Proposed Demerger of South Staffordshire Plc and acquisition of the - PowerPoint PPT Presentation

Proposed Demerger of South Staffordshire Plc and acquisition of the minority interest in Homeserve

Brian Whitty Group Chief Executive

Transaction Overview • Demerger of South Staffordshire Plc (the “Water Group”) from South Staffordshire Group Plc (the “Continuing Group”) • Acquisition of the 25% minority interest in Homeserve in a share-for-share exchange. • Change the Continuing Group’s name from South Staffordshire Group Plc to Homeserve plc

Background to today’s announcement • The Group has successfully developed a support service offering which now represents 2/3 of operating profits • Moved into FTSE Support Services sector in 2001 • Achieved 13% CAGR in earnings since 1995, during which time regulated water profits grew by 2.5% pa • Principal driver of this growth has been the Homeserve division, which contributed 47% of group operating profit in FY03. • Group has become too diverse with different growth profiles and investment characteristics • Recognition of the need to address the minority interest in Homeserve

Overview of the Proposals • Demerger of regulated water supply and complementary non- regulated businesses of Echo, Rapid, Underground Pipeline Services and Aqua Direct by means of a tax free dividend • Change of name for the Continuing Group to Homeserve plc. • Water Group to be named South Staffordshire Plc. • Share consolidation to maintain current share price of existing group and water group • Acquisition of the 24.98% minority holding in HomeServe in a share for share exchange by the Continuing Group • Shareholder approval required at EGM on 5 th April 2004

Overview of the Demerger South Staffordshire Group Plc Homeserve plc South Staffordshire Plc • Home Service • Regulated Water • Home Hotline • Echo • Regency • Rapid • Highway • Aqua Direct • International Operations • Underground Pipeline Services • Commercial Outsourcing

Benefits of the Demerger • Allow the different business profiles and identities of the two companies to develop independently • Provide greater clarity and focus for management, customers and business partners • Permit each business to maintain different and appropriate capital structures and dividend policies • Give greater choice to shareholders through the ability to invest in two businesses with distinct investment characteristics

Board structure for the Continuing Group Homeserve Plc Current Role New Role Brian Whitty CEO Executive Chairman Richard Harpin Homeserve CEO CEO Andrew Belk FD FD Robert Harley Executive Director Executive Director John Maxwell N/A Senior Independent Director Justin Jewitt Non-Executive Director Non-Executive Director • Board currently in process of recruiting a further independent Non-Executive Director

Board structure for the Water Group South Staffordshire Plc Current Role New Role David Sankey Group Non-Executive Director Executive Chairman Adrian Page Group Company Secretary FD Jack Carnell MD of South Staffordshire Water MD of South Staffordshire Water John Catling MD of Echo/Rapid MD of Echo/Rapid Panton Corbett Group Non-Executive Non-Executive Michael Hughes N/A Non-Executive Roger Gabb N/A Non-Executive • The Board intends to appoint a Senior Independent Non-Executive Director when appropriate

Trading Update • Remain confident in financial and trading prospects for the Group for the full year to 31 March 2004 • Activities of HomeServe and Commercial Outsourcing continue to be heavily weighted to second half of the financial year • Overall dividend pay out (for the current year) will not reduce as a consequence of the demerger • Cost of demerger estimated at £4m

Andrew Belk Group Finance Director

Proforma Profit and Loss Account for Year Ended 31 st March 2003 £’m Existing Demerger of Share Other Proforma Group Water Group Exchange Adjustments Continuing Group Turnover 265.8 (73.3) - 1.9 194.4 Operating Profit 50.5 (21.4) - 0.6 29.7 Interest (6.0) 4.6 - (0.3) (1.7) Profit Before Tax 44.5 (16.8) - 0.3 28.0 Taxation (12.8) 4.4 - 0.1 (8.3) Profit After Tax 31.7 (12.4) - 0.4 19.7 Minority Interest (2.9) - 2.9 - - Profit 28.8 (12.4) 2.9 0.4 19.7 EPS 45.9p 32.0p Number of Shares 62.8m 61.8m •All figures pre goodwill and exceptional items •Goodwill on share exchange of £3m •Exceptional transaction costs of £4m

Proforma Operating Profit for Year Ended 31 st March 2003 £’m Turnover Operating Turnover Operating Profit Profit HomeServe 121.3 25.2 Regulated Water 58.8 16.0 Commercial Outsourcing 77.4 4.5 Commercial Outsourcing 26.6 5.4 Inter-Division (4.3) - Inter-Division (12.1) - 194.4 29.7 73.3 21.4 • All figures before goodwill and exceptional items

