Group financial highlights Core Group million 2009 2008 Change - - PowerPoint PPT Presentation

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Group financial highlights

* Excluding amortisation of acquisition intangibles, impairment charge, joint venture taxation and exceptional operating costs ^ Excluding amortisation of acquisition intangibles, impairment charge and exceptional operating costs

• Revenue down 7% with a 13% increase in profit before tax*
• Core membership revenue up 8% and profit before tax* up 26%
• UK profits up 14% and International now well into profit
• UK reorganisation incurred costs of £5m out of total exceptional costs of £6.5m
• Proposed disposal of Emergency Services results in £97m impairment charge

35.50p 106.4p (£21.7m) £96.1m £517.4m 2009 Group

• 20%

24% 26% 8% Change 31.25p 93.0p £71.8m £85.3m £554.9m 2008 Core 14%

• Dividend per share

96.9p £80.8m £88.7m £283.8m 2009 14% 80.6p Earnings per shareˆ (£93.5m) £65.2m Statutory profit/(loss) before tax 13% £70.6m Profit before tax* (7%) £263.2m Revenue Change 2008 £million

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• 9.2m policies and access to 56m households worldwide
• Resilient UK Membership business with 1.83m gross new

policy sales and 83% retention

• Successful re-organisation of UK operations
• Strong expansion of International businesses
• Agreements signed with Utilities Inc and SEMCO in

the US

• Test marketing agreements signed with Agbar and

Acciona in Spain

• Entry into Belgium through SPT acquisition
• Decision to focus exclusively on developing our

Membership businesses

• UK Emergency Services treated as non-core
• Non-core assets written down by £97m
• Progressing a number of approaches for UK

Emergency Services

Operational highlights

Profit before tax* (million)

02 03 04 05 06 07 08 09

14.2 24.1 32.5 41.9 53.6 67.7 85.3 96.1 * Excluding amortisation of acquisition intangibles, impairment charge, joint venture taxation and exceptional operating costs

02 03 04 05 06 07 08 09

1.9 2.4 3.1 4.2 5.7 7.1 8.1 9.2 Policies (million)

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Understanding the reported results

(1.9)

• (1.9)

Joint venture tax (21.7) (102.5) 80.8 Statutory profit/(loss) before tax (5.0) (2.7) (2.3) Exceptional costs – UK re-organisation (1.5) (1.5)

• Exceptional costs – 2nd hub deal

(97.2) (97.2)

• Emergency Services impairment charge

(12.1) (8.4) (3.7) Amortisation of acquisition intangibles 96.1 7.4 88.7 Profit before tax* Total Non-core Core FY 2009 (£million)

* Excluding amortisation of acquisition tangibles, impairment charge, joint venture taxation and exceptional operating costs

• Profit before tax* of £96.1m becomes a statutory loss before tax of £21.7m (2008: profit of £71.8m) due to:
• Write down of UK Emergency Services assets by £97.2m
• Aborted costs in relation to second hub deal of £1.5m
• Exceptional UK reorganisation costs of £5.0m, of which £2.7m relate to Emergency Services
• Normal adjustments for the amortisation of acquisition intangibles and joint venture taxes

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Financial highlights (core and non-core)

• Group revenues 7% lower than 2008 due to change in underwriting arrangements and lower volumes in Emergency

Services

• Strong performance from all 3 core membership businesses with revenues up 8% and profit before tax* up 26%
• Group operating profit* margin increased by 3 percentage points to 19.4%
• Group statutory loss before tax of £21.7m (2008: £71.8m profit) due to:
• £97.2m impairment charge on non-core Emergency Services assets
• Exceptional costs of £1.5m relating to aborted second hub deal and £5m from re-organisation of UK businesses
• The effective underlying tax rate for the year was 29.9% (2008: 31.4%)

* Excluding amortisation of acquisition intangibles, impairment charge, joint venture taxation and exceptional operating costs

3.0ppt 16.4% 19.4% (1.8ppt) 5.2% 3.4% 3.7ppt 28.8% 32.5% Operating profit* margin

(£93.5) 71.8 (21.7) (£109.2) 6.7 (102.5) 24% 65.2 80.8 Statutory profit/(loss) before tax 13% 85.3 96.1 (50%) 14.7 7.4 26% 70.6 88.7 Profit before tax* 10% 91.0 100.3 (47%) 15.1 8.0 22% 75.8 92.3 Operating profit* (7%) 554.9 517.4 (20%) 291.7 233.6 8% 263.2 283.8 Revenue

