HomeServe : announces its interim results for the period ended 30 September 2020

HomeServe plc

Interim results for the six months ended 30 September 2020

	Six months ended	Six months ended
	30 September	30 September	Change1
	2020	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	8.2m	8.2m	+1%
Membership policy retention	82%	82%	-

*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

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

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

partnerships

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

1. 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

• 1. 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

1

• 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	Martin Robinson
[e-mail]	[e-mail]
[phone]	[phone]
Dami Tanimowo - Senior Investor Relations Manager
[e-mail]
[phone]

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

2

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.

3

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

4