Overview of the Acquisition of the Minority Interest in Homeserve • Acquisition of 24.98% minority interest in Homeserve in exchange for new listed shares in the Group post demerger • Terms of proposed share exchange : - Issue of 11.6m new shares (post demerger and post consolidation, representing 18.6% of enlarged share capital) - One-off cash payments to Richard Harpin and Jeremy Middleton of £0.15m each in compensation for enhanced dividend rights - New shares issued ex dividend, minorities to receive full dividend payable to 31 st March 2004 from Homeserve subsidiary - Richard Harpin subject to 2 year restriction on sale • Share exchange conditional on Demerger • Expected to be earnings enhancing pre goodwill

Proforma Earnings Enhancement Year Ended 31 st March 2003 Continuing Group: Pre Share Exchange Post Share Exchange £’m £’m Operating Profit 29.7 29.7 Minority UITF Charge (1.2) - 28.5 29.7 Interest (1.7) (1.7) PBT 26.8 28.0 Tax (8.3) (8.3) 18.5 19.7 Minority Interest (4.1) - UITF adjustment 1.2 - (2.9) - Continuing Group Profit 15.6 19.7 Proforma Number of Shares 50.2m 61.8m EPS 31.1p 32.0p • All figures pre goodwill and exceptional items

Proforma Net Asset Statement at 30 Sept 2003 As at 30 Sept 2003 Existing Demerger of Pre Demerger Share Other Proforma £’m Group Water Group Reorganisation Exchange Adjustments Continuing Group Fixed Assets –Tangible 176.6 (143.0) (2.0) - - 31.6 –Goodwill 121.2 - - 59.0 - 180.2 Net Other Creditors (7.1) 15.8 (3.1) - - 5.6 4 3 Deferred Consideration (21.5) - - - - (21.5) Deferred Income (17.8) 4.3 - - - (13.5) Net Debt (106.4) 96.4 (2.9) (0.3) (4.0) (17.2) 1 2 Deferred Tax (10.1) 7.6 - - - (2.5) Net Assets 134.9 (18.9) (8.0) 58.7 (4.0) 162.7 •Deferred consideration includes Regency £4m, Highway £17.5m •Highway deferred consideration provided for profits in 2005/6 will be reduced from £13.5 to £4m

Proforma Net Debt as at 30 th September 2003 £’m Existing Demerger of Pre Demerger Share Other Proforma Group Water Group Reorganisation Exchange Adjustments Continuing Group Cash 8.8 (1.0) - - - 7.8 Borrowings <1 year (23.9) 6.6 (2.9) (0.3) (4.0) (24.5) Borrowings >1 year (91.3) 90.8 - - - (0.5) Net Debt (106.4) 96.4 (2.9) (0.3) (4.0) (17.2) • Water Group borrowings >1 year include the Index Linked Bond including issue costs and rolled up interest • Water Group bank facilities £30m • Continuing Group bank facilities £54m

Dividends, Tax and Capex • Final dividend for 2003/4 for Continuing Group and Water Group combined expected to be unchanged for demerger • Future dividend policy – Continuing Group expects to maintain progressive dividend policy – Water Group committed to 1.8 dividend cover in current year – Water Group expected to grow dividends broadly in line with earnings • Effective tax rate for year to 31 March 2003 28.7% – Water Group effective rate 26.4% – Support Services effective rate 30.8% • Capex for the year was £27m analysed as follows for year to 31 March 2003: – Water Group £20m – Support Services £7m

Richard Harpin HomeServe Plc Chief Executive

Homeserve Strategy “To be a world leading provider of insured repair solutions to customer homes via major Business Partners.” Repair Policy Managing specialist repair networks Affinity partner branding nationally to business partners and customers

Home Service • Track record in membership and profit growth. • Confident of future policy growth • Policy acquisition costs held up well • Scottish Water launch completes coverage. • Success of supply pipe cover – underground external water pipes up to £2000 • Potential of new gas supply pipe cover

Home Service • Retention rates continue to be in excess of 87% • Continued growth in outbound telesales to 200 staff. Potential to grow to 250 • Overcoming the blocks among 50% of homeowners (9m) to buying plumbing and drains cover – “ I’m already covered by my household insurance” – “I haven’t experienced a plumbing emergency – it won’t happen to me” • Launch of Instant Cover