -------- --------
Operating profit 152.6 135.0
Impact of exceptional items (4.6) -
Depreciation and amortisation 73.9 62.6
Non-cash items 10.7 9.0
Increase in working capital (30.4) (42.4)
----------------------------------------------- -------- --------
Cash generated by operations 202.2 164.2
Net interest and associated borrowing costs (9.9) (10.5)
Taxation (31.7) (27.2)
Capital expenditure (66.9) (71.1)
Repayment of finance leases (0.6) (0.6)
----------------------------------------------- -------- --------
Free cash flow 93.1 54.8
Acquisitions of investments (5.4) -
Acquisitions of subsidiaries (37.5) (54.2)
Acquisitions of policy books (48.8) (53.6)
Dividend from associate - 0.4
Equity dividends paid (65.0) (50.4)
Issue of shares (net of associated issue
costs) 2.2 123.3
----------------------------------------------- -------- --------
Net movement in cash and bank borrowings (61.4) 20.3
Impact of foreign exchange and other non-cash
items (5.2) 2.9
Net debt acquired (0.1) (0.1)
Finance leases (0.2) 0.5
Opening net debt (237.8) (261.4)
----------------------------------------------- -------- --------
Closing net debt (304.7) (237.8)
----------------------------------------------- -------- --------
Working capital
Working capital increased by GBP30.4m in FY19 reflecting
continued growth in all businesses, in particular in North America
following tranche 2 of Dominion and in Home Experts due to the
changes being implemented at Checkatrade, offset by the timing of
certain supplier and underwriter payments.
Capital expenditure
Capital expenditure included GBP51.9m in relation to ordinary
and transformational capital expenditure, the largest elements of
which related to customer facing systems throughout the Group
including the core customer management system and claims handling
and job deployment systems in the UK. These systems are in the
final stages of user testing before being rolled out during the
coming year. This will give rise to an increased annual software
amortisation charge, which is expected to be offset by increased
agent efficiency through shorter call handling times, higher
engineer utilisation rates and more targeted cross sell and
retention marketing opportunities.
Total partner payments and contract costs amounted to GBP15.0m
an expected reduction on the prior year (FY18: GBP16.5m), due to
the end of the Endesa contract in Spain.
Capital expenditure in FY20 is expected to be in line with FY19.
Membership capex is expected to reduce, in line with previous
guidance and HomeServe now expects to invest more in Home Experts
to support its growth plans as it seeks to transform the digital
experience at Checkatrade and to scale the business efficiently
Acquisitions
The GBP5.4m acquisition of investments related to a 20%
investment in consumer technology company Centriq amounting to
$5.0m and an initial GBP1.5m cash outflow in relation to the GBP2m
of investment that HomeServe has committed to its joint venture
with Mitsubishi Corporation in Japan.
The Group incurred a net cash outflow in respect of business
combinations of GBP37.5m in the year (FY18: GBP54.2m), principally
in respect of GBP27.1m from the acquisition of HVAC businesses to
advance the Group's buy and build initiative, including Cropp
Metcalfe, Gregg Mechanical and Geisel in North America, Oscagas in
Spain and VB Gaz in France.
In addition, there was a further outflow of GBP10.4m relating to
deferred consideration in respect of business combinations in prior
periods, principally Checkatrade and Help-Link in the UK.
A cash outflow of GBP48.8m was incurred in relation to policy
book acquisitions in North America and the UK. Tranche 2 of the
policy book of DPS in North America completed on 26 October 2018 at
a cost of GBP41.6m. The balance related to deferred payments from
the prior year acquisitions of tranche 1 of DPS and also the policy
book acquisition from the AA in the UK.
HomeServe continues to identify and assess M&A opportunities
in all of its businesses, including further HVAC investment as it
expands its buy and build initiative. Policy book M&A remains a
low risk approach to accelerating growth and HomeServe continues to
attempt to unlock opportunities in all countries but especially in
North America.
Earnings per share
Basic earnings per share for the year increased from 30.2p to
32.7p, an increase of 8%. On an adjusted basis, earnings per share
increased 12% from 33.6p to 37.5p. The weighted average number of
shares increased from 318.9m to 331.7m principally due to the
equity placing which occurred part way through the prior year on 19
October 2017 and new shares issued in fulfilment of a number of
share schemes that vested in the year.
Dividends
Given the Group's good performance and the Board's confidence in
its future prospects, the Board is proposing to increase the final
dividend to 16.2p per share (FY18: 14.4p) to be paid on 2 August
2019 to shareholders on the register on 5 July 2019.
Together with the interim dividend declared in November 2018 of
5.2p (November 2017: 4.7p), this represents a 12% increase in the
total ordinary dividend payment for the year of 21.4p (FY18:
19.1p), which is 1.75x covered by the FY19 adjusted earnings per
share (FY18: 1.76x). As previously indicated, the Board continues
to adopt a progressive dividend policy.
Financing
In FY19 the Group continued to target net debt in the range of
1.0-2.0x adjusted EBITDA, measured at 31 March each year. With net
debt of GBP304.7m and adjusted EBITDA of GBP221.9m the Group was
inside this range at 1.4x and well within its total facilities of
c. GBP700m at the year end.
Given its strong financial position, the Group is prepared to
see leverage outside this range for reasonable periods of time if
circumstances warrant, and the range itself remains subject to
periodic review. Due to the ordinary seasonality of the business,
net debt is expected to increase at the next half year.
On 25 October 2018 HomeServe arranged 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.
Net interest and borrowing costs paid reduced slightly to
GBP9.9m (FY18: GBP10.5m) as the prior year included higher one-off
costs associated with the renewal of the Group's bank debt
facilities.
Foreign exchange impact
The impact of changes in the Euro and USD exchange rates between
FY18 and FY19 resulted in a GBP5.3m increase in the reported
revenue and a GBP1.5m increase in adjusted operating profit of the
international businesses as summarised in the table below, largely
as a result of a beneficial movement in the US dollar. There was no
material difference for the impact of foreign exchange on statutory
operating profit.
Effect on (GBPm)
Average exchange rate Revenue Adj. operating
profit
2019 2018 Change 2019 2019
--------------------- ----- ----------- ----------- ------- -------- ---------------
North America $ 1.31 1.33 (2)% 5.5 1.6
France EUR 1.13 1.13 - (0.2) (0.1)
Spain EUR 1.13 1.13 - - -
Home Experts(1) EUR 1.13 1.13 - - -
--------------------- ----- ----------- ----------- ------- -------- ---------------
Total International 5.3 1.5
---------------------------- ----------- ----------- ------- -------- ---------------
(1)Home Experts is reported in GBP due to the different
currencies used by the operating businesses within the segment.
This table shows the impact of foreign exchange movements in the
Euro for the results of Habitissimo
With an increasing proportion of HomeServe's profits generated
overseas, the potential translation impact of foreign exchange
movements on reported profits may have a larger impact. A ten cent
movement in the FY19 average USD rate of 1.31 and the Euro rate of
1.13 would have had approximately a GBP5.2m and GBP4.5m impact
respectively on full year adjusted operating profit. The impact of
future movements in the Yen in FY20 following HomeServe's new joint
venture in Japan is not expected to be material.
Accounting standards
FY19 is the first year the Group has prepared results under IFRS
9 Financial Instruments and IFRS 15 Revenue from Contracts with
Customers. IFRS 15 has not had a material impact on the timing of
the Group's revenue recognition, with the principal effects being
limited to material reclassifications to the presentation of
certain contract, receivable and payables balances in the Group
Balance Sheet. None of these amendments had any impact on income,
net assets or working capital. IFRS 9 had no significant impact on
the financial statements. Further details are included in note 2 of
the condensed consolidated financial statements.
IFRS 16 Leases is effective for the Group from 1 April 2019.
IFRS 16 will cause a material decrease in operating costs largely
offset by a material increase in the combined depreciation and
interest expenses, resulting in an increase to adjusted EBITDA but
a net immaterial impact on profit before tax. The operating lease
charge recorded in operating costs in FY19 was GBP12.9m (FY18:
GBP12.7m). Non-current assets and gross liabilities are both
expected to increase by between GBP45.0m to GBP60.0m with net
assets remaining unchanged.
Customers
IFRS15 defines a customer as 'a party that has contracted with
an entity to obtain goods or services'. In the Membership
businesses where the Group acts as an intermediary selling
contracts and insurance policies to end consumers, the 'IFRS 15
customer' is considered to be the underwriter with which the Group
has contracted to sell policies.
This is different, however, from how the Group markets and
communicates the value of its products and services to end
consumers. Here, the businesses strategy and communications (both
internally and externally) refer to the end consumer as the
customer. As a result, for the purposes of describing the strategy
and operational performance of the business, the Strategic Report
and the Group's KPIs refer to the end consumer as the customer of
the Group, rather than the underwriter. However, for the purposes
of preparing the financial statements, the accounting transactions
are recorded in accordance with IFRS 15 where the customer is the
underwriter.
For all other sources of revenue, it is the party that has
contracted with the Group to obtain goods and services that is
classified as the customer. The following table summarises this
position:
Revenue Stream IFRS 15 'contracted' Customer as referred
customer to in the Business and
Operating Reviews
Policy Income - insurance Underwriters
intermediary commissions End user of the service
--------------------- --------------------------
Policy Income - repairs Underwriters or other B2B contracted parties
-------------------------------------------------
Policy Income - home End user of the service
assistance
-------------------------------------------------
Home Experts
--------------------- --------------------------
HVAC
Other
--------------------- --------------------------
Principal Risks and Uncertainties
HomeServe has a robust risk management framework which
encompasses the Group's risk policy and overall risk appetite. The
framework provides a disciplined and consistent approach across all
of HomeServe, ensuring a structured response at all levels
throughout the Group and across all businesses and geographies, to
capture, monitor and mitigate risk.
Risk Framework
The Board retains responsibility for the overall evaluation of
the Group's risk management process
Group Risk Management Audit & Risk Committee
Team * Advises the Board on risk appetite and risk strategy,
* Proposes the risk framework across the Group ensures the quality and effectiveness of risk
management processes and receives regular updates
from the Group Risk Management Team
* Supports implementation
* Composed and chaired by independent Non-Executive
* Monitors risk management Directors
* Internal and external auditors, CFO, CEO and Chairman
are invited, but not entitled, to attend all meetings
* Other Executive Directors attend where appropriate
-------------------------------------------------------------
Executive Committee - Risk discussion three
times per year
* Risk discussion chaired by the CFO
* Composed of Executive Directors and representatives
from each Group business
* Discussions are reported on at the Audit & Risk
Committee
-------------------------------------------------------------
Local risk registers
* Maintained and reviewed by all businesses
-------------------------------------------------------------
Changes in FY19
In FY19 HomeServe formalised the process by which it groups
local risks and thereby identifies Group Enterprise Risks. Group
Enterprise Risks are considered to represent the most significant
threats to HomeServe's ongoing strategy and operations. Risk
registers continue to be maintained at a local level in every
business and are formally reviewed by the Audit & Risk
Committee at each of its meetings together with Group Enterprise
Risks.
The following table sets out what the Board believes to be the
principal risks and uncertainties facing the Group, the mitigating
actions for each, and an update on any change in the profile of
each risk during the past year. All risks carry equal importance
and weighting for the Board, however additional focus and priority
may be given to specific risks for a period of time in certain
circumstances e.g. following a material acquisition or to implement
plans to reduce any risk which exceeds the appetite threshold.
