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7
Annual Report
& Accounts
2017
Overview
HomeServe at a glance
We provide home repair and improvement services to 7.8m customers, with established
businesses in the UK, North America, France and Spain - all now operating under our
Global brand, HomeServe.
Revenue +24%
£785.0m
(FY16: £633.2m)
Customers +11%
7.8m
(FY16: 7.0m)
Statutory operating profit +20%
Adjusted operating profit1 +22%
£104.7m
(FY16: £86.9m)
£118.8m
(FY16: £97.3m)
Basic earnings per share +22%
Adjusted earnings per share +24%
24.0p
(FY16: 19.6p)
27.0p
(FY16: 21.8p)
Ordinary dividend per share +20%
15.3p
(FY16: 12.7p)
Overview
At a glance
Financial highlights
Chairman’s statement
IC
2
4
Strategic report
Chief Executive’s review
8
Our business model
10
Our strategic framework
12
Financial review
34
Principal risks and uncertainties 42
Corporate responsibility
Customers
Employees
Community
Environment, Health & Safety
54
56
57
58
Governance
Chairman’s overview
Directors
Corporate Governance report
Audit & Risk Committee report
Remuneration report
Directors’ report
Directors’ responsibilities
62
64
66
74
80
111
114
Financial statements
Independent Auditor’s report
118
Group financial statements
130
Company financial statements 180
Annual Report & Accounts 2017
Our vision:
“To be the world’s most trusted provider
of home repairs and improvements.”
1 The Group uses adjusted operating profit, EBITDA, adjusted profit before tax and adjusted earnings per share as its primary
performance measures. These are non-IFRS measures which exclude the impact of the amortisation of acquisition intangible assets
(FY17: £14.1m, FY16: £10.4m). Acquisition intangible assets principally arise as a result of the past actions of the former owners of
businesses in respect of marketing and business development activity. Therefore, the adjusted measures reflect the post acquisition
revenue attributable to, and operating costs incurred by, the Group. A reconciliation between the adjusted and statutory equivalent is
included in the Financial review.
To view this report online, go to
homeserveplc.com
1
Overview
Financial highlights
Statutory operating profit
Adjusted operating profit
£104.7m (FY16: £86.9m)
£118.8m (FY16: £97.3m)
UK
North America
France
Spain
New Markets
2017
62.0
14.7
21.1
13.0
(6.1)
2016
57.4
7.8
18.0
9.6
(5.9)
UK
North America
France
Spain
New Markets
2017
63.2
21.2
27.1
13.3
(6.0)
2016
58.0
12.1
23.2
9.9
(5.9)
Affinity partner households
102m (FY16: 92m)
Customers
7.8m (FY16: 7.0m)
UK
North America
France
Spain
New Markets
2017
24
50
15
12
1
2016
24
32
15
15
6
UK
North America
France
Spain
New Markets
2017
2.2
3.0
1.0
1.3
0.3
2016
2.2
2.3
1.0
1.2
0.3
Retention
82% (FY16: 83%)
UK
North America
France
Spain
80%
(FY16: 82%)
82%
(FY16: 82%)
89%
(FY16: 89%)
78%
(FY16: 77%)
2
Annual Report & Accounts 2017
3
Overview
Chairman’s statement
I am delighted that the Group had
another very good year delivering
customer and profit growth, with
continued investment to deliver our
strategy. We have a clear vision “to
be the world’s most trusted provider
of home repairs and improvements”
and we have agreed the strategic
priorities (see page 12 for our
strategic framework) to ensure we
achieve it.
There are four areas of progress in the
year that I would like to specifically
address in this statement.
Firstly, the rate of progress in North
America has been very positive. Through
the strength of the existing business,
enhanced with the acquisition of Utility
Service Partners we have achieved the
3m customer milestone and 50m affinity
partner households – great progress
toward our 80m household target.
Secondly, the strength of affinity
partnerships is the bedrock of our
business and I am delighted with the
launch of Aviva Response in the UK and
the new joint venture with Edison Energia
in Italy. Digital marketing is already live
with both partners, a demonstration of
our mutual commitment.
At the Capital Markets Day in June
last year, we said we wanted to offer
a compelling on demand service to
homeowners. We have accelerated
our plans with the investment in
Checkatrade in the UK and the
acquisition of Habitissimo in Spain.
Finally, opening new countries, via a joint
venture, remains a key priority and we have
made good progress in FY17, with discussions
in progress with multiple prospects.
Dividend
Given the Group’s performance this year
and the Board’s confidence in its future
prospects, the Board is proposing an increase
in the final dividend to 11.2p a share, bringing
the total ordinary dividend for the year to
15.3p (FY16: 12.7p), an increase of 24%, which
is 1.76x covered by the FY17 adjusted earnings
per share compared to 1.72x in FY16.
Board changes
During the year David Bower was appointed
as Chief Financial Officer and Johnathan
Ford as Chief Operating Officer. We have
also strengthened the Board with the
appointment of three new Directors with
effect from 23 May 2017. Tom Rusin has
been appointed as an Executive Director
and Katrina Cliffe and Edward Fitzmaurice
have both been appointed as Non-Executive
Directors. Katrina will also join the Audit
& Risk Committee. Tom has been Chief
Executive Officer of HomeServe USA since
July 2011 and is currently a member of the
HomeServe plc Executive Committee.
People
HomeServe’s success is driven by the
commitment of its people. On behalf of the
Board, I would like to thank all our people for
their contribution to another set of very good
results.
JM Barry Gibson
Chairman
23 May 2017
4
Annual Report & Accounts 2017
“I am pleased to welcome USP, Checkatrade
and Habitissimo to the HomeServe family and
look forward to making the most of our
on demand opportunity.”
JM Barry Gibson
5
Strategic report
Put customers at the heart
of everything we do
Our global values
Put customers at the heart
of everything we do
Develop and encourage great
people who are passionate
about taking responsibility
and making things happen
Combine relentless
innovation with integrity and
professionalism
Strive to be the best in the
world at what we do
u
e v i e ws, from c
n 1,970 re a l r
93of customers would
%
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a
B
buy again.
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6
by
Annual Report & Accounts 2017
“We aim to make it easier for customers to
get home repairs done easily and quickly
– their emergency is our emergency.”
Martin Bennett, UK CEO
7
Strategic report
Chief Executive’s review
HomeServe has had another very
good year with strong underlying
performance enhanced by foreign
exchange tailwinds. Affinity partner
households increased by 10m to
102m, with a significant increase in
North America. This is in addition
to 11% Group customer growth,
with customer numbers now at
7.8m. Statutory operating profit was
up 20% to £104.7m, and adjusted
operating profit increased 22% to
£118.8m, both included a £10.3m
foreign exchange benefit.
A solid performance in the UK delivered
over half of the Group’s operating profit,
while we also continued to invest in new
partnerships, network capability, LeakBot
and heating services.
The business in North America had
a transformational year, completing
the acquisition and integration of
Utility Service Partners Inc. (USP)
while continuing to sign new partners
organically. As a result, we made rapid
progress towards the targeted 80m
affinity partner households, where 18m
households were added during FY17,
taking total access to 50m households.
Organic customer growth was 10% and,
together with USP, customer numbers
increased to 3.0m, up 28% on the prior
year.
We have seen good customer growth
and profit progression in our established
businesses in France and Spain with
customer numbers increasing 4% to
1.0m and 7% to 1.3m respectively. The
Group retention rate was strong at 82%
(FY16: 83%).
We invested £6.0m in the New Markets
segment, as planned (FY16: £5.9m). Our
Italian business established a joint venture
with Edison Energia and we progressed
our expansion into new countries and
development of an online on demand
home repair and improvement offering
– our “Home Experts” platform.
Our investment in Checkatrade and
acquisition of Habitissimo are a major
step forward and position us at the fore
of the online revolution we are seeing
in home services. The Home Experts
online platform will connect a wider
consumer demographic to a broader
range of expert tradespeople.
8
Annual Report & Accounts 2017
Annual Report & Accounts 2017
“With these opportunities, and the positive
outlook for the rest of our business,
HomeServe has an exciting future
this coming year and beyond.”
Richard Harpin
Chief Executive
9
Strategic report
Our business model
Our vision is to be the world’s
most trusted provider of home
repairs and improvements
Inputs
Value added
Engaged affinity
partners
Comprehensive
products &
marketing expertise
Expert contact
centres
Network capability
Global presence with local partners
We secure long-term affinity partnerships
with global brands that are relevant to our
home assistance and improvement products.
Our partnerships include utilities, heating
manufacturers and specialist service providers.
Our home assistance products are underwritten
by third party underwriters, independent
of HomeServe. We act as an insurance
intermediary and do not take any material
insurance risk.
Leading the standard
for service delivery
Our local call centres are available to handle
customers’ claims and our extensive network
of engineers and Home Experts are on hand
to solve our customers’ home assistance,
repairs, improvements and installations
problems throughout the year. We achieve
this by engaging great people in all of our
businesses and providing them with the best
technology and systems to do a great job.
Network capability
ershi p & o n
b
m
e
m
d
e
s
u
c
o
f
r
e
m
o
Cust
dem
a
n
d
h
o
m
e
r
e
p
a
i
r
s
& im
provements
Technology designed around our customers to deliver a great experience and efficiencies
10
Annual Report & Accounts 2017
Our successful home assistance Membership model appeals to risk averse, insurance-
minded customers who want to protect their home in the event of an unexpected
plumbing, heating or electrical emergency. We are developing our on demand home repair
and improvement model to provide a solution for consumers who prefer not to insure
home emergencies and prefer to transact online.
Value added
ershi p & o n
b
m
e
m
d
e
s
u
c
o
f
r
e
m
o
Cust
Network capability
Trusted products - innovative solutions
Our range of comprehensive water, heating and
electrical-related home assistance and repair products
provide peace of mind to our customers. Our
developing Home Experts on demand services
offer home improvements and installations. Ongoing
innovation ensures we are at the forefront of the
smart home movement with smart thermostat
and our water leak detector. We use our
expertise in data analytics to optimise our
direct marketing across a number of channels,
including direct mail, call centres, and
digital channels.
dem
a
n
d
h
o
m
e
r
e
p
a
i
r
s
& im
provements
Financial model - cash generative,
predictable revenue
Customers pay an annual premium for their
home assistance products which funds the
product underwriting, partner commission
payments, and other direct and indirect costs of
providing the service. Typically, on completing a
customer claim the underwriter funds the job cost.
We invest in business development and marketing
to deliver future customer growth. As the Home Experts
platform is developed, the customer will pay a price for
each job through a digital platform. Home Experts will pay a
recurring fee for using the platform.
Technology designed around our customers to deliver a great experience and efficiencies
Value shared
Partners:
• Provides solution to
customer’s emergency
• Increases customer
satisfaction & reduces churn
• Revenue stream
Customers:
• Peace of mind in event
of home repair
• Excellent customer service
• Innovative Smart Home
solutions
Employees:
• Expanding global business
• Opportunity, training
and development
• Employee engagement
score is 81% across the Group
Investors:
• An attractive cash generative
business model
• Significant growth
potential internationally
• Growth is supported by
a strong balance sheet
11
Strategic report
Our strategic framework
Strategic priority
Progress in FY17
Extend long-term
affinity partnerships
HomeServe is built on developing long-term
affinity partnerships with brands that complement
our home assistance products. We work with
over 500 affinity partners and invest in business
development to establish and expand new
partnerships.
Investing to deliver great
customer service
Great customer service results in increased
customer loyalty and higher levels of retention.
Our market-leading customer service is delivered
by the hard work and dedication of all our people.
Customers are moving to more online
interactions and we are developing our
technology to address this.
Expanding New Markets
Driving relentless innovation
We offer a range of insured home assistance
products covering plumbing, heating and
electrical services and continually innovate to
align our product range to changing customer
preferences. Demand for digital engagement at
every stage of the customer journey continues,
while more customers seek “smart home”
products to enhance their experience.
Entering new geographies
Utilities around the world recognise that providing
home assistance services is proven to increase
customer loyalty and drive higher retention rates
in their core energy businesses.
Developing a digital on demand service
In line with our ambition to offer a complete
home repair and improvement service to
a broader customer demographic we are
developing our on-demand offering.
During FY17, rapid progress was made through
signing 100 new partners in North America;
renewing a significant partnership in the UK; and
signing a joint venture with Edison Energia in Italy.
During FY17, HomeServe completed a job every
14 seconds, demonstrating our commitment to
our customers when they need us most. Globally,
HomeServe has been recognised for customer
service excellence and in FY17 won a number of
customer service and employee engagement
awards in the UK, North America and France.
We continued to invest in our core customer
system to ensure our call centres can have good
conversations with our customers. The investment
in our claims and deployment systems ensures our
engineers can get to our customers at their time
of need.
During the year we launched LeakBot, a smart
home water leak detector that enables early
leak detection preventing or limiting damage to
customers’ homes. We have test relationships
with Aviva and RSA with promising results. We are
developing a heating installation business.
