Interim Results 19 November 2019 Highlights financial and strategic - - PowerPoint PPT Presentation

Interim Results

19 November 2019

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homeserveplc.com

Highlights – financial and strategic progress

• Revenue up 13% and adjusted operating profit up 2%
• All Membership businesses performed well
• Progress on HVAC buy and build strategy: becoming a meaningful business line this year
• Home Experts revenue up 31%: progress in Checkatrade, Habitissimo and Home Experts France
• Agreement to acquire eLocal to enter the Home Experts market in North America.

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homeserveplc.com

Group financial summary

1 Constant currency $1.33 : £1, €1.13 : £1

² Adjusted items are calculated excluding exceptional items, the amortisation of acquisition intangibles and the associated tax impacts

£million HY20 HY19 Δ% Δ% CC¹

Total revenue 457.7 404.3 13% 11% Adjusted operating profit² 37.7 37.1 2% (2)% Interest (9.1) (5.3) +71% Adjusted profit before tax² 28.6 31.8 (10)% Net Debt 451.4 291.9 55% Adjusted EBITDA² 70.9 60.5 17% Net Debt : Last 12 months adjusted EBITDA² 1.9x 1.4x Adjusted earnings per share² 6.5 7.5 (13)% Ordinary dividend per share 5.8 5.2 12%

• Currency benefit of c. £1.3m to adjusted operating profit: no further significant impact this year if current rates prevail
• Statutory PBT of £19.7m (up 2%) reflects £7.4m exceptional net gain; £3.8m on exit from Italy and £3.6m on

acquisition of remaining 30% of Habitissimo

• Business remains second half weighted: investments more evenly phased.

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homeserveplc.com

Divisional financial performance

Revenue Adjusted operating profit/ (loss) £million HY20 HY19 Δ% Δ% CC¹ HY20 HY19 Δ% Δ% CC¹

UK 147.7 155.7 (5)% (5)% 14.0 10.2 38% 38% North America 179.6 130.5 38% 30% 18.5 14.0 32% 24% France 40.4 36.8 10% 9% 7.9 7.5 6% 4% Spain 69.2 65.8 5% 5% 7.6 8.6 (12)% (13)% New Markets² – – N/A N/A (2.3) 0.3 N/A N/A Home Experts² 23.8 18.2 31% 31% (8.0) (3.5) N/A N/A Inter-segment (3.0) (2.7) 8% 8% – – N/A N/A Group 457.7 404.3 13% 11% 37.7 37.1 2% (2)%

1 Constant currency $1.33 : £1, €1.13 : £1 2 Home Experts split out from New Markets in FY19 as a new segment

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homeserveplc.com 304.7 385.1 394.0 393.9 451.4 70.9 5.7 15.2 15.9 8.0 37.1 6.9 22.5 8.4 54.1 5.7 8.9 57.4

Net Debt 31 March 2019 Adjust ed EBITDA Non Cash Items Working Capital Tax Net Interest Capex -

• rdinary

Capex - policy book M&A M&A Italy sale Ordinary Dividend Foreign Exchange Other Net Debt Pre IFRS 16 IFRS 16 Net Debt 30 September

Free cash flow £37.5m (HY19 £44.1m)

Cash flow

• 0.1x impact on leverage due to £57.4m effect of IFRS 16
• Net debt: adjusted EBITDA of 1.9x within target of 1.0x to 2.0x.

Net Debt 30 September 2019 Inflow Outflow

£m

homeserveplc.com

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• Total investment of £66.5m (HY19: £48.1m)
• Statutory capital investment of £44.0m (HY19: £30.5m).