Membership continues to be the largest business line in each
geographic segment and as such continues to dominate the Principal
Risks. However with the growth in other business lines, in
particular Home Experts, there have been movements in certain
risks.
The principal risks and uncertainties should be read in
conjunction with the Business Review and the Financial Review.
Additional risks and uncertainties of which HomeServe is not
currently aware or which are believed not to be significant may
also adversely affect strategy, business performance or financial
condition in the future.
Risk Appetite
In accordance with the Group's Risk Management policy, the Group
Risk Appetite is subject to an annual review of its definition,
content and criteria for assessment scores.
The Board's assessment of risk appetite is guided by our vision
to become the world's most trusted provider of home repairs and
improvements and by our purpose to make home repairs and
improvements easy. HomeServe's values reflect our commitment to our
customers, our people, to innovation and integrity and being the
best at what we do. HomeServe's risk appetite is comparatively low,
recognising; firstly our status as a plc which requires strong
governance and reputation, together with delivering returns for our
shareholders and; secondly our regulated status which requires
compliance with local laws, rules and guidance.
Risks are assessed at a local level on a gross basis using a
matrix approach, to score likelihood and impact, and on a net basis
after considering any mitigations which have been applied.
Brexit
Brexit is not one of HomeServe's enterprise risks but does
continue to be monitored at a local and a Group level. Brexit is
potentially one of the most significant economic events for the UK
and at the date of this statement, the full range, scale and timing
of potential outcomes and impacts are uncertain. However, HomeServe
continues to believe the impact of the UK's decision to leave the
EU and the current delay in implementing this decision on the
underlying performance of the Group will be limited.
The HomeServe business model is resilient and in previous
periods of consumer uncertainty and economic downturn, for example
during the financial crisis in c. 2007 to 2009, no negative impact
on business performance was observed.
In addition, all of HomeServe's businesses trade exclusively
within their own borders and HomeServe is not exposed to any cross
border transactional currency risk. The Group has a strong balance
sheet and retains a range of financing facilities with medium to
long term maturities, which provide access to additional resources
across a range of currencies. The Group remains subject to
translation risk on the presentation of results in Sterling however
this is within the ordinary course of business.
1. Market Disruption 2. Partnerships 3. International Development
================================================================= ============================================================== ===============================================================
Overview
Competition exists in Underpinning HomeServe's HomeServe has enjoyed
all business lines but success in its chosen success with its Membership
is strongest in Home markets are close commercial model in markets outside
Experts as competitors relationships (affinity of the UK and intends
seek to gain a share partner relationships) to expand to other regions.
of a market as it undergoes principally with utility
a meaningful shift online. companies, and municipal
Competitive threats utility providers. The
include, but are not loss of one of these
limited to; relationships could
* Utilities running Membership programmes in-house impact HomeServe's future
customer and policy
growth plans and retention
* Adjacent products e.g. Whole Home Warranty rates. Growth plans,
particularly in North
America, focus on signing
* Existing competitors moving into other geographies new partners to extend
reach and provide new
marketing opportunities
* New entrants e.g. Amazon or Google investing heavily to grow the business.
to enter the home services space with new products or HomeServe has benefitted
technologies which erode HomeServe's market share from government policy
changes in certain regions
to form new partnerships
* Incumbent competitors to Home Experts in the UK e.g. e.g. liberalisation
Rated People, MyBuilder of energy markets in
Spain. Any reversal
e.g. to renationalise
utilities could have
an adverse impact albeit
HomeServe does have
strong experience working
with public sector municipals
in North America.
-------------------------------------------------------------- ---------------------------------------------------------------
Impact(s)
Over time there could With c.700 partners HomeServe has enjoyed
be a negative impact across the Group it success in France, Spain
on KPIs such as customers is inevitable that a and North America but
and retention rate, few partners each year has been unsuccessful
in Membership and trade may choose not to renew in past attempts to
and website visitor a contract as priorities enter Australia, Belgium
numbers in Home Experts or commercial pressures and Germany.
as well as on financial change. In the UK and Failure to succeed could
metrics such as adjusted North America where divert investment and
operating profit and the partner bases are management time incurring
adjusted operating margin more diversified the not only losses in the
as customers are lost impact is considered new country but also
or we are forced to small. In France the reduced performance
compete more on price. loss of e.g. Veolia (including, for example,
would have a bigger loss of customers, lower
impact similar to that profitability) in the
of Endesa in Spain where core markets.
the back book is now
in run-off. Any partner
loss or failure to sign
new partners could impact
households, customers
and also retention rates,
without use of the partner
brand.
-------------------------------------------------------------- ---------------------------------------------------------------
Mitigation(s)
* We demonstrate to utilities that they can benefit * A portfolio of partners in each business diversifies * Strict criteria to identify attractive markets
more by partnering with HomeServe due to our long risk
term investment horizon
* Joint venture structure diversifies risk and
* Partners signed on long term contracts with minimises investment
* Regular market reviews in each business identify new beneficial financial terms for each party
entrants and increases in competitor activity e.g.
aggressive pricing initiatives. * JV partner brings local market knowledge and contacts
* HomeServe seeks to renew contracts early, ahead of
any expiration date
* Agile product development responds to changing * HomeServe brings membership model systems and process
consumer needs expertise
* Regular dialogue with all partners, particularly in
markets with more concentrated partner relationships
* Shared learning between our markets e.g. France
-------------------------------------------------------------- ---------------------------------------------------------------
Update
We continue to develop We are signing partners In February 2019 HomeServe
our Home Experts proposition at a rate of almost announced it had agreed
which diversifies our three a week in North a joint venture with
product offering and America, we have renewed Mitsubishi Corporation
ensures we appeal to Veolia until 2026 and to form a Membership
a broader range of home signed Saur in France business in Japan. As
owners. We have continued and in the UK we have the world's third largest
to invest; evolving signed a number of new economy, Japan is an
our products in all retail energy challengers. attractive market. Mitsubishi
businesses, acquiring In May 2018 the long and HomeServe will each
further HVAC businesses term partnership with provide staff to the
and investing revenue Endesa was not renewed local management team
growth in Checkatrade as Endesa sought to and have shared the
back into marketing provide home assistance initial investment with
to ensure we maintain services in-house. We each agreeing to contribute
the leading UK brand are actively engaged GBP2m into the new JV.
in this space. in finding new partners HomeServe continues
In Membership there in Spain and we have to prospect other potential
has been more focus also commenced a new markets.
on competing / adjacent JV partnership with
products following a Mitsubishi Corporation
recent stock market in Japan.
listing of a Whole Home
Warranty Provider in
the US.
-------------------------------------------------------------- ---------------------------------------------------------------
4. M&A Strategy 5. HVAC Integration 6. Cyber
Security
============================================================= =============================================================== =================
Overview
M&A is focussed on two The higher volume of In line with
primary areas; the acquisition HVAC acquisitions requires other
of Membership policy disciplined and often businesses,
books in all markets standardised processes HomeServe is
and a buy-and-build to ensure successful subject
strategy to grow the integration into HomeServe, to the
HVAC business line. creating strong links increased
Policy book M&A is considered to the Membership business prevalence
a proven, low-risk method and achieving synergies and
to accelerate growth with e.g. Marketing, sophistication
and HomeServe has a back-office functions of
strong track record etc. cyber-attacks,
of buying these books, which
especially in North could result
America as demonstrated in
most recently with Dominion. unauthorised
HVAC buy-and-build typically access to
requires lower investment customer and
as the strategy focuses other data or
on acquiring smaller, cause
well-run HVAC businesses business
with strong local reputations. disruption
to services.
--------------------------------------------------------------- -----------------
Impact(s)
HomeServe could overpay Failure to integrate A successful
for transactions or acquisitions quickly cyber attack
underestimate the time and effectively could might have a
and resource required fail to deliver synergies, significant
to integrate new businesses, and increase costs, impact on
potentially leading resulting in failure reputation,
to lower than anticipated to achieve predicted reducing the
cash inflows and revenue, revenues and potentially trust that
increased costs, reduced lead to impairment. customers
profitability and an place in
increased likelihood HomeServe
of impairment. and could lead
By contrast, a successful to legal
M&A strategy should liability,
diversify risk by, for regulatory
example, introducing action and
new partners and channels, increased
increasing profitability costs to
and should lead to increases rectify. A
in KPIs such as customers lapse in
and policies. internal
controls
and a
subsequent
data
breach or loss
would
have a similar
impact.
Total customer
numbers
and policy
retention
rates may
reduce and
partners may
terminate
affinity
relationships
if they
perceive
customer
data to be at
risk.
--------------------------------------------------------------- -----------------
Mitigation(s)
* Strict criteria when building a prospects pipeline * Integration plans form part of all business case HomeServe has
approvals a number
of defensive
* Independent advisers engaged in due diligence and proactive
processes * Post-investment reviews feed learning back for future practices
acquisitions across the
Group to
* Local management expertise with oversight from mitigate this
central plc function * Dedicated teams and resources and retention of key risk. There is
management personnel in the acquiree a detailed
information
* Investment hurdles security
policy, which
is
* All investments require local and, where applicable, communicated
plc Board approval across the
Group and
training is
* Post-investment reviews conducted at local levels provided
with findings communicated to plc Board and used to as required.
inform future acquisitions and integration processes Regular
penetration
testing
is in place to
assess
defences and
HomeServe
continues to
invest
in IT
security,
ensuring
a secure
configuration,
access
controls, data
centre
security and
effective
communication
of policies
and procedures
to all
employees.
--------------------------------------------------------------- -----------------
Update
In FY19 HomeServe made Of the six acquisitions Managing this
six HVAC acquisitions in FY19, four have been risk continues
and successfully completed successfully integrated, to be a key
the second tranche of with the remaining two area of
the Dominion Products having taken place just focus for the
and Services policy before the year end. Group.
book. Key management has been Attention on
retained and the acquired continuous
businesses continue improvement,
to perform HVAC installations delivering
as well as marketing our strategic
HomeServe's products. objectives
and monitoring
evolving
threats has
meant that
the Group has
continued
to invest in
developing
and improving
countermeasures
and controls to
mitigate
the risk. In
addition,
frameworks have
been
put in place to
continue
to increase the
maturity
with which we
manage
our controls
and monitor
their
effectiveness.
A comprehensive
suite
of Policies and
Standards
remain in force
with
cyber audits
completed
in FY19 as part
of the
annual
assurance plan.
--------------------------------------------------------------- -----------------
7. Underwriting capacity 8. Regulation & Customer 9. People
and concentration Focus
============================================================== ============================================================== ================
Overview
The Membership business HomeServe is subject HomeServe's
line markets and administers to regulatory requirements ability
policies that are underwritten relating to e.g. product to meet
by independent third design, marketing materials, growth
party underwriters. sales processes and expectations
HomeServe acts as an data protection. and compete
insurance intermediary HomeServe believes that effectively
and does not take on regulation has a positive is, in part,
any material insurance impact and encourages dependent
risk. a culture that promotes on the
customers' interests skills,
and will improve HomeServe's experience
prospects over both and
the short and long term. performance
Like many companies of its
HomeServe is also subject personnel.
to wider regulation Retention of
concerning e.g. anticorruption, People
anti-fraud and bribery, in
modern slavery etc. established
Specific policies can businesses
be found at is key as is
http://www.homeserveplc.com/about-us/corporate-governance/p recruitment
olicies.aspx of talented
People in
growth
businesses
e.g.