During FY17, HomeServe’s Italian business agreed a
joint venture with Edison Energia. We are prospecting
in a number of countries and intend to form joint
ventures with utilities, replicating our success with
South Staffordshire Water in the UK and Veolia in
France.
We have started to develop an online platform
offering on demand services, which we call Home
Experts. As part of this development, we purchased
a 40% stake in Checkatrade (UK), and acquired a
70% interest in Habitissimo (Spain). Combined,
these businesses bring over 45,000 approved local
tradesmen to our network.
12
Annual Report & Accounts 2017
“We have a clear vision and we have agreed the strategic priorities to ensure we achieve it.”
JM Barry Gibson
Future developments
Key Performance Indicator
As the Group enters FY18 we are well-placed for
growth, with a strong pipeline of further partner
prospects across North America, France and
Spain.
Affinity partner households
102m (FY16: 92m)
We will continue to focus on delivering great
customer service to all of our customers – a result
of the hard work of our engaged people.
Group retention rate
82% (FY16: 83%)
We will roll out the core customer system and
replace the claims handling and job deployment
systems in the UK and improve the claims
management systems in Spain and North America.
We will continue to introduce self-serve functionality
to meet customers’ expectations.
We will continue to invest in the testing and
roll our of LeakBot and our heating installation
services.
Investment in New Markets
£6.0m (FY16: £5.9m)
We will continue to progress our international
development plans and developing our on
demand offering – Home Experts.
Richard Harpin
Chief Executive
13
Strategic report
Chief Executive’s review (continued)
HomeServe has five operating
segments: the UK; the three established
international businesses of North
America (previously named USA), France
and Spain; and New Markets. The
New Markets segment comprises our
business in Italy, investment in innovation
and digital initiatives, together with
international development.
Financial performance for the year ended 31 March
£million
UK
North America
France
Spain
New Markets
Inter-segment
Group
Revenue
Statutory operating
profit/(loss)
Adjusted operating
profit/(loss)
2017
2016
2017
2016
2017
2016
326.5
291.8
62.0
57.4
63.2
58.0
227.8
152.6
91.1
130.2
77.4
97.5
14.7
21.1
13.0
449.1
327.5
48.8
7.8
18.0
9.6
35.4
21.2
27.1
13.3
61.6
16.6
(7.2)
20.1
(6.2)
(6.1)
(5.9)
(6.0)
—
—
—
12.1
23.2
9.9
45.2
(5.9)
—
785.0
633.2
104.7
86.9
118.8
97.3
Adjusted operating profit/(loss) excludes amortisation of acquisition intangibles as reconciled to the statutory equivalent on the next page.
Performance metrics for the year ended 31 March
Affinity partner
households (m)
Customer
numbers (m)
2017
24
50
15
12
77
1
102
2016
24
32
15
15
62
6
92
2017
2.2
3.0
1.0
1.3
5.3
0.3
7.8
2016
2.2
2.3
1.0
1.2
4.5
0.3
7.0
Policy retention
rate
2017
80%
2016
82%
82%
89%
78%
83%
—
82%
89%
77%
83%
—
82%
83%
UK
North America
France
Spain
New Markets
Group
14
Annual Report & Accounts 2017
The Group uses adjusted operating
profit, EBITDA, adjusted profit before tax
and adjusted earnings per share as its
primary performance measures. These
are non-IFRS measures which exclude the
impact of the amortisation of acquisition
intangible assets (FY17: £14.1m, FY16:
£10.4m). Acquisition intangible assets
principally arise as a result of the
past actions of the former owners of
businesses in respect of marketing and
business development activity. Therefore,
the adjusted measures reflect the post
acquisition revenue attributable to, and
operating costs incurred by, the Group.
A reconciliation between the adjusted
and statutory equivalent is included in the
Financial review.
As at 31 March 2017, the net book value
of the acquisition intangible asset was
£114.0m (FY16: £75.3m) and the related
amortisation charge in FY17 was £14.1m
(FY16: £10.4m).
The tables below provides a reconciliation
between the statutory and adjusted items.
£million
Operating profit (statutory)
Depreciation
Amortisation
Amortisation of acquisition intangibles
EBITDA
Operating profit (statutory)
Amortisation of acquisition intangibles
Adjusted operating profit
Profit before tax (statutory)
Amortisation of acquisition intangibles
Adjusted profit before tax
Pence per share
Earnings per share (statutory)
Amortisation of acquisition intangibles
Adjusted earnings per share
2017
104.7
6.9
28.5
14.1
154.2
104.7
14.1
118.8
98.3
14.1
112.4
24.0
3.0
27.0
2016
86.9
5.4
20.0
10.4
122.7
86.9
10.4
97.3
82.6
10.4
93.0
19.6
2.2
21.8
15
Strategic report
United Kingdom
Affinity partner
households
24m
(FY16: 24m)
Total policies +2%
5.6m
(FY16: 5.5m)
£million
Revenue
Net policy income 2
Repair network
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
Customers +1%
2.2m
(FY16: 2.2m)
Income per customer 1 +2%
£96
(FY16: £94)
Policy retention rate -2ppts
FY17
FY16
80%
82%
2017
2016
Change
213.4
100.3
12.8
326.5
(263.3)
63.2
19%
200.2
81.0
10.6
291.8
(233.8)
58.0
20%
+6%
+23%
+21%
+12%
+13%
+9%
-1ppt
1 Income per customer is calculated by dividing the past twelve months’ net policy income by the number of customers. The FY16
income per customer measure excluded Home Energy Services Limited (HESL), a business acquired in October 2015.
2 Net policy income is defined as policy revenue net of sales taxes and underwriting.
16
Annual Report & Accounts 2017
• Solid performance with 2.2m customers
• Expanded partnership with Aviva, launching a range of new home assistance
products
• Strengthened heating capability with the acquisition of npower’s service
contracts business
• Voted 3rd on Glassdoor’s Best Places to Work, with a highly-engaged and
focused team
The strength of our affinity
partnerships and continued investment
in networks, heating services and
product innovation, provided the base
for a solid and profitable performance
in FY17 and ensures good medium-
term prospects. Staff engagement
remains high and is continuing to drive
high levels of customer service and
satisfaction.
Operational performance
Through affinity partner relationships,
HomeServe offers home assistance
products, under a utility brand, to around
90% of the addressable UK market. One
of our largest affinity partnerships was
successfully renewed in the year and
we were also pleased to sign a new
partnership in July 2016 with Dee Valley
Water, which provides water services to
over 250,000 customers.
In February, our partnership with Aviva,
the UK’s largest general insurer, was
expanded as we jointly launched Aviva
Home Response, a range of products,
powered by HomeServe and sold through
Aviva’s marketing channels, offering
cover for heating, plumbing, electrics
and security. This exciting opportunity
enables HomeServe to market heating-led
products under the widely-recognised
Aviva brand.
Our multi-channel marketing activity
added 0.4m gross new customers in the
year (FY16: 0.4m) and we are pleased that
new customers joining us do so on fuller
products, enjoying the benefits of higher
usage and increasing our average net
income per customer.
The policy retention rate was good at 80%
(FY16: 82%) with more Year 1 customers
choosing to renew with us than in the
prior year. New customers typically enrol
on an introductory offer and so we expect
our policy retention rate in year 1 to be
lower than subsequent years. Customer
retention also continues to perform well,
with the overall rate maintained at 82%
(FY16: 82%).
17
Strategic report
Chief Executive’s review (continued)
In February 2017, we were recognised
by the Institute of Customer Service as
the only company to have consistently
improved customer service since January
2014. Our satisfaction rating of 79.9
placed us in the top three UK “Services”
companies for customer satisfaction
in 2017.
This great customer service is due to the
hard work and dedication of our people
across all areas of the business, so we were
delighted to receive the accolade of 3rd on
Glassdoor’s Best Places to Work in 2017.
Our investment in innovation resulted
in the launch of LeakBot, a smart home
water leak detector that enables early
leak detection, preventing or limiting
damage to customers’ homes. The
product appeals to the home insurance
market, with escape of water the biggest
expense incurred by home insurers. We
have launched tests with home insurers
including Aviva and, more recently, RSA
and its More Than brand. Results are
encouraging and support our focus on
innovation.
We continue to invest in our network of
contractors and engineers and during
December 2016 we extended the directly-
employed heating network with the
acquisition of npower’s ‘domestic care and
maintenance’ contracts business together
with its 76 heating engineers. Combined
with our plumbing engineers and the
successful integration of the Home Energy
Services Limited (HESL) business that
was acquired in FY16, our network now
comprises over 850 directly-employed
engineers, up from 700 last year.
Our heating business previously focused
on boiler repairs and services; but we have
now expanded our services to include
boiler and smart thermostat installations.
Although early days, this installation
business is growing month-on-month
and we aim to expand it nationally,
through both organic growth and further
appropriate bolt-on opportunities.
During the year, we completed 0.9m
jobs, up from 0.7m in the prior year while
still retaining high levels of customer
service. Internally we measure customer
satisfaction at different contact points
along the customer journey (e.g. when
the customer buys the policy / when
the customer makes a claim), and this
increased in the year. Our ratings on
TrustPilot (the leading third party review
provider in the UK) and Reevoo (an
independent customer ratings provider)
remain high at 8.3 and 93% (FY16: 8.3 and
93%) respectively.
18
Technology plays an increasingly
important role in how we operate and in
our interaction with customers. We are
investing in upgrading our technology
and are pleased with the implementation
of our new Customer Relationship
Management (CRM) system, which will be
rolled out during FY18. The system is in
live test with a small number of customer
records, where agents are now presented
with a single view of the customer, a
system generated “next best customer
action” and more intuitive screens. This is
leading to better conversations between
our agents and customers, and is expected
to drive sales and efficiency benefits in
the medium term. We are also investing in
our extended network of engineers and
plan to upgrade our claims management
and deployment systems to deliver further
operational efficiencies.
Annual Report & Accounts 2017
Financial performance
Revenue in the year was 12% higher than
the prior year at £326.5m (FY16: £291.8m),
principally reflecting an increase in net
policy income and repair network revenue.
Net policy income benefited from a
slightly higher number of customers and
higher income from each customer. Net
income per customer was up £2 to £96,
reflecting the mix of customers holding
fuller cover products, and we expect
further progression in net income per
customer in FY18.
Repair network revenue increased by 23%
to £100.3m (FY16: £81.0m), reflecting an
increase in the number of jobs completed.
Other income of £12.8m (FY16: £10.6m)
includes transactions with other Group
companies, on demand repairs, smart
thermostat and boiler installations.
Adjusted operating costs increased 13% to
£263.3m (FY16: £233.8m), reflecting the
first full year of ownership of HESL and
the integration of the engineer network
of npower’s service contracts business.
Adjusted operating margin was 19% (FY16:
20%), principally due to the increase in
repair revenue. With continued high levels
of repair revenue, we expect margins to
remain at this level going forward.
19
Strategic report
North America
Affinity partner
households +54%
50m
(FY16: 32m)
Total policies +28%
4.5m
(FY16: 3.5m)
$million
Revenue
Net policy income
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
£million
Revenue
Net policy income
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
Customers +28%
Income per customer +7%
3.0m
(FY16: 2.3m)
$97
(FY16: $91)
Policy retention rate
FY17
FY16
82%
82%
2017
2016
Change
273.5
19.5
293.0
(266.8)
26.2
9%
211.0
17.4
228.4
(210.9)
17.5
8%
+30%
+12%
+28%
+26%
+50%
+1ppt
2017
2016
Change
212.7
15.1
227.8
141.1
11.5
152.6
(206.6)
(140.5)
21.2
9%
12.1
8%
+51%
+31%
+49%
+47%
+75%
+1ppt
Income per customer is calculated by dividing the last twelve months’ net policy income by the number of customers. The policy
retention rate and income per customer performance measures exclude USP, a business acquired in July 2016. FY17 policy income
includes $27.7m in respect of USP.
20
Annual Report & Accounts 2017
• Rapid progress adding 18m affinity partner households to reach 50m
• Record new partner signings adding 100 partners
• Significant customer growth up 28% to 3.0m
•
Integration of USP on track to deliver $15m EBITDA in FY18.
This was a transformational year for
HomeServe in North America, with
good underlying organic growth
enhanced by the acquisition of Utility
Service Partners Inc. (USP). We have
achieved the milestone of 3.0m
customers, added 100 new partners
and reached 50m affinity partner
households, making good progress
towards our 80m household target.
Operational performance
North America achieved record partner
signings, increase in households and
gross new customers. We delivered a 50%
increase in adjusted operating profit to
$26.2m, driven by the continued success
of our underlying business.
On 1 July 2016, we completed the
acquisition of USP, a leading provider
of home assistance services, for a net
cash outflow of $72.6m (£54.5m). Like
our existing business, USP operates an
affinity partner model and it is also the
exclusive home warranty partner of
the National League of Cities (NLC), an
organisation that advocates to around
19,000 towns and cities, covering 66m
municipal households in the USA. The NLC
relationship is a strong endorsement with
smaller municipals. We have streamlined
our approach for these prospects with
a resulting increase in the number
of municipals signed in the year. The
operational integration of USP is largely
complete and we are pleased to have
retained the Canonsburg facility together
with key personnel.
