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Homeserve Plc - Half-year Report

RNS Number : 4980F
Homeserve Plc
17 November 2020
 

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

HomeServe plc

Interim results for the six months ended 30 September 2020

 

 

 

Six months ended

Six months ended

Change1

 

 

30 September 2020

30 September 2019

Revenue

 

£536.7m

£457.7m

+17%

Statutory operating profit

 

£21.2m

£28.8m

-27%*

Statutory profit before tax

 

£10.1m

£19.7m

-49%*

Basic earnings per share

 

2.0p

5.0p

-60%*

 

 

 

 

 

Adjusted2 EBITDA

 

£83.8m

£70.9m

+18%

Adjusted2 operating profit

 

£44.2m

£37.7m

+17%

Adjusted2 profit before tax

 

£33.1m

£28.6m

+16%

Adjusted2 earnings per share

 

7.1p

6.5p

+9%

 

 

 

 

 

Ordinary dividend per share

 

6.2p

5.8p

+7%

Net debt

 

£586.7m

£451.4m

+30%

Membership customers

 

Membership policy retention

 

8.2m

 

82%

8.2m

 

82%

+1%

 

-

 

 

 

 

 

*Comparative statutory profit measures in six months ending 30 September 2019 benefitted from £7.4m exceptional gain

 

Strong performance across the business, well placed for continued growth

 

·      Operational resilience in all areas

Strong growth in North American Membership as affinity partnerships exceeded 1,000 for the first time and retention increased to 83% (HY20: 82%)

European Membership businesses focused on customer service and increasing the number of affinity partnerships

HVAC buy-and-build strategy re-started with 9 acquisitions in the period across North America, France and Spain

Consumer demand on Checkatrade, Habitissimo and eLocal recovered strongly after early lockdowns, reaching highest ever level of website visits during the last four months of the period

Operational response to the coronavirus pandemic continues to focus on keeping staff and customers safe
 

·      Revenue growth of 17%, driven by strong growth in North America and the inclusion of revenue from eLocal (79% acquired in November 2019 to create a profitable entry to Home Experts in America)

 

·      Reductions in statutory profit measures due to the absence of exceptional gains reflected in the prior period (HY20: £7.4m), and higher acquisition-related amortisation of £23.0m (HY20: £16.3m)

 

·      Adjusted operating profit growth of 17% despite continued net P&L investment of £7.0m (HY20: £10.3m) in Home Experts and international business development: key drivers were revenue growth, lower marketing costs during the first lockdowns, and the addition of eLocal profits in Home Experts

 

·      Adjusted PBT growth of 16%, with growth in adjusted operating profit slightly offset by an increase in the interest expense, as expected, due to the impact of prior year M&A and therefore the higher net debt balance

 

·      Financial position remains strong - increase in leverage to 2.0x net debt : EBITDA (HY20: 1.9x) within the Group's target range of 1.0x to 2.0x and in line with normal seasonal profile; c.£480m headroom vs total debt facilities of £1,010m

 

·      Interim dividend up 7% to 6.2p, reflecting strong performance and continued confidence in the Group's growth prospects.


Richard Harpin, Founder and Group Chief Executive, HomeServe plc, commented: "What HomeServe stands for - making home repairs and improvements easy - has never been more important. The stresses of living and working through a pandemic mean that we are all more aware than ever of the value of home comforts. Our strong policy retention in the first half underscores the value our Membership customers place on the service we provide.

 

"Against this challenging backdrop, I am really pleased that the business continues to perform well. As we go into the busy winter months, our focus continues to be on delivering great service for our customers and a secure livelihood to our teams and trades. The latest wave of lockdowns has made no fundamental difference to our operations, and the good news for us and our customers is that engineers can continue to work in peoples' homes. Based on what we see today, we are confident of delivering a healthy mix of organic and acquired revenue growth at the full year, with profits ahead of our prior expectations."

                                                                                                                                               

Outlook

 

HomeServe exited the first half with the business trading well, having recovered earlier and more strongly from the effects of the first global lockdown than originally anticipated. In Membership, retention remains strong, marketing has resumed and the operating units are focused on satisfying high levels of claims from customers spending more time than ever in their homes. The Home Experts businesses continue to experience high levels of consumer demand.

 

With the business having performed better than expected in the first half and with marketing and full claims handling now resumed, HomeServe now expects to grow in the year and deliver Group PBTA for FY21 (FY20: £181.0m) slightly ahead of current consensus earnings estimates3.

 

  

1Percentage movements throughout this announcement are based on full unrounded results, not the rounded figures in the tables.

2HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. APMs used in this announcement are non-GAAP measures which address profitability, leverage and liquidity and together with operational KPIs give an indication of the current health and future prospects of the Group. Definitions of APMs and the rationale for their usage are included in the Glossary at the end of this announcement with a reconciliation, where applicable, back to the equivalent statutory measure.

3 Consensus of 16 sets of analyst estimates, as published on homeserveplc.com, shows PBTA of £186.2m, with a high of £198.1m and a low of £178.0m.

 

Results presentation

 

An audio webcast with accompanying slides will take place at 11am on Tuesday 17 November at:

https://www.investis-live.com/homeserveplc/5f7ef519d33b270c0069b007/wakl.
 

Alternatively follow the link from www.homeserveplc.com.

 

The webcast will be available on replay shortly after the event.

 

Enquiries

HomeServe

Tulchan Group

Miriam McKay - Group Communications and IR Director

Miriam.McKay@homeserve.com

+44 7795 062564

 

Dami Tanimowo - Senior Investor Relations Manager

Dami.Tanimowo@homeserve.com

+44 7747 761155

Martin Robinson

homeserve@tulchangroup.com

+44 207 353 4200

 

Forward Looking Statements

This report 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 involve risk and uncertainty because they relate to events and depend upon 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. 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 announcement should be construed as a profit forecast.

 

About HomeServe

HomeServe is an international home repairs and improvements business that makes home repairs and improvements easy by matching customers to trades to generate repeat and recurring income. HomeServe is listed on the London Stock Exchange and is a member of the FTSE 100.

 

 

 

Strategic update

 

During the first half, HomeServe met the challenges of the global coronavirus pandemic by delivering resilient operational and financial performance and equally importantly, by doing the right thing for staff, homeowners, tradespeople (trades) and partners. The business demonstrated remarkable resilience, thanks to a strong business model operated by a dedicated global team.

 

In Membership, policy retention held up at normal levels, the backlog of non-urgent claims which engineers were not permitted to service during the first lockdown was cleared and marketing resumed in time for the busy winter months. After being impacted in the early stages of the pandemic, the Home Experts businesses (Checkatrade, Habitissimo and eLocal) saw record levels of consumer demand, as consumers focused more than ever on home repairs and improvements.

 

There have been significant people moves announced today, designed to put the best people in the right roles to deliver current and future growth plans. Tom Rusin, previously CEO of Global Membership, has taken on an expanded US-based role as Chief Executive, North America, with responsibility for North American Membership, HVAC and Home Experts. Tom retains global product responsibility for utility-based Membership. Ross Clemmow will join the HomeServe Board early in 2021 in the new role of CEO, EMEA. Ross brings digital and consumer expertise to HomeServe's top team from his previous dual role as CEO of WiggleCRC, the international online sports retailer, and Managing Director at Bridgepoint. Country CEOs Guillaume Huser (France), Fernando Prieto (Spain) and John Kitzie, who has recently moved to HomeServe Membership UK from North America, will report to Ross. Ross will also have global product responsibility for HVAC.

 

HomeServe continued to make progress towards its strategic growth ambitions, and specifically its next milestone targets of $230m of adjusted operating profit from Membership and HVAC in North America, and £45-90m at Checkatrade.

 

In Membership, there has been good progress in broadening the business through new partnerships, with organic and inorganic opportunities in North America, the development of non-utility partnerships in France and opportunities for diversification in Spain. Continued rationalisation of the UK customer book drove an expected reduction in customer numbers. New initiatives are gaining momentum, with progress on on demand to policy initiatives in France and Spain and the HomeServe Now proposition being tested in the UK, to assess the potential for a new subscription proposition with broader appeal and a lower cost operating model than the core Membership offering.

 

In HVAC, HomeServe successfully re-started its buy-and-build acquisition programme after a pause at the onset of the coronavirus pandemic. Acquisitions in the period were Aujard, Minerbe, Multichauff and Conviflamme in France, Solusat and Urueña in Spain, and Hays, Freedom and UGI HVAC Enterprises in the United States, for a total consideration of c.£47m. The Solusat and UGI deals together bring c.70,000 policies. The strategic intent of these HVAC acquisitions is to create more opportunities for policy sales within Membership, and to develop cost synergies by deploying acquired HVAC engineers to fix Membership claims. The HVAC business is expected to increase its profitable contribution to the Group for the full year and there have been promising early results from policy marketing to installations and repair customers.

 

In Checkatrade, further progress has been made in developing and proving out the Directory Extra business model, which combines the key advantages of giving consumers access to a directory of checked and vetted local trades with an enhanced facility to Describe your job, where consumers can ask Checkatrade to request quotes from three trades. This facility, introduced in September, already accounts for 20% of total contacts and has helped grow the number of contacts between consumers and trades by 11% to an average of around 22 contacts per month for each paying trade. New trades recruited are expected to move to paying for contacts over time. Progress is also being made on the freemium trade recruitment model, with a total of nearly 50,000 trades now listed on the platform. Checkatrade remains on track to break even in FY23. With eLocal firmly on track to deliver in excess of $10m adjusted operating profit in FY21, the Home Experts division as a whole is now expected to reach profitability in FY22.

 

HomeServe also continued to advance its international ambitions in the first half. Its joint venture in Japan with Mitsubishi Corporation continues to make good progress, with the first three marketing campaigns with Chugoku Electric matching the rates of return achieved in HomeServe's established territories. The new partner pipeline in Japan is strong. Elsewhere, the French business entered a partnership with Eneco Belgium N.V. after the period end which will take HomeServe into Belgium. In Spain, the acquisition of claims handling business Mesos helps prepare for the launch of a Membership business in Portugal, with a physical in-country presence. There continue to be live discussions in countries further afield.

 

In summary, HomeServe has made very good progress across all of its strategic growth ambitions in the period. The company continues to pursue a mix of organic and inorganic growth, with organic revenue growth of 8% in North America in the period. The coronavirus pandemic has created opportunities as well as challenges, and has increased appreciation of and investment in homes across the world. This has been a period where HomeServe has worked hard, learned a lot, and made substantial progress.

 

Financing and leverage

 

Net debt at 30 September increased to £586.7m (HY20: £451.4m) due principally to M&A activity. Headroom against the Group's total debt facilities was c.£480m. During the half, HomeServe arranged an additional £250m of funding via a US Private Placement at attractive rates. This expands the Group's existing facilities and further balances the debt maturity profile. Leverage of 2.0x reflects the normal seasonality profile of the business, whilst remaining within the Group's target of 1.0x to 2.0x. Absent further M&A, HomeServe expects to de-lever towards the middle of this target range at the full year.

 

Dividend

 

The interim dividend of 6.2p per share (HY20: 5.8p), an increase of 7%, will be paid on 8 January 2021 to shareholders on the register on 11 December 2020.

 

 

 

 

SEGMENTAL OVERVIEW

 

Financial performance for the six months ended 30 September

 

 

 

      Revenue

Statutory operating profit/(loss)

Adjusted operating profit/(loss)

£million

HY21

HY20

HY21

HY20 

HY21

HY20 

North America

207.4

179.6

20.5

9.9 

32.0

18.5 

UK

132.4

147.7

7.4

12.4 

9.1

14.0 

France

46.4

40.4

4.3

4.5 

7.8

7.9 

Spain

85.3

69.2

1.6

7.4 

2.3

7.6 

New Markets

-

-

(2.6) 

1.5 

(2.6) 

(2.3)

Home Experts

68.7

23.8

(10.0) 

(6.9)

(4.4) 

(8.0)

Inter-segment

(3.5) 

(3.0) 

-

-

Group

536.7

457.7

21.2

28.8 

44.2

37.7 

 

Inter-segment revenue principally includes royalty charges between the UK and international businesses.

 

Membership KPIs

 

 

          Customer

           numbers (m)

Income per

customer

 

Policy retention rate

 

HY21

HY20

HY21

HY20

HY21

HY20

North America

4.5

4.2

$105

$98

83%

82%

UK

1.7

1.9

£146

£129

78%

78%

France

1.1

1.1

€109

€110

89%

89%

Spain

0.9

1.0

€61

€60

83%

81%

Group

8.2

8.2

n/a

n/a

82%

82%

 

 

Home Experts KPIs

 

 

 

Paying trades

(000)

Website hits

(m)

 

 

 

HY21

HY20

HY21

HY20

Checkatrade

 

 

40

38

13.3

11.5

Habitissimo

eLocal

 

 

20

3

28

-

51.6

n/a

42.8

n/a

Group

 

 

63

66

64.9

54.3

 

 

 

North America

North America results US$million

 

HY21

HY20 

Change

Revenue

 

 

 

 

Net policy income

 

197.4

179.0

+10%

Repair network

 

27.5

30.7

-10%

Membership

 

224.9

209.7

+7%

HVAC

 

35.9

15.6

+130%

Other

 

2.0

0.6

+230%

Total revenue

 

262.8

225.9

+16%

Adjusted operating costs

 

(222.2) 

(202.5) 

+10%

Adjusted operating profit

 

40.6

23.4

+74%

Adjusted operating margin

 

15%

10%

+5ppts

 

North America results £million

 

HY21

HY20 

Change

Revenue

 

 

 

 

Net policy income

 

155.8

142.3

+9%

Repair network

 

21.6

24.4

-11%

Membership

 

177.4

166.7

+6%

HVAC

 

28.4

12.4

+129%

Other

 

1.6

0.5

+220%

Total revenue

 

207.4

179.6

+15%

Adjusted operating costs

 

(175.4) 

(161.1) 

+9%

Adjusted operating profit

 

32.0

18.5

+73%

Adjusted operating margin

 

15%

10%

+5ppts

 

North America Membership KPIs

 

HY21 

HY20 

Change

Affinity partner households

m

64 

62 

+3%

Customers

m

4.5 

4.2 

+7%

Income per customer

US$

105 

98 

+7%

Policies

m

7.6 

7.1 

+8%

Policy retention rate

%

83 

82 

+1ppt

 

 

Financial performance

 

North America achieved strong revenue and profit growth for the half. There was continued organic growth in Membership as the resilient business model meant a relatively limited impact on top line growth from the pandemic. A reduction in marketing during the first lockdown in Membership and the increasing contribution from HVAC also benefitted operating profit.