Home Experts.
-------------------------------------------------------------- ----------------
Impact(s)
If current underwriters Failure to comply with The inability
were unable or unwilling regulatory requirements to attract,
to underwrite the current in any of its countries motivate or
book and if HomeServe could result in the retain key
were unable to find suspension, either temporarily talent could
alternative underwriters or permanently, of certain impact
it would require the activities. Much regulation overall
risk to be underwritten is intended to protect business
directly, thereby exposing the rights and needs performance.
the business to material of customers and failure The Home
insurance risk, which to adhere to the high Experts
is contrary to its preferred expectations customers businesses
operating model. Obtaining have for HomeServe could have
relevant regulatory lead to reduced retention ambitious
approvals for a new and higher customer growth
underwriter may take losses. In addition, plans and
time, leading to business legislative changes require
disruption. A material relating to partners different
change in the operating may change their obligations skills to the
model would also drive with regard to the infrastructure Membership
a change in accounting they currently manage business.
policy that could affect and hence the products
short term profitability. and services HomeServe
Customer numbers and can offer to customers.
retention rates may It is possible such
fall if customers experience legislative changes
reduced service levels could reduce, or even
or are not covered throughout remove, the need for
any period of disruption. some of HomeServe products
and services.
-------------------------------------------------------------- ----------------
Mitigation(s)
* With the exception of the UK, at least two * Compliance with local regulation as a minimum to Employment
underwriters share the policy books in each country ensure products are designed, marketed and sold in policies,
accordance with all relevant legal and regulatory remuneration
requirements and that the terms and conditions are and benefits
* In the UK, HomeServe maintains relationships with a appropriate and meet the needs of customers packages and
number of other underwriters who are willing and able long-term
to underwrite the business incentives
* Best practice shared across the Group are regularly
reviewed and
* Regular (at least 6 months) reviews with all designed
underwriters to ensure that current product * Regulatory specialists, compliance teams and to be
performance and trends are understood. Non-Executive Directors in each business competitive
with
other
* HomeServe maintains regular dialogue with the FCA in companies.
the UK. In North America, there is regular contact Employee
with the Attorneys General. surveys,
performance
reviews and
regular
communication
of business
activities
are used
to understand
and respond
to employee
views and
needs.
Processes
exist to
identify
high
performing
individuals
and ensure
that they
have
fulfilling
careers,
and HomeServe
is managing
succession
planning
effectively.
-------------------------------------------------------------- ----------------
Update
There have been no new There is increased scrutiny A new employee
underwriters this year across multiple industries engagement
and existing relationships in the UK (Telecoms, survey was
remain strong. TV, General Insurance) implemented
In the UK, HomeServe following a Competitions to provide
and Aviva have commenced and Markets Authority consistent,
discussions regarding complaint to the FCA comparable
contract renewal prior regarding pricing practices results across
to the expiry of the for loyal customers. businesses.
current contract in HomeServe continues Results
18 months time and HomeServe to exceed pricing disclosure will be
continues to assess requirements and policies available in
the possibility to add are priced equally, early June
a second underwriter. regardless of customer 2019.
vintage once customers A new
move off an introductory management
price. team
with
experience in
growing
fast-paced
digital
businesses
is now in
place at
Checkatrade.
-------------------------------------------------------------- ----------------
10. Investment in Technology 11. Digital & Innovation 12.
Financial
risks
============================================================== ============================================================== ================
Overview Key financial
The Group relies on Consumers in all businesses risks
several key systems increasingly wish to include the
to manage its Membership engage with HomeServe availability
customer interactions. by digital means: joining of short-term
Appropriate and timely online and maintaining and long-term
maintenance and investment details or making a funding to
is required to ensure claim via HomeServe's meet business
systems continue to website and app or posting needs and take
meet the changing needs onto social media channels advantage
of the business and such as Twitter and of strategic
its customers. Facebook. priorities
Home Experts, particularly Technology is also crucial such as M&A
Checkatrade, is embarking for the networks with opportunities,
on a programme of transformation Home Experts developing the risk of
to ready the business a trades app and Membership policyholders
for its ambitious growth sharing technology with not paying
plans. its own subcontract monies owed,
network. Both are intended and
to improve the efficiencies fluctuations
and customer service in
of both HomeServe and interest rates
the businesses it partners and exchange
with. rates.
Interest rate
risk
HomeServe's
policy is
to manage
interest cost
using a mix of
fixed
and variable
rate
borrowings.
Where
necessary,
this
is achieved by
entering
into interest
rate swaps
for certain
periods,
in which
HomeServe
agrees
to exchange,
at specified
intervals, the
difference
between fixed
and variable
rate interest
amounts
calculated by
reference
to an agreed
notional
principal
amount. These
swaps are
designated
to
economically
hedge
underlying
debt
obligations.
Credit risk
The risk
associated
with cash and
cash
equivalents
is managed by
only
depositing
funds with
reputable
and
creditworthy
banking
institutions.
The risk
of a
policyholder
defaulting
is mitigated
as any
policy cover
will cease
as and when
any premium
fails to be
paid.
Liquidity risk
HomeServe
manages
liquidity
risk by
maintaining
adequate
reserves and
banking
facilities and
continuously
monitoring
forecast and
actual
cash flows.
Foreign
exchange risk
Short term
foreign
exchange
risk is
mitigated with
the natural
hedging
provided by
the
geographical
spread of the
businesses.
While this
will protect
against some
of the
transaction
exposure,
HomeServe's
reported
results would
still
be impacted by
the
translation
of non-UK
operations.
-------------------------------------------------------------- ----------------
Impact(s)
Failure to invest appropriately If HomeServe is not
to manage customer interactions flexible enough to respond
and provide high quality to changing needs, customers
service may result in may explore competitor
lower retention and products and choose
higher customer losses. not to renew. There
Failure in back office is also a reputational
systems may lead to risk as complaints logged
business interruption via social media can
and could jeopardise quickly escalate if
the ability to analyse not dealt with in an
performance indicators appropriate and timely
and react to any trends. manner.
Over investment in any If software solutions
new initiatives could shared with partners
see investment outweigh are not delivered or
future benefits and do not generate the
lead to impairment. intended efficiencies,
costs may increase,
partners may leave and
customer service standards
may fall.
-------------------------------------------------------------- ----------------
Mitigation(s)
All decisions are subject HomeServe continues
to the Group's strict to review and respond
investment criteria to customer comments
and hurdles. Major IT and needs and customers
programmes are allocated are offered a number
specific governance of channels through
structures and oversight which they can engage
with members of senior with HomeServe: telephone,
management sitting on website, Digital Live
the Programme Board. Chat, paper, email and
HomeServe engages a social media.
number of external advisers Recruitment is increased
on large software projects in areas short on the
to provide appropriate required expertise.
breadth and depth of
experience and expertise
to ensure there is no
over-reliance on any
one supplier and to
support management in
project delivery.
-------------------------------------------------------------- ----------------
Update
The UK's new core customer A new CTO has been appointed On 25 October
management system is at Checkatrade to lead 2018,
in the final stages the digital transformation HomeServe
of user testing. This required for consumers arranged an
is a significant project and trades. additional
intended to deliver GBP174.2m
an improved customer of funding via
experience and a number a US
of marketing opportunities Private
and operational efficiencies. Placement.
Any significant delays This
in the project or faults expands the
in its design or implementation Group's
could adversely impact existing
the intended benefits facilities,
and lead to increased locks in a
costs, reduced revenues proportion
and asset impairment. of its
interest
charge
at fixed rates
and creates
a balanced
maturity
profile.
HomeServe is
implementing
a treasury
management
system to
improve global
cash
visibility,
bank
connectivity
and process
efficiency.
The system
is expected to
launch
in FY20.
-------------------------------------------------------------- ----------------
Key
No change
Risk increased
Risk decreased
Group Income Statement
Year ended 31 March 2019
2019 2018*
Notes GBPm GBPm
------------------------------------------------- ------ -------- --------
Continuing operations
Revenue 3 1,003.6 899.7
Operating costs (850.7) (765.7)
Share of results of equity accounted
investments (0.3) 1.0
Operating profit 152.6 135.0
Investment income 0.2 0.1
Finance costs (13.3) (11.8)
Adjusted profit before tax 161.7 141.7
Amortisation of acquisition intangibles (26.8) (18.4)
Exceptional items
Restructuring costs 4 (5.5) -
Fair value movement on contingent consideration
liabilities 4 10.1 -
Profit before tax 139.5 123.3
Tax 5 (31.2) (27.4)
------------------------------------------------- ------ -------- --------
Profit for the year 108.3 95.9
------------------------------------------------- ------ -------- --------
Attributable to:
Equity holders of the parent 108.5 96.3
Non-controlling interests (0.2) (0.4)
------------------------------------------------- ------ -------- --------
108.3 95.9
------------------------------------------------- ------ -------- --------
Dividends per share, paid and proposed 6 21.4p 19.1p
Earnings per share
Basic 7 32.7p 30.2p
Diluted 7 32.3p 29.7p
------------------------------------------------- ------ -------- --------
* The Group's results are being reported under IFRS 9 and IFRS
15 for the first time in 2019 following the mandatory adoption of
the standards from 1 April 2018. In accordance with the
transitional provisions of these standards, comparatives have not
been restated. See Note 2.
