Preliminary Results 19 May 2015 Group returns to profit growth plus - - PowerPoint PPT Presentation

Preliminary Results

19 May 2015

• Profjt growth combined with signifjcant extra investment in USA
• Group delivers strong customer growth, up 0.8m to 6.3m
• Customer growth of 26% in the USA
• UK business with 2.1m customers and profjts of £56.4m
• USA added 2.5m utility households and 22m AARP households
• Momentum in France with announcement of new partner
• Strong customer and profjt growth in Spain
• Special dividend of 30p per share (£97m) to be paid in July 2015

acquisition intangibles and exceptional items.

Group returns to profit growth plus strong customer growth

Adjusted profit before tax1 (£m)

UK Established International New Markets Net Interest 2012 2013 2014 2015 105.0 85.4 84.1 126.0 103.1 28.5 78.3 56.4 53.4 34.1 37.3 39.2

Customer numbers (m)

UK customers International customers 2012 2013 2014 2015 2.2 2.6 3.4 4.2 2.3 2.1 2.1 2.7 5.5 6.3 4.9 4.9

Group financial summary

£million 2015 2014

Revenue 584.2 568.3 Adjusted EBITDA 109.4 106.9 Adjusted profjt before tax 85.4 84.1 Net Debt 64.1 42.3 Debt: Adjusted EBITDA 0.6x 0.4x Adjusted earnings per share 19.0p 18.6p Ordinary dividend per share 11.5p 11.3p Special dividend per share 30.0p n/a

• Revenue growth principally in the USA and Spain
• Group profjt growth, in part offset by additional investment in the USA and the impact of a weak Euro
• Adjusted operating profjt £1.5m higher at constant currency

Divisional financial performance

Revenue Adjusted operating profit/(loss) £million 2015 2014 ∆% 2015 2014 ∆%

UK 285.5 288.5

• 1%

56.4 53.4 6% USA 125.3 110.9 13% 6.4 12.9

• 51%

France 74.9 77.3

• 3%

23.4 22.3 5% Spain 90.9 82.6 10% 7.5 4.0 87% Established International 291.1 270.8 8% 37.3 39.2

• 5%

New Markets 13.8 14.4

• 4%

(5.9) (5.7) 4% Inter-division (6.2) (5.4) — — — — Group 584.2 568.3 3% 87.8 86.9 1%

• UK profjts up £3m to £56.4m
• Additional marketing and business development investment (£12m) in the USA reducing profjt
• Continued good performance in France, despite weakening Euro in the last quarter
• Strong profjt growth in Spain refmecting an increase in customer numbers
• Continued investment in New Markets

• Net debt at £64.1m, 0.6x Debt: Adjusted EBITDA (2014 0.4x)

– Working capital investment across the businesses – Capital expenditure and investments

• New £300m 5 year RCF in place at competitive rates

Cash flow performance

Net Debt 31 March 2014

£42.3m

Adjusted EBITDA

£109.4m

Non-cash items

£4.4m

Exceptional items

£6.0m

Working Capital

£13.2m

Capital Expenditure & investment

Cash generated by operations £94.6m £57.6m

Dividends

£36.9m

Tax

£22.8m

Other

£0.9m

Net Debt 31 March 2015

£64.1m

Capital expenditure and investments

• 2015 capital expenditure

– Core customer IT system – Partner payments in Spain – Underlying including technology – Investment in connected homes

• Higher expected 2016 capital expenditure

– Core customer IT system – Partner payments in Spain and France – Technology investment

• Customer acquisition programme in Spain not

agreed beyond 2016

• Capex to normalise in 2018 at around £25m

Capital investment (£m)

Underlying/Technology Partner Payments 2015 2016 2017 2018

18 20 10 10 50 25 15 40 £58m £70m £35m £25m

£97m return of capital

• Year end leverage range 1 - 1.5x Debt: EBITDA (currently 0.6x)
• Special dividend of 30p per share - £97m
• Share consolidation