 

Net policy income increased by 10% to $197.4m, driven by an increase in customers (up 7%) and policies (up 8%), with income per customer also rising (up 7%). This more than offset a 10% fall in repair income, as the third party subcontract network completed a higher volume of jobs.

 

HVAC revenue (up 130% to $35.9m) saw strong growth due to the FY20 acquisition of Crawford Services, the current year acquisitions of Hays and Freedom, and the benefit of organic growth across other businesses in the portfolio.

 

Other revenue principally comprised on demand repair work and services undertaken for non-Membership customers.

 

Adjusted operating profit increased 74% to $40.6m, with a 5ppt uplift in adjusted operating margin to 15% driven by higher HVAC operating margins and the lower marketing activity in Membership.

 

Operational performance

 

Continuing to sign new affinity partnerships is key to the North American business reaching its milestone targets of 6-7m customers and adjusted operating profit of $230m. Notwithstanding the impact of the pandemic, HomeServe continued to make good progress in signing new partners and saw its partner count exceed 1,000 (HY20: 748) for the first time during the first half. These partnerships now give HomeServe access to 64m (HY20: 62m) affinity partner households, with the signings of Oklahoma Gas & Electric and UGI HVAC Enterprises ("UGI") alone bringing access to c.1.3m households. The affinity partner pipeline continues to be strong, with further opportunities to sign large utilities, particularly in the energy space.

 

The resilience of the Membership model during the pandemic was demonstrated by an increase in the retention rate to 83% (HY20: 82%). Market research during the early part of the crisis indicated that the pandemic had made HomeServe cover even more important to customers, and this was reflected in a reduction in the mid-term cancellation rate versus the prior year.

 

HomeServe reduced direct mail marketing volumes during April and May in light of the pandemic, however the response to mailing campaigns that did go out slightly exceeded expectations. These results, alongside an easing of restrictions, enabled an increase in marketing volumes during the summer and the response rate has continued to be strong. HomeServe continues to see digital channels as a source of new customer growth. Across digital, the cost per acquisition fell during the half, notably driven by direct response TV advertising (DRTV) where testing has enabled refinement of content which in turn has driven an increase in take up. DRTV initiatives initially focused on Whole Home Warranty, but in fact, HomeServe's classic product line performed even better through this channel, with Whole Home Warranty providing an attractive upsell.

 

HomeServe's HVAC businesses performed strongly during the half, with revenue up 130% and an increase in the operating margin. Integration of FY20 acquisitions progressed well and a higher number of jobs were performed for Membership policyholders than during the comparative period. HomeServe continues to see a strong pipeline of targets in North America as it pursues its buy and build strategy. The first half saw the acquisition of three further HVAC providers - Hays, Freedom and UGI, with the UGI deal also bringing with it c.30,000 policies. HomeServe continues to look on its HVAC capability as both a source of new policy customers and a highly efficient trades network for the Membership business. During the half, policy marketing to the installations customers of the HVAC businesses commenced with encouraging early readings on take up rates which are in line with those seen in Membership.

 

HomeServe's Canadian business currently gives it access to 2m households via its affinity partnerships, out of the 13m total households in Canada. This penetration rate is much lower than that in the US, and offers a significant opportunity. A physical presence is key to unlocking this and HomeServe has hired a managing director who will be based in Canada and able to drive the growth of that business locally.

 

 

UK

 

UK results £million

 

HY21

HY20

Change

Revenue 

 

 

 

 

Net policy income

 

86.6

88.0

-2%

Repair network

 

36.5

43.4

-16%

Membership

 

123.1

131.4

-6%

HVAC

 

3.8

10.7

-64%

Other

 

5.5

5.6

-1%

Total revenue

 

132.4

147.7

-10%

Adjusted operating costs

 

(123.3)

(133.7)

-8%

Adjusted operating profit

 

9.1

14.0

-35%

Adjusted operating margin

 

7%

9%

-2ppts

 

 

UK Membership KPIs

 

HY21

HY20

Change

Affinity partner households

m

26

26

-

Customers

m

1.7

1.9

-10%

Income per customer

£ 

146

129

+13%

Policies

m

4.7

5.1

-7%

Policy retention rate

%

78

78

-

 

 

Financial performance 

Due to the lockdown restrictions in the UK during the early part of the pandemic, the directly employed engineer network saw lower levels of utilisation, which meant a lower level of recovery for this fixed cost base from HomeServe's underwriting partner. The half also saw a full period amortisation charge in relation to the CRM system which started to go live in September 2019. These factors led to a 35% reduction in adjusted operating profit in the seasonally quieter first half.  

 

Net policy income decreased to £86.6m (HY20: £88.0m) as a 13% rise in income per customer was more than offset by a reduction in the customer number to 1.7m (HY20: 1.9m).

 

Repair network revenue decreased by 16%. The lower policy base, and a slightly reduced claims frequency during the first lockdown, meant a 24% reduction in job volumes, though claims frequencies have subsequently increased as customers seek to rectify issues which they previously had not logged.

 

HVAC revenue reduced to £3.8m (HY20: £10.7m). Installations volume of 2.0k was significantly down on the comparative period (HY20: 5.0k) with consumer demand -impacted by the pandemic.

 

Other revenue of £5.5m (HY20: £5.6m) principally included transactions with other Group companies and income for uninsured, on demand jobs.

 

Adjusted operating costs decreased 8%, broadly in line with revenue, as the period saw lower marketing costs. As HomeServe enters the seasonally busier second half, it continues to see a full year adjusted operating margin of 20% as attainable. 

 

Operational performance

 

The UK customer number declined to 1.7m (HY20: 1.9m) as HomeServe continued to focus on its core customers that use and value the product, who in turn select and renew onto fuller product coverage. Fewer resources are given to retaining peripheral customers that seek a discount at each renewal. This rationalisation of the customer base will continue through the rest of the current year, with the stabilisation of the customer number expected in FY22.

 

The retention rate remained at 78%, with a slight improvement in the mid-term cancellation rate year on year.

 

Consistent with government guidance permitting only emergency repairs and maintenance, 21,000 non-emergency jobs were queued during the early part of the first national COVID-19 lockdown. As restrictions eased, the UK business successfully worked through this backlog. Over 100 new permanent contact centre staff have been recruited in anticipation of high claims levels in the winter period.

 

Deploying technology that improves the experience for customers and drives efficiency continues to be a core activity for the UK business. Telephony self-fix, where customers are helped to rectify simple routine faults over the phone, was used by more policyholders during the half, with 3,800 customers having their gas claim resolved without the need for an engineer. HomeServe is also trialling video self-fix, with encouraging early results suggesting higher success rates than voice channels. A new UK CRM system entered operation in September 2019. During the current period, new customer policies have continued to be set up on the new system, however the rate of migration of existing policies from the legacy system has taken longer than initially anticipated.

 

New leadership is accelerating development of HomeServe Now, HomeServe's app-based technology to swiftly identify a customer's need and connect them with an engineer in close proximity to their home. Having proven the technology, work is ongoing to establish a trades network. A trial has now started to test a subscription offer whereby consumers that do not hold a Membership policy can access the HomeServe Now network on an uninsured basis for a low fixed monthly fee. The HomeServe Now subscription will offer access to qualified local trades at favourable rates to those on the open market.

 

In September the Financial Conduct Authority (FCA) published the final findings of its general insurance pricing practices market study, alongside a package of remedies to address concerns identified. HomeServe falls outside the scope of the FCA's proposed pricing remedy for motor and home insurance. Although it does offer a discounted pricing journey during year 1 and 2, HomeServe outlines this to customers in advance - going above and beyond the FCA's requirements. The remedy to make cancellation of auto-renewal easier applies to the entire general insurance industry, and HomeServe will therefore need to add functionality such that customers are able to do this online in future. HomeServe's focus has always been on offering products which provide good value to customers, and on promoting clear and transparent communication. The final policy proposals will be published in 2021.

 

France

 

France results €million

 

HY21

HY20

Change

Revenue 

 

 

 

 

Net policy income

 

45.7 

42.0

+9%

Repair network

 

0.1 

0.2

-34%

Membership

 

45.8 

42.2

+9%

HVAC

 

5.3 

2.8

+89%

Other

 

0.6 

0.5

+18%

Total revenue

 

51.7

45.5

+14%

Adjusted operating costs

 

(43.1)

(36.6)

+18%

Adjusted operating profit

 

8.6

8.9

-4%

Adjusted operating margin

 

17%

20%

-3ppts

 

France results £million

 

HY21

HY20 

Change

Revenue 

 

 

 

 

Net policy income

 

40.9

37.2

+10%

Repair network

 

0.1

0.2

-33%

Membership

 

41.0

37.4

+10%

HVAC

 

4.8

2.5

90%

Other

 

0.6

0.5

19%

Total revenue

 

46.4

40.4

+15%

Adjusted operating costs

 

(38.6)

(32.5)

+19%

Adjusted operating profit

 

7.8

7.9

-1%

Adjusted operating margin

 

17%

20%

-3ppts

 

 

France Membership KPIs

 

HY21 

HY20 

Change

Affinity partner households

m

18

18 

-

Customers

m

1.1

1.1 

+5%

Income per customer

109

110 

-1%

Policies

m

2.4

2.4 

+2%

Policy retention rate

%

89

89 

-

 

 

Financial performance

 

Net policy income grew 9%, driven by a 5% rise in customer numbers. HVAC revenue increased 89% to €5.3m, principally due to the contribution from FY20 acquisitions.

 

Operating costs grew 18% due to direct costs associated with HVAC and slightly higher amortisation in respect of capitalised partner payments.

 

The adjusted operating margin of 17% reflects the usual seasonality, with the full year margin expected to remain the highest in the Group.

 

Operational performance

 

The first half saw strong growth in new customer acquisition in France, whilst the retention rate remained in line with the prior period. Total customer numbers rose 5% to 1.1m, marking the highest level of growth in France in five years.

 

Direct sales made from Veolia's HomeFriend unit continue to be the largest source of new customers. Deepening relationships with non-utility partners are now also contributing a good proportion of new customer wins, of which the partnership with switching site Papernest is one such example. During the half this relationship was extended with HomeServe policies being sold directly from Papernest's own call centre.

 

Following the period end, France entered a new five year affinity partnership agreement with Eneco Belgium N.V., the third largest energy provider in Belgium. From January 2021, Eneco's 650,000 customers will be able to benefit from HomeServe's core Membership product to cover electricity, plumbing, heating and locksmith services.

 

France continues to develop its on demand to policy proposition, a Group wide initiative whereby non-Membership customers in urgent need of a repair are able to access the HomeServe network, with a successful job then creating a channel to cross sell an annual Membership product to cover the customer in the event of future emergencies. HomeServe's on demand platform in France is seeing an average of 4k monthly unique visitors, with further demand being generated through warm leads passed to HomeServe from its affinity partners, Suez and Saur. While volumes are still relatively modest, a 20% conversion rate was achieved on early campaigns to convert completed on demand jobs to a successful policy sale. More testing is due to be conducted later this year to further optimise conversion rates.

 

France reached a significant milestone during the half as it went live with a new cloud-based Salesforce CRM system. All 2.4m policies have been successfully migrated and are being serviced on the new CRM.

 

The French team were delighted to be recognised for client engagement at the prestigious Palmes de la Relation Client.

 

After the period end, France completed the acquisition of SMT, an HVAC business, adding to the four acquisitions made during the period.

 

 

Spain

 

Spain results €million

 

HY21

HY20

Change

Revenue 

 

 

 

 

Net policy income

 

23.1

28.0

-18%

Repair network

 

63.0

46.3

+36%

Membership

 

86.1

74.3

+16%

HVAC

 

8.8

3.6

+144%

Total revenue

 

94.9

77.9

+22%

Adjusted operating costs

 

(92.4) 

(69.3) 

+33%

Adjusted operating profit

 

2.5

8.6

-71%

Adjusted operating margin

 

3%

11%

-8ppts

 

Spain results £million

 

HY21

HY20

Change

Revenue 

 

 

 

 

Net policy income

 

20.7

24.8

-17%

Repair network

 

56.7

41.2

+38%

Membership

 

77.4

66.0

+17%

HVAC

 

7.9

3.2

147%

Total revenue

 

85.3

69.2

+23%

Adjusted operating costs

 

(83.0) 

(61.6)

+35%

Adjusted operating profit

 

2.3

7.6

-70%

Adjusted operating margin

 

3%

11%

-8ppts

 

 

Spain Membership KPIs

 

HY21 

HY20

Change

Affinity partner households

m

-

Customers

m

0.9 

1.0 

-10%

Income per customer

€ 

61 

60 

+1%

Policies

m

1.1 

1.2 

-10%

Policy retention rate

%

83 

81 

+2ppts

 

 

Financial performance

 

As expected net policy income declined 18% to €23.1m due to a lower customer number following the ending of the Endesa relationship in May 2018.

 

Repair network revenue increased 36% to €63.0m as the Claims business completed 508k jobs, up 20% on the prior half year, for its bancassurer partners despite the restrictions on activity in April and May.

 

HVAC revenue rose strongly to €8.8m (HY20: €3.6m), largely due to the contribution from acquisitions made partway through the prior half year and also in the current year.

 

Adjusted operating profit reduced to €2.5m (HY20: €8.6m), predominantly due to the impact of the lower customer number in Membership.