• FY 2008

FY 2009

• FY 2008

FY 2009

• FY 2008

FY 2009 £million Total Non-core Core

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UK Membership financial performance

• UK Membership revenue impacted by the new underwriting arrangement introduced last year - insurance captive

revenue dropped from £39m in 2008 to £4m in 2009

• Underlying UK Membership revenue grew by 14% excluding underwriting impact
• 14% growth in UK Membership profits
• Continued organic growth in utility branded business
• Increased value per policy and value per customer driven by successful pricing and cross-selling activity
• Successful reorganisation resulting in an integrated and more efficient network to service our policy holders
• Strong contribution from manufacturer warranties

Core divisions revenue and operating profit (post re-organisation)

• (13.0)
• (23.7)

Less JV/inter-division revenues 1.8 31.7 204% 5.3 100% 63.4 Continental Europe (2.2) 8.1 87% (0.3) 96% 15.9 USA 22% 14%

• 75.8

263.2 92.3 8% 283.8 Total Membership 76.3 236.5 87.2 (3%) 228.2 UK Membership Operating Profit* Revenue Operating Profit*

• Revenue

FY 2008 FY 2009 £million

* Excluding amortisation of acquisition intangibles, impairment charge, joint venture taxation and exceptional operating costs

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International

• Overall International businesses generated a £5.1m profit (2008: £0.5m loss), £1.1m of increase as a result of forex movements

Continental Europe

• Operating profit increased by £2.8m in France from strong policy growth and a more attractive underwriting deal
• Spain made a small operating profit with a strong performance from Reparalia reinvested in policy development
• Acquisition of SPT, Belgium's leading claims handling and subcontractor repair network, generated £0.4m contribution in final quarter

USA

• USA made a £0.5m profit in H2 and is now profitable on an ongoing basis

International financial performance

(0.3) 19.0 +0.4 0.1 107% 39.3 Spain 2.0 12.7 +2.8 4.8 82% 23.2 France

• 0.4
• 0.9

Belgium 1.8 31.7 +3.6 5.3 100% 63.4 Continental Europe (0.5) 27.1 +5.5 5.1 108% 56.2 (2.2) 8.1 +2.0 (0.3) 96% 15.9 USA

• £m
• (12.7)
• (23.2)

JV revenues Operating Profit* Revenue Operating Profit*

• Revenue

FY 2008 FY 2009 £million * Excluding amortisation of acquisition intangibles, impairment charge, joint venture taxation and exceptional operating costs

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• Revenue down 20%
• 2008 revenue included £41m of flood related work – underlying revenue down 7%
• Lower volumes in 2009 with an increasingly competitive landscape
• Continued pricing pressure in insurance sector
• Operating profit margin objectives have not been met due to:
• Significant drop in volume in Buildings business
• Higher proportion of larger, more complex jobs
• Ongoing performance challenges have led to decision to exit UK Emergency Services
• Claims Management and Plumbing and Drains operations transferred to UK Membership are performing very well and

improving margin

Emergency Services financial performance (non-core)

5.2% 15.1 291.7 3.4% (47%) 8.0 (20%) 233.6 Emergency Services Operating Margin* Operating Profit* Revenue Operating Margin*

• Operating

Profit*

• Revenue

£million FY 2008 FY 2009

* Excluding amortisation of acquisition intangibles, impairment charge, joint venture taxation and exceptional operating costs

8 Emergency Services Sales & Service Trading Product Dev. Marketing Services One Contact Property Repairs Glazing & Locks Sub- contractor Network ChemDry Plumbing & Drains Claims Man. Network Contents

Core (B2C) Non-Core (B2B)

Financial impact of reorganising our UK businesses

UK Membership

• £29.6m of FY09 revenue switches to UK Membership and £14.3m of inter-divisional revenue is eliminated (2008: £25.7m

and £8.5m respectively)

• Transferred operations result in £5.3m of operating profit switching to UK Membership (2008: £2.4m)
• Continental Europe and USA are not affected

2.4 5.3 Operating Profit* 34.2 44.0 Total Revenue transferred out of ES 8.5 14.3 Inter-division revenue eliminated 25.7 29.6 Revenue transferred to UK Membership FY 2008 FY 2009

Transferred businesses (£million)

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Group cash flow highlights

• Strong performance with cash conversion of 98% and closing net debt of £34m
• £9m year on year reduction in net debt after £23.4m of M&A investment (of which £7.6m was deferred consideration)

and £6.5m of exceptional costs

• £10.8m increase in working capital reflecting migration of UK Membership customers to paying by monthly direct debit