Progressive dividend policy

• Increase ordinary dividend to 11.5p per share (2014: 11.3p)
• Adopt a progressive dividend policy
• Target a medium term dividend cover in the range 1.75x - 2x

A more efficient capital structure

Financial outlook – good growth in 2016

UK

• Stable customers and retention

International

• Reduced profjts in France due to

– Increased customer acquisition – Continued weaker Euro

• Strong growth in the USA and Spain
• Continued investment of around £6m in New Markets

Group

• Continued strong cash generation
• Investment in technology and innovation

UK – delivering our plans with great products and service

• New customers acquired increased from 0.2m to 0.3m
• Retention rate increased to 83% up from 82%
• Enhanced products delivering increased customer use
• Customers stable at 2.1m

0.1 0.2 0.3 Gross new customers (m)

2014 2013 2015 2013 2012 2014 2015

Retention %

80% 79% 82% 83%

by

93

• f customers would

buy again.

%

B a s e d

• n

2 , 2 9 4 r e a l r e v i e w s , f r

• m

c u s t

• m

e r s l i k e y

• u

.

UK – investment in operations and service

• New vehicles, equipment and connectivity for engineers
• New customer-facing front end system
• Data warehouse and analysis tools
• Digital self-service enhancement continues

UK – connected home

• In partnership with Nest and tadoº
• Nearly 20,000 smart thermostats installed
• Enabling proactive home assistance

USA – marketing investment delivers 26% customer growth

• New customers acquired increased from 0.5m to 0.7m
• Good retention performance at 82% up from 81%
• Customer numbers closed at 2m

0.4 0.5 0.5 0.7 1.1 1.3 1.6 2.0

79% 80% 81% 82%

Gross new customers (m)

2013 2013 2013 2012 2012 2012 2014 2014 2014 2015 2015 2015

Total customers (m) Retention %

USA – 12 new utility partners and strong pipeline

(including an extension with an existing partner)

2012 +1.3m households 2013 +0.8m households 2014 +4.4m households 2015 +2.5m households

21m

Households

22m 26m 29m

THE LANDIS SEWERAGE AUTHORITY

Ocean Sewerage Authority Township of

USA – Test marketing with AARP

• AARP helps people over 50 to improve the quality of their lives

– 22m households – closely aligned to our customer demographic

• First mailing was delivered in January 2015

– returns higher than from our own brand activity – normal on going testing

• Full marketing roll out during 2016

USA – Energy and water effi ciency, an enabler to new partner signings

• Energy effj

ciency annual spend of $6bn

• Top priority for energy company CEO’s
• Strategic partnership with leading effj

ciency specialist

• Enables access to decision makers
• Accelerate new partner signings

France – fresh momentum with new partner

Good performance in 2015

• Profj

t up 5% to £23.4m

• Customers closed at 0.9m, up 3%
• Continued strong retention at 89%

Signed new affi nity partnership

• Long-term agreement with Lyonnaise des Eaux
• Second largest water utility provider in France with 5.3m households
• Multi channel marketing approach
• Expect a net investment cost of £2m in 2016

16.7 21.5 22.3 23.4 Profi t (£m)

2013 2012 2014 2015

Spain – strong customer and profit growth

• Profjt up 87% to £7.5m
• Customer numbers up 37% to 1.1m
• Good customer acquisition with 0.5m gross new customers
• Retention rate up to 79%
• Further activity with Endesa planned for 2016

79% 75% 2013 2014 2015

Retention % 2.8 3.1 4.0 7.5 Profit (£m)

2013 2012 2014 2015

0.4 0.3 0.8 1.1

2013 2012 2014 2015

Customers (m)

New Markets update

Italy making good progress

• Closed the year with 0.2m customers
• Active business development

Plan to exit Germany

• Tested using door step selling in 2015
• Call transfer model not launched

Plan to increase investment in innovation and digital

Growth over the next 5 years

Richard Harpin

Our mission and strategies to win

Our Mission

To provide home assistance membership which frees our customers from the worry and inconvenience of emergencies, repairs and installations.