 

Operational performance

 

The Membership business performed resiliently, with retention up to 83% (HY20: 81%) and income per customer broadly in line with the prior half year. The Endesa relationship is back book only, with no policy sales to new customers, but continued cross-sell and renewal to existing customers. The rise in retention reflects the increasing maturity of the book.  

 

Spain saw increased traction during the half with its on demand to policy offering. Overall volumes remain modest, however early trials offering a policy alongside an on demand job drove higher levels of conversion and this will be tested in other Membership territories.  

 

The Claims business was initially more impacted by the COVID-19 crisis, completing a lower volume of jobs during the early part of the national lockdown due to government restrictions. The easing of restrictions saw the volume of jobs return to levels more in line with expectations. Notwithstanding this, further progress was made in growing the Claims business with the acquisition of Mesos, a claims handling business. As well as insurers, Mesos serves the end customers of utilities and home appliance retailers and will, therefore, broaden the current client base of the Claims business. Mesos has operations in Portugal as well as Spain, and positions HomeServe strongly to enter the Portuguese market.

 

Spain made two HVAC acquisitions. Solusat and Urueña were acquired in June and July respectively, with the Solusat deal bringing with it a policy book of c.38,000 policies. Both businesses will be integrated during the second half and will contribute to further revenue growth for the full year.

 

Following the period end the Spanish business was awarded the Great Place to Work designation, being the only company in the home assistance and repairs sector to be recognised in this way.

 

 

 

New Markets

 

New Markets results - £m

 

HY21 

 HY20

 Change

Adjusted operating loss

 

(2.6) 

(2.3)

+15%

 

               

 

New Markets comprises HomeServe's activity in Japan via its JV partnership with Mitsubishi Corporation, as well as business development activity in other territories.

 

The JV signed its first affinity partner relationship with Chugoku Electric in January 2020. There have been promising results from the first three marketing campaigns which delivered response rates comparable with established Membership territories.

 

HomeServe continues to see an opportunity to take the Membership home assistance offering to new territories, doing so by pairing the acquisition of a profitable local claims handling business with signing a long term relationship with a committed utility partner. During the period further progress was made in identifying M&A targets within the most promising target territories.

 

The £2.6m adjusted operating loss reflects HomeServe's share of the on-going costs to fund the Japanese operations as well as the business development activity in other territories.

 

 

Home Experts

 

£million

 

HY21

 HY20

 Change

Revenue

 

 

 

 

 

Checkatrade

Habitissimo

eLocal

 

17.0

4.7

47.0

18.2

5.6

-

-6%

-15%

n/a

 

Total revenue

 

68.7

23.8

+189%

 

Adjusted operating costs

 

(73.1)

(31.8)

+130%

 

Adjusted operating loss

 

(4.4)

(8.0)

-45%

 

                 

 

 

Performance metrics

 

HY21

HY20

Change

Checkatrade trades 

k

40

38

+8%

Habitissimo trades

eLocal trades

k

k

20

3

28

-

-29%

n/a

Checkatrade website hits

m

13.3

11.5

+15%

Habitissimo website hits

m

51.6

42.8

+21%

 

 

Financial Performance

 

Home Experts revenue increased to £68.7m (HY20: £23.8m), reflecting the contribution from eLocal, with HomeServe having acquired its 79% stake in November 2019. Revenue at Checkatrade and Habitissimo declined, with the Home Experts businesses experiencing an impact from the early stages of the COVID-19 crisis.

 

Adjusted operating costs grew due to the inclusion of eLocal and steps taken to support the trades network at Checkatrade, however the profitable contribution from eLocal saw a reduction in the operating loss for the period.

 

 

Checkatrade

 

Checkatrade was impacted during the early stages of the COVID-19 pandemic, as government restrictions permitting only emergency maintenance and repair in homes drove a reduction in consumer demand and meant improvement works stopped. The trades network was proactively offered either a 50% discount or free affiliate membership in recognition of lower demand, with around 80% of trades taking up the discounted membership option through April and May. The easing of government restrictions in May saw trades able to access homes once again, as a recovery in consumer demand enabled the majority of trades to resume full payment in June, except in Scotland and Wales where lockdown restrictions were lifted later.

 

Consumer demand returned strongly to Checkatrade over the summer, with web visits reaching a record high in June and then again in July. Even more important to trades' perception of the platform's value is the number of contacts (the total number of calls and messages made by consumers to trades). Contacts rebounded strongly during the half, with consecutive record breaking months in June, July and August. Checkatrade ended the half delivering around 22 contacts per month on average to each of its paying trades.

 

Total paying trades grew to 40k (HY20: 38k), with a further 5k trades currently on the platform as free affiliate members. Checkatrade has been refining the way in which it drives trades recruitment, and a key element will now be the "freemium" offer. This involves new trades being given a partial profile on the platform using publically available information, with trades then contacted and encouraged to complete the vetting process to upgrade their profile and become a paying member - enabling them to appear in multiple consumer searches. Checkatrade has recently begun trialling this trade recruitment offer in Scotland, and ended the period with 4k trades on the platform as freemium members. This takes the total number of trades visible to consumers on Checkatrade close to 50,000 (HY20: 38k). 

 

Checkatrade has been refining its Directory Extra model. The majority of consumers, who prefer browsing the open directory of checked and vetted trades, continue to be able to do so. During the period new functionality has been tested to identify the best solution for those consumers who do not wish to browse the directory but would rather Checkatrade get them trades to quote on their job. 'Describe your job' enables a consumer to post the details of their enquiry and a preferred contact time, with these then being sent to three relevant trades. This now accounts for 20% of total contacts on the platform.

 

 

Habitissimo

 

Trades on Habitissimo fell to 20k (HY20: 28k), reflecting a pause on recruitment during the planning for the launch of the Directory Extra model in Spain. Habitissimo's key medium term objective is to transition from its current 'lead generation' model to the Directory Extra model already in place at Checkatrade. A launch of Directory Extra is targeted in the Spanish market under the HomeServe brand in 2021.

 

 

eLocal

 

eLocal was impacted by reduced consumer demand in the early stages of the crisis, but saw demand return strongly, indeed to record levels, during the summer months. The majority of eLocal's consumer traffic is via calls, with this traffic then routed to the c.3k trades that have purchased a package of calls in advance. The number of trades with monetised activity fell slightly during the period, but was more than offset by higher consumer demand. This has driven a significant uplift in revenue per trade - particularly from the larger national accounts who are to able purchase greater volumes of leads. As a result, eLocal remains firmly on track to deliver in excess of $10m of adjusted operating profit for the full year.

 

eLocal is now working with HomeServe Membership in North America to determine how best to convert on demand emergency calls to policy sales. In addition, work has commenced on planning the launch of the Directory Extra model under the HomeServe brand during FY22.

 

 

France

 

In May 2020 HomeServe entered into a new structure to scale the Home Experts France business, now known as Maison.fr. Following this, the local management team of Maison.fr now hold 80%, with HomeServe retaining a 20% stake as well as an option to increase this holding in the future as the business grows.

 

 

 

FINANCIAL REVIEW

 

These financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.

 

Group statutory results

 

The headline statutory financial results for the Group are presented below.

 

£million

Six months ended

30 September 2020

Six months ended

30 September 2019

Total revenue

 

536.7

457.7

Operating profit

21.2

28.8

Net finance costs

 

(11.1)

(9.1)

Adjusted profit before tax

33.1

28.6

Amortisation of acquisition intangibles

(23.0)

(16.3)

Exceptional items

7.4

 

 

 

Statutory profit before tax

10.1

19.7

Tax

(2.8)

(3.0)

Profit for the period

7.3

16.7

 

 

 

Attributable to:

 

 

Equity holders of the parent

6.8

16.8

Non-controlling interests

0.5

(0.1)

 

7.3

16.7

 

 

Statutory profit before tax was £10.1m, £9.6m lower than the prior period (HY20: £19.7m). There was a strong trading performance in Membership and a reduced operating loss in Home Experts. However, this was more than offset by higher finance costs, higher straight-line amortisation charges as a result of the investments made in FY20 and the exceptional gains reported in the prior period. Statutory profit before tax is reported after the amortisation of acquisition intangibles and exceptional items as detailed below.

 

Amortisation of acquisition intangibles

The amortisation of acquisition intangibles of £23.0m (HY20: £16.3m) increased, principally due to the acquisition of eLocal and purchases as part of the Group's buy and build strategy in HVAC.

                                                     

Exceptional items

There were no exceptional items in the period. In the prior period there was an exceptional gain of £7.4m.

 

Taxation

The tax charge in the period was £2.8m (HY20: £3.0m). The pre-exceptional effective tax rate was 28% (HY20: 24%). Under IAS 34 the Group's interim effective tax rate is higher than the estimated weighted average annual effective tax rate for FY21 of 24%. This is appropriate on the basis that the Group's profits during the first half are weighted towards the higher tax rate countries in which it operates (e.g. the USA and France).

 

Cash flow and financing

Cash generated from operations in the period to 30 September 2020 was £96.2m (HY20: £61.4m).

 

 

 

 

£million

2021

2020

Adjusted operating profit

44.2

37.7

Exceptional items

-

7.4

Amortisation of acquisition intangibles

(23.0)

(16.3)

Operating profit

21.2

28.8

Impact of exceptional items

-

(7.4)

Depreciation and amortisation

62.6

49.5

Non-cash items

6.3

5.7

Decrease/(increase) in working capital

6.1

(15.2)

Cash generated from operations

96.2

61.4

Net interest and associated borrowing costs

(9.8)

(8.0)

Repayment of lease principal

(7.3)

(6.0)

Taxation

(15.4)

(15.9)

Capital expenditure - ordinary

(34.5)

(37.1)

Capital expenditure - acquisitions of policy books

(0.6)

(6.9)

Free cash flow

28.6

(12.5)

Acquisitions of subsidiaries

Disposal of subsidiary

(50.7)

(3.8)

(14.8)

-

Acquisition of non controlling interest

-

(7.7)

Contribution to equity accounted investee

(0.7)

-

Proceeds on disposal of equity accounted investments

-

8.4

Equity dividends paid

(59.7)

(54.1)

Purchase of own shares

-

(3.0)

Proceeds on issue of share capital

-

0.1

Net movement in cash and bank borrowings

(86.3)

(83.6)

Impact of foreign exchange and other non-cash items

9.5

(5.7)

Lease liabilities

(0.9)

(57.4)

Opening net debt at 1 April

(509.0)

(304.7)

Closing net debt at 30 September

(586.7)

(451.4)

 

During the period 1 April to 30 September 2020, net debt increased by £77.7m to £586.7m.

 

Working capital decreased by £6.1m in the period (HY20: £15.2m increase), reflecting the timing of payments to underwriters.

 

The Group generated free cash flow of £28.6m (HY20: -£12.5m). The primary uses for the allocation of capital in the first half continued to be investment in capital expenditure and the HVAC buy and build strategy.

 

Ordinary capital expenditure of £34.5m (HY20: £37.1m) included £6.0m (HY20: £7.7m) of payments made to partners who undertake marketing activity to acquire customers on HomeServe's behalf.

 

The balance of £28.5m (HY20: £29.4m) principally comprised technology investments in customer systems in Membership and Checkatrade. Capital expenditure fell slightly, as major capex programmes such as the UK CRM system came to an end.

 

Dividend

 

The interim dividend of 6.2p per share (HY20: 5.8p), an increase of 7%, will be paid on 8 January 2021 to shareholders on the register on 11 December 2020.

 

Earnings per share

Adjusted earnings per share of 7.1p increased 9% on the prior period (HY20: 6.5p) due to a strong trading performance in Membership.

 

On a statutory basis, earnings per share fell from 5.0p to 2.0p driven by the exceptional gains recorded in the prior period, higher acquisition amortisation charges and interest costs.

 

 

Net debt and finance costs

Net debt at 30 September 2020 was £586.7m (HY20: £451.4m). The Group remained well within its total financial facilities of c.£1,010m at the half year.

 

The Group targets leverage in the range of 1.0 to 2.0x adjusted EBITDA, measured at 31 March each year. At the seasonally high half year, the Group was at the top of this range with net debt to last twelve months adjusted EBITDA of 2.0x (HY20: 1.9x).

 

The Group's net interest paid was £9.8m, £1.8m higher than HY20, principally due to the higher net debt figure year on year and costs associated with the US Private Placement.

 

 

Foreign exchange impact

The impact of changes in the Euro and USD exchange rates between HY21 and HY20 has resulted in a £1.0m decrease in reported revenue and a £0.4m decrease in adjusted operating profit of the international businesses as summarised in the table below.

 

 

 

 

 

Effect on (£m)

 

 

 

Average exchange rate

Revenue 

Adj. operating

profit

 

 

HY21

HY20

Change

HY21 

HY21 

North America

US$

1.27

1.26

1%

(2.1) 

(0.4)

France

1.12

 1.13

-1%

0.4

-

Spain

1.12

 1.13

-1%

0.7

-

Home Experts

1.12

 1.13

-1%

-

-

New Markets

1.12

 1.13

-1%

-

-

Total International

 

 

 

 

(1.0)

(0.4)

 

The second half translation impact of sterling at prevailing rates is currently expected to be immaterial. A ten cent movement from current rates in the USD and Euro would have impacts of approximately £5.8m and £3.5m respectively on full year adjusted operating profit.

 

 

 

Going concern

 

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic report of the Annual Report & Accounts 2020. An update on the potential impact of COVID-19 and Brexit is set out below. The Directors have reviewed the Group's budget, forecast and cash flows for FY21 and beyond, and concluded that they are in line with their expectations with regards to the Group's strategy and future growth plans.

 

Having also reviewed the Group's position in respect of other material uncertainties, as set out within principal risks and uncertainties, the Directors have concluded that there are no items that would affect going concern or that should be separately disclosed. The Directors have concluded that they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

 

COVID-19

 

The COVID-19 crisis continues to be an evolving situation, with the longer term impacts and consequences of the pandemic still unknown. All businesses continue to actively address it in a number of different respects. For example, at the outset, HomeServe's businesses ensured technology was provided to enable staff to work from home, and also that engineers on the front line could complete repairs whilst protecting themselves and our customers through, for example, maintaining social distancing guidelines. The impact on sales volumes, claims volumes, cancellation rates and a number of other KPIs and metrics continue to be reviewed. As a risk which has crystallised, COVID-19 is categorised neither as an enterprise level risk nor as an emerging risk. However, consideration is being given to the wider emerging risk of future public health emergencies.