Our acquisition of USP advanced our
expansion into Canada, a country with
13m households, and offers further
good growth prospects for our business.
USP made a strategic investment in
Canada working with the Association
of Municipalities of Ontario (AMO), an
endorsing partner across Canada’s largest
province. We have started marketing in
Ontario, and now have 30 partnerships in
this region.
We now offer our products to 50m
utility households (FY16: 32m) and we
are confident of reaching our stated goal
of 80m utility households across North
America. During the year, we signed 100
new utility partnerships and entered into a
relationship with the American Public Gas
Association (APGA) which is an endorsing
body that works with 700 municipal gas
distributors across the USA.
21
Strategic report
Chief Executive’s review (continued)
Our strategic plan is focused on our core
policy business – developing, marketing
and selling policies in partnership with
utilities, municipals and membership
organisations. We have invested in building
an experienced business development
capability, focused on driving new
partnership signings. Our pipeline of
potential partner opportunities is strong,
with negotiations at all stages of the
process.
Customer numbers increased 28%
to 3.0m customers (FY16: 2.3m), with
0.4m customers acquired with the USP
acquisition and a further 0.8m gross new
customers added during the year (FY16:
0.7m). Direct mail continues to be the
most significant marketing channel, with
continued progress in sales through our
partner channels. We re-launched our
website, enabling more effective digital
marketing, with a 55% increase in the
number of new customers joining
online. Retention remains strong at 82%
(FY16: 82%).
Good customer service is central to
the business and we have invested in
technology across the claims process to
improve the customer journey. We now
deploy over 80% of all contractor jobs
directly to technician’s mobile devices.
Going forward we expect to make further
investment in claims technology to
enhance the customer experience and to
drive operational efficiency.
Our network of 151 directly-employed
engineers (FY16: 152) and almost 1,100
sub-contractors (FY16: 1,000) carried out
“I've been in my
home for 13 years.
The plans were worth
the cost for peace
of mind.”
Robert McKenzie
Charleston SC
HomeServe’s
3 Millionth customer
in the USA
May 2017
22
0.4m jobs during the year (FY16: 0.4m).
In line with our strategy, we have
progressed our HVAC (heating, ventilation
and air conditioning) installation business,
with a 15% increase in the number of
units installed in FY17 compared to the
prior year.
We were delighted to win a recognised
‘Top Places to Work’ award for the third
year in a row together with a Grand Stevie
Award for our high levels of customer
satisfaction.
Financial performance
Revenue was up 28% to $293.0m
(FY16: $228.4m), driven by a 30% increase
in policy income, reflecting an increase
in renewal income and $27.7m post-
acquisition revenue from USP. Our
growing installation volumes are reflected
in the 12% increase in other income to
$19.5m (FY16: $17.4m).
Income per customer was up 7% to $97
(FY16: $91), principally reflecting the higher
proportion of renewals and a reduced
cost to serve as we realised operational
efficiencies in our network. Income per
customer excludes USP customers who
have yet to go through a full renewal cycle
with HomeServe. Typically income per
customer is lower in USP, reflecting the
product mix, and as a result we expect to
see a small reduction in net income per
customer in FY18.
Annual Report & Accounts 2017
Adjusted operating costs in North
America were $266.8m (FY16: $210.9m),
up 26% on the prior year, due principally
to continued investment in business
development, marketing and the impact
of USP. USP incurred a loss of $0.9m in
the period post acquisition reflecting
related transaction and integration costs.
We continue to expect USP to add $15m
incremental EBITDA in FY18, our first full
year of ownership. Adjusted operating
profit increased 50% to $26.2m, resulting
in an adjusted operating margin of 9%, up
from 8% in FY16. We remain confident of
a longer-term adjusted operating profit
margin of 20%.
23
Customers +4%
1.0m
(FY16: 1.0m)
Income per customer
€101
(FY16: €101)
Policy retention rate
FY17
FY16
89%
89%
2017
107.4
(75.9)
31.5
30%
2017
91.1
(64.0)
27.1
30%
2016
Change
105.0
(73.6)
31.4
30%
2016
77.4
(54.2)
23.2
30%
+2%
+3%
—
—
Change
+18%
+18%
+17%
—
Strategic report
France
Affinity partner
households
15m
(FY16: 15m)
Total policies +1%
2.3m
(FY16: 2.3m)
€million
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
£million
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
24
Annual Report & Accounts 2017
• Good sales momentum delivered a 4% increase in customer numbers
to 1.0m
• Outstanding customer loyalty reflected in 89% retention rate, the highest
in the Group
• Maintained strong adjusted operating profit margin of 30%.
HomeServe France demonstrated a
solid performance this year via its
two major partnerships with Veolia
and Suez, while continuing to invest
in business development, product
development and digital initiatives.
Operational performance
Our strong partnership with Veolia,
France’s largest water provider, continues
to deliver customer growth and during the
year we saw an increase in the number of
customers joining through Veolia’s own
sales channels. We continue to develop
our relationship with Suez (formerly
Lyonnaise des Eaux), which offers
HomeServe products through its sales
channel, and accounted for a third of all
new sales during the year.
Across all of our marketing channels we
added 0.2m gross new customers (FY16:
0.2m). This sales activity combined with a
continued strong retention performance at
89% (FY16: 89%) resulted in a 4% increase
in customer numbers to 1.0m (FY16: 1.0m).
Our business development team has
a good pipeline of partner prospects,
with some initial testing in progress. We
have also signed a new partnership with
SARP, part of the Veolia Group, to offer a
new plumbing, drainage and septic tank
product to its 0.6m customers.
We have enhanced the digital functionality
across the customer journey from sale
through to claim, which we believe has
improved our relationship with both
customers and contractors. We were
proud to win a nationally-renowned
award - Service Client de l’Annee 2017,
Home Services sector - for the first
time, reflecting our focus on delivering
exceptional customer service.
All our repairs in France are completed
by our network of over 900 contractors
(FY16: 700). We now deploy over 50% of
jobs direct to contractors’ mobile devices
driving improved customer service,
operational efficiencies and an enhanced
relationship with these contractors.
25
Strategic report
Chief Executive’s review (continued)
Financial performance
Total revenue increased 2% to €107.4m
(FY16: €105.0m), principally reflecting an
increase in renewal income generated
by Suez. Adjusted operating costs were
up 3% to €75.9m (FY16: €73.6m), due to
an increase in amortisation and further
investment in business and product
development. In line with the prior
year, income per customer was €101
(FY16: €101).
In accordance with Group policy, where
a partner originates customers on our
behalf, the cost of acquisition is capitalised,
held as an intangible asset and amortised
as an operating expense. During FY17,
we paid €3.0m (FY16: €4.2m) in respect
of customers acquired by Suez, and as
at March 2017, the net book value of the
intangible asset was €5.9m (FY16: €4.3m).
The associated amortisation during the
year was €1.0m (FY16: €0.4m).
Adjusted operating profit increased to
€31.5m, (FY16: €31.4m), maintaining a
strong adjusted operating margin of 30%
(FY16: 30%), while continuing to support
customer growth.
26
Annual Report & Accounts 2017
27
Strategic report
Spain
Affinity partner
households -20%
12m
(FY16: 15m)
Total policies +6%
1.5m
(FY16: 1.4m)
€million
Revenue
Membership
Claims handling
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
£million
Revenue
Membership
Claims handling
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
28
Customers +7%
1.3m
(FY16: 1.2m)
Income per customer +4%
€43
(FY16: €41)
Policy retention rate +1ppt
FY17
FY16
78%
77%
2017
2016
Change
57.2
97.1
154.3
(138.5)
15.8
10%
50.4
82.4
132.8
(118.9)
13.9
10%
+13%
+18%
+16%
+16%
+13%
—
2017
2016
Change
48.3
81.9
130.2
(116.9)
13.3
10%
37.1
60.4
97.5
(87.6)
9.9
10%
+31%
+35%
+34%
+33%
+34%
—
Annual Report & Accounts 2017
• Continued customer growth, up 7% to 1.3m
• Strong adjusted operating profit growth, up 13% to €15.8m
• Record number of jobs completed – up 19% across the network.
Customer numbers increased 7% to 1.3m,
reflecting continued good sales and
retention. During the year, we developed
new products to appeal to a broader
market, including water products and
“Tech Angel”, a 24/7 home technology
support product, which has been well
received. Retention in the year was 78%,
marginally higher than the prior year
(FY16: 77%).
Our claims business works with 16 Spanish
insurance companies managing home
insurance claims across 26 trades. During
the year it completed 19% more jobs
than in the prior year, closing a record
0.8m jobs (FY16: 0.7m), which reflects
an increase in our market share together
with our diversification into new channels.
Our network comprises over 2,000 sub-
contractors and 197 franchised engineers.
This year our Spanish business,
Reparalia, rebranded as HomeServe
Spain. We have achieved good growth
in both our Membership and Claims
businesses as we saw confidence
returning to the Spanish market.
Performance in the claims handling
business was particularly strong, as we
continued to gain market share and
increased claims volumes across our
third-party insurance network.
Operational performance
Endesa, our largest partner in Spain,
continued to successfully offer our
products through its sales channels and
this will continue throughout FY18. We
were unable to make the progress we
wanted with Agbar, a water utility with 3m
households and so, following a period of
limited marketing activity, we agreed to
end the partnership and removed it from
our affinity partner household count.
We have retained the 39,000 customers
previously acquired and will look to renew
them under our brand going forward. Our
business development team is in active
discussions with other potential partners.
29
Strategic report
Chief Executive’s review (continued)
Financial performance
Revenue increased 16% to €154.3m
(FY16: €132.8m) with increases in both
Membership and Claims. Membership
revenue was up 13% to €57.2m (FY16:
€50.4m), reflecting the higher number
of customers, while Claims revenue
increased to €97.1m (FY16: €82.4m),
benefitting from an increase in the number
of completed jobs.
Income per customer (relating to the
Membership business) was up 4% to
€43 (FY16: €41), reflecting the increased
maturity of the customer base.
In accordance with Group policy, where
a partner originates customers on our
behalf, the cost of acquisition is capitalised,
held as an intangible asset and amortised
as an operating expense. During FY17 we
paid €13.5m (FY16: €20.2m), in respect
of customers acquired by Endesa and, as
at March 2017, the net book value of the
intangible asset amounted to €46.0m
(FY16: €42.1m). Amortisation in FY17 was
€12.8m, €2.9m higher than the prior year
(FY16: €9.9m).
Adjusted operating costs increased 16%
to €138.5m (FY16: €118.9m), primarily
reflecting the increase in direct costs
to serve the higher job volumes in the
Claims business and an increase in
amortisation in the Membership business.
Adjusted operating profit was up 13% to
€15.8m (FY16: €13.9m) following good
performance in both Membership and
Claims.
30
Annual Report & Accounts 2017
31
Strategic report
Chief Executive’s review (continued)
New Markets
• Our Italian business agreed a joint venture with Edison Energia, a major utility
in Italy
• Positive discussions in new international markets
• Strategic investment in Checkatrade and acquisition of Habitissimo.
Our New Markets segment comprises
our business in Italy, investment in
innovation and digital initiatives,
together with international
development.
In Italy, we have 0.3m customers acquired
through a test agreement with Enel. There
continues to be good customer demand
for our products but due to a change in
Enel’s approach to home services, the
test agreement was not extended. During
March 2017, we established a joint venture
with Edison Energia, Italy’s third-largest
energy supplier and a member of the EDF
Group, through its purchase of 51% of our
Italian business (we retain a 49% share).
We have commenced marketing a range
of home assistance products, principally
through Edison Energia’s sales channels,
including television advertising.
We continue to progress our international
development plans where we are targeting
multiple countries under our preferred
joint venture model.
We have invested in technology to drive
enhanced performance across the Group.
Consistent platforms across all of our
businesses will deliver more effective
product sales and efficiencies. During the
year, we launched new customer-facing
websites in the USA, France and Spain.
32
In line with our ambition to offer our
services to more homeowners, we are
developing a compelling online on
demand service which we are calling
Home Experts. This platform will
connect customers to a range of expert
tradespeople, enabling an end-to-end
digital experience.
Our investment in Checkatrade, which is
treated as an associate and acquisition of
Habitissimo, which is fully consolidated,
will accelerate the development of
this proposition. Both businesses are
established market leaders in home repairs
and improvements. Combined, they have
45,000 local Home Experts carrying out
an estimated £3.5 billion of home repairs
and improvements annually.
Checkatrade is the UK’s most recognised
and trusted online directory of high-
quality, customer-recommended
tradespeople with nearly 1m unique
customer visits a month, resulting in
approximately 1.3m jobs per annum.
Our recent research indicates that around
50% of consumers go online to find a
tradesman and of these, around 47% go
directly to Checkatrade, making it a market
leader in online home services.
Based in Mallorca, Habitissimo receives
more than 3.6 million unique customer
visits a month, resulting in approximately
0.25m jobs a year across four countries in
Europe (Spain, Portugal, Italy and France),
and also in Latin America.
