Preliminary Results 20 May 2014 2014 Summary Adjusted profit - - PowerPoint PPT Presentation

SLIDE 1

Preliminary Results

20 May 2014

SLIDE 2

Adjusted profit before tax £84.1m

• UK profit of £53.4m, down from £78.3m in prior year
• Established International businesses profit up 15% to £39.2m

UK

• Customer numbers at 2.1m
• Investment in products and customer service
• Full year retention of 82% up from 79%
• FCA investigation concluded

International

• International businesses now account for 62% of total customers
• Strong profit growth in the USA and Spain
• Signed 12 affinity partners in the USA including American Electric

Power (AEP) – 3.7m households

• Signed a new water partner in Spain – 2.6m households
• Continued strong retention in France
• Continued investment in New Markets

Dividend per share maintained at 11.3p

1 All references to adjusted operating profit or loss, adjusted profit before tax and adjusted earnings per share throughout the announcement are adjusted figures excluding acquisition intangibles and exceptional expenditure.

2014 Summary

Customer numbers (m)

UK customers International customers 2010 2011 2012 2013

2.7 2.3 2.1 3.0 2.6 3.4 2.2 1.9 4.9 5.5 4.9 4.9 Adjusted profit before tax1 (£m)

UK Established International New Markets Net Interest 2011 2012 2013 2014

105.0 84.1 126.0 117.1 104.3 16.0 103.1 28.5 78.3 53.4 34.1 39.2

SLIDE 3

Group financial summary

£million

2014 2013 Total revenue 568.3 546.5 Adjusted EBITDA 106.9 127.1 Adjusted profit before tax 84.1 105.0 Amortisation of acquisition intangibles (13.0) (13.4) Exceptional expenditure (46.7) (25.1) Statutory profit before tax 24.4 66.5 Adjusted earnings per share 18.6p 23.0p Dividend per share 11.3p 11.3p Net debt £42m £43m

• Increased revenue as growth in International revenues offset the reduction in the UK
• Lower UK profits partially offset by growth in International profits
• Exceptional expenditure relates to resolution of UK matters
• Strong cash generation

SLIDE 4

Divisional financial performance

Revenue Adjusted operating profit/(loss) £million

2014 2013

∆

2014 2013

∆

UK 288.5 309.0 (20.5) 53.4 78.3 (24.9) USA 110.9 100.8 +10.1 12.9 9.5 +3.4 France 77.3 73.8 +3.5 22.3 21.5 +0.8 Spain 82.6 60.5 +22.1 4.0 3.1 +0.9 Established International 270.8 235.1 +35.7 39.2 34.1 +5.1 New Markets 14.4 9.4 +5.0 (5.7) (4.8) (0.9) Total International 285.2 244.5 +40.7 33.5 29.3 +4.2 Inter-division (5.4) (7.0) +1.6 — — — Group 568.3 546.5 +21.8 86.9 107.6 (20.7)

• Lower UK profits due to a reduction in customer numbers and a higher

cost to serve the customers

• Strong growth in profit in the established International businesses.

SLIDE 5

• Strong cash generation with 2014 Debt: EBITDA 0.4x (2013: 0.4x)
• Reduction in working capital reflecting:

– Lower UK customer revenue – Timing of payments to partners

• Capital expenditure of £33.6m principally reflecting:

– Payments regarding the acquisition of customers originated by Endesa – Investment in a financial management system and upgrading our core customer IT system

• Review of capital structure in FY15

Cash flow performance

Net Debt 31 March 2013

£42.9m

Adjusted EBITDA

£106.9m

Exceptional costs & provision movement

£59.1m

Working Capital

£37.9m

Non-cash items

£6.2m

Net Interest

£2.8m

Taxation

£21.6m

Capital Expenditure

£33.6m

Dividends

£36.7m

Other

£3.4m

Net Debt 31 March 2014

£42.3m

SLIDE 6

Milestones achieved in FY14

KPIs

2013 2014 Customers (m) Income per customer (£) Retention rate (%)

2.3m 2.1m 79% 82% £106 £101

• Resolution of FCA issues
• Customers at the heart of our culture
• Customer acquisition on track