 

Having demonstrated an ability to respond quickly and effectively to keep operations functioning and maintain good levels of service in all businesses, the resilience of the Group's business model has been tested to date. Key to the longer term prospects of the Group will be the impact of the crisis on macro-economic conditions and consumer behaviour. In previous periods of consumer uncertainty and economic downturn, for example during the financial crisis in c.2008 to 2009, little negative impact on business performance was observed and the model remained resilient.

 

Whilst the initial impact was more pronounced on the Home Experts businesses, consumer demand has since returned strongly. Meanwhile the four established Membership businesses situated in different countries afford a good degree of protection for the Group as a whole and the longer term prospects for Home Experts, including Checkatrade's milestone targets, remain unchanged.

 

The Group has a strong balance sheet and retains a range of financing facilities with medium to long term maturities, which provide access to additional resources across a range of currencies. Additionally the Group remains well within both of its debt covenants, with interest cover well in excess of 4x and leverage well under the required 3x. With over £480m of headroom against its debt facilities, liquidity is healthy and the Group is well positioned to face the ongoing challenges of COVID-19.

 

Brexit

 

Brexit has never featured as one of HomeServe's enterprise risks but it continues to be monitored at a local and a Group level following the UK's formal exit on 31 January 2020. Brexit retains the potential to be one of the most significant economic events for the UK and the full range, scale and timing of potential outcomes and impacts are not yet certain. However, HomeServe continues to believe the impact on the underlying performance of the Group will be limited.

 

HomeServe's businesses trade predominantly within their own borders and HomeServe is not exposed to any cross border transactional currency risk. The Group remains subject to translation risk on the presentation of results in Sterling however this is within the ordinary course of business.

 

Principal risks and uncertainties

 

The principal risks and uncertainties, together with mitigating activities, are detailed on pages 26-31 of the Group's 2020 Annual Report & Accounts. In that Report, the Directors confirmed that they have carried out a robust assessment of the principal risks facing the Group.

 

The risks which continue to have the potential to impact the Group's performance are summarised as follows:

 

Strategic Risks

 

Competition

There is a risk that competitors erode our market share, including utilities running Membership programmes in-house or new entrants investing heavily to enter the home services space.

 

Information security and cyber resilience

In line with other businesses, HomeServe is subject to increased prevalence and sophistication of cyber-attacks, which could result in unauthorised access to customer and other data or cause business disruption to services.

 

M&A strategy

Whilst our M&A strategy is principally focused on low-risk policy book M&A and smaller, well-run HVAC businesses, there is a risk that HomeServe could overpay for transactions or underestimate the time and resource required to integrate new businesses.

 

Operational Risks

 

Underwriting capacity and concentration

The Membership business markets and administers policies that are underwritten by independent third party underwriters. If the business was unable to source sufficient underwriting capacity Homeserve would need to underwrite the risk directly, thereby exposing the business to underwriting risk, which is contrary to our preferred model.

 

Regulation

HomeServe is subject to regulatory requirements relating to areas such as product design, marketing materials, sales processes and data protection. HomeServe is in regular dialogue with the FCA as part of the normal course of business. Failure to comply with regulatory requirements could result in a suspension of certain activities.

 

Digital transformation

Consumers increasingly wish to engage with HomeServe by digital means. There is a risk that if Homeserve is not flexible enough to respond to changing needs, customers may explore competitor products.

 

HVAC Integration

With the higher volume of HVAC acquisitions, there is a risk that failure to integrate acquisitions quickly and effectively could result in the business falling short on the delivery of synergies which could potentially lead to impairment.

 

Partner loss

Underpinning HomeServe's success are close commercial relationships, such as utility companies and municipal utility providers. The loss of one or more of these relationships could impact on HomeServe's future growth plans.

 

Sustainability

Disruption in operations as a direct result of increased frequency and intensity of extreme weather events could impact on both customers and the network due to a potential change in demand.

 

People

HomeServe's ability to meet growth expectations and compete effectively is, in part, dependent on the skills, experience and performance of its personnel. The inability to attract, motivate or retain key talent could impact business performance.

 

International

There is a risk that by attempting to enter new markets, HomeServe could divert investment and management time incurring not only losses in the new country but reduced performance in the existing core markets.

 

 

Technology investment

The Group relies on several key systems to manage its interactions with customers. Appropriate maintenance and investment is required to ensure systems continue to meet the changing needs of the business and its customers. There is a risk that failure to invest appropriately could impact on our ability to provide higher quality service.

 

Financial Risk

Key financial risks include the availability of short-term and long-term funding to meet business needs and take advantage of M&A opportunities, mitigate the risk of policyholders not paying monies owed and fluctuations in interest rates and exchange rates.

 

Information on financial risk management is set out on page 165 of the Annual Report, a copy of which is available on the Group's website www.HomeServeplc.com.

 

During the period the Group noted movement in certain of its principal risks as detailed below:

 

Technology investment

 

A new customer relationship management ("CRM") system went live in the UK in 2019, becoming available for use and with amortisation commencing on 1 September 2019. In the strategic report of the 2020 Annual Report & Accounts, the Group noted that the migration of existing customers from the legacy system was underway and completion of that migration was a critical next step to the full deployment of the new system. In FY21, migration of existing customers has progressed, but this is currently taking longer than initially anticipated.  

 

During the period the Group recognised an additional principal risk as follows:

 

Failure to deliver strategic growth

HomeServe continues to have a number of opportunities to develop its businesses. There is a risk that it fails to determine where to focus energy, time and resources and, as a result, does not deliver strategic growth or achieve the expected or desired outcomes.

 

To mitigate this risk an internal committee meets regularly to review new business development opportunities and ensure alignment with HomeServe's core strategy to make home repairs and improvements easy by matching customers to trades to generate repeat and recurring income.

 

 

Condensed consolidated income statement

 

For the six months ended 30 September 2020

 

 

 

 

£million

Note

Six months ended

30 September 2020

(Reviewed)

Six months ended

30 September 2019

(Reviewed)

Year ended

31 March 2020

 (Audited)

Continuing operations

 

 

 

 

Revenue

3

536.7 

457.7 

1,132.3 

Operating costs

 

(514.3)

(427.6)

(971.6)

Share of results of equity accounted investments

 

(1.2)

(1.3)

(2.1)

Operating profit

 

21.2 

28.8 

158.6 

Investment income

 

0.1 

0.3 

0.5 

Finance costs

 

(11.2)

(9.4)

(21.2)

Adjusted profit before tax

 

33.1 

28.6 

181.0 

Amortisation of acquisition intangibles

 

(23.0)

(16.3)

(35.5)

 

 

 

 

 

Exceptional items

4

7.4 

(7.6)

Profit before tax

 

10.1 

19.7 

137.9 

Tax

5

(2.8)

(3.0)

(32.1)

Profit for the period

 

7.3 

16.7 

105.8 

 

 

 

 

 

Attributable to:

Equity holders of the parent

 

6.8 

16.8 

106.0 

Non-controlling interests

 

0.5 

(0.1)

(0.2)

 

 

7.3 

16.7 

105.8 

 

 

 

 

 

Dividends per share

6

6.2p 

5.8p 

23.6p 

 

Earnings per share

 

 

 

 

Basic

7

2.0p 

5.0p 

31.7p 

Diluted

7

2.0p 

5.0p 

31.5p 

 

 

 

 

 

 

 

 

 

Condensed consolidated statement of comprehensive income

 

For the six months ended 30 September 2020

 

 

 

£million

Six months ended

30 September 2020

 (Reviewed)

Six months ended

30 September 2019

(Reviewed)

Year ended

31 March 2020

 (Audited)

Profit for the period

7.3 

16.7 

105.8 

Items that will not be reclassified subsequently to profit and loss:

 

 

 

Actuarial (loss)/gain on defined benefit pension scheme

(4.9)

0.1 

1.6 

Deferred tax credit/(charge) relating to actuarial re-measurements

0.9 

(0.3)

Fair value loss on FVTOCI investment in equity instruments

(3.7)

Deferred tax credit relating to fair value loss on FVTOCI investment in equity instruments

0.8 

 

(4.0)

0.1 

(1.6)

Items that may be reclassified subsequently to profit and loss:

 

 

 

Exchange movements on translation of foreign operations

0.4 

17.7 

14.1 

Exchange movements on non-controlling interests

(0.5)

 

(0.1)

17.7 

14.1 

 

 

 

 

Total other comprehensive (loss)/income

(4.1)

17.8 

12.5 

 

 

 

 

Total comprehensive income for the period

3.2 

34.5 

118.3 

 

 

 

 

Attributable to:

 

 

 

Equity holders of the parent

3.2 

34.6 

118.5 

Non-controlling interests

(0.1)

(0.2)

 

3.2 

34.5 

118.3 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed consolidated balance sheet

As at 30 September 2020

 

 

 

£million

Note

30 September 2020

(Reviewed)

30 September 2019

(Reviewed)

31 March 2020

(Audited)

Non-current assets

 

 

 

 

Goodwill

 

559.2 

422.4 

509.9 

Intangible assets

8

494.3 

440.9 

497.1 

Contract costs

 

12.4 

26.1 

16.8 

Right of use assets

 

54.3 

56.9 

56.8 

Property, plant and equipment

 

42.7 

40.3 

42.0 

Equity accounted investments

 

3.4 

5.0 

4.0 

Other investments

 

8.8 

9.5 

5.6 

Other financial assets

9

1.2 

Deferred tax assets

 

8.5 

6.4 

6.0 

Retirement benefit assets

 

6.6 

7.6 

10.3 

 

 

1,191.4 

1,015.1 

1,148.5 

 

 

 

 

 

Current assets

 

 

 

 

Inventories

 

11.1 

7.9 

7.9 

Trade and other receivables

 

432.8 

382.9 

495.4 

Current tax asset

 

3.1 

9.6 

- 

Cash and cash equivalents

 

101.1 

67.0 

131.2 

 

 

548.1 

467.4 

634.5 

Total assets

 

1,739.5 

1,482.5 

1,783.0 

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

(392.8)

(325.5)

(410.6)

Bank and other loans

 

(30.5)

(36.1)

(40.3)

Current tax liabilities

 

(5.4)

Lease liabilities

 

(14.1)

(11.3)

(14.1)

Provisions

13

(5.1)

(1.0)

(2.0)

 

 

(442.5)

(373.9)

(472.4)

Net current assets

 

105.6 

93.5 

162.1 

 

 

 

 

 

Non-current liabilities

 

 

 

 

Bank and other loans

 

(600.2)

(423.8)

(540.6)

Other financial liabilities

 

(36.2)

(14.0)

(52.3)

Deferred tax liabilities

 

(23.9)

(26.8)

(26.2)

Lease liabilities

 

(43.0)

(47.2)

(45.2)

 

 

(703.3)

(511.8)

(664.3)

Total liabilities

 

(1,145.8)

(885.7)

(1,136.7)

Net assets

 

593.7 

596.8 

646.3 

 

 

 

 

 

Equity

 

 

 

 

Share capital

11

9.1 

9.0 

9.0 

Share premium account

 

196.4 

189.2 

189.3 

Share incentive reserve

 

18.1 

19.2 

21.9 

Currency translation reserve

 

37.4 

40.6 

37.0 

Investment revaluation reserve

 

(0.6)

2.3 

(0.6)

Other reserves

 

79.2 

79.2 

79.2 

Retained earnings

 

243.5 

257.3 

299.9 

Attributable to equity holders of the parent

 

583.1 

596.8 

635.7 

Non-controlling interests

 

10.6 

10.6 

Total equity

 

593.7 

596.8 

646.3 

 

 

 

Condensed consolidated statement of changes in equity

 

For the six months ended 30 September 2020 (Reviewed)

£million

 

Share capital

 

Share premium account

 

Share incentive reserve

 

Currency translation reserve

 

 

Investment

revaluation

reserve

Other reserves1

Retained earnings

 

Attributable to equity holders of the parent

 

Non-controlling interest

Total equity

Balance at 1 April 2020

9.0 

189.3 

21.9 

37.0 

(0.6)

79.2 

299.9 

635.7 

10.6 

646.3 

Profit for the period

6.8 

6.8 

0.5 

7.3 

Other comprehensive income for the period 

 

 

 

 

0.4 

 

 

 

(4.0)

(3.6)

(0.5)

(4.1)

Total comprehensive income for the period

 

 

 

 

0.4 

 

 

2.8 

3.2 

3.2 

Dividends paid (note 6)

(59.7)

(59.7)

(59.7)

Issue of share capital

0.1 

7.1 

7.2 

7.2 

Share-based payments

3.3 

3.3 

3.3 

Share options exercised

(7.1)

(7.1)

(7.1)

Tax on exercised share options

 

1.6 

1.6 

1.6 

Deferred tax on share

options

 

(1.1)

(1.1)

(1.1)

Balance at 30 September 2020 (Reviewed)

9.1 

196.4 

18.1 

37.4 

(0.6)

79.2 

243.5 

583.1 

10.6 

593.7 

 

For the six months ended 30 September 2019 (Reviewed)

£million

 

Share capital

 

Share premium account

 

Share incentive reserve

 

Currency translation reserve

Investment

revaluation

reserve

Other reserves1

Retained earnings

 

Attributable to equity holders of the parent

 

Non-controlling interest

Total equity

Balance at 1 April 2019

9.0 

180.7 

23.3 

22.9 

2.3 

82.2 

293.0 

613.4 

0.2 

613.6 

Profit for the period

16.8 

16.8 

(0.1)

16.7 

Other comprehensive income for the period 

 

 

 

 

17.7 

 

 

 

0.1 

 

17.8 

 

 

 17.8 

Total comprehensive income for the period

 

 

 

 

17.7 

 