Financial performance
Reported revenue was £16.6m, down
£3.5m compared to the prior year
(FY16: £20.1m), reflecting a reduction in
customers due to the cessation of activity
with Enel in June 2016. Following the
formation of a joint venture with Edison
Energia in March 2017, our business in
Italy is treated as an associate and going
forward we will not report annual revenue
in respect of this business.
Our investment in New Markets resulted in
a loss of £6.0m (FY16: £5.9m). We expect
a similar level of investment in FY18,
covering our continued investment in Italy,
innovation and digital initiatives, together
with international development.
Board changes
During the year David Bower was
appointed as Chief Financial Officer
and Johnathan Ford as Chief Operating
Officer. We have also strengthened the
Board with the appointment of three
new Directors with effect from 23 May
2017. Tom Rusin has been appointed
as an Executive Director and Katrina
Cliffe and Edward Fitzmaurice have
both been appointed as Non-Executive
Directors. Katrina will also join the Audit
& Risk Committee. Tom has been Chief
Executive Officer of HomeServe
Annual Report & Accounts 2017
USA since July 2011 and is currently a
member of the HomeServe plc Executive
Committee.
Outlook
All our businesses are performing well and
have good prospects. Looking ahead,
we expect further strong growth in FY18,
principally driven by our rapidly-expanding
business in North America. This reflects
the increase in customer numbers,
combined with the benefit of the USP
acquisition, which we expect to deliver
around $15m EBITDA this coming year.
We are excited about the future for all of
our businesses. We have a strong platform
for growth over the years ahead and our
strategic focus on home assistance, repairs
and improvements will enable us to meet
the needs of a wide range of customers.
Richard Harpin
Chief Executive
23 May 2017
33
Strategic report
Financial review
Group statutory results
The headline statutory financial results for
the Group are presented below.
These financial results have been
prepared in accordance with International
Financial Reporting Standards (IFRS) as
adopted for use by the European Union.
The Group delivered 19% growth in
profit before tax to £98.3m, an increase
of £15.7m compared to FY16 (FY16:
£82.6m). Statutory profit before tax
is reported after the amortisation of
acquisition intangibles. The individual
financial performance of each business is
considered in the business review.
Group income statement
£million
Total revenue
Operating profit
Net finance costs
Adjusted profit before tax
Amortisation of acquisition intangibles
Statutory profit before tax
Tax
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
34
2017
2016
785.0
633.2
104.7
(6.4)
112.4
(14.1)
98.3
(23.9)
74.4
86.9
(4.3)
93.0
(10.4)
82.6
(21.0)
61.6
74.4
61.6
—
—
74.4
61.6
Annual Report & Accounts 2017
“This is a strong set of results, with growth in
operating profit and earnings. We were delighted
to increase our dividend by 20% this year.”
David Bower
Chief Financial Officer
35
Strategic report
Financial review (continued)
Amortisation of acquisition intangibles
The amortisation of acquisition
intangibles of £14.1m (FY16: £10.4m)
relates to customer and other contracts,
held by businesses, which were acquired
as part of business combinations and has
increased this year principally due to the
acquisition of USP in July 2016, where
£34.8m acquired intangible assets were
identified.
Tax strategy
The Group has a tax strategy that was
approved by the Board during the year
and which reflects our status as a plc,
which requires strong governance and
consideration of our reputation. Our tax
strategy also reflects the regulated nature
of our business which requires further
compliance with local laws, regulations
and guidance. We made the UK elements
of our tax strategy document publicly
available in April 2017 as required by
UK legislation.
Our Group tax strategy covers the
following matters: (i) how we maintain
ongoing application of tax governance
with strong internal controls in order to
substantially reduce tax risk to materially
acceptable levels; (ii) how we will not
engage in artificial transactions the sole
purpose of which is to reduce tax; (iii) our
strategic aim to maintain the Group’s low
UK tax risk rating as determined by the
UK Tax Authorities Business Risk Review
process; and (iv) to continue to work with
all tax authorities in an open, honest and
transparent manner.
Tax charge and effective tax rate
The Group’s tax charge in the financial
year was £23.9m (FY16: £21.0m). The
corporate income tax rates in the
overseas countries in which we operate
are currently higher than the
UK corporate income tax rate of 20%
(FY16: 20%), i.e. the US at 40% (FY16: 40%),
France at 33% (FY16: 33%), Spain at 25%
(FY16: 27%) and Italy at 28% (FY16: 28%).
The UK corporation tax rate is 19% in FY18
and expected to remain at this level in
FY19 and FY20, with a further reduction
to 17% in FY21 onwards. To the extent our
profits are more weighted towards our
overseas countries we would expect the
effective tax rate of 24% (FY16: 25%) to
increase in future years.
Cash flow and financing
Our business model continues to
be highly cash generative with cash
generated by operations in FY17
amounting to £139.9m (FY16: £121.7m),
representing a cash conversion ratio
against adjusted operating profit of 118%
(FY16: 125%).
Working capital increased by £21.1m in
FY17 reflecting continued growth in all
of our businesses. As the business grows
further, we expect additional working
capital absorption, though we continue to
expect the cash conversion ratio to be in
excess of 100%.
36
Group cash flow
£million
Adjusted operating profit
Amortisation of acquisition intangibles
Operating profit
Depreciation and amortisation
Non-cash items
Increase in working capital
Cash generated by operations
Net interest
Taxation
Capital expenditure
Repayment of finance leases
Free cash flow
Acquisition of associate
Acquisition of available for sale investments
Acquisition of subsidiaries
Disposal of subsidiary
Equity dividends paid
Issue of shares
Net movement in cash and bank borrowings
Impact of foreign exchange
Net debt acquired
Finance leases
Opening net debt
Closing net debt
Annual Report & Accounts 2017
2017
2016
118.8
97.3
(14.1)
(10.4)
104.7
49.5
6.8
(21.1)
86.9
35.8
5.1
(6.1)
139.9
121.7
(6.4)
(3.0)
(20.0)
(17.3)
(58.5)
(63.7)
(1.0)
54.0
(24.7)
—
(74.2)
(1.7)
(0.5)
37.2
–
(0.5)
(5.3)
–
(40.3)
(137.0)
0.9
1.8
(86.0)
(103.8)
(6.3)
(0.4)
0.8
(0.7)
–
(0.9)
(169.5)
(64.1)
(261.4)
(169.5)
37
Strategic report
Financial review (continued)
During the year, we invested capital
expenditure of £58.5m (FY16: £63.7m),
which was £6.5m lower than planned
principally due to the timing of partner
payments, which we now expect to
incur in FY18. Expenditure during FY17
included partner payments of £14.1m
(FY16: £17.9m) in respect of the acquisition
of customers that Endesa and Suez
originated and payments to certain US
partners.
Technology plays an increasingly
important role throughout our business.
We have continued to invest in the
replacement of our core customer
system, together with normal investment,
principally technology-related, across all
the businesses. As we roll out the core
customer system in FY18, we are also
planning to replace the claims handling
and job deployment systems in the UK,
improve the claims management systems
in Spain and North America, while also
investing in the development of our
Home Experts platform. We expect these
investments will make us more efficient,
improve our customer service and will
be an ‘enabler’ for our online on demand
business. As a result of these investments,
together with ongoing partner payments,
we expect capital expenditure to be
around £70m in FY18. Going forward we
expect capital expenditure to normalise at
around £35m.
Investment in associates
On 13 December 2016 the Group
acquired a 40% stake in Sherrington
Mews Limited, the holding company
of the Checkatrade Group, for cash
consideration of £24.0m. There is further
contingent consideration of £4.0m that is
payable subject to financial performance
conditions being met by the business, the
present value of which is £2.7m. There
were also legal costs associated with the
transaction that were added to the cost of
the investment amounting to £0.7m.
On 9 March 2017 the Group disposed
of 51% of Assistenza Casa Srl, a wholly
owned Group company. The remaining
49% has been accounted for as an
associate using the equity method. The
Group realised a gain of £0.1m as a result
of this transaction.
Acquisitions
The Group has incurred a net cash
outflow in respect of business
combinations of £74.2m in the year.
There were three material acquisitions in
the year ended 31 March 2017.
On 1 July 2016 Homeserve USA Corp, a
Group company, acquired 100% of the
issued share capital and obtained control
of Utility Service Partners Inc (USP).
On 1 December 2016 HomeServe
Membership Limited, a Group company,
purchased npower’s ‘domestic care and
maintenance’ contracts business. The
acquisition included 76 heating engineers.
On 27 January 2017 HomeServe
International Limited, a Group company,
acquired 70% of the issued share capital
and obtained control of Habitissimo S.L., a
specialist online lead generation business
operating across Southern Europe and
South America.
38
Annual Report & Accounts 2017
In addition to the net cash outflow on the
acquisitions above of £71.8m, deferred
consideration was paid relating to prior
period business combinations of £3.1m
(FY16: £1.1m) and net cash was acquired
as part of an immaterial acquisition in
Spain of £0.7m.
Earnings per share
Earnings per share for the year increased
from 19.6p to 24.0p, an increase of 22%.
On an adjusted basis, earnings per share
increased 24% from 21.8p to 27.0p. The
weighted average number of shares
decreased from 313.9m to 309.9m due to
the impact of the share consolidation in
the prior year, offset in part by new shares
issued in fulfilment of a number of share
schemes in the year.
Dividends
Given the Group’s good performance
and the Board’s confidence in its future
prospects, the Board is proposing to
increase the final dividend to 11.2p per
share (FY16: 8.9p) to be paid on 3 August
2017 to shareholders on the register on
7 July 2017.
Together with the interim dividend
declared in November 2016 of 4.1p
(November 2015: 3.8p), this represents
a 20% increase in the total ordinary
dividend payment for the year of 15.3p
(FY16: 12.7p), which is 1.76x covered by
the FY17 adjusted earnings per share
compared to 1.72x cover in FY16. As
previously indicated, the Board intends to
adopt a progressive dividend policy and
targets a dividend cover in the range 1.75x
- 2x over the medium-term.
In the prior year, in July 2015, a special
dividend of £99.4m was also paid to
shareholders, which was followed by a
share consolidation.
Net debt and finance costs
The Group targets net debt in the range
of 1.0-1.5x EBITDA, measured at 31 March
each year. With net debt of £261.4m and
EBITDA of £154.2m, the Group was outside
this range at 1.7x.
As previously stated, we are prepared to see
leverage increase for reasonable periods
of time if circumstances warrant this.
The opportunity to acquire USP in North
America in July 2016 together with our
other investments, principally relating to the
investment in Checkatrade and acquisition
of Habitissimo, which we expect to
accelerate our Home Experts proposition,
represented such circumstances. Absent
the M&A activity which took place in the
year, we would have been at the lower end
of our target range, while the range itself
remains subject to periodic review.
During the year, the Group obtained €50m
medium-term funding in the form of a term
loan due for repayment by instalments
through to 2020. In addition, during March
2017, the Group obtained a further £60m
medium-term funding in the form of a
Private Placement due for repayment in
2024.
The Group’s net interest paid was £6.4m
with an interest accrual of £1.1m as at
31 March 2017, of which £0.8m was
subsequently paid in April 2017. Cash
finance costs in the prior year were £3.0m
with an interest accrual of £0.9m as at 31
March 2016.
39
Strategic report
Financial review (continued)
Foreign exchange impact
HomeServe is well-positioned to
meet the challenges of the UK’s exit
from the European Union and our
growth prospects remain strong. Our
businesses each operate in their own
territories, buying goods and services
from local businesses and supplying
local consumers within those territories,
almost exclusively in local currencies. Our
businesses have also proved resilient to
economic turmoil over a number
of years.
The depreciation of sterling against the
US Dollar and Euro following the UK’s
decision to leave the European Union has,
however, had a significant impact
on our reported results due to the impact
of translating the results of our overseas
businesses.
Specifically, changes in the US Dollar
and Euro exchange rates between FY16
and FY17 have resulted in the reported
revenue of our international businesses
increasing by £63.3m and adjusted
operating profit increasing by £10.3m as
summarised in the table below.
In addition, as the Group holds certain of
its cash, bank and other loans in foreign
currencies, the depreciation of sterling
resulted in an increase in the reported net
debt of the Group of £0.2m in relation to
Euro-denominated net debt, and £6.5m
in relation to US Dollar-denominated net
debt.
Foreign exchange impact
North America
France
Spain
New Markets
Total International
40
Effect on (£m)
Average exchange rate
Revenue
2017
2016
Change
2017
$
€
€
€
1.31
1.19
1.19
1.19
1.51
1.37
1.37
1.37
(13%)
(13%)
(13%)
(13%)
32.3
12.0
16.9
2.1
63.3
Adjusted
operating
profit
2017
3.6
3.7
2.2
0.8
10.3
Annual Report & Accounts 2017
41
Strategic report
Principal risks and uncertainties
HomeServe has a risk management framework which provides a structured and consistent
process for identifying, assessing and responding to risks. These risks are assessed in
relation to the Group’s strategy, business performance and financial condition and a formal
risk mitigation plan is agreed with clear ownership and accountability. Risk management
operates at all levels throughout the Group, across geographies and business lines.