Group Statement of Comprehensive Income
Year ended 31 March 2019
2019 2018
GBPm GBPm
---------------------------------------------------- ------ -------
Profit for the year 108.3 95.9
Items that will not be reclassified subsequently
to profit and loss:
Actuarial (loss)/gain on defined benefit pension
scheme (0.4) 2.1
Deferred tax credit/(charge) relating to actuarial
re-measurements 0.1 (0.4)
Fair value gain on "fair value through other 0.7 -
comprehensive income" (FVTOCI) investment
in equity instruments
Deferred tax charge relating to fair value (0.2) -
gain on FVTOCI investment in equity instruments
---------------------------------------------------- ------ -------
0.2 1.7
Items that may be reclassified subsequently
to profit and loss:
Exchange movements on translation of foreign
operations 6.8 (10.2)
Fair value losses on cash flow hedges - (0.5)
6.8 (10.7)
Total other comprehensive income/(expense) 7.0 (9.0)
Total comprehensive income for the year 115.3 86.9
---------------------------------------------------- ------ -------
Attributable to:
Equity holders of the parent 115.5 87.3
Non-controlling interests (0.2) (0.4)
---------------------------------------------------- ------ -------
115.3 86.9
---------------------------------------------------- ------ -------
Group Balance Sheet
31 March 2019
2019 2018
Notes GBPm GBPm
--------------------------------------- ------ -------- --------
Non-current assets
Goodwill 407.9 386.6
Other intangible assets 8 418.6 384.8
Contract costs 27.5 -
Property, plant and equipment 42.8 39.9
Equity accounted investments 10.6 5.5
Other investments 9.2 8.7
Deferred tax assets 7.4 6.8
Retirement benefit assets 6.4 4.7
--------------------------------------- ------ -------- --------
930.4 837.0
--------------------------------------- ------ -------- --------
Current assets
Inventories 7.0 4.3
Trade and other receivables 424.6 515.7
Cash and cash equivalents 72.6 57.8
--------------------------------------- ------ -------- --------
504.2 577.8
--------------------------------------- ------ -------- --------
Total assets 1,434.6 1,414.8
--------------------------------------- ------ -------- --------
Current liabilities
Trade and other payables (382.3) (508.5)
Bank and other loans (39.7) (38.0)
Current tax liabilities (6.0) (10.4)
Provisions (5.7) -
Obligations under finance leases (0.5) (0.5)
(434.2) (557.4)
--------------------------------------- ------ -------- --------
Net current assets 70.0 20.4
--------------------------------------- ------ -------- --------
Non-current liabilities
Bank and other loans (336.4) (256.7)
Deferred tax liabilities (26.4) (25.5)
Other financial liabilities (23.3) (23.4)
Obligations under finance leases (0.7) (0.4)
--------------------------------------- ------ -------- --------
(386.8) (306.0)
--------------------------------------- ------ -------- --------
Total liabilities (821.0) (863.4)
--------------------------------------- ------ -------- --------
Net assets 613.6 551.4
--------------------------------------- ------ -------- --------
Equity
Share capital 9 9.0 8.9
Share premium account 180.7 171.8
Share incentive reserve 23.3 22.1
Currency translation reserve 22.9 16.1
Investment revaluation reserve 2.3 1.8
Other reserves 82.2 82.2
Retained earnings 293.0 248.1
--------------------------------------- ------ -------- --------
Attributable to equity holders of the
parent 613.4 551.0
--------------------------------------- ------ -------- --------
Non-controlling interests 0.2 0.4
--------------------------------------- ------ -------- --------
Total Equity 613.6 551.4
--------------------------------------- ------ -------- --------
Group Statement of Changes in Equity
Year ended 31 March 2019
Attributable
to equity
Share Share Currency Investment holders Non-
Share premium incentive translation revaluation Other Retained of the controlling Total
capital account reserve reserve reserve(1) reserves(2) earnings parent interest Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------- -------- ---------- ------------ ------------ ------------ --------- ------------- ------------ -------
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)
------------------- -------- -------- ---------- ------------ ------------ ------------ --------- ------------- ------------ -------
Opening balance
under IFRS 15 8.9 171.8 22.1 16.1 1.8 82.2 246.0 548.9 0.4 549.3
Profit for the
year - - - - - - 108.5 108.5 (0.2) 108.3
Other
comprehensive
income for
the year - - - 6.8 0.5 - (0.3) 7.0 - 7.0
------------------- -------- -------- ---------- ------------ ------------ ------------ --------- ------------- ------------ -------
Total
comprehensive
income - - - 6.8 0.5 - 108.2 115.5 (0.2) 115.3
Dividends paid
(note
6) - - - - - - (65.0) (65.0) - (65.0)
Issue of share
capital 0.1 8.9 - - - - - 9.0 - 9.0
Share-based
payments - - 8.8 - - - - 8.8 - 8.8
Share options
exercised - - (7.6) - - - 0.8 (6.8) - (6.8)
Tax on exercised
share options
(note
5) - - - - - - 2.7 2.7 - 2.7
Deferred tax on
share options
(note
5) - - - - - - 0.3 0.3 - 0.3
------------------- -------- -------- ---------- ------------ ------------ ------------ --------- ------------- ------------ -------
Balance at 31
March
2019 9.0 180.7 23.3 22.9 2.3 82.2 293.0 613.4 0.2 613.6
------------------- -------- -------- ---------- ------------ ------------ ------------ --------- ------------- ------------ -------
Year ended 31 March 2018
Attributable
to equity
Share Share Currency Available holders Non-
Share premium incentive translation for sale Other Retained of the controlling Total
capital account reserve reserve reserve(1) reserves(2) earnings parent interest Equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- -------- -------- ---------- ------------ ----------- ------------ --------- ------------- ------------ --------
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 - - - (10.2) - (0.5) 98.0 87.3 (0.4) 86.9
Dividends paid
(note
6) - - - - - - (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
(note
5) - - - - - - 2.8 2.8 - 2.8
Deferred tax on
share options
(note
5) - - - - - - 0.2 0.2 - 0.2
------------------- -------- -------- ---------- ------------ ----------- ------------ --------- ------------- ------------ --------
Balance at 31
March
2018 8.9 171.8 22.1 16.1 1.8 82.2 248.1 551.0 0.4 551.4
------------------- -------- -------- ---------- ------------ ----------- ------------ --------- ------------- ------------ --------
(1) The available for sale reserve was renamed the investment
revaluation reserve upon adoption of IFRS 9 on 1 April 2018.
(2) Other reserves comprise of the Merger, Own shares, Capital
redemption and Hedging reserves.
Group Cash Flow Statement
Year ended 31 March 2019
2019 2018
Notes GBPm GBPm
------------------------------------------------ ------ -------- --------
Operating profit 152.6 135.0
Adjustments for:
Depreciation of property, plant and equipment 9.1 8.0
Amortisation of acquisition intangible
assets 8 26.8 18.4
Amortisation of other intangible assets 8 23.1 36.2
Amortisation of contract costs 14.9 -
Share-based payments expense 9.8 9.1
Share of results of equity accounted investees 0.3 (1.0)
Loss on disposal of property, plant and
equipment and software 0.6 2.1
Gain on re-measurement of associate on
acquisition of control - (0.9)
Impact of exceptional items (4.6) -
Decrease in other financial liabilities - (0.3)
------------------------------------------------ ------ -------- --------
Operating cash flows before movements
in working capital 232.6 206.6
Increase in inventories (0.7) (1.4)
Decrease/(increase) in receivables 104.0 (60.7)
(Decrease)/increase in payables and provisions (133.7) 19.7
Net movement in working capital (30.4) (42.4)
Cash generated by operations 202.2 164.2
Income taxes paid (31.7) (27.2)
Interest paid (8.5) (7.5)
------------------------------------------------ ------ -------- --------
Net cash inflow from operating activities 162.0 129.5
------------------------------------------------ ------ -------- --------
Investing activities
Interest received 0.2 0.1
Proceeds on disposal of fixed assets 0.3 0.6
Purchases of intangible assets (99.1) (114.3)
Contract costs (7.9) -
Purchases of property, plant and equipment (9.0) (11.0)
Dividend received from associate - 0.4
Acquisition of equity accounted investments (5.4) -
Acquisition of subsidiaries 11 (37.5) (50.3)
Net cash used in investing activities (158.4) (174.5)
------------------------------------------------ ------ -------- --------
Financing activities
Dividends paid 6 (65.0) (50.4)
Repayment of finance leases (0.6) (0.6)
Acquisition of subsidiaries - (3.9)
Proceeds on issue of share capital 2.2 124.1
Costs associated with issue of share capital - (0.8)
New bank and other loans raised 174.2 221.0
Costs associated with new bank and other
loans raised (1.6) (3.1)
Movement in bank and other loans (98.9) (226.5)
------------------------------------------------ ------ -------- --------
Net cash generated by financing activities 10.3 59.8
------------------------------------------------ ------ -------- --------
Net increase in cash and cash equivalents 13.9 14.8
------------------------------------------------ ------ -------- --------
Cash and cash equivalents at beginning
of year 57.8 46.2
Effect of foreign exchange rate changes 0.9 (3.2)
------------------------------------------------ ------ -------- --------
Cash and cash equivalents at end of year 72.6 57.8
------------------------------------------------ ------ -------- --------
Notes to the condensed set of financial statements
1. Basis of preparation
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRSs) adopted for use by the European Union and with
those parts of the Companies Act 2006 applicable to companies
reporting under IFRSs, this announcement does not itself contain
sufficient information to comply with IFRSs. The Company will
publish full financial statements that comply with IFRSs in June
2019.
The financial information set out above does not constitute the
Group's statutory financial statements for the years ended 31 March
2019 or 31 March 2018, but is derived from those financial
statements. Statutory financial statements for FY18 prepared under
IFRSs have been delivered to the Registrar of Companies and those
for FY19 will be delivered following the Company's Annual General
Meeting. The auditor, Deloitte LLP, has reported on those financial
statements; its reports were unqualified, did not draw attention to
any matters by way of emphasis and did not contain statements under
s498 (2) or (3) Companies Act 2006. These financial statements were
approved by the Board of Directors on 21 May 2019.
2. Significant accounting policies
The same accounting policies, presentation and methods of
computation are followed in the condensed set of financial
statements as applied in the Group's 31 March 2018 audited
financial statements, except as described below.
Adoption of new or revised standards and accounting policies
The following accounting standards, interpretations and
amendments have been adopted in the year:
IFRIC 22 Foreign Currency Transactions and Advance
Consideration
Amendments to IFRS 2 Classification and Measurement of
Share-based Payment Transactions
Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with
IFRS 4 Insurance Contracts
Amendments to IAS 12 Recognition of Deferred Tax Assets for
Unrealised Losses
Amendments to IAS 40 Transfers of Investment Property
Annual Improvements to IFRSs 2014-2016 Cycle - IFRS 1 and IAS 28 Amendments
Annual Improvements to IFRSs 2014-2016 Cycle - IFRS 12 Amendments
None of the items listed above have had any material impact on
the amounts reported in this consolidated set of financial
statements. The impact of the following standards and
clarifications are discussed under 'Changes in accounting policies'
and 'Impact of adoption of IFRSs 9 & 15' below:
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
Clarifications to IFRS 15 Revenue from Contracts with Customers
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 including IFRS 9 and
IFRS 15 (including clarifications). In accordance with the
transitional provisions of these standards, comparatives have not
been restated. The impacted accounting policies for the years ended
31 March 2019 and 31 March 2018 are outlined below:
2. Significant accounting policies (continued)
Revenue recognition (applicable from 1 April 2018)
The Group records revenue in accordance with the five-step
recognition model outlined in IFRS 15:
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 a 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 the
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
2. Significant accounting policies (continued)
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
handling cost through the policy term or time elapsed).
Revenue by category
The Group disaggregates revenue from contracts with customers
between Net Policy Income, Repair Income, Home Experts, HVAC and
Other 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. The following table
outlines the principal activities from which the Group derives
revenue and how it is recognised:
Revenue stream Nature and timing of satisfaction Significant payment
of performance obligations terms
======================= ================================================ ====================
Membership Includes commissions received for Billed and paid
- Net Policy the obligation to sell policies, over the term
Income - Intermediary handle claims and provide administration of the contract
commissions services for underwriters. The Group
satisfies its obligation to sell
policies over time, recognising revenue
as each policyholder is contracted
on behalf of the Group's customers,
the underwriters.
The transaction prices of the Group's
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 service
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
profile of claims throughout the
policy term.
The determination of the amount of
transaction price to allocate to
claims handling and administration
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 commissions
received for the obligation to sell
policies is allocated using the residual
method at the point of policy inception
or renewal.
Where the Group's role on behalf
of the underwriter is only as an
intermediary in the cash collection
process, such amounts 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.
======================= ================================================ ====================
2. Significant accounting policies (continued)
Revenue stream Nature and timing of satisfaction Significant payment
of performance obligations terms
===================== =============================================== ========================
Membership Includes arrangements whereby the Billed and paid
- Net Policy Group contracts directly with the over the term
Income - Home end user to provide home assistance of the contract
assistance services (such as repair network
access, emergency assistance and
non-urgent engineer visits). Revenue
is recognised rateably over the life
of the member's contract.
===================== =============================================== ========================
Membership Includes repair services provided Billed and paid
- Repair Income to third parties, including underwriters over the term
and insurance companies, subject of the contract
to separate contractual arrangements. with the relevant
Revenue is recognised over time as third party
each repair job is completed.