– 0.2m new customers

• 82% retention rate

SLIDE 7

Customer acquisition on track with multi-channel marketing

New customers (m)

2013 2014 2015 0.3 0.2 0.1

Examples of acquisition campaigns

<Title.Intial. Surname> <208x397mm> <Address Line 1> <Address Line 2> <Address Line 3> <Address Line 4> <Address Line 5> <Address Line 6> <Myriad Pro 9pt> <Address Line 7> <Month> 2014

• South Stafgordshire Water Plc, Registered Offjce: Green Lane, Walsall WS2 7PD. Registered in England No. 2662742. • South Stafgordshire Water Plc is an appointed representative
• f HomeServe Membership Ltd, which is authorised and regulated by the Financial Conduct Authority. • HomeServe reserves the right to withdraw this promotion at anytime.

Yours sincerely Barbara Julye, Head of Customer Engagement, South Stafgs Water

Only

£12

for the first year Dear <title.surnamexxxxxxxxxxxxxxxxxxxxxxx> It goes without saying that you rely on the plumbing and drains in your home in <town> to work day in and day out. But what do you do when they don’t? If an internal pipe bursts or a drain blocks, it’s not only a nuisance but it could be costly too.

For just £12 in the first year, you needn’t worry

We pride ourselves on being fjrst for service and like to give our customers value with every drop, that’s why we have teamed up with HomeServe to bring you Plumbing & Drainage Cover. So, whether your problem is big or small you can have peace of mind knowing that expert assistance is just one phone call away and you won’t be left with an unexpected repair bill to pay. Here are just some of the things this comprehensive plumbing protection would cover you for <title.surnamexxxxxxxxxxxxxxxxxxxxxxx>, even if the problem is caused by wear and tear or accidental damage:

From a leaky tap to a blocked drain, let the experts take care of it

Plumbing & Drainage Cover Sold, arranged and administered by HomeServe and underwritten by Inter Partner Assistance SA Initial exclusion period, exclusions and terms & conditions apply. Please turn over for more information and details on how to take out cover for <address.line.1xxxxxxxxxxxxxxxxxxxxxx>. Collapsed drain Blocked sinks Burst internal pipe Non fmushing toilet Leaking overfmow Leaking radiator valves Seized tap Leaky fmexible hose pipe to washing machine TYPICAL PROBLEMS Large, national network of plumbers UK helpline available 24/7 Cover for up to £4,000 per claim No limit to the number of claims Repairs guaranteed for 1 year No call out fees. Parts, labour and VAT are all included within the generous claims limit No excess to pay BENEFITS OF COVER

To pay by direct debit

Working with <Title. Initial. Surname.> <Address Line 1> <Address Line 2> <Address Line 3> <Address Line 4> <Address Line 5> <Address Line 6> <Address Line 7> BEFORE COMPLETING THIS FORM, PLEASE READ THE IMPORTANT INFORMATION SECTION OVERLEAF.

To pay by direct debit

SSSPE1BT If your details are incorrect, please tick ✓ and amend.

• Tel. No. (Home)
• Tel. No. (Mobile)

Tick to indicate frequency of fjrst year Direct Debit payment and complete the instruction opposite. ✓

• 1. Direct Debit – Annual

£12.00

• 2. Direct Debit – Quarterly

£3.00

• 3. Direct Debit – Monthly

£1.00 Instruction to your Bank or Building Society to pay by Direct Debit Reference (for processing use only) Name of account holder(s) Name and full postal address of your Bank or Building Society Branch Sort Code Bank/Building Society account no. Please fjll in this form using a BLACK pen and send it in the Freepost envelope provided

• r mail to: Customer Services, Freepost RLYC-LXAL-GEEH, Cable Drive, Walsall WS2 7BN.