Risks to HomeServe’s business are either specific to HomeServe’s business model, such
as affinity partner relationships and underwriting, or more general, such as the impact of
competition and regulatory compliance.
The table opposite sets out what the Board believes to be the principal risks and
uncertainties facing the Group, the mitigating actions for each, and an update on any
change in the profile of each risk during the past year. These should be read in conjunction
with the Chief Executive’s review and the Financial review. Additional risks and uncertainties
of which we are not currently aware or which we currently believe are not significant may
also adversely affect our strategy, business performance or financial condition in the future.
The Board believes that all identified risks carry equal importance and weighting as in the
prior year with updates to the nature of those risks detailed below.
42
Annual Report & Accounts 2017
Risk
Description / Impact
Commercial relationships
Underpinning the success in
our chosen markets are close
commercial relationships
(affinity partner relationships)
principally with utility
companies, municipals and
financial institutions. The loss
of one of these relationships
could impact our future
customer and policy growth
plans and retention rates.
While the majority of these
partnerships are secured
under long-term contracts,
which increase the security
of these relationships over
the medium-term, they can
be terminated in certain
circumstances.
Competition
There are a number of
businesses that provide
services that are similar to
those of the Group and could
therefore compete in one or
more of our chosen markets.
Increased competition could
affect our ability to meet our
expectations and objectives
for the business in terms of
the number of customers,
policies or the financial
returns achieved.
Mitigation
Change since 2016 Annual Report
We have regular contact and reviews
with the senior management of
our affinity partners to ensure we
respond to their needs and deliver
the service that they expect.
Across the Group we are not
dependent on any one single
partnership, which mitigates, in
part, the impact of losing any single
relationship.
The market and the activities of
other participants are regularly
reviewed to ensure that the
strategies and offerings of current
and potential competitors are fully
understood. Both qualitative and
quantitative research is undertaken
to ensure that our products and
services continue to meet the needs
of our customers whilst retaining a
competitive position in the market.
We believe we have a compelling
proposition, providing customers
with real value and helping
reduce the impact of increased
competition.
We have continued to sign and renew
affinity partnerships with utilities
across the businesses.
In the UK, there were no agreements
due for renewal in FY17. We renewed
one utility partner agreement early
due to renew in FY18 on substantially
similar terms. We signed an additional
utility partner (Dee Valley Water) and
extended our relationship with Aviva.
In North America, we signed 100
new partners during the year and in
France, while continuing to work with
the two largest water utilities we also
have a good pipeline of opportunities.
In Spain, we continue to work closely
with Endesa, though ceased activity
with Agbar, a water utility. In Italy,
following the cessation of the test
agreement with Enel, we entered a
joint venture with Edison Energia.
There has been no significant change
in the competitive landscape in any of
the countries in which we operate.
In North America, we participate in
RFPs (“requests for proposal”) that
are issued by utilities when they seek
to start a programme. While we see
some other parties participating in
these tenders, we win the majority
and we believe that, overall, the RFP
process is positive for our business
as it demonstrates an increased
awareness of our products and
services in the North American
market.
43
Strategic report
Principal risks and uncertainties
(continued)
Mitigation
Change since 2016 Annual Report
Policy retention rate is one of our
Key Performance Indicators. Any
significant movement is therefore
carefully investigated to assess the
change in customer behaviour and
to implement corrective action
where possible.
We have a wide range of tools
available to manage retention
rates, including specific retention
propositions.
There are dedicated retention
teams, trained and experienced in
talking to those customers who
are considering not renewing their
policy.
We regularly review our products
ensuring they provide the coverage
that our customers demand and
need. We also regularly review the
methods by which we interact with
our customers ensuring their needs
are met and providing them with
updated tools to purchase, renew
and review their policy holdings for
example through our latest digital
initiatives.
The performance of each marketing
campaign and channel is regularly
reviewed, with any significant
deviation to the expected response
rate quickly identified and remedial
action taken for subsequent
campaigns. We record and review a
number of telephone calls across all
of our businesses.
Policy retention remains high in all
our countries.
In the UK, the policy retention rate
decreased by 2 percentage points
to 80% compared to the prior year,
principally due to the higher number
of customers in early renewal cycles.
In the UK, we also closely monitor the
customer retention rate, which has
been maintained at 82%.
In North America, the policy retention
rate has been maintained at 82%, the
same as the prior year.
In France, we have maintained a
policy retention rate of 89%.
In Spain, policy retention increased by
1 percentage point to 78%.
During the year, our marketing
channels performed as we expected
with direct mail response rates
continuing to perform well.
We continue to develop our digital
channels and work with our partners
to offer our products in their call
centres. Development of these two
channels is serving to reduce our
reliance on direct mail activity.
Risk
Description / Impact
Customer loyalty /
retention
A key element of our
business model is customer
loyalty. Any reduction in the
proportion of customers
renewing their policies could
significantly impact our
revenue.
Marketing effectiveness
A significant reduction
in the response rates
on our marketing could
have a significant impact
on customer and policy
numbers.
44
Annual Report & Accounts 2017
Mitigation
Change since 2016 Annual Report
We have regulatory specialists,
compliance teams and Non-
Executive Directors in each of our
businesses to help ensure that all
aspects of the legislative regime in
each territory are fully understood
and adopted as required.
All of our businesses have dedicated
experienced compliance specialists
including independent Non-Executive
Directors to chair the compliance
committees in each of our businesses,
with regular reporting to the local
company Board of Directors.
Specifically in the UK, we maintain
regular dialogue with the FCA, while
in the USA we have regular dialogue
with the Attorneys General. In our
other businesses, we maintain a
dialogue with local regulators.
We keep up to date with changes
in government and regulatory
policy, which ensures that our
products and services are designed,
marketed and sold in accordance
with all relevant legal and regulatory
requirements and that their terms
and conditions remain appropriate
and meet the needs of customers.
We have maintained appropriate
dialogue with all relevant regulatory
bodies that govern or influence
our businesses and have sought to
engage, where possible, in regulatory
and compliance discussions around
the development of the markets in
which we operate.
In the UK the primary regulator, the
Financial Conduct Authority, has
recognised the risk that we pose to
their objectives has decreased and
therefore they have reduced the
intensity of their supervision.
Risk
Description / Impact
Exposure to legislation or
regulatory requirements
We are subject to a broad
spectrum of regulatory
requirements in each of
the markets in which we
operate, particularly relating
to product design, marketing
materials, sales processes and
data protection.
Failure to comply with the
regulatory requirements
in any of our countries
could result in us having to
suspend, either temporarily
or permanently, certain
activities.
In addition, legislative
changes related to our
partners may change their
obligations with regard to the
infrastructure they currently
manage and hence the
products and services we can
offer to customers.
It is possible such legislative
changes could reduce, or
even remove, the need for
some of our products and
services.
45
Strategic report
Principal risks and uncertainties
(continued)
Risk
Description / Impact
Quality of customer service
Our reputation is heavily
dependent on the quality of
our customer service.
Any failure to meet our
service standards or
negative media coverage
of poor service could
have a detrimental impact
on customer and policy
numbers.
Availability of underwriters
The policies that we market
and administer are each
individually underwritten
by third party underwriters,
independent of HomeServe.
We act as an insurance
intermediary and do not take
on any material insurance
risk.
If these underwriters were
unable or unwilling to
underwrite these risks and
we were unable to find
alternative underwriters it
would require us to insure
these risks directly, thereby
exposing the business to
material insurance risk, which
is contrary to our preferred
operating model. In addition,
it would take time to obtain
the relevant regulatory
approvals.
46
Mitigation
Change since 2016 Annual Report
We monitor customer service
standards at a number of different
customer contact points in each of
our operations, using both internal
data and an independent third party.
In FY17, we continued to monitor
customer satisfaction across all our
operations at a number of different
customer contact points, with
improvements in all the businesses.
The results of these are reviewed
on a regular basis and action plans
produced to address the key issues.
Processes have been established
to ensure that all directly employed
engineers and sub-contractors
meet minimum standards. These
include criminal record checks
and minimum qualification
requirements.
Reflecting the importance of
customer service to our business,
all senior managers have customer
satisfaction as a significant
component of their annual bonus
opportunity.
We use a number of underwriters,
with the main provider in the UK
separate to those in the rest of
Europe and North America.
We have regular contact and reviews
with the senior management of the
underwriters to ensure that claims
frequencies, repair costs and service
standards are in line with their
expectations.
The principal underwriters
are subject to medium-term
agreements, with the rates subject
to regular review.
In addition, we maintain
relationships with a number of
underwriters who are willing and
able to underwrite our business
and regularly review the market
to ensure we understand current
market conditions, how these
apply to our policies and how we
can mitigate the loss of an existing
underwriter.
We continue to review our
underwriting relationships on a
regular basis to ensure they provide
the best returns for customers and
shareholders.
In the UK, Aviva continues to be
our principal underwriter, and
commenced underwriting new
business in November 2015.
Having secured a second underwriter
in North America last year, during
FY17 we agreed terms with second
underwriters in France and Spain.
Annual Report & Accounts 2017
Risk
Description / Impact
Dependence on recruitment
and retention of skilled
personnel
Our ability to meet growth
expectations and compete
effectively is, in part,
dependent on the skills,
experience and performance
of our personnel. The inability
to attract, motivate or retain
key talent could impact
on our overall business
performance.
Exposure to country and
regional risk and Brexit risk
In line with other businesses
we are subject to economic,
political and other risks
associated with operating in
overseas territories.
A variety of factors, including
changes in a specific
country’s political, economic
or regulatory requirements,
as well as the potential
for geographical turmoil
including terrorism and war,
could result in the loss of
service.
Following the UK’s decision
to leave the European Union
there may be implications
for how we operate with our
overseas businesses.
Mitigation
Change since 2016 Annual Report
Our employment policies,
remuneration and benefits
packages, and long-term incentives
are regularly reviewed and designed
to be competitive with other
companies.
Employee surveys, performance
reviews and regular communication
of business activities are just some
of the methods used to understand
and respond to employees’ views
and needs.
Processes are in place to identify
high performing individuals and
to ensure that they have fulfilling
careers, and we are managing
succession planning effectively.
A “People Committee”, comprised
of a number of the Non-Executive
Directors and senior management
of the Group, has been created
with a mandate to promote the
development and recruitment of key
talent.
We have continued to strengthen our
management teams across all our
operations – particularly in the areas
of IT, Digital, Commercial and M&A.
During the year we completed the
rollout of our People Promises
which are now live in each of our
businesses and an integral part
of our recruitment, selection and
development procedures.
The criteria for entering a new
country include a full assessment
of the stability of its economic and
political situation, together with a
review of the manner and way in
which business is conducted.
We have recommenced reviewing
potential new territories and have
appointed a dedicated team with
significant experience of working in
an international environment to lead
this activity.
When entering a new country, we
generally do so on a small scale test
basis. This low risk entry strategy
minimises the likelihood of any
significant loss.
Our businesses each operate in their
own territories, buying goods and
services from local businesses and
supplying local consumers within
those territories, almost exclusively
in local currencies.
We continue to monitor the
economic, political and regulatory
environments where we operate.
The Group is well positioned to meet
the challenges of the UK’s exit from
the European Union and our growth
prospects remain strong.
47
Strategic report
Principal risks and uncertainties
(continued)
Risk
Description / Impact
Our IT systems become a
constraint to growth and
drive inefficiency instead of
efficiency improvements
The Group’s core IT system
is used in each of our
businesses. The system is
now around 20 years old
and has had a number of
‘in house’ developments.
The system is dependent
on internal development
resource and knowledge.
Information security
(including cyber risk)
In line with other businesses
we are subject to the
increased prevalence and
sophistication of cyber-
attacks which could result
in unauthorised access to
customer and other data that
we hold or cause business
disruption to our services.
This could result in a loss
of customers, legal liability,
regulatory action or harm to
our reputation.
Mitigation
Change since 2016 Annual Report
The Group reviews its systems
and processes on a regular basis.
As part of these reviews we look
at the future plans of each of the
businesses in terms of customer
and policy growth, product and
process design and development
requirements and the potential
impact on IT systems.
All system developments and
enhancements undergo a rigorous
financial review and the proposed
benefits are monitored and subject
to post implementation reviews.
Our IT developments are subject to
a prioritisation process, which takes
into account the availability of both
internal and external resource and
the proposed benefits of the project.
We are replacing our core customer
IT system, the development of which
has progressed well and is expected
to ‘go-live’ in the UK during FY18.
We have agreed plans to upgrade
our claims and deployment systems,
enhancing the customer journey
and improving interactions with our
network.
We have continued to invest in other
new technologies that will allow us
to improve the products and service
we offer our customers. These
have included an innovative leak
detection device and initial funding of
a platform-based home repairs and
improvement model.
We have a number of defensive
and proactive practices across the
Group to mitigate this risk.
We have a detailed information
security policy, which is
communicated across the Group
and training provided as required.
We continue to invest in IT security
ensuring a secure configuration,
access controls and data centre
security.
