Preliminary Results 21 May 2013
2013 summary • Adjusted profjt before tax £105.0m Adjusted profjt before tax 1 (£m) – UK profjt down from £103m to £78m due to fewer customers 126.0 117.1 – Established International businesses profjt up 20% to £34m 105.0 28.5 16.0 100.6 7.6 34.1 • UK – Customer numbers at 2.3m 95.8 104.3 103.1 78.3 – Full year retention rate of 79%, over 80% in Q4 – FCA investigation is making progress • International 2010 2011 2012 2013 – Customer numbers up 25% in USA and 50% in Spain UK Established International New Markets Net Interest – Signed 10 new affjnity partner relationships in the USA – Increasing penetration of existing partners Customer numbers (m) – Doméo retention rate up to 89% 4.9 4.9 4.9 4.3 • Dividend per share maintained at 11.3p 2.3 2.7 3.0 2.9 2.6 2.2 1.9 1.4 2010 2011 2012 2013 1 Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, UK customers International customers joint venture taxation and re-measurement of joint venture interest on acquisition of control.
The future – FY2014 and FY2015 targets • Stabilise customer numbers at 1.9m from end of March 2014 UK • Increasing new customer acquisition – FY2014 - 0.2m, FY2015 - 0.3m • Improved retention – increasing to 80% and above in future years • Established businesses to contribute over 50% of profjt in FY2015 International • Continued strong growth in partners, customers and earnings • Ongoing investment in New Markets businesses in Italy and Germany • Investing in new IT system Continued • Continuing to generate high levels of cash Investment • Low levels of gearing and net debt FY2014 performance will be impacted by lower UK customer numbers but we expect to return to modest growth in FY2015
Group fjnancial summary 2013 2012 £million Total revenue 546.5 534.7 Adjusted profjt before tax 1 105.0 126.0 Amortisation of acquisition intangibles (13.4) (10.4) Exceptional expenditure (25.1) (31.1) Gain on re-measurement of joint venture interest on acquisition of control — 54.9 Tax on JV — (1.4) Statutory Profjt before tax 66.5 138.0 Adjusted earnings per share 2 23.0p 28.0p Dividend per share 11.3p 11.3p Net debt £43m £66m • Increased revenues as International business has offset lower UK revenue • Lower UK profjts have been partially offset by growth in International profjts • Exceptional expenditure includes £6m of costs relating to the FCA investigation • Strong cash generation has resulted in net debt reducing to £43m 1 Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, joint venture taxation and re-measurement of joint venture interest on acquisition of control 2 Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, re-measurement of joint venture interest on acquisition of control
Divisional operational performance UK Doméo 2.7m 2.3m 0.9m 0.9m €96 €98 £99 £106 80% 79% 88% 89% Customers (m) Income per Retention (%) Customers (m) Income per Retention (%) customer (£) customer (€) • 2.3m customers in our 2013 target range • Retention increased to 89% USA Spain 1.1m 1.3m $113 $112 79% 80% 0.3m 0.4m 0.3m 0.5m Key Customers (m) Income per Retention (%) Customers (m) Policies (m) customer ($) 2012 • Customer numbers up 25% to 1.3m • Customer numbers up 50% to 0.4m 2013
Divisional fjnancial performance Revenue Adjusted operating profjt / (loss) 1 ∆ ∆ 2013 2012 2013 2012 £million UK 309.0 353.5 -44.5 78.3 103.1 -24.8 USA 100.8 82.3 +18.5 9.5 9.0 +0.5 Doméo 73.8 51.8 +22.0 21.5 16.7 +4.8 Spain 60.5 60.2 +0.3 3.1 2.8 +0.3 Established International 235.1 194.3 +40.8 34.1 28.5 +5.6 New Markets 9.4 11.6 -2.2 (4.8) (3.4) -1.4 Total International 244.5 205.9 +38.6 29.3 25.1 +4.2 Inter-division/ JV elimination (7.0) (24.7) +17.7 — — — Group 546.5 534.7 +11.8 107.6 128.2 -20.6 • UK profjts reduced as a result of lower customer numbers • Established international businesses profjts increased as a result of customer growth and the benefjt of owning 100% of Doméo for the full 12 months • We continue to invest in our New Markets businesses in Italy and Germany 1 Excluding amortisation of acquisition intangibles and exceptional expenditure and, in the prior period, joint venture taxation
