Preliminary Results 21 May 2013 2013 summary Adjusted profjt - - PowerPoint PPT Presentation

Preliminary Results

21 May 2013

• Adjusted profjt before tax £105.0m

– UK profjt down from £103m to £78m due to fewer customers – Established International businesses profjt up 20% to £34m

• UK

– Customer numbers at 2.3m – Full year retention rate of 79%, over 80% in Q4 – FCA investigation is making progress

• International

– Customer numbers up 25% in USA and 50% in Spain – Signed 10 new affjnity partner relationships in the USA – Increasing penetration of existing partners – Doméo retention rate up to 89%

• Dividend per share maintained at 11.3p

2013 summary

Customer numbers (m)

UK customers International customers 2010 2011 2012 2013

2.3 2.7 3.0 2.9 2.6 2.2 1.9 1.4 4.9 4.9 4.9 4.3 Adjusted profjt before tax1 (£m)

UK Established International New Markets Net Interest

105.0 126.0 117.1 100.6

2010 2011 2012 2013

95.8 7.6 104.3 16.0 103.1 28.5 78.3 34.1

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.

The future – FY2014 and FY2015 targets

• Stabilise customer numbers at 1.9m from end of March 2014
• 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
• Continued strong growth in partners, customers and earnings
• Ongoing investment in New Markets businesses in Italy and Germany

UK International Continued Investment

FY2014 performance will be impacted by lower UK customer numbers but we expect to return to modest growth in FY2015

• Investing in new IT system
• Continuing to generate high levels of cash
• Low levels of gearing and net debt

• 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

Group fjnancial summary

£million

2013 2012 Total revenue 546.5 534.7 Adjusted profjt before tax1 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 share2 23.0p 28.0p Dividend per share 11.3p 11.3p Net debt £43m £66m

1 Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, joint venture taxation and re-measurement of joint venture interest

• n 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

• 2.3m customers in our 2013 target range
• Customer numbers up 25% to 1.3m

UK USA

Customers (m) Income per customer (£) Retention (%) Customers (m) Income per customer ($) Retention (%)

• Retention increased to 89%
• Customer numbers up 50% to 0.4m

Doméo Spain

0.3m 0.4m 0.3m 0.5m

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

Key 2012 2013

1.1m 1.3m $113 $112 79% 80% 0.9m 0.9m €96 €98 88% 89% 2.7m 2.3m £99 £106 80% 79%

• 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

Divisional fjnancial performance

£million

2013 2012

∆

2013 2012

∆ 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

1 Excluding amortisation of acquisition intangibles and exceptional expenditure and, in the prior period, joint venture taxation

Revenue Adjusted operating profjt / (loss)1

Cash fmow performance

• 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)

Net Debt 31 March 2012 Working Capital EBITDA Net Interest Taxation Capital Expenditure Dividends Acquisitions/ Disposals Other Net Debt 31 March 2013

£66.0m £120.4m £7.8m £2.4m £26.3m £29.9m £5.8m £36.6m £4.1m £42.9m

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 – More effective conversations – Product developments

78 80 82 84 2009 2010 2011 2012 2013 2014

UK retention rate (%)

Increasing new customer acquisition

• 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

Number of new customers per annum (m) 2010 2011 2012 2013 2014 2015

0.5 0.3 0.6 0.1 0.2 0.3

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

• 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

Digital sales are gaining momentum

• 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

Increasing participation in sales through our partners’ call centres

• No. of Partners participating

2012 2013 2014

Live Live Live

Committed to starting

4 4 5 3 8

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

UK International International growth in FY2013 International as % of total Group Customers

2.3m 2.6m +19% 53%

Revenue

£309m £245m +19% 45%

Profjt

£78.3m £34.1m* +20%* 32%*

* Established International businesses in USA, Doméo and Spain only

Title

• Bullets

Increased marketing expenditure adds long-term value

• We use a similar marketing model in all
• ur businesses
• Yr 1 acquisition cost results in a signifjcant

negative P&L impact in Yr 1

• All marketing campaigns target at least a three

year payback and an IRR of greater than 30%

• Current USA campaigns payback in around

2 years or less

• Income is policy price less underwriting, taxes and affjnity

partner commission

• Average customer life of around 5 years, based on 81% retention rate

Cost Customer lifetime income Maximum investment for 3 year payback Current US marketing payback

Acquisition cost Yr 1 Income Yr 1 Income Yr 2 Income Yr 3 Income Yr 4 Income Yr 5

USA – delivering growth and investing for the future

Customers (m)

2009 2010 2011 2012 2013

Profj t (£m)

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

0.4

• 0.3

0.6 1.5 0.9 6.1 1.1 9.0 1.3 9.5

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

Spain – continued strong customer growth in FY2014

• 50% of Spain’s gross new policy sales were via Endesa sales

channels in FY2013

• Endesa is the largest electrical utility in Spain with 10m households
• Endesa sell our Electrical assistance product

– Full price €49.08 (50% discount in yr 1) – Customers given a discounted utility tariff when buying

• ur Electrical assistance product

– Covers:

• Electrical emergencies – including 2 hours of labour
• 2 electrical services a year

– Billed via the utility bill

New Markets – investment for the future

• Proven track record in organic business development
• Focusing on membership businesses in:

Italy

• 2 long-term partnerships signed in FY2013

– Enel Energia –3.5m marketable households, bill on bill charging – Veritas – water utility, 200k households

• Increased marketing activity in FY2014

Germany

• Over 70 target utilities across Germany
• Focusing on new partner development in FY2014
• Expect New Markets to report an operating loss of around £6m per annum