Following a detailed review of our
information policy, practices and
procedures by a third party in FY16,
we have now engaged a Group
Chief Information Security Officer to
oversee information security across
the Group. We have a dedicated
information security officer in each
business and undertake regular
reviews and penetration testing at all
of our businesses. During the year, we
continued to complete cyber audits
as part of our annual assurance plan
and will continue to do so in FY18.
48
Annual Report & Accounts 2017
Risk
Description / Impact
Financial strategy and
treasury risk
The main financial risks are
the availability of short-term
and long-term funding to
meet business needs, the
risk of policyholders not
paying monies owed, and
fluctuations in interest rates
and exchange rates.
Following the UK’s decision
to leave the European Union
the Group could be subject
to higher exchange rate
fluctuations
Mitigation
Change since 2016 Annual Report
Interest rate risk
Our policy is to manage our interest
cost using a mix of fixed and variable
rate debts. Where necessary, this is
achieved by entering into interest
rate swaps for certain periods, in
which we agree to exchange, at
specified intervals, the difference
between fixed and variable rate
interest amounts calculated by
reference to an agreed notional
principal amount. These swaps are
designated to economically hedge
underlying debt obligations.
Credit risk
The risk associated with cash and
cash equivalents is managed by only
depositing funds with reputable and
creditworthy banking institutions.
The risk of a policyholder defaulting
is mitigated as any policy cover will
cease as and when any premium
fails to be paid.
Liquidity risk
We manage liquidity risk by
maintaining adequate reserves and
banking facilities and continuously
monitoring forecast and actual cash
flows.
Foreign exchange risk
A clear treasury policy exists to
address short term risk and this
works with the natural hedging
provided by the geographical
spread of the businesses. While this
will protect against some of the
transaction exposure, our reported
results would still be impacted
by the translation of our non-UK
operations.
During the year, we have obtained
a four year €50m amortising term
loan repayable in 2020 and £60m
of fixed rate medium-term funding
repayable in 2024. In addition, we
have continued to build relationships
with a number of financial institutions
that wish to provide debt finance to
the Group.
Following the increase in the
Group’s leverage we have continued
to monitor the need to fix the
interest rate on some element of
our borrowings. However, given
the relatively stable interest rate
environment, combined with the fixed
rate debt secured during the past two
years, we have not entered into any
interest rate swaps during FY17.
Cash and cash equivalents continue
to be deposited with reputable and
creditworthy banking institutions.
There has been no significant change
in the level of mid-term policy
cancellations.
Our banking facility was renewed in
July 2014. Our net debt at 31 March
2017 was £261.4m, well within our
committed facilities and loans, on
which all conditions precedent have
been met.
During the year, our adjusted
operating profit benefited from the
translation benefit on Euro and USA
Dollar profits by £10.3m.
49
Strategic report
Financial review (continued)
Viability statement
In accordance with provision c.2.2 of the UK Corporate Governance Code 2014, the
Directors have assessed the viability of the Group over a three year period to 31 March
2020. The Directors believe that a three year forward looking period is appropriate as it
is aligned to the timeframe that management focus upon, the performance period in
respect of the long-term incentive scheme for senior management and it is the period of
assessment for recoverable values of cash generating units.
The Group has a formalised process of budgeting, reporting and review along with
procedures to forecast its profitability, capital position, funding requirement and cash flows.
These plans provide information to the Directors which are used to ensure the adequacy of
resources available for the Group to meet its business objectives, both on a short-term and
strategic basis. The plans for the period commencing on 1 April 2017 were reviewed by the
Executive Committee in February and then approved by the Board in March 2017.
In making this statement, the Board carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity as set out in the principal risks and uncertainties. The
Group has an embedded risk management framework and all major risks are scored based
on their significance and likelihood and these are reviewed regularly by the Audit & Risk
Committee.
Various stress tests have also been performed on scenarios such as the impact of losing an
affinity partnership or a lowering of retention in a given country.
The Directors’ assessment has been made with reference to geographical spread of
the Group operations and its strong financial position, resulting from a combination of
commercial partnerships and high customer retention.
The business is geographically spread across the UK, Continental Europe and North
America. In each established territory, the business has long-term contractual relationships
with utility businesses providing access to in excess of 102m households under Affinity
Partner brands. Retention rates are high across all established businesses, resulting in stable
and recurring cashflows from a large, diverse customer base.
Considering the Group’s current position, the principal risks and the Board’s assessment of
the Group’s future, the Directors have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall due over a period of at least three
years to 31 March 2020.
50
Annual Report & Accounts 2017
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.
The Directors have reviewed the Group’s budget, forecast and cash flows for 2018 and
beyond, and concluded that they are in line with their 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 financial
statements.
David Bower
Chief Financial Officer
23 May 2017
51
Corporate responsibility
Develop and encourage
great people
Our global values
Put customers at the heart
of everything we do
Develop and encourage great
people who are passionate
about taking responsibility
and making things happen
Combine relentless
innovation with integrity and
professionalism
Strive to be the best in the
world at what we do
52
Annual Report & Accounts 2017
“Our people promises make sure
that we always put our people first.”
JM Barry Gibson
53
Corporate responsibility
Corporate responsibility
We are committed to developing and
implementing a successful corporate
responsibility programme that
benefits key stakeholders. We believe
that a successful business must also
be a responsible business.
We aim to:
1. Customers
•
Implement and maintain ethical,
sustainable and responsible principles
throughout the supply chain
• Ensure the customer remains at the
heart of everything we do
• Treat customers fairly throughout the
• Achieve sustainable profits for our
customer experience.
shareholders
• Build enduring relationships with key
stakeholders, including our customers,
partners and the community
• Value our employees
• Respect the environment
• Use our core skills to give something
back to our local communities.
Our corporate responsibility objectives
support our vision and values, with a focus
on four areas:
2. Employees
• Embed customer-focused values and
behaviours
• Hire, develop and retain talented
people to ensure our customers enjoy
a consistently good experience
• Provide a safe, healthy and inclusive
environment for our people.
3. Community
• Use our core skills to give something
back to the community
• Support more vulnerable members
of the community by helping them
in their homes.
54
• Develop partnerships with charitable
and community organisations closely
aligned to our business activities and
therefore maximise our contribution
• Support and encourage employee
involvement in charitable giving
and volunteering, using relevant
employee skills to support our local
communities.
4. Environment
• Reduce our carbon emissions per
employee
• Use resources efficiently
• Support and educate customers and
employees to reduce emissions,
specifically in their homes.
These corporate social responsibility
principles are part of the way we operate
on a daily basis and reflect the way we
deal with customers, our people, partners
and the community.
Customers
We promote a customer-focused
culture and are proud of our excellent
reputation for customer service and the
many outstanding customer service
awards we have won around the world.
Our Customer Promises outline our
commitment to our customers; we make
things easy for customers and treat them
fairly, every step of the way. All our people
are committed to our customer promises
- from management teams to those on
the front line.
Annual Report & Accounts 2017
Our Customer Promises
Before a Customer joins
We’ll make it clear what they’re buying
and what it will do for them
When a Customer joins
We’ll tell them how much they’re paying,
what that buys them and how to claim
When a Customer becomes a member
We’ll make life easy for them
When a Customer makes a claim
We’ll solve their problem quickly and easily
– their emergency is our emergency
If a Customer isn’t happy
We’ll listen, say sorry and put things right
wherever we can, as soon as we can
55
Corporate responsibility
Employees
Our strategy to deliver consistently good
customer service is embedded in our
recruitment, selection, development and
reward arrangements across the Group.
We aim to attract, motivate and retain the
best talent we can and this underpins our
consistently high customer service.
All of our businesses have adopted People
Promises and whilst these differ in each
territory, they are based on a common
set of values. They also complement
our customer promises and align our
employees’ interests to the delivery of
excellent customer service.
Our people are considered for
employment, training, career
development and promotion on the basis
of their abilities and aptitudes, regardless
of physical ability, age, gender, sexual
orientation, religion or ethnic origin. Our
gender split in FY17 across the Group was
55:45 (Male:Female) with a team of over
5,000, as shown in the table below.
Employees at 31 March 2017
Executive Board members
Senior Managers
Other employees
Total
Male
30
315
Female
11
255
2,534
2,097
2,879
2,363
56
We apply fair and equitable employment
policies and these ensure that entry into,
and progression within, the Group is
determined solely by the fair application
of relevant job criteria and by personal
ability and competence. We actively
promote the international transfer of our
employees where this is likely to assist
the development of both employee and
business, and our senior HR community
meets regularly to share best practice
and identify opportunities to develop our
employees’ careers.
Full and fair consideration (having regard
to the person’s particular aptitudes and
abilities) is given to applications for
employment and the career development
of disabled persons. We will take all
practicable steps to ensure that if an
employee becomes disabled during
the time they are employed, their
employment can continue. We continue
to review both performance and potential
as a key part of our annual performance
management, career development and
succession planning processes. We
have co-ordinated talent and leadership
programmes across the business, from
front-line developing leaders to senior
executives.
We are developing and implementing a
succession planning strategy to ensure
we have the talent available to match
Group growth. We are also working
with an external partner to identify
individuals outside the organisation to join
HomeServe and ensure that we promote
an international mindset and experience.
We ensure all our people benefit
from effective communications and
engagement, with regular business
updates, senior management briefing
sessions and “surgeries”, question
and answer opportunities and
constructive relationships with employee
representatives across the Group. We
also encourage our management teams
to hold regular informal update meetings
and social events to keep our employees
informed and engaged. In FY17 our overall
employee engagement level rose to 81%
from 78% in FY16.
Community
Each business is encouraged to develop a
local strategy to support and give back to
the communities in which we live and work.
In the UK, there are four different
programmes that:
•
Incentivise our people for volunteering
for groups that matter to them. In FY17,
we made over £11,000 in donations
to community groups, including
Scout groups, sports teams, homeless
centres and hospices. Our people have
given over 3,000 hours of their own
time to these groups
• Encourage our people to choose
a charity that matters to them, and
raise money for that charity that is
then matched. Around £25,000 has
been raised for a wide range of local
and national charities, which we have
matched
Annual Report & Accounts 2017
• Work with the charity, Education
& Employers, on their ‘Inspire the
Future’ campaign to place over 40 of
our People (including engineers and
marketing managers) as volunteers in
local schools and colleges speaking
to students about their own job and
career path
• Work on major refurbishment projects
where we can use our skills to help
others. Projects have included a team
of our engineers volunteering their
time for BBC DIY SOS installing a
whole new heating system and also a
team of 40 People who helped one of
our elderly customers who was having
difficulty maintaining his home.
For the thirteenth year, our UK contact
centres were selected by the Comic
Relief charity to receive donations from
the public and over 450 of our people
volunteered on the evening, taking over
2,000 calls. We continue to support
the Midland Langar Seva Society, which
feeds homeless people in Birmingham
365 days a year. Support has included
onsite food and clothing collections and
our people volunteering every Thursday
night in Birmingham. Since the start of the
partnership, over 14,000 meals have been
served at the open kitchens.
In the US, just over $70,000 has been
contributed to local community charitable
organisations and another $77,000 to
customers in need. Initiatives included:
• The HomeServe Helping Hands
programme where charitable
assistance is provided to employees
whose personal circumstances present
significant challenges
57
Environment, Health & Safety
Health, safety, wellbeing and environmental
guardianship remain central to everything
we do. All our businesses comply with
ten guiding principles for occupational
health and safety and for environmental
management. We focus on safe working
environments, developing motivated and
supported employees, and we strive for
zero work-related injuries and illnesses.
In FY17, we engaged a specialist supplier
to complete a Group wide audit and a plan
has been put in place to implement the
actions arising from that activity. As part of
this, we intend to enhance our reporting
and controls in line with recommended
HSE best practice and to encourage cross
business learning.
Corporate responsibility
• The Charitable Pitch Campaign which
provides HomeServe employees with
the chance to “pitch” their ideas for
charities: it gives invaluable insight into
the personal lives of our employees
and gives a tremendous pipeline of
worthy social causes. In FY17, we
contributed $45,000 to key charities;
Red Rover Foundation, American
Cancer Society, Humane Society, Best
Buddies (Disabled Children) and CT
Advocates of Southwest Connecticut
• HomeServe Cares and Goodwill Jobs
where we assist customers with repairs
that they could otherwise not afford.
During the year, $38,000 of work has
been performed
• Supporting our partners in their local
communities. This charitable work
totalled just over $17,000 in FY17.
In France we have continued working
with Habitat & Humanisme, and activities
included providing meals for under
privileged people and supporting residents
with our contractor network. In FY17 we
also deployed a number of claims free
of charge.
Over 470 employees in Spain have been
directly involved in community activity.
Over 230 employees have raised money
for cancer charities including races across
Spain and a charity football tournament
organised by the NGO “Cooperación
Internacional”. Using the skills of 127
employees and contractors, we repaired
and painted seven social centres.
58
Leadership
Johnathan Ford, Group Chief Operating
Officer, is the Director responsible for
environmental, health and safety matters.