Capital investments

19.0 8.2 0.1 3.2 17.6 22.4 7.7 6.9 7.0 22.5 Membership Partner Payments Acquisitions of policy books Home Experts Other M&A

HY19 HY20

£m

homeserveplc.com

• We continue to expect to deliver strong growth across the Group in FY20

– Strong Membership and HVAC performance will fund increased investment in Home Experts and New Markets – Net investment in Home Experts and New Markets to increase towards £19m

• Outlook remains unchanged with one exception – agreement to acquire eLocal will deliver incremental adjusted
• perating profit

– Expect to add c.$5m adjusted operating profit in FY20 (PBTA £2m); $16m in FY21 (PBTA £6m) – High single digit profit growth from FY22 onwards, reflecting further investment

• Full year interest charge of c.£18m (including impact of IFRS 16)
• Effective tax rate c. 22% - 23%
• No material change to working capital absorption (FY18 £40m; FY19 £30m)
• Underlying / technology capex for FY20 expected to be in line with FY19 at £50m, and trend down over time
• Cash conversion¹ > 100% and good growth in free cash flow
• Net Debt : EBITDA towards the top of 1.0x to 2.0x target range following recent M&A.

Guidance

¹ Cash conversion defined as cash generated from operations as a % of adjusted operating profit

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homeserveplc.com

Good first half for all our Membership businesses

• Proven and scalable
• Strong delivery funds investment in Home Experts
• Continuous improvements being implemented globally.

HVAC buy and build strategy working well

• Five acquisitions in H1, bringing our global total to 12
• Cross sell opportunities with Membership; cost synergies from

better engineer utilisation.

Global Membership & HVAC

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• Adjusted operating profit up 38% to £14.0m
• Improvements in operating efficiency driven by organisational change

and better use of technology

• Focusing on a smaller core client base
• 18% increase in income per customer to £129
• Customer satisfaction around all time highs

– Reevoo 96% and Trustpilot 4.4.

UK – operational efficiencies

9.1 10.2 14.0 HY18 HY19 HY20

Adjusted operating profit (£m) 2.2 2.1 1.9 80 79 78

HY18 HY19 HY20

Customers (m) and retention rate (%)

656 customer reviews AS OF 8/11/2019

homeserveplc.com J

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4 6 7 2

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Accept & Call Decline

HomeServe Now

• Potential to transform the way we serve customers
• Automated voice and ‘fastest finger first’ model uses technology to

directly connect a homeowner with an available, hyper-local engineer

• Great way for trades to reduce their travel and downtime
• Thousands of jobs successfully trialled for plumbing, electrics and

heating in the UK – Exceeding testing expectations

• Soon to launch in North America.

Smart IVR and Intelligent Call Handling

• Hundreds of thousands of calls managed intelligently

– Exceeding testing expectations.

Transformation with technology

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Lewis Gidney

Gidney Plumbing & Heating Haughley

“The customers are really happy with the quick responses – I’ve had nothing but good feedback.”

Chris Power

Power Plumbing & Heating Bury St Edmunds

“The app has really helped me out because I’ve recently gone self-employed.”

homeserveplc.com

• Customers up 5% to 1.1m – the best growth for four years
• Highest retention in the Group at 89%
• Strong partnerships

– Marketing activity with France’s top three water utilities; Veolia, Suez and Saur is performing well

• Strong business development

– Successful launches with online aggregators and retail energy providers.

France – increased momentum

10.3 8.6 8.9 HY18 HY19 HY20

Adjusted operating profit (€m)

1.0 1.1 1.1 HY18 HY19 HY20

Customers (m) and retention rate (%) 89 88 89

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• Relationship with Endesa remains productive

– Secured ongoing billing arrangement for a further five years – Re-activation marketing under Endesa brand

• Active business development pipeline in Membership and Claims

– New Claims partnership with Bansabadell Seguros Generales

• On demand to policy, in partnership with Habitissimo.