 

 

16.9 

 

34.6 

 

(0.1)

 

34.5 

Dividends paid (note 6)

(54.1)

(54.1)

(54.1)

Issue of share capital

8.5 

 8.5 

 8.5 

Purchase of own shares

(3.0)

 (3.0)

(3.0)

Share-based payments

 4.4 

 4.4 

4.4 

Share options exercised

(8.5)

0.1 

 (8.4)

(8.4)

Tax on exercised share

options

 

 3.0 

 3.0 

 3.0 

Deferred tax on share

options

 

(1.6)

(1.6)

(1.6)

Acquisition of non-controlling interest

 

- 

(0.1)

(0.1)

Balance at 30 September 2019 (Reviewed)

9.0 

189.2

19.2 

40.6 

 

2.3 

79.2 

257.3 

596.8 

 

596.8 

 

For the year ended 31 March 2020 (Audited)

£million

 

Share capital

Share premium account

Share incentive reserve

Currency translation reserve

Investment

revaluation

reserve

Other reserves1

Retained earnings

Attributable to equity holders of the parent

Non-controlling interest

Total equity

Balance at 1 April 2019

9.0 

180.7 

23.3 

22.9 

2.3 

82.2 

293.0 

613.4 

0.2 

613.6 

Profit for the year

106.0 

106.0 

(0.2)

105.8 

Other comprehensive income for the year

14.1 

(2.9)

1.3 

12.5 

12.5 

Total comprehensive income for the year

 

 

 

 

14.1 

 

(2.9)

 

107.3 

 

118.5 

 

(0.2)

 

118.3 

Dividends paid (note 6)

(73.5)

(73.5)

(73.5)

Issue of share capital

8.6 

 - 

 8.6 

 8.6 

Purchase of own shares

(3.0)

(3.0)

(3.0)

Share-based payments

 7.2 

 - 

 7.2 

 7.2 

Share options exercised

(8.6)

0.1 

 (8.5)

 (8.5)

Tax on exercised share

options

 

3.0  

3.0 

3.0 

Deferred tax on share

options

 

(1.2)

(1.2)

(1.2)

Changes in non-controlling interests

10.6 

10.6 

Obligations under put options

(28.8)

(28.8)

(28.8)

Balance at 31 March 2020 (Audited)

9.0 

189.3 

21.9 

37.0 

(0.6)

79.2 

299.9 

635.7 

10.6 

646.3 

1 Other reserves comprise the Merger, Own Shares and Capital Redemption reserves.
 

Condensed consolidated cash flow statement

For the six months ended 30 September 2020

 

 

 

£million

Note

Six months ended

30 September 2020

 (Reviewed)

Six months ended

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

Net cash inflow from operating activities

12

72.4 

37.2 

192.0 

 

 

 

 

 

Investing activities

 

 

 

 

Interest received

 

0.1 

0.3 

0.5 

Proceeds on disposal of fixed assets

 

0.2 

0.2 

0.5 

Purchases of intangible assets

 

(31.3)

(38.7)

(74.3)

Contract costs

 

(0.2)

(2.1)

(3.9)

Purchases of property, plant and equipment

 

(3.8)

(3.4)

(8.2)

Disposal of equity accounted investment

 

8.4 

8.4 

Contribution to equity accounted investee

 

(0.7)

Disposal of subsidiary

9

(3.8)

Acquisition of subsidiaries

9

(50.7)

(14.8)

(140.6)

Net cash used in investing activities

 

(90.2)

(50.1)

(217.6)

 

 

 

 

 

Financing activities

 

 

 

 

Dividends paid

6

(59.7)

(54.1)

(73.5)

Repayment of lease principal

 

(7.3)

(6.0)

(12.4)

Acquisition of non-controlling interest

 

(7.7)

(7.7)

Purchase of own shares

 

(3.0)

(3.0)

Proceeds on issue of share capital

 

0.1 

0.1 

New bank and other loan facilities raised

15

243.4 

- 

Costs associated with new facilities raised

 

(1.5)

- 

(0.8)

Movement in existing bank and other loan facilities

12

(185.6)

76.2 

182.6 

Net cash (used in)/from financing activities

 

(10.7)

5.5 

85.3 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(28.5)

(7.4)

59.7 

Cash and cash equivalents at beginning of period

 

131.2 

72.6 

72.6 

Impact of foreign exchange rate changes

 

(1.6)

1.8 

(1.1)

Cash and cash equivalents at end of period

 

101.1 

67.0 

131.2 

 

 

 

Notes to the condensed set of financial statements

For the six months ended 30 September 2020

 

1.         General information

 

HomeServe plc is a company incorporated in the United Kingdom and its shares are listed on the London Stock Exchange. The address of the registered office is Cable Drive, Walsall, WS2 7BN. The information for the year ended 31 March 2020 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor reported on those accounts, the report was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006. This condensed set of financial statements for the six months ended 30 September 2020 is unaudited, but has been reviewed by the auditor and their report to the Company is at the end of this statement. This condensed set of financial statements was approved by the Board of Directors on 17 November 2020.

 

2.         Accounting policies

 

Basis of preparation

This condensed set of financial statements has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) and in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting" as adopted by the European Union. The Group's annual financial statements are prepared in accordance with IFRSs as adopted by the European Union and therefore comply with Article 4 of the EU IAS regulation.

 

The Group's business activities, together with the factors likely to affect its future development, including the potential impacts of COVID-19 and Brexit, performance and position are set out in our 2020 Annual Report & Accounts. A further update regarding the potential impacts of COVID-19 and Brexit has been provided in the 'Going Concern' section of this release. 

 

The Directors have reviewed the Group's budget, forecast and cash flows for 2021 and beyond, and concluded that they are in line with expectations with regards to the Group's strategy and future growth plans. In addition, the Directors have reviewed the Group's position in respect of material uncertainties and have concluded that there are no items that would affect going concern or that should be separately disclosed.

 

The Directors have concluded that they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the condensed financial statements.

 

Changes in accounting policy

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest audited financial statements, with the exception of the following new amendments and improvements documents. None of these documents had any material impact on the condensed consolidated financial statements of the Group:

 

Amendments to IFRS 3

Definition of a Business

Amendments to IFRS 9, IAS 39 and IFRS 7

Interest Rate Benchmark Reform

Amendments to IAS 1 and IAS 8

Definition of Material

Conceptual Framework

Amendments to References to the Conceptual Framework in IFRS Standards

 

 

 

2.         Accounting policies (continued)

 

Standards in issue but not yet effective

At the date of authorisation of this condensed set of financial statements the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective (not all of which have been endorsed by the EU):

IFRS 10 and IAS 28

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

IFRS 17

Insurance Contracts

Amendments to IAS 1

Classification of liabilities as Current or Non-Current

Amendments to IAS 3

Reference to Conceptual Framework

Amendments to IAS 16

Property, Plant and Equipment - Proceeds before Intended Use

Amendments to IAS 37

Onerous Contracts - Cost of Fulfilling a Contract

Annual Improvements to IFRSs

Standards 2018-2020 Cycle

Amendment to IFRS 16

COVID-19 Related Rent Concessions

 

The Directors do not expect that the adoption of the standards in issue not yet effective above will have a material impact on the financial statements of the Group in future years.     

 

3.         Business and geographical segments

 

Business segments

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker, who is considered to be the Chief Executive, to allocate resources to the segments and to assess their performance.

Segment operating profit/(loss) represents the result of each segment including allocating costs associated with head office and shared functions, but without allocating investment income, finance costs and tax. This is the measure reported to the Chief Executive for the purposes of resource allocation and assessment of segment performance.

The accounting policies of the operating segments are the same as those described in Significant Accounting Policies in the Group's latest audited financial statements, except as set out in note 2. Group cost allocations are deducted in arriving at segmental operating profit. Inter-segment revenue relates to transactions with other Group companies, removed on consolidation, and principally comprises royalty and other similar charges charged at prevailing market prices. Disaggregation of revenue by both line of business and geography are disclosed below. Management believes that these are the most relevant categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. The line of business analysis also illustrates the Group's revenue by major products and services. As illustrated in the tables below, the sale and renewal of policies across HomeServe's Membership businesses are more heavily weighted towards the second half of the financial year.

 

The Group's segmental performance is presented below. The 'Home Experts' segment contains the results of Checkatrade, eLocal, Habitissimo and Home Experts France (until the point of disposal on 15 May 2020 (see note 9)). New Markets includes the Group's international development initiatives, including its Japanese joint venture and its former Italian associate which was disposed of on 1 August 2019.

 

 

 

3.         Business and geographical segments (continued)

 

For the six months ended 30 September 2020 (Reviewed)

 

£million

North America

UK 

France

Spain

New Markets

Home

Experts

Total

Revenue by category:

 

 

 

 

 

 

 

Net policy income

155.8 

86.6 

40.9 

20.7 

304.0 

Repair income

21.6 

36.5 

0.1 

56.7 

114.9 

HVAC

28.4 

3.8 

4.8 

7.9 

44.9 

Home Experts

68.7 

68.7 

Other

1.6 

5.5 

0.6 

7.7 

Total revenue

 207.4 

132.4 

 46.4 

 85.3 

68.7 

540.2 

Inter-segment

 - 

(3.5)

 - 

 - 

(3.5)

External revenue

 207.4 

128.9 

 46.4 

 85.3 

68.7 

536.7 

 

 

 

 

 

 

 

 

Result

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

32.0 

9.1 

7.8 

2.3 

(2.6)

(4.4)

44.2 

Amortisation of acquisition intangibles

(11.5)

(1.7)

(3.5)

(0.7)

(5.6)

(23.0)

Operating profit/(loss)

20.5 

 7.4 

4.3 

1.6 

(2.6)

(10.0)

21.2 

Investment income

 

 

 

 

 

 

0.1 

Finance costs

 

 

 

 

 

 

(11.2)

Profit before tax

 

 

 

 

 

 

 10.1 

Tax

 

 

 

 

 

 

(2.8)

Profit for the period

 

 

 

 

 

 

 7.3 

 

For the six months ended 30 September 2019 (Reviewed)

 

£million

North America

UK 

France

Spain

New Markets

Home

Experts

Total

Revenue by category:

 

 

 

 

 

 

 

Net policy income

142.3 

88.0 

37.2 

24.8 

292.3 

Repair income

24.4 

43.4 

0.2 

41.2 

109.2 

HVAC

12.4 

10.7 

2.5 

3.2 

28.8 

Home Experts

23.8 

23.8 

Other

0.5 

5.6 

0.5 

6.6 

Total revenue

 179.6 

 147.7 

 40.4 

 69.2 

23.8 

460.7 

Inter-segment

 - 

(3.0)

 - 

 - 

(3.0)

External revenue

 179.6 

 144.7 

 40.4 

 69.2 

23.8 

457.7 

 

 

 

 

 

 

 

 

Result

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

18.5 

14.0 

7.9 

7.6 

(2.3)

(8.0)

37.7 

Exceptional items

3.8 

3.6 

7.4 

Amortisation of acquisition intangibles

(8.6)

(1.6)

(3.4)

(0.2)

(2.5)

(16.3)

Operating profit/(loss)

9.9 

 12.4 

4.5 

 7.4 

1.5 

(6.9)

28.8 

Investment income

 

 

 

 

 

 

0.3 

Finance costs

 

 

 

 

 

 

(9.4)

Profit before tax

 

 

 

 

 

 

 19.7 

Tax

 

 

 

 

 

 

(3.0)

Profit for the period

 

 

 

 

 

 

 16.7 

 

For the year ended 31 March 2020 (Audited)

 

£million

North America

UK 

France

Spain

New Markets

Home

Experts

Total

Revenue by category:

 

 

 

 

 

 

 

Net policy income

354.9 

249.4 

104.5 

49.2 

- 

758.0 

Repair income

30.6 

89.5 

0.4 

94.4 

- 

214.9 

HVAC

42.4 

21.2 

6.8 

10.5 

80.9 

Home Experts

- 

- 

- 

- 

71.8 

71.8 

Other

1.6 

12.8 

0.1 

- 

- 

14.5 

Total revenue

429.5 

372.9 

111.8 

154.1 

71.8 

1,140.1 

Inter-segment

(7.8)

(7.8)

External revenue

429.5 

365.1 

111.8 

154.1 

71.8 

1,132.3 

 

 

 

 

 

 

 

 

Result

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

85.4 

81.0 

33.8 

20.1 

(4.7)

(13.9)

201.7 

Exceptional items

(15.0)

3.8 

3.6 

(7.6)

Amortisation of acquisition intangibles

(17.8)

(3.2)

(6.9)

(0.5)

(7.1)

(35.5)

Operating profit/(loss)

67.6 

62.8 

26.9 

19.6 

(0.9)

(17.4)

158.6 

Investment income

 

 

 

 

 

 

0.5 

Finance costs

 

 

 

 

 

 

(21.2)

Profit before tax

 

 

 

 

 

 

137.9 

Tax

 

 

 

 

 

 

(32.1)

Profit for the year

 

 

 

 

 

 

105.8 

4.         Exceptional items

 

Exceptional items, booked to operating costs, comprised the following:

 

 

 

 

 

 

 

Six months ended

Six months ended

Year ended

 

£million

 

 

 

30 September 2020

(Reviewed)

30 September 2019

(Reviewed)

31 March 2020

(Audited)

Gain on acquisition of subsidiary non-controlling interest

3.6 

3.6 

Gain on disposal of investment in associate

- 

3.8 

3.8 

Impairment charges associated with HomeServe Labs

(14.3)

Restructuring costs

(0.7)

Exceptional items included within Group operating profit before tax

7.4 

(7.6)

Net taxation on exceptional items

2.0 

Net exceptional items after tax

 

 

7.4 

(5.6)

 

Six months ended 30 September 2019 and year ended 31 March 2020

 

Gain on acquisition of subsidiary non-controlling interest

On 18 June 2019 HomeServe International Limited, a Group company, executed its call option (written on 27 January 2017, the point at which it acquired a 70% controlling interest in Habitissimo S.L.), to acquire the outstanding 30% non-controlling interest in Habitissimo S.L. for cash consideration of €8.6m (£7.7m). The transaction increased HomeServe International Limited's interest in Habitissimo S.L. to 100% of the issued share capital and did not give rise to a change in control.