===================== =============================================== ========================
Home Experts Includes website subscriptions and Billed and paid
- Web and directory directory advertising fees from contracted over the term
members (trades). For website subscriptions of the contract
revenue is recognised evenly over
the contractual term, for directory
membership fees revenue is recognised
as each directory is delivered throughout
the contractual term.
===================== =============================================== ========================
Home Experts Includes commissions received for Billed and paid
- Lead generation the provision of job leads to trades. as leads are delivered
Revenue is recognised at the point
in time a lead is transferred.
===================== =============================================== ========================
HVAC Includes the provision of installation Billed and paid
services at the point in time the upon completion
installation or service is complete. of the installation
===================== =============================================== ========================
Other Principally includes services provided Billed and paid
to customers who do not hold policies. following the
Revenue is recognised at the point performance of
in time the service is complete. the services provided
===================== =============================================== ========================
2. Significant accounting policies (continued)
Contract related assets and liabilities (applicable from 1 April
2018)
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:
- Assets generated from the capitalisation of costs to obtain a
contract
- Trade receivables (see financial instruments accounting
policies below)
- Accrued income
- Deferred income
Capitalisation of costs to obtain a contract
The incremental costs of obtaining a contract with the Group's
direct customers 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 the Group's direct
customers are capitalised as incremental contract costs under IFRS
15.
Accrued and deferred 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.
Revenue recognition (applicable up to 31 March 2018)
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for goods
and services provided in the normal course of business, net of
discounts, VAT, Insurance Premium Tax and other sales related
taxes.
Net policy income
Revenue recorded by the Group includes commissions receivable in
the Group's role as an intermediary for the householder in the
policy sale and policy administration process. Any third-party
costs incurred on behalf of the principal that are rechargeable
under the contractual arrangement, or where the Group's role is
only as an intermediary in the cash collection process for the
principal, are not included in revenue. Consequently, on the sale
of a policy, gross revenue consists of only a component of the
overall policy price, representing the commission receivable for
the marketing, sale and administration of the policy, stated net of
sales related taxes.
Where a contractual arrangement consists of two or more separate
arrangements that can be provided to customers either on a
stand-alone basis or as an optional extra, revenue is recognised
for each element as if it were an individual contract. Accordingly,
revenue is recognised on the sale of a policy except where an
obligation exists to provide future services, typically claims
handling and policy administration services. In these situations, a
proportion of revenue, sufficient to cover future claims handling
costs and margin, is deferred over the life of the policy, as
deferred income. The assessment of future claims handling takes
account of the expected numbers of claims and the estimated cost of
handling those claims, which are validated through experience of
historical actual costs. Revenue deferred for the performance of
claims handling services is released over the expected profile of
anticipated claims.
To the extent that policies are expected to cancel mid-term, and
hence all of the economic benefits associated with those policies
are not expected to flow to the Group, a provision is made to
ensure that the related revenue is not recognised at the point that
the policy incepts.
Repair services revenue
Repair revenue relates to repairs undertaken on behalf of
underwriters subject to separate contractual arrangements. Such
revenue is recognised on completion of the repair.
Other revenue
Revenue in respect of boiler installations and uninsured jobs is
recognised when our performance obligations are complete.
2. Significant accounting policies (continued)
Annual service revenue is recognised on completion of the annual
service. Ongoing service revenue is recognised in equal instalments
over the life of the policy.
Revenue generated in HomeServe's 'Home Experts' businesses is
derived from three principal streams:
- Website subscriptions: recognised evenly over the period of
the contract, which is typically 12 months;
- Directory advertising fees: recognised at the point the
obligation to the customer is fulfilled; and
- Lead generation revenue (representing commissions received
from trades people): recognised at the point of purchase.
Financial instruments (applicable from 1 April 2018)
Other investments
At each balance sheet date the Group conducts a fair value
assessment of its investments, the difference between the fair
value and carrying value is charged or credited to the Statement of
Comprehensive Income accordingly and held in the investment
revaluation reserve.
Trade receivables
Trade receivables do not carry any 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.
Financial instruments (applicable up to 31 March 2018)
Available for sale investments
At each balance sheet date the Group conducts a fair value
assessment of its investments, the difference between the fair
value and carrying value is charged or credited to the Statement of
Comprehensive Income accordingly and held in the available for sale
reserve.
Trade receivables
Trade receivables do not carry any interest and are stated at
amortised cost as reduced by appropriate allowances for estimated
irrecoverable amounts.
Impact of adoption of IFRSs 9 & 15
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. The adoption of
IFRS 15 has not had a material impact on the timing of revenue
recognition and comparative information has not been restated. All
of the Group's revenue is in scope of IFRS 15.
The following abridged statements summarise the impact of
adopting IFRS 15 on the Group's Consolidated Balance Sheet and its
Consolidated Cash Flow Statement at 31 March 2019. There was no
material impact to the Consolidated Income Statement, year on
year.
2. Significant accounting policies (continued)
Impact on the consolidated balance sheet
As reported
at IFRS 15 Amounts without
31 March 2019 adjustments adoption
Ref GBPm GBPm GBPm
------------------------------- ---------- --------------- ------------- ----------------
Non-current assets
Intangible assets i) 418.6 (27.5) 446.1
Contract costs i) 27.5 27.5 -
Deferred tax assets iii) 7.4 0.5 6.9
Others 476.9 - 476.9
------------------------------------------- --------------- ------------- ----------------
930.4 0.5 929.9
------------------------------------------ --------------- ------------- ----------------
Current assets ii), iv)
Trade and other receivables & v) 424.6 (165.0) 589.6
Others 79.6 - 79.6
------------------------------------------- --------------- ------------- ----------------
504.2 (165.0) 669.2
------------------------------------------ --------------- ------------- ----------------
Total assets 1,434.6 (164.5) 1,599.1
------------------------------------------- --------------- ------------- ----------------
Current liabilities
Trade and other payables ii) - v) (382.3) 162.4 (544.7)
Others (51.9) - (51.9)
------------------------------------------- --------------- ------------- ----------------
(434.2) 162.4 (596.6)
------------------------------------------ --------------- ------------- ----------------
Net current assets 70.0 (2.6) 72.6
------------------------------------------- --------------- ------------- ----------------
Non-current liabilities (386.8) - (386.8)
=========================================== =============== ============= ================
Total liabilities (821.0) 162.4 (983.4)
------------------------------------------- --------------- ------------- ----------------
Net assets 613.6 (2.1) 615.7
------------------------------------------- --------------- ------------- ----------------
Equity
Retained earnings iii) 293.0 (2.1) 295.1
Others 320.6 - 320.6
------------------------------------------- --------------- ------------- ----------------
613.6 (2.1) 615.7
------------------------------------------ --------------- ------------- ----------------
2. Significant accounting policies (continued)
Impact on the consolidated cash flow statement
As reported
at
31 March IFRS 15 Amounts without
2019 adjustments adoption
Ref GBPm GBPm GBPm
------------------------------------ ---------- ------------ ------------- ----------------
Operating profit 152.6 - 152.6
Adjustments for:
Amortisation of other intangibles i) 23.1 (14.9) 38.0
Amortisation of contract
costs i) 14.9 14.9 -
Others 42.0 - 42.0
------------------------------------------------ ------------ ------------- ----------------
Operating cash flows before
movements in working capital 232.6 - 232.6
ii), iv)
Decrease/(increase) in receivables & v) 104.0 165.0 (61.0)
(Decrease)/increase in payables ii) -
and provisions v) (133.7) (165.0) 31.3
Others (0.7) - (0.7)
------------------------------------------------ ------------ ------------- ----------------
Net movement in working
capital (30.4) - (30.4)
------------------------------------------------ ------------ ------------- ----------------
Cash generated by operations 202.2 - 202.2
------------------------------------------------ ------------ ------------- ----------------
Others (40.2) - (40.2)
------------------------------------------------ ------------ ------------- ----------------
Net cash inflow from operating
activities 162.0 - 162.0
------------------------------------------------ ------------ ------------- ----------------
Investing activities
Purchases of intangible
assets i) (99.1) 7.9 (107.0)
Contract costs i) (7.9) (7.9) -
Others (51.4) - (51.4)
------------------------------------------------ ------------ ------------- ----------------
Net cash used in investing
activities (158.4) - (158.4)
------------------------------------------------ ------------ ------------- ----------------
Net cash used in financing
activities 10.3 - 10.3
------------------------------------------------ ------------ ------------- ----------------
Net movement in cash and
cash equivalents 13.9 - 13.9
------------------------------------------------ ------------ ------------- ----------------
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.
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. This reclassification increased closing
trade receivables and trade and other payables by GBP17.7m
respectively, with no impact on net assets, cash generated by
operations or working capital.
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 opening 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. There was no material in
year income statement impact.
2. Significant accounting policies (continued)
iv) The Group has revised its balance sheet presentation in
relation to customer contract balances in accordance with the
definitions provided for contract assets and liabilities under IFRS
15. The Group presents these balances as accrued and deferred
income respectively, as permitted by paragraph 109 of IFRS 15. This
reclassification decreased closing trade receivables and trade and
other payables by GBP42.2m respectively, with no impact on net
assets, cash generated by operations or working capital.
v) Under IFRS 15 a receivable cannot be recorded in relation to
a cancellable contract until the Group has an unconditional right
to consideration. HomeServe have historically recorded receivables
in relation to the third party insurance premiums on cancellable
contracts, alongside a corresponding payable, to recognise the
corresponding liability due to the relevant underwriter. As these
contracts are cancellable, receivables and payables are only
recognised to the extent the policy has completed. This
reclassification decreased closing trade receivables and trade and
other payables by GBP140.5m respectively, with no impact on net
assets, cash generated by operations or working capital.
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. Adoption of IFRS 9 had no
impact on any of the financial statements.
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 classifications 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
Other 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.
2. Significant accounting policies (continued)
Standards in issue but not yet effective
At the date of authorisation of these 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 3 Definition of a Business
Amendments to IFRS 9 Prepayment Features with Negative Compensation
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
Amendments to IAS 1 and IAS 8 Definition of Material
Amendments to IAS 19 Plan Amendment, Curtailment or Settlement
Amendments to IAS 28 Long-term Interests in Associates and Joint
Ventures
Annual Improvements to IFRSs 2015-2017 Cycle
Conceptual Framework Amendments to References to the Conceptual
Framework in IFRS Standards
IFRS 16 Leases
IFRS 16 is effective for the Group from 1 April 2019 and will
change lease accounting for lessees under operating leases. Such
agreements will require recognition of an asset, representing the
right to use the leased item, and a liability, representing future
lease payments. Lease costs (e.g. rent charges) will be recognised
as depreciation and interest, rather than as an operating cost.
The Group plans on adopting the modified retrospective approach
with the "right of use" (RoU) asset equal to the lease liability at
transition date, less any lease incentives received. Adoption of
IFRS 16 will cause a material decrease to operating costs largely
offset by a material increase to the combined depreciation and
interest expenses, resulting in a net immaterial impact to profit
before tax. Non-current assets and gross liabilities are both
expected to increase by between GBP45.0m to GBP60.0m with net
assets remaining unchanged. Although total cash outflows will
remain consistent, rental outflows will now be presented under
financing activities, where they were previously recorded as
operational outflows, thereby increasing the Group's cash
conversion percentage.