Spain – strong operating performance

1.3 1.2 1.0 HY18 HY19 HY20

Customers (m) and retention rate (%)

9.0 9.8 8.6 HY18 HY19 HY20

Adjusted operating profit (€m) 78 80 81

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North America – further strong growth

• Continued progress towards future profit target of $230m
• Customers up 13% to 4.2m and total policies now exceed 7.0m

– Integration of Tranche 2 of the Dominion Products & Services policy book added c. 150k customers – Organic customer growth of 9%

• Signing 2-3 new affinity partners per week
• Strong acquisition-driven HVAC revenue growth – up 83% to $15.6m.

3.1 3.7 4.2 HY18 HY19 HY20

Customers (m) and retention rate (%)

14.7 18.9 23.4 HY18 HY19 HY20

Adjusted operating profit ($m) 82 83 82

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North America – TotalHome Warranty

• Launch of a best-in-class whole home warranty plan in the US

– Large fragmented market with high price point and patchy levels of customer service – Marketing via our unique utility network

• Acquisitions of American Home Guardian in June 2019 and Nations

Home Warranty in November 2019 bring product and channel expertise

• Signed Mike Rowe as a spokesman
• Supported by roll out of HomeServe app downloaded by c.30k users.

TotalHome Warranty

homeserveplc.com

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International business development

Japan

• HomeServe Japan established in February 2019

via Mitusbishi JV

• Mitsubishi successfully facilitating introductions

to energy utilities. Italy

• Sale of our Italian JV to our partner Edison

Energia.

• Roll out with Hiscox in the UK to their high net worth

client base

• “Black box” for home insurance with iGo4
• Testing in the US
• Seeking a strategic partner to scale the business in the

US and other new markets.

Home Experts

4.6 5.6 13.6 18.2

HY19 HY20

Revenue £m

Habitissimo Checkatrade

42.7 42.8 9.0 11.5

HY19 HY20

Website hits (m)

Habitissimo Checkatrade

• Developing businesses in three of our four Membership territories
• HY20 net investment of £8.0m (HY19: £3.5m) substantially focused on

Checkatrade

• Increased investment in the second half to support a more ambitious

commercial plan at Habitissimo

• Good learning from Lyon trial about starting Home Experts from scratch.

Home Experts France

+31%

homeserveplc.com

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Consumer: Consumer: Trades: easy to join Trades: easy to stay Trades: easy to grow THE BEST place to find checked out trades.

“Mega City” trial

• Rolled out to five areas around half of UK households
• Geographic expansion of our network beyond

the South East of England remains our most significant growth driver

• Flexible subscriptions for trades driving uplift in take-up rate.

Continuous improvement to user experience

• Directory Extra now includes “Shortlist”

and ”Click to Call”

• Checkatrade Now.

26 31 38

HY18 HY19 HY20 Trades (k)

711 879 957

Average revenue per trade (£)

The Right People SCALABILITY – Re-engineered IT and automation TRUST – The place where reputation matters Consumer: easy to use Consumer: easy to find Trades: easy to join Trades: easy to stay Trades: easy to grow THE BEST place to find checked out trades.

the South East of England remains our most significant growth driver

• Flexible subscriptions for trades driving uplift in take-up rate.

tinuous improvement to user experience Directory Extra now includes “Shortlist” and ”Click to Call” Checkatrade Now.

atrade.com

H

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• Checkatrade.com

Agreement to acquire eLocal

• An excellent foundation for US Home Experts – profitable

and growing well

• Expected to add c.$5m adjusted operating profit in FY20;

c.$16m in FY21

• High single digit profit growth from FY22, reflecting further

investment

• Agreement to acquire 79% for c.$140m, financed through

existing debt

• Current shareholders and founder CEO to stay with

the business.

• Headquarters in Philadelphia with offices

in New York and Los Angeles

• c.130 staff
• Generating 3.3m leads annually
• Network of 11,600 paying trades, plus a

free directory of 3.2m trades.