HR Directors lead Health & Safety matters
in each business, except in the UK where
responsibility has transferred to the Chief
Risk Officer.
Continuous improvement
Intra-company safety benchmarking
is strong and accident frequency rates
are used to compare injury rate, safety
culture and levels of engagement; and
in preparation for the new ISO45001
specification gives a leading indicator of
safety leadership. Across the Group we
have continued to see a positive trend in
the reduction of accidents or incidents
in FY17.
The UK has promoted the use and
benefits of the employee assistance
programme which covers stress
management. The business has received
a Gold award from the Royal Society for
The Prevention of Accidents. The Health
& Safety framework has been judged as
continuously improving and this is the
7th Gold award in a row for the business
which is a great achievement.
France has continued to see a significant
reduction in the number of work
related accidents, and there have been
considerable improvements to the
working environment following the
move to a new modern office building.
A support hotline has been implemented
for all employees in France with a view to
assisting with stress management.
Annual Report & Accounts 2017
The US has seen a reduction in the
number of injuries and has made
significant improvements to the injury
management process which focuses
on early medical intervention and early
access to occupational medical facilities
where required.
During FY17 the environmental conditions
of all our locations in Spain were reviewed
with subsequent investment in lighting, air
conditioning and reducing noise pollution.
A key focus through a range of health
campaigns has been placed on ensuring
employees are able to check their health
and get access to expert advice where
required.
Carbon emissions continue to be
measured across all Group companies.
The UK business is not part of the UK
Government’s monitoring scheme as
carbon emissions are below the scheme’s
threshold.
Legal
There have been no prosecutions or other
enforcement actions taken in respect
of our businesses by any of the national
health, safety or environmental regulators.
59
Governance
Our global values
Put customers at the heart
of everything we do
Develop and encourage great
people who are passionate
about taking responsibility and
making things happen
Combine relentless
innovation with integrity and
professionalism
Strive to be the best in the
world at what we do
60
Annual Report & Accounts 2017
Relentless innovation
combined with integrity
and professionalism
“Our focus on innovation ensures
we stay on top of changing customer
needs and anticipate their demands”
Craig Foster, MD of HomeServe Labs
61
Governance
Chairman’s overview
The Board continues to believe that
good corporate governance underpins
good business performance. As a
Board we are accountable to our
shareholders for ensuring that
governance processes are in place
and are effective and we are fully
committed to meeting the required
standards of corporate governance.
The reports that follow are intended to
give shareholders an understanding of our
corporate governance arrangements and
how they operated in FY17.
Board focus
Over the last year we have delivered
strong profit growth while continuing
to implement our customer focused
growth strategy. We have continued to
seek out new opportunities to grow our
business, investing in Checkatrade and
acquiring Habitissimo, two innovative
online businesses, and completing the
acquisition of Utility Service Partners in
the US.
As a Board we regularly discuss and
review:
• Our business performance and our
progress towards our strategic goals
• Our customers and how we can
ensure that they are at the heart of
everything we do
• Our people and how we can develop
and support them to provide the
service our customers expect
• Our shareholders and how we
communicate with them
• Our governance and controls.
Board changes
Having served as Chief Financial Officer
since September 2012, Johnathan Ford
was appointed to the new role of Group
Chief Operating Officer on 20 June
2016. Johnathan now provides focus
and support to all of our businesses in
order to ensure high levels of operational
effectiveness across the Group as it
grows. He is leading the development
and implementation of plans to deliver
the Group’s operating objectives, sharing
best practice and maximising the returns
from investments in new systems and
technology.
62
Following a selection process to identify a
successor to Johnathan, David Bower was
appointed as Chief Financial Officer on
6 February 2017. David joined HomeServe
in 2005 and has undertaken a number
of senior divisional and group finance
roles including six years as Group Finance
Director.
We have today announced the
appointment of three new Directors to the
Board with effect from 23 May 2017. Tom
Rusin has been appointed as an Executive
Director and Katrina Cliffe and Edward
Fitzmaurice have both been appointed as
Non-Executive Directors. Katrina will also
join the Audit & Risk Committee.
Tom has been Chief Executive Officer of
HomeServe USA since July 2011 and is
currently a member of the HomeServe
plc Executive Committee. Prior to joining
HomeServe he was at Affinion Group
where he undertook a number of roles
culminating in three years as President
and Chief Executive Officer of Affinion
Group’s North American Division.
Katrina has spent her career in retail
financial services, credit cards, customer
service and marketing. Most recently she
was General Manager at American Express
Global Business Travel, EMEA, having
previously been General Manager, Global
Corporate Payments, UK.
Katrina is currently a non-executive
Director of Cembra Money Bank, ABTA
(Association of British Travel Agents) and
Shop Direct Finance Company where she
chairs the Risk Management Committee.
Annual Report & Accounts 2017
Edward joined Hastings Insurance Group
in 2008 as Chief Executive Officer and
was part of the MBO team of the business
in 2009. He served as the Non-Executive
Chairman of Hastings Insurance Services
Limited until October 2015 and a Non-
Executive Director of Hastings Group
Holdings plc until March 2017.
Prior to joining Hastings he spent three
years at HomeServe as Chief Executive of
HomeServe Warranties.
I am delighted to welcome David,
Tom, Katrina and Edward to the Board.
HomeServe is becoming a bigger and
broader-based business and these
appointments expand and strengthen
the executive and non-executive
presence around the Board table. Tom’s
appointment reflects the increasing
significance of North America to the
Group. Katrina and Edward both bring
a wealth of experience in financial
services and their extensive commercial
experience will be of great benefit as
we continue to develop and expand the
business.
Board effectiveness
During the year, a review of the Board
and its committees was undertaken by
Lintstock Limited, an external facilitator.
Based on this review and my experience
as Chairman, I am satisfied that the Board
and its Committees are performing
efficiently and that there is an appropriate
balance of skills, experience, knowledge
and independence to enable the Board to
discharge its duties effectively.
JM Barry Gibson
Chairman
23 May 2017
63
Governance
Directors
JM Barry Gibson (65) 1 3 4
Appointed to the Board in April 2004
and appointed as Chairman in April 2010
following a year as Senior Non-Executive
Director. Previously Group Retailing
Director at BAA plc, Group Chief Executive
of Littlewoods plc and Non-Executive
Director of Somerfield plc, National
Express plc, William Hill plc, SSP Group
Ltd, bwin.party digital entertainment plc
and Non-Executive Chairman of Harding
Brothers Holdings Ltd.
Richard Harpin (52)
Founder and Chief Executive Officer of
HomeServe, which was set up in 1993 as
a joint venture with South Staffordshire
Group. Appointed to the Board in May
2001. Also founder and Non-Executive
Director of Growth Partner LLP, investing
in and helping small consumer businesses
to step change their growth. Previously a
brand manager with Procter & Gamble,
followed by management consultancy
with Deloitte and his own company.
David Bower (45)
Appointed as Chief Financial Officer in
February 2017. He joined HomeServe in
2005 and has undertaken a number of
senior divisional and group finance roles
including spending six years as Group
Finance Director. Before HomeServe, he
spent 12 years at Arthur Andersen, later
Deloitte LLP, where he qualified as a
Chartered Accountant.
Chris Havemann (49) 1 2
Appointed to the Board in December 2015.
He has followed a largely entrepreneurial
career. He took Research Now onto AIM
in 2005 and oversaw its takeover by a US
business becoming CEO of the combined
group, a global leader in online research
data collection. He was subsequently CEO
of online marketplace, Rated People. He
is also Chairman of RM222 Ltd, parent
company of Reality Mine Ltd and a
governor of London Business School.
Guillaume Huser (50) 5
Appointed as Chief Executive Officer,
HomeServe France in April 2015. Previously
at Affinion Group where he undertook
a number of roles culminating in four
years as President of Affinion Group’s
International Division. Before joining
Affinion in December 2002, he spent 13
years at American Express firstly in finance,
sales and business development roles and
later in the Corporate Services Division
where he was VP Commercial Card,
Western Europe.
Anna Maughan (47)
Appointed Company Secretary in July
2008 following 12 years as Assistant
Company Secretary. Also a Trustee of,
and Secretary to, the industry wide Water
Companies Pension Scheme.
Johnathan Ford (47)
Appointed as Chief Operating Officer in
June 2016 having served as Chief Financial
Officer for four years. Previously the Group
Finance Director of NWF Group plc. Prior
to joining NWF in March 2009, he spent
four years at HomeServe, firstly as Group
Commercial Director and later as Finance
Director of the Emergency Services
Division. Before joining HomeServe he was
Head of Corporate Finance at Kidde plc.
Previously a Non-Executive Director of
Lakehouse plc where he chaired the Audit
Committee.
Ben Mingay (52) 1 2 3 4
Appointed to the Board in January
2012. Managing Partner of Smith Square
Partners, an independent corporate
finance advisory firm. He has more than
25 years’ experience as a corporate finance
adviser. Prior to co-founding Smith Square
Partners, he was a Managing Director of
Hawkpoint Partners Ltd and Credit Suisse
First Boston (Europe). Previously a Non-
Executive Director of AIM-listed Alternative
Networks plc.
Tom Rusin (48) 5
Appointed as Chief Executive Officer,
HomeServe USA in July 2011. Previously
at Affinion Group where he undertook a
number of roles culminating in three years
as President and Chief Executive Officer of
Affinion Group’s North American Division.
Before joining Affinion, he owned Just
for Travel Inc. He was previously a Non-
Executive Director of The Ambassador’s
Group.
Martin Bennett (48)
Appointed as Chief Executive Officer of
the UK business in January 2014, following
two years as Group Chief Operating
Officer and three years as Group Chief
Financial Officer. Previously Finance
Director of the UK business, having been
Finance Director of the Warranties business
and Commercial Director. Prior to joining
HomeServe in 2003, he spent three years
as Group Finance Director of Clarity Group
and ten years at Arthur Andersen where he
qualified as a Chartered Accountant.
Stella David (54) 1 3 4
Appointed to the Board in November
2010. Previously Chief Executive Officer
of William Grant & Sons following more
than 15 years with Bacardi Ltd where she
undertook a number of roles culminating
in five years as Global Chief Marketing
Officer. Currently a Non-Executive
Director of C&J Clark Ltd, Bacardi Ltd and
Norwegian Cruise Line Holdings, she also
spent seven years as a Non-Executive
Director at Nationwide Building Society.
Mark Morris (57) 1 2 3 4
Appointed to the Board in February 2009
and as Senior Independent Director in
April 2015. Previously in audit, business
advisory and corporate finance with Price
Waterhouse before joining Sytner Group
plc as Finance Director, later becoming
Managing Director. Currently Chairman
of Motorpoint Group plc and previously
a Non-Executive Director of LSL Property
Services plc.
H Stephen Phillips (50) 5
Appointed as Chief Executive Officer of
HomeServe Spain in March 2010 having
joined HomeServe in 2005 as Country
Manager in Spain. He is a licensed
insurance broker and is a Non-Executive
Director of Assured Enterprises Inc. Prior
to joining HomeServe, he spent 12 years
in senior business development, sales,
and marketing roles in Diversified Business
Communications S.A. and E.J. Krause de
México, working across the US and Latin
America.
64
Annual Report & Accounts 2017
Key:
1 Non-Executive.
2 Audit & Risk Committee (Chairman: Mark Morris).
3 Nomination Committee (Chairman: Barry Gibson).
4 Remuneration Committee (Chairman: Stella David).
5 Member of Executive Committee only.
65
Governance
Corporate Governance report
The Company is committed to the principles of corporate governance contained in
the UK Corporate Governance Code 2014 (‘the Code’). The Company has applied the
principles set out in the Code and has complied with the provisions set out in the
Code throughout the year. An explanation of how the Code has been applied is set
out here, in the Audit & Risk Committee report and in the Remuneration report.
The Board
The powers of the Directors are set out in the Company’s Articles of Association which are
available on request. The Articles of Association may be changed by special resolution. The
Directors also have responsibilities and duties under other legislation and in particular, the
Companies Act 2006.
The Board has a Schedule of Matters specifically reserved to it for decision and has approved
the written terms of reference of the various committees to which it has delegated its
authority in certain matters. Matters reserved to the Board include:
•
•
•
•
the recommendation or approval of dividends
the approval of preliminary and interim financial statements
the approval of major financial commitments
the acquisition of significant companies or businesses
• appointments to the Board and its Audit & Risk, Remuneration and Nomination
Committees
•
•
the Company’s future strategy
the Company’s internal controls.
The full schedule is available on our website.
Board composition
The Board is made up of a balance of Executive Directors and independent Non-Executive
Directors.
The Directors who held office during the year were:
John Michael Barry Gibson
Richard David Harpin
66
Annual Report & Accounts 2017
Martin John Bennett
David Jonathan Bower (appointed 6 February 2017)
Johnathan Richard Ford
Stella Julie David
Christopher Havemann
Benjamin Edward Mingay
Mark Christopher Morris
The Board is led by the Chairman, Barry Gibson. The Chairman’s responsibilities are clearly
defined in a written specification agreed by the Board and which makes clear the division
of responsibilities between the Chairman and the Chief Executive. They include the smooth
running of the Board, effective communication between Executive and Non-Executive
Directors and the general progress and long-term development of the Group.