The Group has elected not to recognise RoU assets and lease
liabilities for short-term leases (with a term of 12 months or
less) or low-value assets (where the cost of the asset new would be
approximately GBP3,800). The Group will continue to expense the
lease payments associated with these leases on a straight line
basis over the lease term.
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. Segmental analysis
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. The operating segments
are consistent with those set out in the Business Review. During
2019 the Group's 'Home Experts' businesses met the definition of an
operating segment under IFRS 8 and are now presented separately
from 'New Markets'. Comparative information in this note has been
re-presented to illustrate the impact of this change. The segment
contains the results of Checkatrade, Habitissimo and Home Experts
France. New Markets includes the Group's international development
initiatives, including its Italian associate and its Japanese joint
venture.
Segment operating profit/(loss) represents the result of each
segment including allocating costs associated with head office and
shared functions, but without allocating investment income, finance
costs and tax. This is the measure reported to the Chief Executive
for the purposes of resource allocation and assessment of segment
performance.
The accounting policies of the operating segments are the same
as those described in note 2 of the Annual Report and Accounts 2018
with the exception of the changes in accounting policies described
in note 2 of these condensed consolidated financial statements.
Group cost allocations are deducted in arriving at segmental
operating profit. Inter-segment revenue relates to transactions
with other Group companies, removed on consolidation, and
principally comprises royalty and other similar charges charged at
prevailing market prices. Disaggregation of revenue by both line of
business and geography are disclosed below. Management believes
that these are the most relevant categories that depict how the
nature, amount, timing and uncertainty of revenue and cash flows
are affected by economic factors. The line of business analysis
also illustrates the Group's revenue by major products and
services.
North Home
UK America France Spain Experts New Markets Total
2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------ --------- ------- ------ --------- ------------ --------
Revenue
Net policy income 244.0 303.3 101.9 55.3 - - 704.5
Repair income 108.9 15.7 0.4 81.1 - - 206.1
Home Experts - - - - 40.4 - 40.4
HVAC 25.5 13.4 1.5 4.4 - - 44.8
Other 13.3 1.0 0.8 - - - 15.1
----------------------------- ------ --------- ------- ------ --------- ------------ --------
Total revenue 391.7 333.4 104.6 140.8 40.4 - 1,010.9
Inter-segment (7.3) - - - - - (7.3)
External revenue 384.4 333.4 104.6 140.8 40.4 - 1,003.6
----------------------------- ------ --------- ------- ------ --------- ------------ --------
Result
Segment adjusted operating
profit/(loss) 66.0 67.6 33.3 17.7 (7.4) (2.4) 174.8
Exceptional items 4.6 - - - - - 4.6
Amortisation of acquisition
intangibles (2.2) (12.9) (6.5) (0.2) (5.0) - (26.8)
Operating profit/(loss) 68.4 54.7 26.8 17.5 (12.4) (2.4) 152.6
----------------------------- ------ --------- ------- ------ --------- ------------ --------
Investment income 0.2
Finance costs (13.3)
Profit before tax 139.5
Tax (31.2)
----------------------------- ------ --------- ------- ------ --------- ------------ --------
Profit for the year 108.3
----------------------------- ------ --------- ------- ------ --------- ------------ --------
3. Segmental analysis (continued)
North Home
UK America France Spain Experts New Markets Total
2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------ --------- ------- ------ --------- ------------ -------
Revenue
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
HVAC 21.1 10.1 1.0 - - - 32.2
Other 16.6 - - - - - 16.6
----------------------------- ------ --------- ------- ------ --------- ------------ -------
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 adjusted operating
profit/(loss) 61.1 48.6 31.5 16.6 (2.8) (1.6) 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 (4.8) (1.6) 135.0
----------------------------- ------ --------- ------- ------ --------- ------------ -------
Investment income 0.1
Finance costs (11.8)
Profit before tax 123.3
Tax (27.4)
----------------------------- ------ --------- ------- ------ --------- ------------ -------
Profit for the year 95.9
----------------------------- ------ --------- ------- ------ --------- ------------ -------
Segment information
Depreciation,
amortisation
and
Assets Liabilities Capital additions impairment
2019 2018 2019 2018 2019 2018 2019 2018
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- -------- -------- --------- --------- --------- --------- -------------- -----
UK 953.8 897.7 468.0 472.6 27.6 43.0 16.9 17.3
North America 436.6 352.6 441.3 361.5 64.2 73.2 23.8 16.7
France 225.4 219.9 152.1 155.0 9.8 3.5 10.0 8.9
Spain 113.3 140.0 78.6 104.1 8.7 18.2 16.6 17.0
Home Experts 77.5 94.3 31.1 36.5 4.7 1.6 6.6 2.7
New Markets 6.9 5.5 28.8 28.9 - - - -
Inter-segment (378.9) (295.2) (378.9) (295.2) - - - -
--------------- -------- -------- --------- --------- --------- --------- -------------- -----
Total 1,434.6 1,414.8 821.0 863.4 115.0 139.5 73.9 62.6
--------------- -------- -------- --------- --------- --------- --------- -------------- -----
All assets and liabilities including inter-segment loans and
trading balances are allocated to reportable segments.
3. Segmental analysis (continued)
Information about major customers
During the periods presented four underwriters were customers of
the Group that individually accounted for over 10% of the Group's
revenues:
2019 2018
% %
--- ------------------------------------------------- ------ ------
Customer 1 - UK 32.6 34.4
Customer 2 - North America 16.7 13.6
Customer 3 - North America 13.6 13.7
Customer 4 - France 9.0 10.1
Other customers individually representing below
10% of Group revenue 28.1 28.2
100.0 100.0
----- ------------------------------------------------- ------ ------
4. Exceptional items
Exceptional items, booked to operating costs, comprised the
following:
2019 2018
GBPm GBPm
-------------------------------------------------- ------ -----
Fair value movement on contingent consideration 10.1 -
liabilities
Restructuring costs (5.5) -
------------------------------------------------------------ ------ -----
Exceptional items included within Group operating 4.6 -
profit before tax
------------------------------------------------------------ ------ -----
Net taxation on exceptional items (0.2) -
Net exceptional items after 4.4 -
tax
-------------------------------------------------------- ------ -----
Fair value movement on contingent consideration liabilities
At 31 March 2019 the Group reassessed the fair value of
outstanding consideration payments due to the previous owners of
Help-Link Limited, conditional on the number of boiler
installations performed from the point of acquisition until July
2020. At this point the Group determined that the likelihood of the
conditions being met that would trigger either of the two
outstanding payments (a gross undiscounted cash outflow totalling
GBP10.5m) was now remote and therefore the fair value of the
outstanding liabilities was GBPnil. At the point the fair value
exercise was performed the balance held on the balance sheet of
GBP10.1m, representing the original discounted value of the
liabilities and any associated interest accreted to 31 March 2019,
was released to the income statement in accordance with IFRS 3 and
treated as exceptional due to its size and incidence.
Restructuring costs
Charges of GBP5.5m were incurred during FY19, mostly related to
redundancies and other associated charges incurred in respect of
changes to the organisational design of the UK business. Marketing
and other support headcount was reduced, as the business moves away
from an over reliance on direct mail activity and prepares for the
implementation of new systems. Costs related to these programmes
have been treated as exceptional due to their size and
incidence.
5. Taxation
2019 2018
GBPm GBPm
--------------------------------- ------ ------
Current tax
Current year charge 31.8 30.9
Adjustments in respect of prior
years (1.9) (0.1)
Total current tax charge 29.9 30.8
----------------------------------- ------ ------
Deferred tax charge/(credit) 1.3 (3.4)
Total tax charge 31.2 27.4
---------------------------------- ------ ------
UK corporation tax is calculated at 19% (FY18: 19%) of the
estimated assessable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the
respective jurisdictions, these being a blended (Federal/State)
rate of 27% in the US (FY18: 38%) as a result of the US enacting
new tax legislation in December 2017 effective from 1 January 2018,
33% in France (FY18: 33%) and 25% in Spain (FY18: 25%), which
explains the 'Overseas tax rate differences' below.
The charge for the year can be reconciled to the profit per the
income statement as follows:
2019 2018
GBPm GBPm
-------------------------------------------------- ------ ------
Profit before tax on continuing
operations 139.5 123.3
----------------------------------------------------- ------ ------
Tax at the UK corporation tax rate of 19% (FY18:
19%) 26.5 23.4
Tax effect of items that are not taxable in
determining taxable profit (0.6) (0.5)
Adjustments in respect of prior years - current
tax (1.9) (0.1)
Overseas tax rate differences 7.2 4.6
Tax expense for the year 31.2 27.4
---------------------------------------------------- ------ ------
Given the UK parented nature of the Group, the majority of
financing that the overseas businesses require is provided from the
UK, and as such the UK has provided a number of intra-group loans
to its overseas operations in order to fund their growth plans. In
light of the different tax rates applicable in each of the markets
in which the Group operates, as noted above, these loans result in
a reduction in the Group's effective tax rate, which is included in
'Overseas tax rate differences' in the table above.
As the proportion of the Group's profit earned overseas
continues to grow, the effective tax rate of 22% (FY18: 22%) is
expected to increase slightly in future years.
A retirement benefit tax credit amounting to GBP0.1m (FY18:
GBP0.4m charge) has been recognised directly in other comprehensive
income. In addition to the amounts (charged)/credited to the income
statement and other comprehensive income, the following amounts
relating to tax have been recognised directly in equity:
2019 2018
GBPm GBPm
--------------------------------------------------- ----- -----
Current tax
Excess tax deductions related to share-based
payments on exercised options 2.7 2.8
Deferred tax
Opening impact of IFRS 15 (see note 2) 0.5 -
Change in estimated excess tax deductions related
to share-based payments 0.3 0.2
Total tax recognised directly
in equity 3.5 3.0
------------------------------------------------------ ----- -----
6. Dividends
2019 2018
GBPm GBPm
--------------------------------------------------- ----- -----
Amounts recognised as distributions to equity
holders in the year:
Final dividend for the year ended 31 March 2018
of 14.4p (2017: 11.2p) per share 47.8 35.0
Interim dividend for the year ended 31 March 2019
of 5.2p (2018: 4.7p) per share 17.2 15.4
65.0 50.4
--------------------------------------------------- ----- -----
The proposed final dividend for the year ended 31 March 2019 is
16.2p per share amounting to GBP53.9m (FY18: 14.4p per share
amounting to GBP47.8m). The proposed final dividend is subject to
approval by shareholders at the Annual General Meeting and has not
been included as a liability in these financial statements. The
payment of this dividend will not have any tax consequences for the
Group.
7. Earnings per share
2019 2018
pence pence
------------------ ------ ------
Basic 32.7 30.2
Diluted 32.3 29.7
------------------ ------ ------
Adjusted basic 37.5 33.6
Adjusted diluted 37.0 33.1
------------------ ------ ------
The calculation of the basic and diluted earnings per share is
based on the following data:
Number of shares 2019 2018
m m
----------------------------------- ------ ------
Weighted average number of shares
Basic 331.7 318.9
Dilutive impact of share options 3.9 5.0
Diluted 335.6 323.9
----------------------------------- ------ ------
Earnings 2019 2018
GBPm GBPm
--------------------------------------------------- ------ ------
Profit for the year attributable to equity
holders of the parent 108.5 96.3
Amortisation of acquisition intangibles 26.8 18.4
Exceptional items (note 4) (4.6) -
Tax impact arising on amortisation of acquisition
intangibles and exceptional items (6.4) (5.7)
One-off deferred tax impact of US and French
tax reforms - (1.7)
--------------------------------------------------- ------ ------
Adjusted profit for the year attributable
to equity holders of the parent 124.3 107.3
--------------------------------------------------- ------ ------
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 exceptional items, the amortisation of
acquisition intangibles and the associated tax impacts. In FY18
adjustments were 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 exceptional items, the impact of the
amortisation of acquisition intangibles and the associated tax
effects. For further details refer to the 'Profitability' section
of the Glossary.