¹ Current expectations

Calendar year 20191 $m

Revenue c.$80m Adjusted operating profit c.$14m

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homeserveplc.com

homeserveplc.com

• Success and innovation in Membership and HVAC

– Improving and transforming customer service – Expanding our affinity partnerships – New products and channels

• Home Experts footholds in all our Membership territories

–

Good progress on key initiatives at Checkatrade

–

Renewed focus at Habitissimo

–

Good progress since launching Home Experts France

–

Acquisition of eLocal in North America

• Disciplined investment decisions
• Investing in our people to provide management capability

to support growth.

Conclusion

Our purpose is to make home repairs and improvements easy. For both homeowners and Trades.

Every job. Every home.

Home Experts Smart Home Membership HVAC

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Appendix

homeserveplc.com

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Appendix

• Divisional KPIs
• Divisional results – local currency
• Divisional results – sterling
• Group balance sheet
• Group cash fmow
• Foreign exchange impact
• IFRS 16
• Expanding our market
• Our home assistance fjnancial business model

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homeserveplc.com

Membership KPIs

UK

HY20 HY19 Change

Affinity partner households m 26 26 — Customers m 1.9 2.1

• 11%

Income percustomer £ 129 109 +18% Policies m 5.1 5.8

• 13%

Policies per customer 2.7 2.7 — Retentionrate % 78 79

• 1ppt

North America

HY20 HY19 Change

Affinity partner households m 62 55 +12% Customers m 4.2 3.7 +13% Income percustomer $ 98 93 +5% Policies m 7.1 5.9 +20% Policies per customer 1.7 1.6 +6% Retentionrate % 82 83

• 1ppt

France

HY20 HY19 Change

Affinity partner households m 18 15 20% Customers m 1.1 1.1 +5% Income percustomer € 110 108 +1% Policies m 2.4 2.3 +3% Policies per customer 2.2 2.1 4% Retentionrate % 89 88 +1ppt Spain

HY20 HY19 Change

Affinity partner households m — — — Customers m 1.0 1.2

• 16%

Income percustomer € 60 51 +18% Policies m 1.2 1.4

• 18%

Policies per customer 1.2 1.2 — Retentionrate % 81 80 +1ppt

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Home Experts KPIs

Checkatrade

HY20 HY19 Change

Trades k 38 31 +21% Website hits m 11.5 9.0 +28% Habitissimo

HY20 HY19 Change

Trades k 28 28

• 1%

Website hits m 42.8 42.7 —

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homeserveplc.com

Divisional results – local currency

UKP&L

HY20 HY19 Change

Totalrevenue £m 147.7 155.7

• 5%

Operatingcosts £m (133.7) (145.5)

• 8%

Adjusted operating profit £m 14.0 10.2 +38% Adjusted operating profitmargin % 9% 7% +2ppts North AmericaP&L

HY20 HY19 Change

Totalrevenue $m 225.9 173.7 +30% Operatingcosts $m (202.5) (154.8) +31% Adjusted operating profit $m 23.4 18.9 +24% Adjusted operating profitmargin % 10% 11%

• 1ppt

France P&L

HY20 HY19 Change

Totalrevenue €m 45.5 41.6 +9% Operatingcosts €m (36.6) (33.0) +11% Adjusted operating profit €m 8.9 8.6 +4% Adjusted operating profitmargin % 20% 21%

• 1ppt

SpainP&L

HY20 HY19 Change

Totalrevenue €m 77.9 74.4 +5% Operatingcosts €m (69.3) (64.6) +7% Adjusted operating profit €m 8.6 9.8

• 13%

Adjusted operating profitmargin % 11% 13%

• 2ppts

Home Experts P&L

HY20 HY19 Change

Checkatrade £m 18.2 13.6 +34% Habitissimo £m 5.6 4.6 +20% Totalrevenue £m 23.8 18.2 +31% Operatingcosts £m (31.8) (21.7) +46% Adjusted operating loss £m (8.0) (3.5) +128% New Markets P&L