 

The transaction resulted in a gain in the consolidated income statement of £3.6m. This represents the difference between the consideration paid and the value of the option liability, being the potential cash payment of the non-controlling interest's corresponding put option to sell the remaining 30% of their shareholding, held on the balance sheet immediately prior to the transaction, net of directly attributable transaction costs. The gain has been classified as exceptional in the consolidated income statement due to its size, nature and incidence.

 

Gain on disposal of investment in associate

On 1 August 2019 HomeServe International, a Group company, disposed of its 49% equity accounted investment in Assistenza Casa Srl, by way of sale for cash consideration of €9.4m (£8.4m). At the point of disposal the carrying value of the Group's investment was £4.6m resulting in the recognition of a £3.8m gain in the consolidated income statement. The gain has been classified as exceptional due to its size, nature and incidence.

 

Impairment and restructuring charges associated with HomeServe Labs

Consumers and insurance partners were slower than expected to adopt smart leak detection technology. Following the Group's annual budgeting process and subsequent updates in light of COVID-19 HomeServe completed an impairment review of the Group's LeakBot assets, concluding that the net assets of the business were impaired, and incurred a £15.0m exceptional charge. This conclusion was reached based on a number of factors affecting expected future cash flows including commercial traction, access to investment and the pace of technology change. Of the £15.0m, £12.9m related to the impairment of development assets for the LeakBot device, £1.4m related to an inventory provision and £0.7m related to a restructuring provision.

 

 

 

5.         Tax

 

 

£million

Six months ended

30 September 2020

  (Reviewed)

Six months ended

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

Current tax

8.3 

3.3 

31.9 

Deferred tax

(5.5)

(0.3)

0.2 

 

2.8 

3.0 

32.1 

 

The effective tax rate for the six months ended 30 September 2020 was 28%. Under IAS 34 the Group's interim effective tax rate is higher than the estimated weighted average annual effective tax rate for FY21 of 24%. This is appropriate on the basis that the Group's profits for the first six months are weighted towards the higher tax rate countries in which it operates, the US and France, or investment in New Markets, for example Japan, where the Group currently does not benefit from any tax credits.

 

The pre-exceptional effective tax rate for the comparative periods was HY20: 24% and FY20: 23%. The post-exceptional effective tax rate for the same periods was HY20: 15% and FY20: 24%. For further detail on exceptional items see note 4. Prevailing taxation rates in the major jurisdictions in which the Group operates were as follows:

 

 

 

Jurisdiction

Six months ended

30 September 2020

  (Reviewed)

Six months ended

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

United Kingdom

19%

19%

19%

United States of America

27%

27%

27%

France

28%

31%

31%

Spain

25%

25%

25%

 

 

6.         Dividends

The interim dividend of 6.2p per share will be paid on 8 January 2021 to shareholders on the register on 11 December 2020. The interim dividend has not been included as a liability in these financial statements.

 

 

 

£million

Six months ended

30 September 2020

  (Reviewed)

Six months ended

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

Amounts recognised as distributions to equity holders of the parent in the period:

 

 

 

Final dividend for the year ended 31 March 2019 of 16.2p per share

54.1 

54.1 

Interim dividend for the year ended 31 March 2020 of 5.8p per share

19.4 

Final dividend for the year ended 31 March 2020 of 17.8p per share

59.7 

 

59.7 

54.1 

73.5 

Interim dividend for the year ended 31 March 2021 of 6.2p per share

20.8 

 

 

 

7.         Earnings per share

 

 

 

Earnings per share (pence)

Six months ended

30 September 2020

  (Reviewed)

Six months ended

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

Basic

2.0p

5.0p

31.7p

Diluted

2.0p

5.0p

31.5p

 

 

 

 

Adjusted basic

7.1p

6.5p

41.3p

Adjusted diluted

7.1p

6.4p

41.0p

 

The calculation of basic and diluted earnings per share is based on the following:

 

 

Weighted average number of ordinary shares (millions)         

Six months ended

30 September 2020

  (Reviewed)

Six months ended

30 September 2019

(Reviewed)

Year ended

31 March 2020

 (Audited)

Basic

335.5 

333.9 

334.2 

Dilutive impact of share options

1.6 

2.8 

2.8 

Diluted

337.1 

336.7 

337.0 

 

 

 

 

 

Earnings

£million

Six months ended

30 September 2020

  (Reviewed)

Six months ended

30 September 2019

(Reviewed)

Year ended

31 March 2020

 (Audited)

Profit attributable to equity holders of the parent

6.8 

16.8 

106.0 

Amortisation of acquisition intangibles

23.0 

16.3 

35.5 

Exceptional items (note 4)

(7.4)

7.6 

Tax impact of acquisition intangible amortisation and exceptional items

(5.9)

(4.1)

(11.0)

Adjusted profit attributable to equity holders of the parent

23.9 

21.6 

138.1 

 

Basic and diluted earnings per ordinary share have been calculated in accordance with IAS 33 Earnings Per Share.  Basic earnings per share is calculated by dividing the profit or loss in the financial period by the weighted average number of ordinary shares in issue during the period. Adjusted earnings per share is calculated excluding the amortisation of acquisition intangibles, exceptional items and the associated tax impacts.

 

The Group uses adjusted operating profit, adjusted operating margin, adjusted 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 exceptional items, the amortisation of acquisition intangibles and the associated tax impacts. For further details refer to the 'Profitability' section of the Glossary.

 

Diluted earnings per share includes the impact of dilutive share options in issue throughout the period.

 

 

 

8.         Intangible assets

£million

Acquisition intangibles

Trademarks

& access rights

Customer Databases

Software

Total intangibles

Cost

 

 

 

 

 

At 1 April 2019

365.3 

37.4 

17.6 

253.6 

673.9 

Additions

8.3 

4.8 

13.1 

45.4 

71.6 

Acquisition of subsidiaries

80.4 

0.1 

80.5 

Disposals

(0.2)

(4.5)

(4.7)

Transfers

0.7 

0.7 

Exchange movements

16.3 

0.8 

0.7 

3.1 

20.9 

At 1 April 2020

470.1 

43.0 

31.4 

298.4 

842.9 

Additions

0.6 

0.2 

7.1 

23.3 

31.2 

Acquisition of subsidiaries

19.5 

1.0 

20.5 

Disposals

(0.3)

(0.3)

Transfers

(1.4)

(1.4)

Exchange movements

(9.3)

(0.7)

0.4 

(1.2)

(10.8)

At 30 September 2020

479.5 

42.5 

38.9 

321.2 

882.1 

 

Accumulated amortisation

At 1 April 2019

136.2 

30.4 

4.8 

83.9 

255.3 

Charge for the year

35.5 

4.1 

3.5 

30.7 

73.8 

Impairment

0.7 

1.0 

11.9 

13.6 

Disposals

(4.5)

(4.5)

Transfers

(0.8)

0.8 

0.2 

0.2 

Exchange movements

5.4 

0.4 

0.2 

1.4 

7.4 

At 1 April 2020

177.8 

35.1 

9.3 

123.6 

345.8 

Charge for the period

23.0 

1.3 

3.0 

17.8 

45.1 

Exchange movements

(1.9)

(0.5)

0.1 

(0.8)

(3.1)

At 30 September 2020

198.9 

35.9 

12.4 

140.6 

387.8 

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

At 30 September 2020

280.6 

6.6 

26.5 

180.6 

494.3 

At 1 April 2020

292.3 

7.9 

22.1 

174.8 

497.1 

 

Acquisition intangibles of £1.4m were transferred to Goodwill during the period. See note 9 for further details. Acquisition intangibles include acquired access rights, customer databases, brands and technology assets. At the balance sheet date there are no contractual commitments for the purchase of intangible assets (HY20: £Nil)

 

Software includes assets with a book value of £78.9m (HY20: £84.1m) in respect of the new Customer Relationship Management (CRM) system which was rolled out in the UK business during FY20 for front book policies with amortisation commencing in September FY20. In the Strategic Report of the 2020 Annual Report & Accounts, the Group noted that the migration of existing customers from the legacy system was underway and completion of that migration was a critical next step to the full deployment of the new system. In FY21 the migration of existing customers has progressed but is currently taking longer than initially anticipated.

 

Acquisition intangibles include assets with a book value of £56.5m (HY20: £Nil) in respect of customer relationships acquired as part of the acquisition of eLocal Holdings LLC. The assets are being amortised over periods ranging between 10 and 11 years on a straight-line basis and have 9 to 10 years useful economic life remaining.

 

 

8.         Intangible assets (continued)

 

Year ended 31 March 2020

 

Impairment

At 31 March 2020 the carrying value of intangibles assets associated with HomeServe Labs were reviewed for impairment resulting in charges being recorded in association with the software assets (£11.9m) and trademark and access rights (£1.0m) of the business. The total impairment charges of £12.9m associated with HomeServe Labs related intangible assets were treated as exceptional due to their size and incidence (see note 4). Post impairment the carrying value of the impaired intangibles was £nil.

 

Between acquisition on 25 July 2019 and 31 March 2020 a significant revenue generating contract of Somgas Hogar S.L., a Group company, ceased. In light of these circumstances and due to the recent nature of the acquisition, it was considered appropriate to perform a separate impairment review of the Somgas business, resulting in an impairment to acquired customer databases of £0.7m.

 

9.         Acquisitions and Disposals

 

The Group has incurred a net cash outflow in respect of business combinations of £49.7m in the period in relation to a number of acquisitions as follows:

 

Four material acquisitions:

 

·    On 26 June 2020, HomeServe Spain S.L.U., a Group company, acquired 99.45% of the issued share capital and obtained control of Solusat Asistencia Técnica S.L., (hereafter 'Solusat'), for total consideration of £19.2m. The acquisition of Solusat enhances the scale and scope of the Group's HVAC capabilities in Spain and Portugal.

 

·    On 3 August 2020, HomeServe HVAC LLC, a Group company, acquired 100% of the issued share capital and obtained control of Worry Free Comfort Systems, Inc., also known as Freedom, for total consideration of £7.5m. The acquisition of Freedom enhances the scale and scope of the Group's HVAC capabilities in North America.

 

·    On 10 August 2020, HomeServe Asistencia Spain S.A.U, a Group company, acquired 100% of the issued share capital and obtained control of Mesos Gestión y Servicios S.L., (hereafter 'Mesos'), for total consideration of £21.0m. The acquisition of Mesos continues to expand the Group's home assistance services capabilities and increases the opportunity for future growth in this market.

 

·    On 29 September 2020, HomeServe USA Energy Services LLC, a Group company, acquired a group of assets constituting a business under IFRS 3 from UGI HVAC Enterprises, Inc., (hereafter 'UGI'), for total consideration of £7.6m. The acquisition of UGI enhances the scale and scope of the Group's HVAC capabilities in North America.

 

Additionally the following immaterial acquisitions, which have been combined and presented as 'Other' for the purpose of provisional fair value disclosures, were made during the period ending 30 September 2020.

 

HVAC

·    On 29 May 2020, HomeServe Energy Services SAS, a Group company, acquired 100% of the issued share capital and obtained control of Aujard SAS, for total consideration of £1.1m.

 

·    On 29 May 2020, ID Energies SAS, a Group company acquired a group of assets constituting a business under IFRS 3 from Ei Minerbe SAS, for total consideration of £0.1m.

 

·    On 1 June 2020, HomeServe HVAC LLC, a Group company, acquired 100% of the issued share capital and obtained control of Hays Cooling and Heating LLC, for total consideration of £6.3m.

 

·    On 30 July 2020, HomeServe Spain S.L.U, a Group company, acquired 100% of the issued share capital and obtained control of Servicio Técnico Urueña S.L, for total consideration of £1.9m.

 

 

9.         Acquisitions and Disposals (continued)

 

·    On 31 August 2020 ID Energies SAS, a Group company acquired a group of assets constituting a business under IFRS 3 from Ei Multi Chauff SAS, for total consideration of £0.4m.

 

·    On 30 September 2020, HomeServe Energy Services SAS, a Group company, acquired 100% of the issued share capital and obtained control of Conviflamme SAS, for total consideration of £2.1m. Subsequent to this transaction, on the 30 September 2020, Conviflamme SAS, a Group company by virtue of its aforementioned acquisition by HomeServe Energy Services SAS, acquired 100% of the issued share capital and obtained control of Lesage SAS, for total consideration of £0.4m. On the 30 September 2020, Conviflamme SAS also acquired the outstanding 95% of the issued share capital of Réseau Energies SARL not already owned by Conviflamme SAS, thereby obtaining control of Réseau Energies SARL and bringing the Group's total ownership interest to 100% of the issued share capital, for total consideration of £0.1m.

 

All HVAC acquisitions made during HY21 enhance the scale and scope of the Group's HVAC capabilities and increase the opportunity for future growth related to new HVAC system installations.

 

Home Experts

·   On 1 June 2020, HomeServe SEM LLC, a Group company, acquired a group of assets constituting a business under IFRS 3 from Vincodo LLC, for total consideration of £5.9m.

 

The acquisition of Vincodo strengthens HomeServe's search engine marketing capabilities, contributing to growth strategies across a variety of business lines, notably Home Experts.