(43.1) (16.0) (3.5) (16.9) (46.1) (17.6) (24.1) (5.2) 97.4 (1.6) 10.1 88.8 (2.2) 91.0 FY 2008 110% 98% cash conversion % 9.2 Non cash items* (34.0) 9.1 3.0 (20.4) (23.4) (16.9) (21.0) (4.4) 92.2 (10.8) 93.8 (6.5) 100.3 FY 2009 Operating profit less exceptional costs Net movement in cash and bank borrowings Financing and purchase of own shares Net interest Net (debt)/cash Equity dividends Acquisitions Capital expenditure Taxation Cash generated by continuing operations (Increase)/decrease in working capital Exceptional costs Operating profit (£million)

* Non cash items include depreciation, amortisation of other intangibles, share based payments expense, share of results of joint venture (before tax) and loss/(gain)

• n disposal of property, plant and equipment and software licenses

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Consolidated balance sheet highlights

• Group net assets have reduced from £265m to £213m
• £68m reduction in fixed assets mainly due to:
• £97m write down of Emergency Services assets
• £17m capital expenditure and £16m invested in new acquisitions
• Depreciation and software amortisation of £10.9m
• The balance sheet remains strong with significant headroom on facilities for membership development

326.7 259.2 Total fixed assets 213.0 (1.9) 4.2 (34.0) (14.4) (0.1) 5.2 34.5 43.8 175.7 2009 265.4 0.0 (0.7) (43.1) (12.9) (4.6) 3.5 42.8 62.4 218.1 2008 Deferred tax Interests in joint ventures Property, plant and equipment Pension obligations Net assets Net (debt)/funds Deferred consideration Net other assets/(liabilities) Other intangible assets Goodwill As at 31 March (£million)

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Why are we exiting UK Emergency Services?

UK Membership UK Emergency Services Claims Management / Repair Network Marketing Business Dev. & Telesales Property Repairs ChemDry Glazing & Locks Contents

B2C B2B

▲ Low capital intensity and strong recurring cash flow generation ▲ Fewer direct competitors ▲ High profit margin ▲ Consistent need for reliable tradesmen worldwide ▲ International replication ▲ Business to Consumer ▲ Relationship with end customer ▼ Higher capital intensity through branch networks Capital ▼ Many suppliers Competitive Landscape ▼ Lower margin Profitability ▼ Static with increasing risk of cash settlement Market Growth ▼ Business to Business ▼ Insurers own the customer relationship Business Model

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Reaffirming our Vision

“The first place people turn to when it comes to fixing, maintaining and looking after their home” Membership for the things that go wrong in the home that are not covered by a household insurance policy

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Progress in our Membership Businesses

Affinity Partner households (m) : CAGR 21% Customers (m) : CAGR 10% Operating profit (£m) : CAGR 29% Policies (m) : CAGR 18%

2006 2007 2008 2009 UK France USA Spain 32 39 53 56 2006 2007 2008 2009

UK France USA Spain

3.3 3.8 4.0 4.3 2006 2007 2008 2009 UK France USA Spain 43.6 58.4 75.8 92.3 2006 2007 2008 2009 UK France USA Spain 5.6 7.2 8.1 9.2

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Policy growth in the UK

6.56m 0.23m 0.78m 0.61m 0.75m 4.20m March 2008 7.06m 0.33m 1.01m 0.85m 0.77m 4.10m March 2009 5.95m 0.19m 0.53m 0.56m 0.77m 3.93m March 2007 Gas and Gas Supply Pipe New Products and Housebuilders Manufacturer Warranties Total Electrics Plumbing and Drains, Water Supply Pipe Policies 03 04 05 06 07 08 09

New Policies sold in Year (m) Year End Policies (m) Policies per Customer

2.23 0.9 2.4 0.9 2.9 1.4 3.9 1.7 5.1 1.40 1.50 1.65 1.78 6.0 1.7 1.92 6.6 1.7 2.08 1.8 7.1

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Resilience of our core UK Membership Business

• Retention rate of 83% for the full year
• Demonstrates resilience of the UK business
• Retention higher for customers where they have been a customer longer

UK 6 monthly retention rate % Retention rate by customer tenure %

Length of time as a HomeServe customer yrs H1 H1 H1 H2 H2 H2

86.6 85.1 82.7 85.7 84.2 83.2

FY2007 FY2008 FY2009

76 83 86 80 85 87

Yr 1 Yrs 2-4 Yrs 5+

FY09 FY08

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Driving Revenue per Customer