HY20 HY19 Change

Adjusted operating loss £m (2.3) 0.2 —

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Divisional results – sterling

UKP&L

HY20 HY19 Change

Totalrevenue £m 147.7 155.7

• 5%

Operatingcosts £m (133.7) (145.5)

• 8%

Adjusted operating profit £m 14.0 10.2 +38% Adjusted operating profitmargin % 9% 7% +2ppts North AmericaP&L

HY20 HY19 Change

Totalrevenue £m 179.6 130.5 +38% Operatingcosts £m (161.1) (116.5) +38% Adjusted operating profit £m 18.5 14.0 +32% Adjusted operating profitmargin % 10% 11%

• 1ppt

France P&L

HY20 HY19 Change

Totalrevenue £m 40.4 36.8 +10% Operatingcosts £m (32.5) (29.3) +11% Adjusted operating profit £m 7.9 7.5 +6% Adjusted operating profitmargin % 20% 20% — SpainP&L

HY20 HY19 Change

Totalrevenue £m 69.2 65.8 +5% Operatingcosts £m (61.6) (57.2) +4% Adjusted operating profit £m 7.6 8.6

• 12%

Adjusted operating profitmargin % 11% 13%

• 2ppts

Home Experts P&L

HY20 HY19 Change

Checkatrade £m 18.2 13.6 +34% Habitissimo £m 5.6 4.6 +20% Totalrevenue £m 23.8 18.2 +31% Operatingcosts £m (31.8) (21.7) +46% Adjusted operating loss £m (8.0) (3.5) +128% New Markets P&L

HY20 HY19 Change

Adjusted operating loss £m (2.3) 0.3 —

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£million HY20 HY19¹

Non-current assets Goodwill 422.4 396.0 Other intangible assets 440.9 355.7 Contract costs 26.1 34.8 Right of use assets 56.9 – Property, plant and equipment 40.3 39.8 Equity accounted investments 5.0 5.8 Other investments 9.5 9.5 Deferred tax assets 6.4 6.6 Retirement benefit assets 7.6 7.3 1,015.1 855.5 Current assets Inventories 7.9 5.5 Trade and other receivables 382.9 343.7 Current tax asset 9.6 – Cash and cash equivalents 67.0 55.5 467.4 404.7 Total assets 1,482.5 1,260.2 Current liabilities Trade and other payables (325.5) (324.9) Bank and other loans (36.1) (36.3) Current tax liabilities – (0.9) Lease liabilities (11.3) (0.5) Provisions (1.0) – (373.9) (362.6) Net current assets 93.5. 42.1. Non-current liabilities Bank and other loans (423.8) (310.3) Other financial liabilities (14.0) (22.2) Deferred tax liabilities (26.8) (25.7) Lease liabilities (47.2) (0.3) (511.8) (358.5) Total liabilities (885.7) (721.1) Net assets 596.8. 539.1. ¹The Group’s results are being reported under IFRS 16 for the first time in 2020 following the mandatory adoption of the standard from 1 April 2019. HomeServe has adopted IFRS 16 using the modified retrospective ‘Asset = Liability’ approach with a date of initial application of 1 April 2019. Comparative information provided in this announcement has not been restated.

Group balance sheet

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homeserveplc.com

Group cash flow

£million HY20 HY19

Adjusted operating profit 37.7 37.1 Exceptional items 7.4 – Amortisation of acquisition intangibles (16.3) (12.5) Operating profit 28.8 24.6 Impact of exceptional items (7.4) – Depreciation and amortisation 49.5 35.9 Non cash items 5.7 4.3 Increase in working capital (15.2) (4.3) Cash generated from operations 61.4 60.5 Net interest paid (inclusive of lease liabilities payments) (8.0) (5.1) Taxation (15.9) (11.3) Free cash flow 37.5 44.1 Capital expenditure - ordinary (28.8) (30.4) Capital expenditure – acquisitions of policy books (15.2) – Acquisitions of subsidiaries (14.8) (17.6) Acquisition of non controlling interest (7.7) – Proceeds on disposal of equity accounted investments 8.4 – Equity dividends paid (54.1) (47.8) Repayment of lease principal (6.0) (0.1) Purchase of own shares (3.0) – Proceeds on issue of share capital 0.1 0.3 Net movement in cash and bank borrowings (83.6) (51.5) Impact of foreign exchange and other non-cash items (5.7) (2.7) IFRS 16 (57.4) 0.1 Opening net debt at 1 April (304.7) (237.8) Closing net debt at 30 September (451.4) 291.9