Our strategies to win

• 1. Driving innovation: Creating a heating installation capability via franchising
• 2. Digital Hub and Spoke Model delivering online

job booking and tracking and reducing our cost to serve

• 3. Accelerating growth in the USA by delivering energy efficiency and

water conservation for our utility affinity partners and their customers

Driving innovation: Creating a heating installation business via franchising

• Set up HomeServe Alliance as an Innovation business
• Hired an entrepreneurial MD to lead
• Recommendation to take HomeServe into the boiler

installation market

• To become homeowners’ favourite boiler installer

and repairer

• National network of Britain’s best local heating

companies as a franchise

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Digital Hub and Spoke Model

• New Digital Hub set up in London
• A platform to accelerate self-serve globally
• ‘Spokes’ are the digital resources in established countries

2016 focus:

• Enabling customers to access self-serve functions:

– Joining online – Access policy documents and fulfjlment – Claiming online – Tracking the progress of a job – Customer feedback online 2017 focus:

• Incremental customer growth via:

– Driving on demand repairs for conversion into membership – Monetising free advice: content to conversion – Freemium products offered online with upgrades to paid membership

HomeServe Digital Hub

Italy Digital

UK Digital Spain Digital USA Digital France Digital

Summary

• A strong business model
• Good performance in 2015 and a growing momentum
• £97m return to shareholders and a more effj

cient capital structure

• An updated mission and strategies to win
• A committed, motivated and experienced management team

• Divisional KPIs
• Divisional results – local currency
• Divisional results – constant currency impact
• Group balance sheet
• Group cash fmow
• Target market the USA
• USA – Signifjcant opportunity for further penetration
• Business Model

Appendices

Divisional KPIs

UK France Spain USA

2015 2014 Change

Customer metrics Customers m 2.1 2.1 +1% Income per customer £ 93 101

• 8%

Policy metrics Water m 3.0 2.9 Electrical m 0.5 0.5 HVAC m 0.6 0.6 Manufacturer Warranties m 0.3 0.4 Other m 0.7 0.6 Total policies m 5.1 5.0

• 2%

Retention rate % 83 82 +1ppts

2015 2014 Change

Customer metrics Customers m 2.0 1.6 +19% Income per customer $ 92 104

• 7%

Policy metrics Water m 1.5 1.2 Electrical m 0.4 0.3 HVAC* m 0.3 0.3 Other m 0.8 0.6 Total policies m 3.0 2.3 +29% Retention rate % 82 81 +1ppts

2015 2014 Change

Customer metrics Customers m 0.9 0.9 +5% Income per customer € 101 100 +1% Policy metrics Water m 1.9 2.0 Electrical m 0.2 0.2 Other m 0.2 0.1 Total policies m 2.3 2.3

• 2%

Retention rate % 89 89 —

2015 2014 Change

Customer metrics Customers m 1.1 0.8 +37% Income per customer € 34 30 +13% Policy metrics Water m 0.2 0.2 Electrical m 1.0 0.8 Other m 0.1 0.1 Total policies m 1.3 1.1 +18% Retention rate % 79 75 +4ppts

* includes water heater and gas line policies.

Divisional results – local currency

UK P&L 2015 2014 Change

Total revenue £m 285.5 288.5

• 1%

Operating costs £m (229.1) (235.1)

• 3%

Adjusted operating profjt £m 56.4 53.4 +6% Adjusted operating margin % 20% 19% +1 ppts

USA P&L 2015 2014 Change

Total revenue $m 199.8 177.3 +13% Operating costs $m (190.1) (156.1) +22% Adjusted operating profjt $m 9.7 21.2

• 54%

Adjusted operating margin % 5% 12%

• 7ppts

France P&L 2015 2014 Change

Total revenue €m 96.1 92.0 +4% Operating costs €m (66.6) (65.4) +2% Adjusted operating profjt €m 29.5 26.6 +11% Adjusted operating margin % 31% 29%