 

The provisional fair values of identifiable assets acquired and liabilities assumed are set out in the table below:

 

 

 

 

 

 

 

 

£million 

Solusat

Freedom

Mesos

UGI

Other

Total

Property, plant and equipment

- 

0.3 

0.5 

1.8 

0.2 

2.8 

Software

1.0 

 - 

1.0 

Right of use assets

- 

0.3 

0.2 

0.3 

1.3 

2.1 

Inventories

0.2 

0.2 

0.3 

1.5 

1.2 

3.4 

Cash and cash equivalents

0.3 

0.4 

1.0 

- 

2.8 

4.5 

Trade and other receivables

2.3 

0.1 

3.0 

5.0 

0.9 

11.3 

Trade and other payables

(2.0)

(1.0)

(4.8)

(1.2)

(4.2)

(13.2)

Deferred income

- 

- 

(2.2)

(0.4)

(2.6)

Lease liabilities

- 

(0.3)

(0.2)

(0.3)

(1.3)

(2.1)

Intangible assets generated on acquisition

4.6 

1.0 

6.0 

1.4 

6.5 

19.5 

Net assets acquired

5.4 

1.0 

7.0 

6.3 

7.0 

26.7 

 

 

 

 

 

 

 

Goodwill

13.8 

6.5 

14.0 

1.3 

11.3 

46.9 

Total

19.2 

7.5 

21.0 

7.6 

18.3 

73.6 

 

 

 

 

 

 

 

Satisfied by:

 

 

 

 

 

 

Cash

19.2 

3.4 

15.0 

6.1 

10.5 

54.2 

Deferred consideration

- 

0.2 

- 

1.5 

0.1 

1.8 

Contingent consideration

- 

3.9 

6.0 

- 

7.7 

17.6 

 

19.2 

7.5 

21.0 

7.6 

18.3 

73.6 

 

 

 

 

 

 

 

Net cash outflow arising on acquisition

 

 

 

 

 

 

Cash consideration

19.2 

3.4 

15.0 

6.1 

10.5 

54.2 

Less: cash acquired

(0.3)

(0.4)

(1.0)

(2.8)

(4.5)

 

18.9 

3.0 

14.0 

6.1 

7.7 

49.7 

 

 

 

 

9.         Acquisitions and Disposals (continued)

 

The goodwill arising on the excess of consideration over the fair value of the assets and liabilities acquired on HY21 acquisitions represents the expectation of synergistic benefits and efficiencies. Where elections are made to treat an acquisition that is in scope of US tax legislation as an asset purchase for tax, goodwill is deemed deductible for tax purposes. No other goodwill balances are expected to be deducted for tax purposes.

 

The gross contracted amounts due are equal to the fair value amounts stated above for trade and other receivables.

 

Businesses acquired during HY21 contributed a combined £7.5m of revenue and a profit of £1.3m to the Group's adjusted profit before tax for the six months to 30 September 2020.

 

If all acquisitions had been completed on the first day of the financial year, Group revenue for the period would have been £563.2m and Group adjusted profit before tax would have been £35.2m.

 

The information above is provisional with fair value assessment activities ongoing. Final acquisition disclosures will be included in the FY21 Group Annual Report and Accounts to be issued in May 2021.

 

In addition to the net cash outflow on the above acquisitions, payments relating to previous business combinations and asset purchases of £1.0m (HY20: £4.7m) were made during the period.

 

Acquisition-related costs (included in operating costs) amounted to £0.6m (HY20: £0.3m).

 

The provisional fair values in relation to acquisitions completed and disclosed as part of the Group's FY20 Annual Report have been updated, resulting in a £4.9m increase to goodwill at 30 September 2020.

 

Disposal of subsidiary - Home Experts France

On 15 May 2020, HomeServe France Holdings SAS ('HFH'), a Group company disposed of 80% of its 100% interest in HomeServe Home Experts SAS, subsequently renamed Maison.fr. The total fair value of the consideration and retained interest was £4.1m. The Group realised a net profit on disposal as a result of this transaction of £Nil. The net assets of the Group's interest in the business at the date of disposal were as follows:

 

At fair value

£m 

Non-current assets

0.4 

Cash and cash equivalents

3.8 

Trade and other receivables

0.1 

Trade and other payables

(0.2)

Total identifiable net assets

4.1 

 

 

Gain on disposal

- 

Total consideration

4.1 

 

 

Satisfied by:

 

Cash

Interest in associate

2.9 

Fair value of call option

1.2 

 

4.1 

 

 

Net cash outflow arising on disposal:

 

Consideration received in cash and cash equivalents

Less: cash and cash equivalent balances disposed

(3.8)

 

(3.8)

 

 

 

9.         Acquisitions and Disposals (continued)

 

HFH retained a 20% holding in Maison.fr SAS following the disposal. Having reviewed the remaining rights and obligations of HFH under the associated sale and purchase agreement, the Group have assessed that HFH does not have significant influence over the financial and operating policies of the entity, or the ability to use its power to affect its returns through its retained shareholding. HFH's potential future voting rights afforded to it via its call option of an additional 24.17% equity stake (see below) have not been considered in this assessment as they are not currently exercisable. As a result the holding is considered to be a non-controlling interest in Maison.fr which has been accounted for under IFRS 9. The Group has elected to classify the instrument as an investment recorded at fair value through other comprehensive income.

 

As a result of the above transaction, HFH acquired a call option exercisable in April 2022 which provides the opportunity to acquire a further 24.17% equity stake of Maison.fr SAS for a fixed price of €3.7m/£3.3m.

 

The fair value of the option has been established using a Black-Scholes pricing model resulting in fair value at initial recognition of £1.2m which has been treated as an element of the consideration received for the 80% interest disposed of. The option carrying value is held within other financial assets on the balance sheet. Subsequent changes in the fair value of the option will be recorded in the income statement.

 

10.       Financial instruments

Classification

Aside from the financial instruments discussed under 'financial instruments subsequently measured at fair value' below, all other financial assets and liabilities to which the Group is party are held at amortised cost and their carrying values approximate their fair values.

 

Financial instruments subsequently measured at fair value

Financial instruments that are measured subsequent to initial recognition at fair value are grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

 

·      Level 1 fair value measurements are those derived from quoted prices in active markets for identical assets or liabilities

·      Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly

·      Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

 

The Group has no financial instruments with fair values that are determined by reference to Level 1 and there were no transfers of assets or liabilities between levels during the period. There are no non-recurring fair value measurements. 

 

 

 

 

10.       Financial instruments (continued)

 

The Group held the following Level 2 and 3 financial instruments at fair value:

 

 

£million

At

30 September 2020

 (Reviewed)

At

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

Level 2

 

 

 

Assets classified as fair value through other comprehensive income

 

 

 

Other investments

8.8 

9.5 

5.6 

 

 

 

 

Level 3

 

 

 

Assets classified as fair value through profit and loss

 

 

 

Other financial assets

1.2 

Contingent consideration at fair value through profit and loss

 

 

 

Current liabilities

(11.7)

(0.9)

Non-current liabilities

(17.1)

(1.5)

(10.5)

 

The fair value of Level 2 investments has been assessed at 30 September 2020 by analysing the future outlook for the business as well as reviewing valuations associated with recent comparable market transactions.

 

Reconciliation of recurring Level 3 fair value measurements

Assets classified as fair value through profit and loss

 

 

£million

Six months ended

30 September 2020

(Reviewed)

Six months ended

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

Opening balance

Additions

1.2 

 

1.2 

Other financial assets have been fair valued using a Black-Scholes option pricing model. The assumptions used in the model are as follows:

·      The price of the underlying equity (determined by discounting future forecast cash flows of the business to present value)

·      The exercise price of the option

·      The risk-free rate

·      The life of the option

·      The expected volatility of the share price/equity

·      Expected dividends.

The inputs used to derive the asset fair value are reviewed at least annually by the Directors as part of the valuation process. The variable inputs most consequential to the final valuation of the instrument are the price of the underlying equity and the expected volatility. If the underlying price of the equity was higher/lower by 10%, then the carrying amount would increase by £0.3m/decrease by £0.2m. If the volatility assumption increased/decreased by 10%, then the carrying amount would increase/decrease by £0.1m.

 

 

10.       Financial instruments (continued)

Contingent consideration at fair value through profit and loss

 

 

£million

Six months ended

30 September 2020

  (Reviewed)

Six months ended

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

Opening balance

11.4 

Additions

17.6 

1.5 

13.2 

Payments

(0.6)

(1.1)

Re-measurement adjustment related to prior year acquisition

1.0 

Unwinding of discount rate through the income statement

0.2 

0.2 

Other fair value re-measurement gain

(0.1)

(1.5)

Foreign exchange

(0.7)

0.6 

 

28.8 

1.5 

11.4 

 

Contingent consideration liabilities are calculated using forecasts of future performance of acquisitions discounted to present value. Forecasts and discount rates are reviewed at least annually by the Directors as part of the valuation process.

 

If discount rates on contingent consideration were higher/lower than the Group's historical experience by 10%, the carrying amount would decrease/increase by £0.3m. The undiscounted range of outcomes associated with the contingent consideration payments has a floor of £1.7m (HY20: £Nil). Payments above the floor vary based on a range of conditional performance metrics, for example a percentage commission based on the future revenues associated with certain products of an acquired business over a defined period.

 

11.       Share capital

 

 

 

At

30 September 2020

  (Reviewed)

At

30 September 2019

(Reviewed)

Year ended

31 March 2020

(Audited)

 

 

 

 

 

Issued and fully paid ordinary shares of 2 9/13p

No.

335,995,002

334,617,565

334,634,278

 

 

 

 

 

£m

9.1

9.0

9.0

 

During the period from 1 April 2020 to 30 September 2020 the Company issued 1,360,724 shares with a nominal value of 2 9/13p creating share capital and share premium with a combined value of £7.2m.

 

During the period from 1 April 2019 to 30 September 2019 the Company issued 2,127,188 shares with a nominal value of 2 9/13p creating share capital and share premium with a combined value of £8.5m.

 

During the period from 1 April 2019 to 31 March 2020 the Company issued 2,143,901 shares with nominal value of 2 9/13p creating share capital and share premium with a combined value of £8.6m.

 

 

12.       Notes to the cash flow statement

 

 

 

£million

Six months ended

30 September 2020

 (Reviewed)

Six months ended

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

 

 

 

 

Operating profit

21.2 

28.8 

158.6 

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

4.9 

4.4 

9.3 

Depreciation of right-of-use assets

7.7 

6.8 

14.2 

Amortisation of acquisition intangible assets

23.0 

16.3 

35.5 

Amortisation of other intangible assets

22.1 

15.5 

38.3 

Amortisation of contract costs

4.9 

6.5 

11.8 

Share-based payments expenses

3.9 

4.4 

7.2 

Share of equity accounted investees results

1.2 

1.3 

2.1 

Exceptional items

(7.4)

7.6 

Other non cash movements

1.2 

(0.1)

Operating cash flows before movements in working capital

90.1 

76.6 

284.5 

 

 

 

 

Decrease/(increase) in inventories

0.1 

(0.3)

(1.0)

Decrease/(increase) in receivables

68.7 

58.4 

(46.3)

(Decrease)/increase in payables

(62.7)

(73.3)

3.2 

Net movement in working capital

6.1 

(15.2)

(44.1)

 

 

 

 

Cash generated by operations

96.2 

61.4 

240.4 

Incomes taxes paid

(15.4)

(15.9)

(30.2)

Interest paid (including lease interest)

(8.4)

(8.3)

(18.2)

Net cash inflow from operating activities

72.4 

37.2 

192.0 

 

 

 

 

 

Analysis of movement in bank loans

 

 

 

£million

Six months ended

30 September 2020

 (Reviewed)

Six months ended

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

 

 

 

 

Facilities with net inflows

216.8 

87.3 

206.6 

Facilities with net outflows

(31.2)

(11.1)

(24.0)

Movement in existing bank and other loans

185.6 

76.2 

182.6 

 

13.       Provisions

 

 

 

£million

Six months ended

30 September 2020

 (Reviewed)

Six months ended

30 September 2019

 (Reviewed)

Year ended

31 March 2020

 (Audited)

At 1 April

2.0 

5.7 

5.7 

Created

3.4 

0.1 

2.4 

Utilised

(1.0)

(4.5)

(5.7)

Released

(0.2)

-

Transferred

0.9 

(0.3)

(0.4)

Provision at end of period

5.1 

1.0 

2.0 

 

Provisions created in the current period primarily relate to the costs associated with a customer re-contact exercise in the UK Membership business. During the period, utilisations principally related to the restructuring provision of £0.7m recorded in FY20 related to the HomeServe Labs business.

 

In each comparative period presented, provisions principally relate to restructuring costs associated with programs in the Group's UK businesses as well as certain warranty and legal provisions.

 

14.       Related party transactions

 

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

 

Transactions with equity accounted investees

 

Related party transactions with equity accounted investees during HY21 principally related to recharged salaries, consultancy and contractor costs amounting to £0.1m (HY20: £0.2m) and the purchase of marketing services £0.2m (HY20: £0.1m).

 

Other related party transactions

 

Other related party transactions during HY21 were similar in nature to those in HY20 and amounted to £0.1m (HY20: £0.2m).

 

Full details of the Group's related party transactions for the year ended 31 March 2020 are included on page 173 of the Annual Report & Accounts 2020.

 

15.       Other items

 

Private Placement

 

On 21 August 2020 the Group completed a financing transaction in the United States Private Placement market, issuing notes amounting to $250.0m and £54.0m as detailed below.

 

Title

Principal

Maturity

7 yr GBP Senior Notes

£  19.0m

20th August 2027

7 yr USD Senior Notes

$125.0m

20th August 2027

10 yr GBP Senior Notes

£  20.0m

20th August 2030

10 yr USD Senior Notes

$  63.0m

20th August 2030

12 yr GBP Senior Notes

£  15.0m

20th August 2032

12 yr USD Senior Notes

$  62.0m

20th August 2032

 

Loan Repayment

 

On 11 September 2020 the Group repaid the amortising term loan of €12.5m/£11.3m.

 

Restricted Cash

 

Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. Of the total cash and cash equivalents balance held £13.3m (HY20: £12.7m) is not available for use by the Group due to the restrictions stipulated within the Group's contractual relationships with underwriters. These balances principally relate to advances from underwriters received to fund claims payments. No client monies as defined under CASS 5 of the FCA Handbook are held.

 

Purchase of own shares

 

During the period no (HY20: 249,975) shares were repurchased at a cost of £Nil (HY20: £3.0m) to fulfil awards made under share incentive schemes. No shares were transferred to individuals to satisfy awards (HY20: nil).