Originator’s identifjcation number Signature(s) ✗ D D M M Y Y Instruction to your Bank or Building Society. Please pay HomeServe Membership Ltd. Direct Debits from the account detailed in this instruction subject to the safeguards assured by the Direct Debit Guarantee. I understand that this instruction may remain with them and, if so, details will be passed electronically to my Bank/Building Society. SSSPE1BT (12) Please see overleaf for declaration and other payment methods... <CACI CUST>

Free boiler service

* When you take out boiler cover with us Join us at homeserve.com

• r call 0800 313 4150 quoting HSSGE1S

B

• i

l e r C

• v

e r f r

• m

£ 3 . 7 5 a m

• n

t h

i n t h e f i r s t y e a r

• f HomeServe Membership Ltd, which is authorised and regulated by the Financial Conduct Authority. • HomeServe reserves the right to withdraw this promotion at anytime.

<address.line.1xxxxxxxxxxxxxxxxxxxxxx>

SLIDE 8

Continuing our customer focus

Our Charter Promises

Before a Customer joins

We’ll make it clear what they’re buying – and what it will do for them

When a Customer joins

We’ll tell them how much they’re paying, what that buys them and how to claim

When a Customer becomes a member

We’ll make life easy for them

When a Customer makes a claim

We’ll solve their problem quickly and easily. Their emergency is our emergency

If a Customer’s not happy

We’ll listen, say sorry and put things right wherever we can, as soon as we can

Visuals.indd 1 10/06/2013 19:25

• Improved products
• Sold through a clearer process
• Giving better claim and repair experiences

SLIDE 9

What our customers are saying

SLIDE 10

Continued strong retention performance

Retention rate

2010 2009 2008 2011 2012 2013 2014

• Better products
• Improvement in customer service
• Improved retention at 82%

SLIDE 11

• Continuing to embed customer focused culture
• Sales and marketing momentum
• Stabilise at at least 2.0m customers
• A focused management team

Summary

SLIDE 12

• 19% customer growth to 1.6m customers
• 36% increase in profit to £12.9m
• Retention up 1ppt to 81%
• Improved customer service

Strong customer and profit growth in USA

Adjusted operating profit (£m)

2010

1.5

2011

6.1

2012

9.0

2013

9.5

2014

12.9

Customer numbers (m)

2009

0.4

2010

0.6

2011

0.9

2012

1.1

2013 2014

1.3 1.6

KPIs

2014 Customers (m) Income per customer ($) Retention rate (%) 1.3m $112 80% 1.6m $104 81% 2013

SLIDE 13

Signed 12 new partners in the USA 2014

2011 +1.0m households 2012 +1.3m households 2013 +0.8m households 2014 +4.4m households

SLIDE 14

Increased investment in business development resource

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

SLIDE 15

• Profit up 4% to £22.3m
• 0.9m customers
• Retention at 89%
• Investment for new partner development

Solid financial performance in France

KPIs

Customers (m) Income per customer (€) Retention rate (%)

0.9m €98 89% 0.9m €100 89%

2013 2014 €98 €100

SLIDE 16

• Customer numbers doubled to 0.8m
• Customers acquired through

Endesa’s sales channels

• Signed long term partnership with

Aqualia – 2.6m households

Strong customer growth in Spain

KPIs

2013 2014 Customers (m) Income per customer (€)▲ Retention rate (%)▲ 0.8m €30 75% 0.4m

▲ As the Spanish policy base was relatively small, retention rate and income per customer were not reported prior to FY14.

SLIDE 17

Italy

• Strong relationship with Enel
• Customer acquisition making solid progress
• Closed the year with 100,000 customers

Germany

• Early stage partner prospecting
• Test marketing

SFG

• Retail warranty business sold

Continued investment in New Markets

SLIDE 18

Adding International diversity to our business

62% of customers +8ppts v. FY13

International 3.4m

2013: 2.6m

International £285m

2013: £245m

International £33.5m

2013: £29.3

UK 2.1m

2013: 2.3m

UK £283m

2013: £302m

UK £53.4m

2013: £78.3

50% of revenue* +5ppts v. FY13 39% of profit +12ppts v. FY13

• Our international businesses are increasing their contribution to the Group

* Revenue is based on external revenues excluding inter-division revenue.