Cash fmow performance £7.8m £2.4m £26.3m £120.4m £29.9m £5.8m £36.6m £42.9m £66.0m £4.1m Net Debt EBITDA Working Net Interest Taxation Capital Acquisitions/ Dividends Other Net Debt 31 March 2012 Capital Expenditure Disposals 31 March 2013 • 2013 net debt: EBITDA 0.4x (2012: 0.6x) • Net debt reduced to £43m signifjcantly within our bank facility of £250m • Committed bank facility in place through to July 2016 • Capital expenditure to remain higher than in previous years as we implement a new IT system (FY2014 – FY2016)
Improved customer service and retention • Higher customer satisfaction levels • 40% reduction in complaints • Confjdent we can improve retention – Over 80% in Q4 FY2013 – FY2014 full year rate to be 80% • Key drivers of retention – Continued improvement in service standards UK retention rate (%) 84 – More effective conversations – Product developments 82 80 78 2009 2010 2011 2012 2013 2014
Increasing new customer acquisition Number of new customers per annum (m) 0.5 0.6 0.3 0.1 0.2 0.3 2010 2011 2012 2013 2014 2015 • Increasing new customer acquistion – FY2013 – 0.1m – FY2014 – 0.2m – FY2015 – 0.3m • In FY2015 expect new customers to equal lost customers – Stabilising the customer base at 1.9m • Core sales channels are – Direct mail – Internet and digital – Sales through our partners’ call centres
Direct mail remains our main sales channel • Achieving improved take-up rates compared to a year ago • Increasing the scale of our activity in FY2014 • Rolling out enhanced plumbing and drainage product • Increasing non direct mail sales
Digital sales are gaining momentum • A strong fj nish to FY2013 with Q4 sales double Q4 FY2012 • Signifj cant increase in sales in FY2014 • New experienced digital management team recruited and in place • New initiatives include: – Integration into Affj nity Partner websites – Increased search engine optimisation and paid search activity – Increasing presence across the web – aggregator web sites
Increasing participation in sales through our partners’ call centres No. of Partners participating 8 3 Committed to starting 5 4 4 Live Live Live 2012 2013 2014 • Sales leads generated from incoming calls into partners’ call centres • Sales completed either – By utility call centre agent, or – Transfer of call to a HomeServe call centre agent • FY2014 objective – Increase the number of partners participating – Increase the number of partners selling in their own call centres
UK – a clear plan for FY2014 • Increase new customer acquisition to 0.2m • Improving retention – FY2014 rate 80% • Roll-out new enhanced products • Increase non direct mail sales • Enter FY2015 with a 1.9m stable customer base
Our International businesses are increasing their contribution to the Group’s results International International as UK International growth in FY2013 % of total Group 2.3m 2.6m +19% 53% Customers £309m £245m +19% 45% Revenue £78.3m £34.1m * +20% * 32% * Profjt * Established International businesses in USA, Doméo and Spain only
Increased marketing expenditure Title adds long-term value • Bullets • We use a similar marketing model in all Income our businesses Yr 5 Income • Yr 1 acquisition cost results in a signifjcant Yr 4 negative P&L impact in Yr 1 Maximum investment for 3 year payback Income • All marketing campaigns target at least a three Yr 3 year payback and an IRR of greater than 30% Current US Income marketing payback Acquisition cost Yr 2 • Current USA campaigns payback in around Yr 1 2 years or less Income Yr 1 Cost Customer lifetime income • Income is policy price less underwriting, taxes and affjnity partner commission • Average customer life of around 5 years, based on 81% retention rate
USA – delivering growth and investing for the future Customers (m) Profj t (£m) 9.5 9.0 1.3 1.1 6.1 0.9 0.6 1.5 -0.3 0.4 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 • Step change in the volume of marketing activity in FY2013 • Continued investment in people and infrastructure • Now have 35 utility affj nity partners across North America
France – Doméo a high quality business • Doméo delivered profj t of £21.5m in FY2013 – Effj cient business with an operating margin of 29% – Loyal customer base with a retention rate of 89% • Strong affj nity partnership with Veolia • A partnership with another large utility would provide a signifj cant growth opportunity
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