Combined Policies

• Successfully launched in September 2007
• 437,000 customers now hold Combined Policies
• Average holding of 5.12 policies per customer
• Highly effective cross selling

13% 49.6 FY 2008 18% 58.5 FY 2009 44.0 FY 2007 Growth Income per customer (£)

Income per customer

£30.00 £21.50 £16.60 £10.50 £12.75 £11.00 £8.25 £7.75 Price per month

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Continued growth in Manufacturer Warranties

• Another very successful year with total

policies growing 47% to 331,000

• Signed up new partners in the year

including Aqualisa, Lec, Maytag, Sanyo and Smeg taking the total number of partners to 18

• Successful cross-sell of our core utility

products to these customers

• Looking to replicate UK success in our
• verseas membership businesses

Total Policies (‘000)

190 226 331 FY2007 FY2008 FY2009

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Development of Manufacturer Warranties

Increasing Registration Finding other customers Post Breakdown Sales Improved retention and cross-sell Improved marketing and innovation

• Simple card
• Sticker on

appliance

• Free

guarantee

• External

databases

• Manufacturer

data

• Free trials
• Seasonal

mailings

• Telesales
• Target non-

insurance minded customers

• Instant cover
• Increase

value per customer

• Cross sale
• f pipes

and wires cover

• Exciting part of the HomeServe membership

proposition

• Ownership of customer as per utilities model
• Full control over marketing, sales and claims handling
• Ability to cross-sell pipes and wires cover
• Strong, multi-year partner relationships

HomeServe sales vs competitor

4.3x 5.6x 4.7x

Partner A Partner B Partner C HomeServe Affinity Partner Old Warranty Provider HomeServe

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UK Membership new customer initiatives

Landlords Flats Credit Cards IFAs

2.6 million properties in the UK 1.4 million owner-

• ccupied flats in

the UK 35.4m active credit card accounts in the UK 15,500 authorised IFA firms in the UK

Market sector Size of

• pportunity

Utility acquisition

• c. 14 million
• wner-occupied

houses with no HS product today

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Status of One Contact testing

Emergency trade fixed price Job and discounted policy package Future jobs policy offer Non-emergency trade fixed price Job and combined cover flexi policy package Future jobs policy offer Surveys Job conversion Discounted policy Future jobs introduce cover Job Type Sales approach 48 hr Call Back

Testing of conversion to membership

% of bookings

69% 10% 21%

Job Conversion

Other 28% Mailing 10% Internet 13% Press 15% Existing customer 16% TV 18%

Source of One Contact enquiries

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Driving improved service and efficiency in UK policy networks

• Transfer of our UK policy networks into UK Membership and

acquisition of premier contractors has yielded a number of benefits

• Deployment now centralised through Banbury office with closure of

branch network

• Investment in new technology has introduced more efficient job

deployment and increased engineer productivity

• Increase in proportion of work done by directly employed plumbers

from 32% to 47% with target of 65% by March 2010

• Reduction in average direct cost per job of 25%
• Outside of plumbing follow a franchise / subcontract model as per
• ur International model

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International Business Development

• Worldwide need for tradesmen in an emergency
• Target universe of 23 countries greater than 4m population and GDP per capita of over $15k
• We will only enter a new country where there is strong potential for policy sales via utilities, appliance manufacturers or retailers
• Where possible, we will seek to enter new countries via an acquisition supported by organic business development
• We will prioritise growth and profit in existing countries over pursuing new countries

Affinity Partner marketing Claims handling in-house Network management subcontract and franchise

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Development of the Membership model

Stage 1 Stage 2 Stage 3 Stage 4

Acquire claims handling and subcontract repair network Launch membership model via utilities Full home cover via Manufacturers and Retailers Pay on Use service and conversion to membership

Well developed utility and warranty business now moving on to target new demographic through One Contact and other initiatives

UK

Growing utility business with significant penetration upside Next phase is developing appliance warranties

France

Growing utility business with significant penetration upside

USA

Early stage utility business

Spain

SPT Acquisition

Belgium

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France is becoming a substantial business

• Operating profit* has grown by €6m in the 12 months to March 2009
• More attractive underwriting deal

Policies (‘000s) Total business operating profit (€m*)