SLIDE 19

UK

• Increasing customer acquisition to 0.3m in FY15
• Retention continues at 82%
• Stabilise customer numbers at at least 2.0m

International

• Continued strong customer growth
• Additional investment in the USA in marketing and

business development resource to drive further customer growth

• Continued investment in New Markets

Group

• Embed customer focused culture
• Investment in upgrading our core customer IT system
• Strong cash generation
• Continued high levels of cash conversion

Outlook

SLIDE 20

• Divisional KPIs
• Group balance sheet
• Cash flow performance
• Our financial business model

Appendices

SLIDE 21

Divisional KPIs

UK France Spain USA

2014 2013 Change

Customer metrics Customers m 2.1

2.3

• 7%

Income per customer £ 101

106

• 4%

Policy metrics Water m 2.9

3.1

Electrical m 0.5

0.6

Heating, ventilation, air conditioning (HVAC) m 0.6

0.6

Manufacturer Warranties m 0.4

0.5

Other m 0.6

0.7

Total policies m 5.0

5.5

• 9%

Retention rate % 82

79

+3ppts 2014

2013 Change

Customer metrics Customers m 1.6

1.3

+19% Income per customer $ 104

112

• 7%

Policy metrics Water m 1.2

1.1

Electrical m 0.3

0.2

Heating, ventilation, air conditioning (HVAC)* m 0.9

0.8

Total policies m 2.4

2.1

+14% Retention rate % 81

80

+1ppts

2014 2013 Change

Customer metrics Customers m 0.9

0.9

+1% Income per customer € 100

98

+2% Policy metrics Water m 2.0

2.0

Electrical m 0.2

0.2

Other m 0.1

0.1

Total policies m 2.3

2.3

• 2%

Retention rate % 89

89

—

2014 2013 Change

Customer metrics Customers m 0.8

0.4

+102% Income per customer € 30

▲

— Policy metrics Water m 0.2

0.1

Electrical m 0.8

0.3

Other m 0.1

0.1

Total policies m 1.1

0.5

+119% Retention rate % 75

▲

—

* includes water heater and gas line policies. ▲ As the Spanish policy base was relatively small, retention rate and income per customer were not reported prior to FY14.

SLIDE 22

£million 2014 2013

Non-current assets Goodwill 246.3

248.4

Other intangible assets 156.9

148.8

Property, plant and equipment 30.0

33.3

Deferred tax assets 7.2

3.1

Retirement benefit assets 1.2

—

441.6

433.6

Current assets Inventories 0.7

1.1

Trade and other receivables 290.6

293.5

Cash and cash equivalents 96.2

88.6

387.5

383.2

Total assets 829.1

816.8

Current liabilities Trade and other payables (297.2)

(243.8)

Current tax liabilities (7.9)

(9.7)

Provisions (7.7)

(20.1)

Obligations under finance leases (0.5)

(0.5)

(313.3)

(274.1)

Net current assets 74.2

109.1

Non-current liabilities Bank and other loans (137.1)

(129.6)

Other financial liabilities (2.7)

(11.7)

Deferred tax liabilities (22.2)

(24.8)

Obligations under finance leases (0.9)

(1.4)

(162.9)

(167.5)

Total liabilities (476.2)

(441.6)

Net assets 352.9

375.2

Group balance sheet

SLIDE 23

Group cash flow

£million 2014 2013

Operating profit 27.2

69.1

Depreciation and amortisation 33.0

32.9

Other non-cash items 6.2

18.4

Decrease in exceptional provision (12.4)

(0.9)

Decrease in working capital 37.9

8.7

Cash generated by operations 91.9

128.2

Net interest (2.8)

(2.4)

Taxation (21.6)

(26.3)

Capital expenditure (33.6)

(29.9)

Repayment of finance leases (0.4)

(0.6)

Free cash flow 33.5

69.0

Acquisitions (2.4)

(5.8)

Equity dividends paid (36.7)

(36.6)

Issue of shares 1.1

0.6

Net movement in cash and bank borrowings (4.5)

27.2

Impact of foreign exchange 4.7

(3.2)

Movement in finance leases 0.4

(0.9)

Opening net debt (42.9)

(66.0)

Closing net debt (42.3)

(42.9)

SLIDE 24

Our financial business model

Our UK business model FY14 (Graph not to scale)

£213m £10m £66m £289m £53m

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

SLIDE 25

Title

• Bullets

This presentation 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 on circumstances that will

• ccur 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 profit forecast.