Diluted earnings per share includes the impact of dilutive share
options in issue throughout the year.
8. Other intangible assets
Acquisition intangibles include acquired access rights, acquired
customer databases and acquired brands. Other intangibles include
trademarks, access rights, customer databases and software.
Acquired Acquired Total Trademarks
access customer Acquired acquisition & access Customer Total
rights databases brands intangibles rights databases* Software intangibles
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------- ----------- --------- ------------ ----------- ----------- --------- ------------
Cost
At 1 April 2017 47.5 159.1 - 206.6 33.2 76.6 174.4 490.8
Additions 45.1 20.1 - 65.2 3.0 16.0 44.3 128.5
Acquisition
of subsidiaries - 17.0 13.9 30.9 - - 0.9 31.8
Disposals - - - - (0.9) - (4.4) (5.3)
Exchange
movements (4.9) (4.7) - (9.6) (1.2) 1.5 (3.5) (12.8)
------------------ --------- ----------- --------- ------------ ----------- ----------- --------- ------------
At 1 April 2018 87.7 191.5 13.9 293.1 34.1 94.1 211.7 633.0
IFRS 15
reclassification - - - - - (85.0) - (85.0)
Additions 28.2 20.6 - 48.8 1.3 8.8 42.0 100.9
Acquisition
of subsidiaries 12.4 2.6 - 15.0 - - - 15.0
Disposals - - - - - - (1.1) (1.1)
Transfers (6.1) 6.4 - 0.3 0.6 - (0.9) -
Exchange
movements 4.3 3.8 - 8.1 1.4 (0.3) 1.9 11.1
------------------ --------- ----------- --------- ------------ ----------- ----------- --------- ------------
At 31 March
2019 126.5 224.9 13.9 365.3 37.4 17.6 253.6 673.9
------------------ --------- ----------- --------- ------------ ----------- ----------- --------- ------------
Accumulated Amortisation
At 1 April 2017 23.5 69.1 - 92.6 24.6 31.8 53.2 202.2
Charge for the
year 4.8 13.0 0.6 18.4 3.5 16.8 15.9 54.6
Disposals - - - - (0.3) - (2.5) (2.8)
Exchange movements (0.9) (3.5) - (4.4) (0.8) 0.5 (1.1) (5.8)
At 1 April 2018 27.4 78.6 0.6 106.6 27.0 49.1 65.5 248.2
IFRS 15 reclassification - - - - - (46.5) - (46.5)
Charge for the
year 7.5 17.6 1.7 26.8 3.0 2.3 17.8 49.9
Disposals - - - - - - (0.1) (0.1)
Transfers 0.1 - - 0.1 (0.1) - - -
Exchange movements 0.7 2.0 - 2.7 0.5 (0.1) 0.7 3.8
-------------------------- ------ ------ ---- ------ ------ ------- ------ -------
At 31 March
2019 35.7 98.2 2.3 136.2 30.4 4.8 83.9 255.3
-------------------------- ------ ------ ---- ------ ------ ------- ------ -------
Carrying amount
At 31 March
2019 90.8 126.7 11.6 229.1 7.0 12.8 169.7 418.6
------------- ----- ------ ----- ------ ---- ----- ------ ------
At 31 March
2018 60.3 112.9 13.3 186.5 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.
Software includes GBP81.8m (FY18: GBP72.3m) in respect of the
new Customer Relationship Management (CRM) system which will be
rolled out in the UK business during FY20. The asset will be
amortised over 10 years on a straight-line basis from the point at
which it is available for use.
On 26 October 2018 and 18 December 2017 HomeServe US Repair
Management Corporation acquired certain intangible assets of the
home assistance policy business of Dominion Products and Services,
Inc. ("DPS"), a wholly owned subsidiary of Dominion Energy, Inc. At
31 March 2019 acquired access rights included GBP54.4m and acquired
customer databases included GBP45.3m in respect of the marketing
agreement and policy book acquired as part of this transaction.
These assets are being amortised over periods ranging from 9 to 13
years, on a straight-line basis.
9. Share capital
2019 2018
GBPm GBPm
--------------------------------------------- ------ ------
Issued and fully paid 332,490,377 ordinary
shares of 2 9/13p each (FY18: 329,776,766) 9.0 8.9
--------------------------------------------- ------ ------
The Company has one class of ordinary shares which carry no
right to fixed income. Share capital represents consideration
received or amounts, based on fair value, allocated to LTIP and One
Plan participants on exercise, or amounts, based on fair value of
the consideration for acquired entities. The nominal value was 2
9/13p per share on all issued and fully paid shares.
During the period from 1 April 2018 to 31 March 2019 the Company
issued 2,713,611 shares with a nominal value of 2 9/13p creating
share capital of GBP0.1m and share premium of GBP8.9m.
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 a nominal value of 2 9/13p
creating share capital of GBP0.1m and share premium of GBP4.9m. 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.
10. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Transactions with equity accounted investees
Related party transactions with equity accounted investees
during FY19 principally related to recharged consultancy and
contractor costs and amounted to GBP0.3m (FY18: GBP0.5m).
Other related party transactions
Other related party transactions during FY19 were similar in
nature to those in FY18 and amounted to GBP0.5m (FY18:
GBP0.5m).
Full details of the Group's related party transactions are
included in the Annual Report and Accounts 2019.
11. Business combinations
The Group has incurred a net cash outflow in respect of business
combinations of GBP37.5m in the year (FY18: GBP54.2m).
There were two material acquisitions in the year ended 31 March
2019.
-- On 7 March 2019 HomeServe HVAC LLC, a Group company, acquired
100% of the issued share capital and obtained control of
Cropp-Metcalfe Air Conditioning and Heating Company Inc.
('Cropp').
-- On 29 March 2019 HomeServe Energy Services Holding HVAC, a
Group company, acquired 100% of the issued share capital and
obtained control of Societe V.B. Gaz ('V.B. Gaz').
Additionally there were four immaterial acquisitions in the year
ended 31 March 2019.
-- 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 ('Gregg Mechanical').
-- 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 ('Oscagas').
-- On 1 October 2018, HomeServe Energy Services Holding HVAC, a
Group company, acquired a group of assets constituting a business
under IFRS 3 from Etablissements Descamps SAS ('Descamps').
-- On 29 November 2018, HomeServe HVAC LLC, a Group company,
acquired 100% of the issued share capital and obtained control of
Geisel Heating, Air Conditioning & Plumbing, Inc.
('Geisel').
All acquisitions made during FY19 enhance the scale and scope of
the Group's HVAC installation capabilities and increase the
opportunity for future growth related to new HVAC system
installations.
11. Business combinations (continued)
The provisional fair values of identifiable assets acquired and
liabilities assumed are set out below:
Cropp V.B. Gaz Other Total
At fair value GBPm GBPm GBPm GBPm
Property, plant and equipment 1.6 0.4 0.2 2.2
Cash and cash equivalents 1.8 0.3 0.4 2.5
Inventories 0.9 0.1 0.9 1.9
Trade and other receivables 0.6 0.3 1.4 2.3
Trade and other payables (3.4) (0.3) (1.9) (5.6)
Bank and other loans - (0.1) - (0.1)
Deferred income (2.5) (0.7) - (3.2)
Intangible assets identified
on acquisition 11.7 2.3 1.0 15.0
Deferred tax on acquisition
intangibles - (0.6) - (0.6)
----------------------------------- ------ --------- ------ ------
Net assets acquired 10.7 1.7 2.0 14.4
Goodwill 8.8 6.9 5.3 21.0
----------------------------------- ------ --------- ------ ------
Total consideration 19.5 8.6 7.3 35.4
----------------------------------- ------ --------- ------ ------
Satisfied by:
Cash 14.7 8.6 6.3 29.6
Contingent consideration at
fair value - - 0.1 0.1
Deferred consideration 4.8 - 0.9 5.7
19.5 8.6 7.3 35.4
----------------------------------- ------ --------- ------ ------
Net cash outflow arising on
acquisition:
Cash consideration 14.7 8.6 6.3 29.6
Cash and cash equivalent balances
acquired (1.8) (0.3) (0.4) (2.5)
----------------------------------- ------ --------- ------ ------
12.9 8.3 5.9 27.1
----------------------------------- ------ --------- ------ ------
The goodwill arising on the excess of consideration over the
fair value of the assets and liabilities acquired represents the
expectation of synergy benefits and efficiencies. None of the
goodwill is expected to be deducted for tax purposes. The gross
contracted amounts due are equal to the fair value amounts stated
above for trade and other receivables.
The provisional fair values for Oscagas and Gregg Mechanical
disclosed as part of the Group's interim results as at 30 September
2018 have been updated, resulting in a decrease to goodwill of
GBP0.2m at 31 March 2019.
The post-acquisition revenue, operating profit and
acquisition-related costs (included in operating costs) from these
acquisitions in the year ended 31 March 2019 were as follows:
Cropp V.B. Gaz Other Total
GBPm GBPm GBPm GBPm
--------------------------- ------ --------- ------ ------
Revenue 2.1 - 8.0 10.1
Operating profit/(loss) - - (0.1) (0.1)
Acquisition-related costs 0.6 0.1 0.2 0.9
--------------------------- ------ --------- ------ ------
If all of the acquisitions had been completed on the first day
of the financial year, Group revenues for the period would have
been GBP1,050.3m and Group profit before taxation would have been
GBP141.9m.
In addition to the net cash outflow on the acquisitions above of
GBP27.1m, deferred and contingent consideration payments related to
business combinations in year totalled GBP10.4m (FY18:
GBP3.9m).
12. Events after the balance sheet date
There were no post balance sheet events between the balance
sheet date and the signing of the financial statements.
13. Other information
The Annual Report and Accounts for the year ended 31 March 2019
were approved by the Board on 21 May 2019 and will be made
available on the Company's website and posted to those shareholders
who have requested it in June 2019. Copies will be available from
the registered office at Cable Drive, Walsall, WS2 7BN.
GLOSSARY
HomeServe uses a number of alternative performance measures
(APMs) to assess the performance of the Group and its individual
segments. APMs used in this announcement address profitability,
leverage and liquidity and together with operational KPIs give an
indication of the current health and future prospects of the
Group.
Definitions of APMs and the rationale for their usage are
included below with a reconciliation, where applicable, back to the
equivalent statutory measure.
Profitability
The Group uses adjusted operating profit, adjusted EBITDA,
adjusted profit before tax and adjusted earnings per share as its
primary profit performance measures. These are non-IFRS measures
which exclude the impact of the amortisation of acquisition
intangible assets. Acquisition intangible assets are calculated
using the estimated and discounted incremental future cash flows
resulting from the affinity relationship or future policy renewals
as appropriate, which will include the impact of the past actions
of the former owners. These past actions will include historic
marketing and business development activity, including but not
limited to, the staff and operational costs of the business. In
addition the specific construct of the policy terms and conditions
and the current and expected future profitability to be derived
from the acquired business or asset is also a factor in determining
the valuation of acquisition intangible assets.