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Foreign exchange

• Strong underlying performance with a small, favourable movement of £1.3m to adjusted operating profit
• Impact of FX on second half results if current rates prevail is expected to be immaterial.

Average exchange rate Effect on (£m) Revenue

• Adj. operating profit

HY20 HY19 Change HY20 HY20

North America $ 1.26 1.33 (5%) 9.9 1.2 France € 1.13 1.13 (1%) 0.2 0.1 Spain € 1.13 1.13 (1%) 0.3 – Home Experts € 1.13 1.13 (1%) – – Total 10.4 1.3

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IFRS 16

HY20 FY20¹

Interest charge on lease liabilities £0.7m

• c. £1.5m

Depreciation charge on right of use assets £6.8m

• c. £14.0m

Impact on half year adjusted EBITDA +£6.4m n/a Impact on last twelve months adjusted EBITDA c.+£11.0m

• c. +£13m

Impact on net debt £57.4m

• c. + £60m

Impact on leverage 0.1x 0.1x

¹Current expectations

• No change to leverage policy as a result of IFRS 16 – continue to target 1.0x to 2.0x net debt to EBITDA, measured

at 31 March year ends

• No further material impact expected for full year

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Milestone targets

North American Membership Milestone 2 Checkatrade Milestone 1

Addressable market c.43m insurance minded homeowners* c.600k trades Customer target 6 – 7m 150 – 200k Income per customer $120 – 125 £1,200 – 1,300 Margin 24 – 26% 25 – 35% HVAC contribution $30 – 45m – Adjusted operating profit $230m £45 – 90m

* c.30% of c.144m North American households

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Our market by household targets Our market by value*

30%

Insurance minded

*Existing territories

Home repairs & improvements

£450bn

Home assistance

£14bn 50%

Home improvers

20%

DIY-ers

Expanding our market

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homeserveplc.com 369.9 244.0 391.7 66.0 17.0 108.9 108.9 25.5 13.3

Gr oss revenue IPT Underwriting Net policy income Repair services HVAC Other Total Revenue Repair networ k costs AP commisisons Marketing costs Call Centres Overheads Adjust ed

• pera t

ing profit

UK Membership income statement: FY19

* Operating cost types are for illustrative purposes only and are not to scale

‘gross revenue’ is the sum of total premiums paid by customers... ...we deduct associated underwriting expenses and sales taxes to reach reported Membership revenue or “net policy income” Policies are underwritten by independent third party underwriters which gives short term protection from a spike in claims costs or frequencies. The cost of sending an engineer in the UK is recorded in operating costs, “repair network costs” and immediately recovered from the underwriter as “repair services income”... ...the UK P&L therefore has an element of zero margin

• revenue. In other businesses (North America, France, Spain)

underwriting recovery is transacted through the balance sheet and is not margin dilutive. The underwritten cost is that of “man, van and materials”. Other costs to handle the claim, deploy an engineer and back office functions to support these processes are all recorded in

• perating costs, as are the costs of marketing

and the commissions paid to utility partners for successful sales activity.

£m

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Contacts

HomeServe Miriam McKay Group Communications and IR Director Miriam.McKay@homeserve.com +44 7795 062564 Simon Lewis Head of Investor Relations Simon.Lewis@homeserve.com +44 7970 840694

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