Step Changing The Growth Opportunity US acquisition, proposed equity - - PowerPoint PPT Presentation

Step Changing The Growth Opportunity

US acquisition, proposed equity placing and trading update

October 2017

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homeserveplc.com

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Headlines

Acquisition of Dominion Products and Services (DPS)

• Acquisition of certain of the trade and assets of the home assistance cover business of Dominion Products and Services,

Inc, a wholly owned subsidiary of Dominion Energy, Inc. for an enterprise value of $143m

• Acquisition of policy books is a proven method of supplementing organic growth in North America
• Largest acquisition to date, of USP in July 2016, already fully integrated
• Transaction brings forward our growth targets by at least 12 months

Placing

• Intention to finance the acquisition with an equity placing of up to £125m
• Retain balance sheet strength and provide flexibility for further inorganic investment opportunities across a number of

countries Good HY18 Performance

• Excellent progress in the first six months of the financial year
• Remain confident that we will deliver further strong growth for the full year

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DPS – acquisition of a key, long-term target

Excellent Strategic Fit  Accelerates ambitious growth plan in North America  Excellent track record of acquiring and integrating 13 previous policy books over our 15 years in North America  Highly complementary business, well known to HomeServe  Enhances geographic penetration in the North America  4 homeserveplc.com Strong financial rationale  Enterprise value of $143m represents a last twelve months EV / EBITDA multiple of 7.2x  ROIC¹ exceeds WACC in first year of ownership  Margin enhancing  Adds at least $10m PBTA in FY18 and at least $17m PBTA in FY19 following completion of Tranche 2  Immediately accretive to adjusted earnings per share  Creates ongoing value both for HomeServe through forward marketing and renewal rights and also for Dominion Energy, Inc. and its partners through standard ongoing commission arrangements

¹ ROIC is defined as post tax EBIT adjusted for acquisition amortisation and divided by the enterprise value

Dominion Products and Services, Inc – an attractive home assistance business

• Provides a suite of home protection programs

to 0.5m customers with 1.1m policies

• 7.1m households

– 4.3m under Dominion utility brand – 2.8m under Dominion’s other partnership brands

• Lean operations
• A growing book

– $17.8m EBITDA¹ for year ended 31 December 2016 – $20.0m EBITDA¹ for last twelve months to 31 August 2017  5 homeserveplc.com

¹HomeServe estimates

Transaction details

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• Total transaction enterprise value of $143m, consisting of
• Tranche 1: $68m for c. 0.3m customers holding c. 0.6m policies & 4.3m households
• Tranche 2: $55m for c. 0.2m customers holding c. 0.5m policies & 2.8m households
• $20m deferred consideration paid evenly over 10 years starting in FY19
• Tranches split between Dominion Energy utility brands and Dominion partner brands which will aid efficient

integration

• Conditions to completion and timing:
• Competition clearance (Hart-Scott Rodino) – expected calendar Q4 2017
• Tranche 1: transfer of policies expected in calendar Q4 2017
• Tranche 2: transfer of policies expected in calendar Q4 2018
• In line with other partnerships, ongoing commissions to be paid on new and renewing sales, creating further value for

HomeServe and Dominion

North America – further positive momentum

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• Outstanding first half performance
• Customer numbers organically up 12% to 3.1m
• Improved strong retention at 82%, up from 81% in HY17
• Step change increase in operating profit - up to £11m from a £1m loss in HY17
• Successful integration of USP
• “Top Place to Work”¹

2.1 2.8 3.1 HY16 HY17 HY18 Total Customers (m) 31 49 53 HY16 HY17 HY18 Affinity Partner Households (m) (1.4) (1.0) 11.0 HY16 HY17 HY18 Adjusted Operating Profit / (Loss)(£m)

¹2017 survey, Connecticut Best Places to Work

• Acquisition further accelerates the journey towards future targets
• Pro forma households at 60m
• Pro forma customers at 3.6m

An ambitious, well-grounded US growth plan

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FY16 FY17 HY18 Future Households (m) 32 50 53 80 Penetration (%) 7% 6% 6% 10% Customers (m) 2.3 3.0 3.1 8.0 Net income per customer ($) 91 97 * 100 Adjusted operating margin % 8% 9% * 20 Adjusted Operating Profit ($m) 17.5 26.2 * 160

* Local currency and margin % to be disclosed in interim results on 21 November

Equity Placing – retaining balance sheet strength for an exciting pipeline of opportunities

Key terms

• Equity issuance structured as a cash placing

(accelerated bookbuild)

• Up to £125m, representing approximately 5% of issued

share capital

• Announcement date 19 October 2017
• Pricing and allocation expected 19 October 2017
• New shares rank pari passu with existing shares
• Progressive dividend policy remains unchanged
• Settlement: T+2, 23 October 2017
• J.P

. Morgan Cazenove and UBS acting as joint bookrunners  9 homeserveplc.com Rationale

• Strong pipeline of further acquisition opportunities
• Home assistance policy books central to core

home assistance model

• Smaller size but higher volume heating policy

book and installation businesses

• Home Experts investments
• Strong track record of successful acquisition and

integration in the last 2 years

• Utility Service Partners Inc. (USP) in North

America (£61m)

• Home Energy Services Limited (HES) (£14m) and

npower service contracts (£5.3m) in the UK

• Help-Link (£22.3m)
• Investments in Checkatrade (£24m) and

Habitissimo (£13m)

Summary H1 results – a good six months

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• Positive start to the year with increasing momentum in North

America

• Total customers up 5% to 7.8m
• Group retention remains strong at 82%
• Group adjusted operating profit¹ up 13% at £35m, 8% at

constant currency²

• Beneficial FX movements contribute around £2m
• Net Debt to last twelve months EBITDA ratio of 1.9x at HY18

2.1 2.2 2.2 2.1 2.8 3.1 2.4 2.5 2.5 HY16 HY17 HY18

Customers (m)

UK US Other International 7.5 7.8 6.6

¹The Group uses adjusted operating profit, EBITDA, adjusted profit before tax and adjusted earnings per share as its primary performance measures. These are non-IFRS measures which exclude the impact of the amortisation of acquisition intangible assets (HY18: £8m, HY17: £7m). ²Constant currency: $1.37 and €1.22

Divisional Financial Performance

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• As expected, UK profits reduced due to policy book acquisitions converted to insurance contracts and investment for

growth; confident of a solid full year result

• Strong profit progression in North America
• Continued growth in Continental Europe with profits up in France & Spain

¹constant currency $1.37 and €1.22

Revenue Adjusted operating profit / (loss) HY18 HY17 Δ % Δ % CC¹ HY18 HY17 Δ % Δ % CC¹ UK 143 135 6% 6% 9 21 (57)% (57)% North America 118 86 37% 30% 11 (1)

• France

35 31 13% 5% 9 8 13% 10% Spain 68 58 17% 9% 8 5 60% 54% International 221 175 26% 18% 28 12 133% 131% New Markets 5 6 (17)% (24)% (2) (2) 0% 50% Inter-segment (3) (2) 50% 18%

• Group

366 314 17% 12% 35 31 13% 8%

Summary – a key acquisition, continued momentum and positioning for further growth

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• Acquisition
• A target known to HomeServe for many years
• Accelerates HomeServe’s ambitious North America growth plans by at least 12 months
• Complementary business model in key geographies
• Strong financial case
• Placing
• Retains balance sheet flexibility for future inorganic growth
• Trading
• Good first half
• Confident of full year growth for FY18