• 2ppts

Spain P&L 2015 2014 Change

Total revenue €m 115.9 98.1 +18% Operating costs €m (106.4) (93.3) +14% Adjusted operating profjt €m 9.5 4.8 +96% Adjusted operating margin % 8% 5% +3ppts

Divisional results – constant currency impact

Revenue Adjusted operating profit/(loss) £million 2015 2014 ∆% ∆%CC1 2015 2014 ∆% ∆%CC1

UK 285.5 288.5

• 1%
• 1%

56.4 53.4 6% 6% USA 125.3 110.9 13% 13% 6.4 12.9

• 51%
• 54%

France 74.9 77.3

• 3%

4% 23.4 22.3 5% 11% Spain 90.9 82.6 10% 18% 7.5 4.0 87% 96% Established International 291.1 270.8 8% 12% 37.3 39.2

• 5%

n/a New Markets 13.8 14.4

• 4%

1% (5.9) (5.7) 4% 12% Inter-division (6.2) (5.4) — — — — — — Group 584.2 568.3 3% 5% 87.8 86.9 1% n/a

Group balance sheet

£million 2015 2014 Non-current assets Goodwill 236.6 246.3 Other intangible assets 166.5 156.9 Property, plant and equipment 31.3 30.0 Deferred tax assets 9.5 7.2 Other investments 4.4 — Retirement benefjt assets 0.1 1.2 448.4 441.6 Current assets Inventories 0.8 0.7 Trade and other receivables 318.8 290.6 Cash and cash equivalents 74.7 96.2 394.3 387.5 Total assets 842.7 829.1 Current liabilities Trade and other payables (308.2) (297.2) Current tax liabilities (7.1) (7.9) Provisions 0.0 (7.7) Obligations under fjnance leases (0.6) (0.5) (315.9) (313.3) Net current assets 78.4 74.2 Non-current liabilities Bank and other loans (137.6) (137.1) Other fjnancial liabilities (2.1) (2.7) Deferred tax liabilities (18.0) (22.2) Obligations under fjnance leases (0.6) (0.9) (158.3) (162.9) Total liabilities (474.2) (476.2) Net assets 368.5 352.9

Group cash flow

£million 2015 2014

Operating profit 79.1

27.2

Depreciation, amortisation and other non-cash items 36.4

39.2

(Decrease) in exceptional provision (7.7)

(12.4)

(Increase) / Decrease in working capital (13.2)

37.9

Cash generated by operations 94.6

91.9

Net interest (4.1)

(2.8)

Taxation (22.8)

(21.6)

Capital expenditure (52.8)

(33.6)

Repayment of fjnance leases (0.3)

(0.4)

Free cash flow 14.6

33.5

Purchase of investment (4.8)

—

Acquisitions / disposals (1.1)

(2.4)

Equity dividends paid (36.9)

(36.7)

Issue of shares 3.8

1.1

Net movement in cash and bank borrowings (24.4)

(4.5)

Impact of foreign exchange 2.3

4.7

Movement in fjnance leases 0.3

0.4

Opening net debt (42.3)

(42.9)

Closing net debt (64.1)

(42.3)

Households 38m Households 90m Households 65m Households 63m Energy utilities Water utilities 2,600 Serving < 50,000 households 145 Serving > 50,000 households 1,300 Serving > 20,000 households 52,700 Serving < 20,000 households Target Market Target market in the USA – 1,445 utilities

USA – Significant opportunity for further penetration

Energy Partner Water Partner

Our financial business model

Our UK business model 2015

(Graph not to scale) £198m £10m £77m £285m £56m

Gross revenue IPT Underwriting Net revenue 3rd party claims handling and

• ther income

Repair network revenue Reported revenue AP comms Marketing costs Call centres Overheads Repair network costs Adjusted

• perating

profit

This presentation contains certain forward-looking statements, which have been made in good faith, with respect to the fjnancial condition, results of operations, and businesses of HomeServe plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend on 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 presentation should be construed as a profjt forecast.