– Investment in marketing and infrastructure

Outlook

• Increase customer acquisition and retention
• Stabilise customer numbers at 1.9m from end of FY2014
• Profjts to be over 50% of Group profjt in FY2015
• Continued growth in partners, customers and earnings

UK Established International businesses Investing for the future Expect the Group to return to modest growth in FY2015

• Growing our New Markets businesses
• Implementing new IT system

Appendix

Name

Title

Key performance indicators

UK Doméo Spain USA

2012 2013 Change

Customer metrics Customers (m) 2.7 2.3

• 16%

Income per customer (£) 99 106 +7% Policy metrics Policies (m) Water 3.7 3.1 Electrics 0.7 0.6 Heating (HVAC) 0.8 0.6 Manufacturer Warranties 0.5 0.5 Other 1.0 0.7 Total policies 6.7 5.5

• 18%

Retention rate (%) 80 79

• 1ppts

2012 2013 Change

Customer metrics Customers (m) 1.1 1.3 +25% Income per customer ($) 113 112

• 1%

Policy metrics Policies (m) Water 0.8 1.1 Electrics 0.1 0.2 Heating (HVAC) 0.3 0.3 Other including water heater 0.5 0.5 Total policies 1.7 2.1 +25% Retention rate (%) 79 80 +1ppts

2012 2013 Change

Customer metrics Customers (m) 0.9 0.9 +2% Income per customer (€) 96 98 +2% Policy metrics Policies (m) Water 1.9 2.0 Electrics 0.2 0.2 Other 0.2 0.1 Total policies 2.3 2.3 — Retention rate (%) 88 89 +1ppt

2012 2013 Change

Customer metrics Customers (m) 0.3 0.4 +50% Policy metrics Policies (m) Water 0.1 0.1 Electrics 0.1 0.3 Other (including ‘Club’) 0.1 0.1 Total policies 0.3 0.5 +43%

We have a proven model for developing new businesses

• A proven model for organic International business development

– Doméo – Breakeven in yr4, now delivering profjt of £21.5m – USA – Breakeven in yr6, now delivering profjt of £9.5m

USA – launched in 2003

Customer no.’s (000) Yr of operation 1600 1400 1200 1000 800 600 400 200 1 2 3 4 5 6 7 8 9 10 Operating profjt (£k) 12 8 6 4 2

• 2
• 4

USA customer numbers (LHS) USA profjt (RHS)

France – Doméo – launched in 2001

Customer no.’s (000) Yr of operation Operating profjt (£k) 16 20 12 4

• 4

1200 1000 800 600 400 200 1 2 3 4 5 6 7 8 9 10 11 12 France customer numbers (LHS) France profjt (RHS) 8 24 10

Doméo – a like for like comparison

Reported Like for like

£million

2013 100% for 12 months 2012 100% for 4 months/ 49% for 8 months

∆

2013 100% 2012 100%

∆ Revenue 73.8 51.8 42% 73.8 73.3 1% JV elimination — (20.6) — — — — Revenue segment 73.8 31.2 — 73.8 73.3 1% Reported operating profjt 21.5 16.7 29% 21.5 19.9 8%

• We acquired Veolia’s 51% shareholding on 7 December 2011
• We paid £82m including agreement of a long-term partnership with Veolia

Group balance sheet

£million 2013 2012

Non-current assets Goodwill 248.4 260.9 Other intagible assets 148.8 142.3 Property, plant and equipment 33.3 37.5 Deferred tax assets 3.1 3.7 433.6 444.4 Current assets Inventories 1.1 1.5 Trade and other receivables 293.5 291.1 Cash and cash equivalents 88.6 52.8 383.2 345.4 Total assets 816.8 789.8 Current liabilities Trade and other payables (243.8) (230.8) Current tax liabilities (9.7) (8.8) Provisions (20.1) (21.0) Obligations under fjnance leases (0.5) (0.4) (274.1) (261.0) Net current assets 109.1 84.4 Non-current liabilities Bank and other loans (129.6) (117.8) Other fjnancial liabilities (11.7) (15.8) Retirement benefjt obligation — (0.6) Deferred tax liabilities (24.8) (27.6) Obligations under fjnance leases (1.4) (0.6) (167.5) (162.4) Total liabilities (441.6) (423.4) Net assets 375.2 366.4

Cash fmow performance

£million 2013 2012

Operating profjt 69.1 85.3 Depreciation, amortisation and other non-cash items 51.3 30.2 Decrease/(increase) in working capital 7.8 (1.2) Cash generated by operations 128.2 114.3 Net interest (2.4) (3.2) Taxation (26.3) (33.3) Capital expenditure (29.9) (16.9) Repayment of fjnance leases (0.6) – Doméo dividend received – 3.5 Free cash fmow 69.0 64.4 Acquisitions/disposals (5.8) (87.8) Equity dividends paid (36.6) (34.2) Issue of shares 0.6 2.2 Net movement in cash and bank borrowings 27.2 (55.4) Impact of foreign exchange (3.2) 2.2 Movement in fjnance leases (0.9) (1.0) Opening net debt (66.0) (11.8) Closing net debt (42.9) (66.0)

Our fjnancial business model

Our UK business model FY2013

(Graph not to scale)

£241m £13m £55m £309m £78m

100% of revenue booked on sale – majority of policies paid by monthly Direct Debit Payment aligned with revenue receipts

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 Operating profjt

Title

• Bullets

This presentation contains certain forward-looking statements, which have been made in good faith, with respect to the fjnancial condition, results of

• perations, 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.