 

 

 

16.       Events after the balance sheet date

 

Acquisition of Societe de Maintenance Thermique SAS

 

On 30 October 2020 HomeServe Energy Services SAS, a Group company, completed the acquisition of 100% of the share capital and obtained control of Societe de Maintenance Thermique SAS for a total cash consideration of €6.3m. SMT specialises in home heating through installations, servicing and repairs and increases HomeServe's HVAC network in France. Due to the recent nature of this acquisition, it is not possible at the point of authorisation of these condensed consolidated financial statements to include a preliminary assessment of the fair value of the assets and liabilities acquired.

 

Eneco Affinity Partnership Agreement

 

On 12 November 2020, HomeServe Belgium SRL, a Group company, signed a new five year affinity partnership agreement with Eneco Belgium N.V., the third largest energy provider in Belgium. From January 2021, Eneco's 650,000 customers will be able to benefit from HomeServe's core Membership product to cover electricity, plumbing, heating and locksmith services.

 

Financing transaction

 

After the balance sheet date but prior to the authorisation of these condensed consolidated financial statements, HomeServe plc entered into the following financing transaction:

 

On 16 October 2020 HomeServe plc entered into a £25m short term facility with maturity at 31 July 2021. Interest on the facility is charged at LIBOR + 1.10%. The financial covenants associated with the facility are consistent with those on the Group's existing £400m RCF. 

 

 

 

 

Responsibility statement

 

We confirm that to the best of our knowledge:

 

(a)  the condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting";

 

(b)  the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

 

(c)  the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

 

By order of the Board

 

 

Richard Harpin

Founder and Group Chief Executive

 

 

David Bower

 

Chief Financial Officer

 

 

 

17 November 2020

 

 

Forward Looking Statements and Other Information

This interim management report has been prepared solely to provide additional information to shareholders as a body to assess the Company's strategies and the potential for those strategies to succeed. This report 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 upon 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 announcement should be construed as a profit forecast.
 

Independent Review Report to HomeServe plc

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2020 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 16. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Use of our report

 

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

 

 

 

 

Deloitte LLP

Statutory Auditor

Leeds, United Kingdom

17 November 2020

 

 

GLOSSARY

HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. APMs used in this announcement address profitability, leverage and liquidity and together with operational KPIs give an indication of the current health and future prospects of the Group.

 

Definitions of APMs and the rationale for their usage are included below with a reconciliation, where applicable, back to the equivalent statutory measure.

 

Profitability

The Group uses adjusted operating profit, adjusted EBITDA, adjusted profit before tax and adjusted earnings per share as its primary profit performance measures. These are non-IFRS measures which exclude the impact of the amortisation of acquisition intangible assets and exceptional items.

 

Exceptional items are those items that, in the judgement of the Directors, need to be disclosed separately by virtue of their size, nature or incidence.

 

Acquisition intangible assets are calculated using the estimated and discounted incremental future cash flows resulting from the affinity relationship or future policy renewals as appropriate, which will include the impact of the past actions of the former owners. These past actions will include historic marketing and business development activity, including but not limited to, the staff and operational costs of the business. In addition the specific construct of the policy terms and conditions and the current and expected future profitability to be derived from the acquired business or asset is also a factor in determining the valuation of acquisition intangible assets.

 

The on-going service and operating costs incurred by the Group in managing the acquired businesses or assets, including but not limited to print, postage, telephony, claims costs and overheads are recognised as operating costs within these adjusted measures in the reporting period in which they are incurred.

 

Accordingly, by excluding the amortisation of acquisition intangibles from the adjusted performance measures reported by the Group in each specific reporting period ensures that these measures only reflect the revenue attributable to, and costs incurred by, the Group in managing and operating those businesses and assets at that time in each reporting period and do not include the impact of the historic costs of the vendor or considerations of the future profits to be derived from the acquired business or assets. 

 

 

 

Reconciliations of statutory to adjusted profit measures

 

TOTAL GROUP

£million

HY21

HY20

Operating profit (statutory)

21.2

28.8

Exceptional items

-

(7.4)

Amortisation of acquisition intangibles

23.0

16.3

Adjusted operating profit

44.2

37.7

 

Operating profit (statutory)

21.2

28.8

Exceptional items

-

(7.4)

Depreciation

4.9

4.4

Amortisation of other intangibles

22.1

15.5

Amortisation of contract costs

4.9

6.5

Depreciation of right of use assets

7.7

6.8

Amortisation of acquisition intangibles

23.0

16.3

Adjusted EBITDA

83.8

70.9

 

 

 

Profit before tax (statutory)

10.1

19.7

Exceptional items

-

(7.4)

Amortisation of acquisition intangibles

23.0

16.3

Adjusted profit before tax

33.1

28.6

 

Pence per share

 

 

Earnings per share (statutory)

2.0

5.0

Exceptional items (net of tax)

-

(2.2)

Amortisation of acquisition intangibles (net of tax)

5.1

3.7

Adjusted earnings per share

7.1

6.5

 

 

 

SEGMENTAL

 

HY21

£million

 

North America

UK

France

Spain

New Markets

Home  Experts

Revenue

 

207.4

132.4

46.4

85.3

-

68.7

 

 

 

 

 

 

 

 

Statutory operating profit/(loss)

 

20.5

7.4

4.3

1.6

(2.6)

(10.0)

Operating Margin %

 

10%

6%

9%

2%

-

-

 

 

 

 

 

 

 

 

Adjusting items

 

 

 

 

 

 

 

Amortisation of acquisition intangibles

 

11.5

1.7

3.5

0.7

-

5.6

Total adjusting items

 

11.5

1.7

3.5

0.7

-

5.6

Effect on operating margin (ppts)

 

5%

1%

8%

1%

-

-

 

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

 

32.0

9.1

7.8

2.3

(2.6)

(4.4)

Adjusted operating margin %

 

15%

7%

17%

3%

-

-

 

 

HY20

£million

 

North America

UK

France

Spain

New Markets

Home  Experts

Revenue

 

179.6 

147.7 

40.4 

69.2 

23.8 

 

 

 

 

 

 

 

 

Statutory operating profit/(loss)

 

9.9 

12.4 

4.5 

7.4 

1.5 

(6.9)

Operating Margin %

 

6%

8%

11%

11%

 

 

 

 

 

 

 

 

Adjusting items

 

 

 

 

 

 

 

Exceptional items

 

(3.8)

(3.6)

Amortisation of acquisition intangibles

 

8.6 

1.6 

3.4 

0.2 

2.5 

Total adjusting items

 

8.6 

1.6 

3.4 

0.2 

(3.8)

(1.1)

Effect on operating margin (ppts)

 

4%

1%

9%

 

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

 

18.5 

14.0 

7.9 

7.6 

(2.3)

(8.0)

Adjusted operating margin %

 

10%

9%

20%

11%

 

 

 

HY21

Local currency million

 

North America

$

UK

£

France

Spain

New Markets

£

Home  Experts

£

Revenue

 

262.8

132.4

51.7

94.9

-

68.7

 

 

 

 

 

 

 

 

Statutory operating profit/(loss)

 

26.1

7.4

4.7

1.7

(2.6)

(10.0)

Operating Margin %

 

10%

6%

9%

2%

-

-

 

 

 

 

 

 

 

 

Adjusting items

 

 

 

 

 

 

 

Amortisation of acquisition intangibles

 

14.5

1.7

3.9

0.8

-

5.6

Total adjusting items

 

14.5

1.7

3.9

0.8

-

5.6

Effect on operating margin (ppts)

 

5%

1%

8%

1%

-

-

 

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

 

40.6

9.1

8.6

2.5

(2.6)

(4.4)

Adjusted operating margin %

 

15%

7%

17%

3%

-

-

 

 

HY20

Local currency million

 

North America

$

UK

£

France

Spain

New Markets

£

Home  Experts

£ 

Revenue

 

225.9 

147.7 

45.5 

77.9 

23.8 

 

 

 

 

 

 

 

 

Statutory operating profit/(loss)

 

12.6 

12.4 

5.0 

8.4 

1.5 

(6.9)

Operating Margin %

 

6%

8%

11%

11%

 

 

 

 

 

 

 

 

Adjusting items

 

 

 

 

 

 

 

Exceptional items

 

(3.8)

(3.6)

Amortisation of acquisition intangibles

 

10.8 

1.6 

3.9 

0.2 

2.5 

Total adjusting items

 

10.8 

1.6 

3.9 

0.2 

(3.8)

(1.1)

Effect on operating margin (ppts)

 

4%

1%

9%

-

 

 

 

 

 

 

 

 

Adjusted operating profit/(loss)

 

23.4 

14.0 

8.9 

8.6 

(2.3)

(8.0)

Adjusted operating margin %

 

10%

9%

20%

11%

 

 

 

Leverage

 

The Group targets net debt in the range of 1.0 to 2.0x EBITDA measured at the year end.

 

The range reflects HomeServe's relatively low risk appetite. Due to the seasonality of the business and depending on M&A opportunities, HomeServe is able to operate outside 1.0 to 2.0x for periods of time but with a highly cash generative business model HomeServe will seek to return to its target range. The leverage ratio is also important as it factors into the Group's banking covenants, and the rolling 12 month rate at each half year period influences the future interest rates payable on the Group's Revolving Credit Facility.

 

Certain of the Group's segmental bonus measures relate to net cash. Net cash is defined and calculated in the same way as net debt but returns a positive closing balance.

                                                                     

The 2020 Annual Report provides a full reconciliation of the movements in liabilities arising from borrowings and finance leases for the year ended 31 March 2020.

 

The closing balances at 30 September were as follows:

 

£million

HY21

HY20 

Current liabilities from borrowings and leases

 

 

Lease liabilities

14.1

11.3 

Bank and other loans

30.5

36.1 

 

44.6

47.4 

Non-current liabilities from borrowings and leases

 

 

Lease liabilities

43.0

47.2 

Bank and other loans

600.2

423.8 

 

643.2

471.0 

Total liabilities from borrowings and leases

687.8

518.4 

 

 

 

Cash and cash equivalents

(101.1)

(67.0)

 

 

 

Net Debt

586.7

451.4 

Adjusted EBITDA

83.8

70.9 

Leverage

2.0x

1.9x 

 

 

 

Liquidity

Cash conversion % is defined as cash generated by operations divided by adjusted operating profit. The measure demonstrates the cash generative nature of the ordinary trading operations of HomeServe's business model and the ability to produce positive cash flows that can be invested for future growth initiatives or in capital projects to maintain customer service initiatives, digital enhancements or efficiencies that benefit the long-term health of the business.

 

Free cash flow is stated after tax, interest obligations and capital expenditure and is an indication of the strength of the business to generate funds to meet its liabilities and repay borrowings. It also shows the funds that might be made available to pursue M&A activities and to pay dividends.

 

£million

HY21

HY20

Adjusted operating profit

                                 44.2

37.7 

Exceptional items

7.4 

Amortisation of acquisition intangibles

(23.0)

(16.3)

Operating profit

21.2

28.8 

Impact of exceptional items

-

(7.4)

Depreciation and amortisation

62.6

49.5 

Non-cash items

6.3

5.7 

Increase/(decrease) in working capital

6.1

(15.2)

Cash generated from operations

96.2

61.4 

Net interest and associated borrowing costs

(9.8)

(8.0)

Repayment of lease principal

(7.3)

(6.0)

Taxation

(15.4)

(15.9)

Capital expenditure - ordinary

(34.5)

(37.1)

Capital expenditure - acquisitions of policy books

(0.6)

(6.9)

Free cash flow

28.6

(12.5)

 

 

Due to the seasonality of the business, HomeServe does not report a half year cash conversion figure. Cash conversion for the prior financial year is shown below.

 

£million

 

FY20 

Adjusted operating profit                      

 

201.7 

Cash generated by operations                        

 

240.4 

Cash conversion

 

119%

 

 

 

 

KPIs

The Group uses a number of operational key performance indicators that provide insight into past performance and are an indicator of the future prospects of the Group as a whole and its individual segments.

 

Affinity partner households tracks the growth in addressable market delivered through existing and new partnerships with utilities and municipals.

Customers tracks success in converting addressable market into revenue-generating customers, by delivering great products and service.

Retention rate reflects ability to deliver fit-for-purpose product and great service to customers.

Policies illustrates ability to grow the product line through customer focus and innovation.

Income per customer measures ability to design and market increasingly valuable products, and sell them efficiently. Due to currency differences, this measure is tracked at a geographic level.

Income per customer is calculated as the last 12 months' net policy income divided by customers.

Trades are customers in the Home Experts business. Growing the network of vetted and reviewed trades will enable HomeServe to meet consumer needs and grow its business.

Adjusted profit before tax is the key profit measure by which business growth, efficiency and sustainability are monitored.

Net debt to EBITDA is the key cash ratio, which is used to monitor usage of financial resources within agreed risk parameters.  

 

Customers

 

IFRS15 defines a customer as 'a party that has contracted with an entity to obtain goods or services'. In the Membership businesses where the Group acts as an intermediary selling contracts and insurance policies to end consumers, the 'IFRS 15 customer' is considered to be the underwriter with which the Group has contracted to sell policies.

 

This is different, however, from how the Group markets and communicates the value of its products and services to end consumers. Here, the businesses strategy and communications (both internally and externally) refer to the end consumer as the customer. As a result, for the purposes of describing the strategy and operational performance of the business, the Business review and the Group's KPIs refer to the end consumer as the customer of the Group, rather than the underwriter. However, for the purposes of preparing the financial statements, the accounting transactions are recorded in accordance with IFRS 15 where the customer is the underwriter.

 

For all other sources of revenue, it is the party that has contracted with the Group to obtain goods and services that is classified as the customer. The following table summarises this position:

 

Revenue Stream

IFRS 15 'contracted' customer

Customer as referred to in the Business and Operating Reviews

Policy Income - insurance intermediary commissions

Underwriters

 

End user of the service

 

Policy Income - repairs

Underwriters or other B2B contracted parties

Policy Income - home assistance

End user of the service

Home Experts

HVAC

Other

 

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