* Total business operating profit is based on 100% of Domeo performance before allocation of central costs, management and shareholder fees, amortisation of acquisition intangibles and joint venture taxation 0.5 2.4 2.9 9.6 15.8 05 06 07 08 09 280 416 863 1180 1566 05 06 07 08 09

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• High retention rate at 88% (2008: 89%)
• Testing of new sales channels (email and internet) and new partners
• Recruitment of local Managing Director
• Additional 1m marketable households
• Plan to broaden into appliance warranties

Strong growth in France

58 116 174 Electrics 1,566 517 876 March 2009 1,180 361 703 March 2008 863 Total 256 Other including Waterloss 549 Plumbing & Drains, Water Supply Pipe March 2007 Policies (‘000)

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• Strong performance from Reparalia which continues to meet our

expectations – instrumental in signing up new affinity partners

• Successfully launched franchising to Reparalia network
• Total policies of 48k following encouraging start to marketing with Endesa
• Testing started with our two water partners
• Reparalia and Homeserve Iberica now one operating business

Good progress in Spain

(360) 26.0 1 FY 2008 22 46.5 48 FY 2009 Operating profit* (€’000) Revenue (€’m) Policies (‘000)

* Operating profit is before allocation of central costs and amortisation of acquisition intangibles

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• Retention rate increased to 80% (2008: 78%)
• Policy growth of 52%
• Made a profit in second half and now profitable on an ongoing basis

Breakthrough in USA

(3.7) 16.2 FY 2008 0.5 25.5 FY 2009 (4.5) 7.4 FY 2007 Operating profit* ($m) Revenue ($m) 9.4 549 70 60 419 March 2009 4.9 8.6 Marketable Households (m) 362 23 44 295 March 2008 263 Total 23 Other 38 Electrics 202 Plumbing & Drains, Water Supply Pipe March 2007 Policies (‘000)

* Operating profit is before allocation of central costs and amortisation of acquisition intangibles

28

Expanding the USA product range

Exterior Electrics product proven out $4.99 a month Launch and success of Water Heater Cover $4.99 per month

29 * Many US households have both Gas & Electric Service so total number of households in the energy category is greater than the total number

• f households in the US

USA – Pipeline Development

3 (10.6m) (0.0m) 6 (7.3m) 8 (2.1m) 10 (18.4m) 36 (2.9m) 2,140 (77.0m) Utilities / Households: 185 (152.4m*) Utilities / Households:

Water

Pipeline Snapshot

Nov 2008 Total Prospects Live Proposals Advanced Negotiation Contract Signed

Energy

1 (5.0m) 3 (0.2m) 5 (6.9m) 7 (1.8m) 11 (21.7m) 15 (1.4m) 2,140 (77.0m) Utilities / Households: 185 (152.4m*) Utilities / Households: May 2009

Water Energy

• 5 year marketing agreement signed with Utilities Inc in January 2009
• 10 year marketing agreement signed with SEMCO in May 2009

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Continued progress on International Expansion

• Acquired SPT in December 2008, Belgium's leading claims handling and subcontract repair network business as

a springboard to secure long term affinity partnerships with utilities in Belgium and the Netherlands

• Further opportunities being evaluated

74% 2.9 3.9 30,300 10.6 Belgium 59% 4.2 7.1 32,400 16.4 Netherlands Owner-occupied Households (‘m) Homeowners (‘m) Households (‘m) GDP per capita (€) Pop (‘m) Country 72% 9.8 13.6 33,800 33.4 Canada 42% 16.4 38.9 28,400 82.4 Germany 40% 8.9 22.4 25,400 59.1 Italy Owner-occupied Households (‘m) Homeowners (‘m) Households (‘m) GDP per capita (€) Pop (‘m) Country

Potential New Markets Belgium and Netherlands:

31

• Commitment to a membership focused strategy
• Resilience of UK Membership business robustly tested
• Current level of UK policy sales expected to continue
• International businesses now well into profit
• International footprint and reach growing, with substantial

penetration headroom

• Clear decision on Emergency Services
• Business is well positioned to capture an exciting pipeline of

membership development opportunities

Prospects

32

Appendix

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UK Customer penetration

Homeserve Customer Growth - by Water Company Contractual Area

0% 5% 10% 15% 20% 25% 30% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year (31st March) Penetration of owner-occupied homes Anglian Water Cambridge Water Folkestone & Dover Water Mid Kent Water Northumbrian Water Scottish Water Severn Trent Water South Staffordshire Water South West Water Southern Water Thames Water Three Valleys Water United Utilities Yorkshire Water Great Britain