The on-going service and operating costs incurred by the Group
in managing the acquired businesses or assets, including but not
limited to print, postage, telephony, claims costs and overheads
are recognised as operating costs within these adjusted measures in
the reporting period in which they are incurred.
Accordingly, by excluding the amortisation of acquisition
intangibles from the adjusted performance measures reported by the
Group in each specific reporting period ensures that these measures
only reflect the revenue attributable to, and costs incurred by,
the Group in managing and operating those businesses and assets at
that time in each reporting period and do not include the impact of
the historic costs of the vendor or considerations of the future
profits to be derived from the acquired business or assets.
Reconciliations of statutory to adjusted profit measures
TOTAL GROUP
GBPmillion 2019 2018
----------------------------------------- ------- ------
Operating profit (statutory) 152.6 135.0
Exceptional restructuring costs 5.5 -
Exceptional fair value movement on (10.1) -
contingent consideration
Amortisation of acquisition intangibles 26.8 18.4
Adjusted operating profit 174.8 153.4
----------------------------------------- ------- ------
Operating profit (statutory) 152.6 135.0
Exceptional restructuring costs 5.5 -
Exceptional fair value movement on (10.1) -
contingent consideration
Depreciation 9.1 8.0
Amortisation of acquisition intangibles 26.8 18.4
Amortisation of other intangibles 23.1 36.2
Amortisation of contract costs 14.9 -
Adjusted EBITDA 221.9 197.6
----------------------------------------- ------- ------
Profit before tax (statutory) 139.5 123.3
.
Exceptional restructuring costs 5.5 -
Exceptional fair value movement on (10.1) -
contingent consideration
Amortisation of acquisition intangibles 26.8 18.4
Adjusted profit before tax 161.7 141.7
----------------------------------------- ------- ------
Pence per share
----------------------------------------------- ------ ------
Earnings per share (statutory) 32.7 30.2
Exceptional restructuring costs (net 1.3 -
of tax)
Exceptional fair value movement on contingent (2.6) -
consideration (net of tax)
Amortisation of acquisition intangibles
(net of tax) 6.1 3.9
One-off deferred tax impact of US &
French tax reform - (0.5)
Adjusted earnings per share 37.5 33.6
----------------------------------------------- ------ ------
SEGMENTAL
2019 North Home New
GBPmillion UK America France Spain Experts Markets
----------------------------------- ------- --------- ------- ------ --------- ---------
Revenue 391.7 333.4 104.6 140.8 40.4 -
Statutory operating profit/(loss) 68.4 54.7 26.8 17.5 (12.4) (2.4)
Operating Margin % 17% 16% 26% 12% - -
Adjusting items
Exceptional restructuring 5.5 - - - - -
costs
Exceptional fair value movement (10.1) - - - - -
on contingent consideration
Amortisation of acquisition
intangibles 2.2 12.9 6.5 0.2 5.0 -
----------------------------------- ------- --------- ------- ------ --------- ---------
Total adjusting items (2.4) 12.9 6.5 0.2 5.0 -
Effect on operating margin
% - 4% 6% 1% - -
Adjusted operating profit/(loss) 66.0 67.6 33.3 17.7 (7.4) (2.4)
Adjusted operating margin
% 17% 20% 32% 13% - -
----------------------------------- ------- --------- ------- ------ --------- ---------
2018 North Home
GBPmillion UK America France Spain Experts New Markets
----------------------------------- ------ --------- ------- ------ --------- ------------
Revenue 365.6 282.1 100.0 141.3 18.6 -
Statutory operating profit/(loss) 59.3 40.5 25.1 16.5 (4.8) (1.6)
Operating Margin % 16% 14% 25% 12% - -
Adjusting items*
Amortisation of acquisition
intangibles 1.8 8.1 6.4 0.1 2.0 -
Effect on operating margin
% 1% 3% 7% - - -
Adjusted operating profit/(loss) 61.1 48.6 31.5 16.6 (2.8) (1.6)
Adjusted operating margin
% 17% 17% 32% 12% - -
----------------------------------- ------ --------- ------- ------ --------- ------------
*There were no exceptional items recorded in the prior year
North Home New
2019 UK America France Spain Experts Markets
Local currency million GBP $ EUR EUR GBP GBP
----------------------------------- ------- --------- ------- ------ --------- ---------
Revenue 391.7 436.2 118.7 159.7 40.4 -
Statutory operating profit/(loss) 68.4 71.3 30.4 19.6 (12.4) (2.4)
Operating Margin % 17% 16% 26% 12% - -
Adjusting items
Exceptional restructuring 5.5 - - - - -
costs
Exceptional fair value movement (10.1) - - - - -
on contingent consideration
Amortisation of acquisition
intangibles 2.2 16.8 7.4 0.2 5.0 -
----------------------------------- ------- --------- ------- ------ --------- ---------
Total adjusting items (2.4) 16.8 7.4 0.2 5.0 -
Effect on operating margin
% - 4% 6% - - -
Adjusted operating profit/(loss) 66.0 88.1 37.8 19.8 (7.4) (2.4)
Adjusted operating margin
% 17% 20% 32% 12% - -
----------------------------------- ------- --------- ------- ------ --------- ---------
North Home
2018 UK America France Spain Experts New Markets
Local currency million GBP $ EUR EUR GBP GBP
----------------------------------- ------ --------- ------- ------ --------- ------------
Revenue 365.6 375.2 113.2 160.1 18.6 -
Statutory operating profit/(loss) 59.3 53.6 28.5 18.8 (4.8) (1.6)
Operating Margin % 16% 14% 25% 12% - -
Adjusting items*
Amortisation of acquisition
intangibles 1.8 10.8 7.2 0.1 2.0 -
Effect on operating margin
% 1% 3% 7% - - -
Adjusted operating profit/(loss) 61.1 64.4 35.7 18.9 (2.8) (1.6)
Adjusted operating margin
% 17% 17% 32% 12% - -
----------------------------------- ------ --------- ------- ------ --------- ------------
*There were no exceptional items recorded in the prior year
Leverage
In FY19 the Group targeted net debt in the range of 1.0 to 2.0x
EBITDA measured at the year end and will continue to do so in
FY20.
The range reflects HomeServe's relatively low risk appetite. Due
to the seasonality of the business and depending on M&A
opportunities, HomeServe is able to operate outside 1.0 to 2.0x for
periods of time but with a highly cash generative business model
HomeServe will seek to return to its target range. The leverage
ratio is also important as it factors into the Group's banking
covenants and the rolling 12 month rate at the half year influences
the forward interest rates payable on the Group's Revolving Credit
Facility.
Certain of the Group's segmental bonus measures relate to net
cash. Net cash is defined and calculated in the same way as net
debt but returns a positive closing balance.
The 2019 Annual Report provides a full reconciliation of the
movements in liabilities arising from borrowings and finance
leases. The closing balances at 31 March were as follows:
GBPmillion 2019 2018
----------------------------------------- ------- -------
Current liabilities from borrowings and
finance leases
Finance leases 0.5 0.5
Bank and other loans 39.7 38.0
----------------------------------------- ------- -------
40.2 38.5
Non-current liabilities from borrowings
and finance leases
Finance leases 0.7 0.4
Bank and other loans 336.4 256.7
----------------------------------------- ------- -------
337.1 257.1
----------------------------------------- ------- -------
Total liabilities from borrowings and
finance leases 377.3 295.6
----------------------------------------- ------- -------
Cash and cash equivalents (72.6) (57.8)
----------------------------------------- ------- -------
Net Debt 304.7 237.8
----------------------------------------- ------- -------
Adjusted EBITDA 221.9 197.6
----------------------------------------- ------- -------
Leverage 1.4x 1.2x
----------------------------------------- ------- -------
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.
GBPmillion 2019 2018
----------------------------------------------- ------- -------
Adjusted operating profit 174.8 153.4
Exceptional restructuring costs (5.5) -
Exceptional fair value movement on contingent 10.1 -
consideration
Amortisation of acquisition intangibles (26.8) (18.4)
----------------------------------------------- ------- -------
Operating profit 152.6 135.0
Impact of exceptional items (4.6) -
Depreciation and amortisation 73.9 62.6
Non-cash items 10.7 9.0
Increase in working capital (30.4) (42.4)
----------------------------------------------- ------- -------
Cash generated by operations 202.2 164.2
Net interest and borrowing costs (9.9) (10.5)
Taxation (31.7) (27.2)
Capital expenditure (66.9) (71.1)
Repayment of finance leases (0.6) (0.6)
----------------------------------------------- ------- -------
Free cash flow 93.1 54.8
----------------------------------------------- ------- -------
GBPmillion 2019 2018
------------------------------ ------ ------
Adjusted operating profit 174.8 153.4
Cash generated by operations 202.2 164.2
------------------------------ ------ ------
Cash conversion 116% 107%
------------------------------ ------ ------
KPIs
The Group uses a number of operational key performance
indicators that provide insight into past performance and are an
indicator of the future prospects of the Group as a whole and its
individual segments.
Affinity partner households tracks the growth in addressable
market delivered through existing and new partnerships with
utilities and municipals.
Customers tracks success in converting addressable market into
revenue-generating customers, by delivering great products and
service.
Retention rate reflects ability to deliver fit-for-purpose product
and great service to customers.
Policies illustrates ability to grow the product line through
customer focus and innovation.
Income per customer measures ability to design and market increasingly
valuable products, and sell them efficiently. Due to currency
differences, this measure is tracked at a geographic level.
Income per customer is calculated as the last 12 months' net
policy income divided by customers.
Trades are customers in the Home Experts business. Growing the
network of vetted and reviewed trades will enable HomeServe
to meet consumer needs and grow its business.
Adjusted profit before tax is the key profit measure by which
business growth, efficiency and sustainability are monitored.
Net debt to EBITDA is the key cash ratio, which is used to monitor
usage of financial resources within agreed risk parameters.
Customers
2019 is the first year the Group has presented its results under
IFRS15 Revenue from contracts with customers. IFRS15 defines a
customer as 'a party that has contracted with an entity to obtain
goods or services'. In the Membership businesses where the Group
acts as an intermediary selling contracts and insurance policies to
end consumers, the 'IFRS 15 customer' is considered to be the
underwriter with which the Group has contracted to sell
policies.
This is different, however, from how the Group markets and
communicates the value of its products and services to end
consumers. Here, the businesses strategy and communications (both
internally and externally) refer to the end consumer as the
customer. As a result, for the purposes of describing the strategy
and operational performance of the business, the Business review
and the Group's KPIs refer to the end consumer as the customer of
the Group, rather than the underwriter. However, for the purposes
of preparing the financial statements, the accounting transactions
are recorded in accordance with IFRS 15 where the customer is the
underwriter.
For all other sources of revenue, it is the party that has
contracted with the Group to obtain goods and services that is
classified as the customer. The following table summarises this
position:
Revenue Stream IFRS 15 'contracted' Customer as referred
customer to in the Business and
Operating Reviews
Policy Income - insurance Underwriters
intermediary commissions End user of the service
--------------------- --------------------------
Policy Income - repairs Underwriters or other B2B contracted parties
-------------------------------------------------
Policy Income - home End user of the service
assistance
-------------------------------------------------
Home Experts
--------------------- --------------------------
HVAC
Other
--------------------- --------------------------
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
FR BIGDUSGDBGCG
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May 21, 2019 02:01 ET (06:01 GMT)
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