During the year, in addition to the Chairman, four independent Non-Executive Directors
(Messrs Havemann, Mingay and Morris and Mrs David) with extensive business, finance
and marketing backgrounds, provided the Board with a breadth of experience and with
independent judgement. Mark Morris served as the Company’s independent Senior Non-
Executive Director.
In accordance with the provisions of the Code, each Director is subject to election by
the Company’s shareholders at the Annual General Meeting immediately following their
appointment, and is subject to re-election every year thereafter.
Short biographies of each of the Directors including their membership of committees may be
found on the previous page.
The beneficial interests of the Directors in the shares of the Company and the options held
as at 31 March 2017 and 23 May 2017 are set out in the Remuneration report. None of the
Directors serving at the year end had a beneficial interest in the share capital of any subsidiary
company.
Succession planning
There is a clear need to ensure that there is an appropriate pool of talented and capable
individuals to fill senior roles and a succession planning process has been established across
the Group to facilitate this. Each business and corporate function prepares and maintains
succession plans with the support of local and Group HR and with input from the Group
Chief Executive. The Executive Committee reviews the plans in detail twice a year and the
Board reviews the high level plan at least annually.
The identification and development of our people remains a key focus across the Group.
67
Governance
Corporate Governance report (continued)
Diversity
The Board is committed to ensuring that it is appropriately diverse. It is supportive of the
aspiration of the Davies Report to promote greater female representation on corporate
boards. Although no target has been set in respect of the percentage of women on the
Board, when seeking to recruit for Board positions we ensure that ‘long lists’ include women
candidates.
The Board also believes that a diversity of experience and psychological profile is important
around the board table. We seek to ensure that there is a balance of skills and experience
and in respect of non-executive positions we ensure that candidates from a wider pool are
considered, including those with little or no listed company board experience.
Board meetings
Up to eight regular meetings are held each year to review and monitor current and forecast
performance. Regular reports on monthly performance and other matters of importance to
the Group ensure that the Board is supplied in a timely manner with the information necessary
to make informed judgements. In addition, the Board has an annual strategy meeting, also
attended by senior operational management, to devise and discuss the Company’s medium
and long-term strategic focus and management development strategy.
Regular formal and informal presentations are given and meetings held in order to inform
Directors of issues of importance affecting the Group. Occasionally, meetings of the Board
are held at the Company’s operating sites other than Walsall, in order to afford the Board,
particularly the Non-Executive Directors, the opportunity to meet with local management.
During FY17, the annual strategy meeting was held in France which provided the Board with
an invaluable insight into that business and enabled the Directors to meet the entire senior
management team.
Attendance at meetings
All Directors are expected to attend all Board and relevant committee meetings. Details of
attendance by Directors at meetings during the year are set out in the table below.
Number of meetings held
Meetings attended
R Harpin
M Bennett
D Bower ¹
J Ford
J M B Gibson
S David
C Havemann
B Mingay
M Morris
¹ David Bower was appointed on 6 February 2017.
68
Board
8
Audit & Risk
Committee
3
Remuneration
Committee
3
7
8
2
8
8
8
8
8
8
3
3
3
3
3
3
3
Annual Report & Accounts 2017
Directors who were unable to attend specific meetings reviewed the relevant papers
and provided their comments to the Chairman of the Board or Committee. Any Director
who misses a meeting will, as a matter of course, receive the minutes of that meeting for
reference.
Nomination Committee meetings are held on an ad hoc basis as required. The activities of
this Committee are described later in this report.
Board development
The Board actively encourages all Directors to deepen their knowledge of their roles and
responsibilities and to gain a clear understanding of the Group and the environment in
which it operates and has adopted a formal policy on the induction and training of Directors.
Newly appointed Board members are required to undergo an induction programme, which
includes obtaining a thorough understanding of the Group’s various operations. Board
members also have the opportunity to receive formal training from external providers if they
wish.
During the year, the Non-Executive Directors have met with various members of the Group’s
management teams and external advisers.
Board evaluation
The Board has implemented a formal process for reviewing its own effectiveness, that of
its Remuneration and Audit & Risk committees and its individual members. In addition,
it continued to ensure that regular meetings of the Non-Executive Directors were held
without the Executive Directors, and at least once a year, without the Chairman present,
in order to evaluate his performance.
An external Board evaluation process was completed during FY15 by Lintstock Limited.
Directors completed evaluation questionnaires and these were followed up by individual
interviews with Lintstock who then compiled a formal written report summarising the
Directors’ views and containing recommendations to improve the effectiveness of the
Board. This report was followed up in both FY16 and FY17 by an evaluation questionnaire,
also facilitated by Lintstock Limited. The FY17 output was discussed by the Board in
February 2017.
The overall performance of the Board was rated very highly and was broadly seen to have
improved since the FY16 review. In particular the Non-Executives’ support and challenge
of management was rated highly as was the relationship between the Board and the Chief
Executive and the atmosphere at meetings. It was agreed that the Board should continue to
try to visit different HomeServe operations and to take the opportunity to meet and interact
with the wider management teams.
69
Governance
Corporate Governance report (continued)
Committees
The Board operates a number of committees to which it has delegated certain specific
responsibilities, each of which has formally adopted terms of reference. These comprise the
Nomination, Audit & Risk and Remuneration Committees. The terms of reference of each
of the Board’s committees are available on request from the Company Secretary and are on
the Company’s website. The membership and activities of the Audit & Risk Committee and
Remuneration Committee are detailed in the reports of those committees.
Nomination Committee
Members
JM Barry Gibson (Chairman)
Stella David
Ben Mingay
Mark Morris
Responsibilities
The primary responsibilities of the Committee are to:
• make recommendations to the Board on the appointment of Directors
•
review the size, structure and composition of the Board
• consider succession planning arrangements for Directors and other senior managers.
Key issues considered during the year
A specially formed Nomination Committee was used during the year to run the process to
appoint a new Chief Financial Officer. This Committee was headed by Mark Morris who,
given his role as Chairman of the Audit & Risk Committee, was considered to be the most
appropriate person to lead the process. He was closely supported by Johnathan Ford. This
Committee met informally on a number of occasions to consider the candidates for the
role and Directors not on the Committee were given the opportunity to meet with the
shortlisted candidates. Following this, a recommendation to appoint David Bower was made
to the Board.
The Committee draws on the advice of such professional advisers as it considers necessary
and did so during the year in respect of the appointment made.
Succession planning arrangements were considered by the Board as a whole rather than by
the Nomination Committee.
70
Annual Report & Accounts 2017
Executive Committee
The day to day running of the business rests with the Group Chief Executive, Richard Harpin.
The Executive Committee assists the Chief Executive in the performance of his duties including:
•
•
•
•
the development and implementation of strategy, operational plans, policies, procedure
and budgets
the monitoring of operating and financial performance
the prioritisation and allocation of resources and
the oversight of group wide initiatives and investments.
Other members of the Executive Committee are Martin Bennett, Johnathan Ford, David Bower,
Tom Rusin, Chief Executive Officer of HomeServe USA, Stephen Phillips, Chief Executive Officer
of HomeServe Spain and Guillaume Huser, Chief Executive Officer of HomeServe France.
The Committee has adopted formal terms of reference.
Risk Committee
A Group Risk Committee, comprising the Executive Directors and other representatives of each
business, operates across the Group and is chaired by the CFO. Its terms of reference have
been approved by the Board and its purpose is to advise the Audit & Risk Committee in respect
of the Group’s risk appetite, to evaluate the risk registers compiled by each of its businesses, to
monitor the effectiveness of action plans for the mitigation of those risks, and to report thereon
to the Audit & Risk Committee and thereafter to the Board, which retains responsibility for the
overall evaluation of the Group’s risk management processes.
Directors’ indemnities and insurance
The Company has made qualifying third party indemnity provisions for the benefit of its
Directors which were in place during the year and remain in force at the date of this report.
The Company maintains directors’ and officers’ liability insurance for its Directors and officers.
Advice for Directors
The Board has established a formal procedure for Directors wishing to seek independent legal
and other professional advice and all members of the Board have access to the advice, and
services of the Company Secretary.
Relationships with shareholders
The Board, on the Company’s behalf, recognises the need to maintain an active dialogue with
its shareholders. The Chief Executive and Chief Financial Officer meet regularly with institutional
investors and analysts to discuss the Company’s performance and all shareholders have access
to the Chairman and independent Senior Non-Executive Director, who are available to discuss
any questions which they may have in relation to the running of the Company.
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Governance
Corporate Governance report (continued)
The Board encourages shareholders to attend the Annual General Meeting and is always willing
to answer questions, either in the meeting itself or, more informally, afterwards. In addition,
shareholders may contact HomeServe direct, either through the website or by telephone.
The Board recognises the need to ensure that all Directors are fully aware of the views of major
shareholders. Copies of all analysts’ research relating to the Company are circulated to Directors
upon publication. The Board receives a monthly Investor Relations report which includes
an analysis of the Company’s shareholder register as well as any feedback received from
shareholders and analysts.
Viability statement and going concern
The viability statement and going concern are contained within the Strategic report.
Internal controls
The Board has overall responsibility for the Group’s system of internal control and for reviewing
its effectiveness. The Audit & Risk Committee has a key role to play in overseeing internal
controls and advising the Board thereon. More detail in respect of the role of the Audit & Risk
Committee is provided in the report of that committee.
The Board has delegated the day-to-day management of the Company to the Group Chief
Executive and the other Executive Directors. The system of internal control is designed to
manage and mitigate rather than eliminate the risk of failure to achieve business objectives, and
can only provide reasonable and not absolute assurance against material misstatement or loss.
The Board confirms that there is an ongoing process for identifying, evaluating and managing
the risks faced by the Company. This has been in place for the year under review and up to the
date of approval of this Annual Report and Accounts. The process is regularly reviewed by the
Board and accords with the Turnbull Guidance. The key elements of the control framework and
review processes in place across the Group are as follows:
• The Group’s strategy is set by the Board and three year business plans, annual budgets and
investment proposals for each business are formally prepared, reviewed and approved by
the Board.
• The Group’s management operates a formal process for identifying, managing and
reporting on operational and financial risks faced by each of the Group’s businesses. Risks
are reviewed in detail at local risk committees and, on an overall basis, by the Group Risk
Committee and the Audit & Risk Committee.
• The Group Risk Committee meets three times a year and reviews a register summarising
the significant risks faced by the businesses or the Group as a whole, the likelihood of those
risks occurring and the steps being taken to minimise or otherwise manage those risks.
Regular updates are provided to the Audit & Risk Committee and the Board.
• The Audit & Risk Committee meets three times a year and reviews the risk registers in order
to advise the Board on current risk exposures and future risk strategy. More detail is provided
in the report of the Audit & Risk Committee.
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Annual Report & Accounts 2017
• A clearly defined organisation structure is in place with clear lines of accountability and
appropriate division of duties. The Group’s financial regulations specify authorisation
limits for individual managers and for local Boards of management, with all material
transactions being approved by the Board.
• Regular telephone meetings of the Executive Committee monitor day to day
performance, and full Executive Committee meetings are held at least six times a year at
which the Directors report on the progress of the companies or discipline for which they
are responsible and share best practice.
• Consolidated financial results, including a comparison with budgets and forecasts,
are reported to the Board on a monthly basis, with variances being identified and
understood so that mitigating actions can be implemented, where appropriate.
• The consolidated accounts are reviewed by the Executive Directors and verified by the
finance team. The accounts are then considered by the Audit & Risk Committee which
makes a recommendation in respect of their approval to the Board. The Board then
reviews and approves the accounts prior to the announcement of the half year and
annual results.
• At the end of the year, the Executive Directors compile a report identifying the key risks
faced by the Group. This report is considered by the Audit & Risk Committee and by the
Board before the Annual Report and Accounts is approved.
• The Group has a dedicated Internal Audit function and a formal audit plan is in place to
address the key risks across the Group.
• Appropriate treasury policies are in place.
• A whistle blowing policy allows employees, franchisees and sub-contractors who wish
to raise any issues of concern relating to the Group’s activities to do so on a confidential
basis by contacting an external hotline.
• A mechanism exists to extend the Group’s formal risk management processes to any
significant new business acquired or established immediately upon acquisition or
start-up. In this way, the Board is able to confirm that the necessary process has been
operated by the Group for the whole of the year.
As required by the Turnbull Guidance, the Board, supported by the Audit & Risk Committee,
carries out an annual assessment of the effectiveness of the system of internal controls.
By Order of the Board
JM Barry Gibson
Chairman
23 May 2017
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Governance
Audit & Risk Committee report
Members
Mark Morris (Chairman)
Chris Havemann
Ben Mingay
The Audit & Risk Committee is chaired by Mark Morris who has recent and relevant financial
experience. He worked in audit, business advisory and corporate finance before becoming a
plc Finance Director and previously chaired the Audit Committee of LSL Property Services plc.
The internal and external auditors, the Chief Financial Officer, the Chief Executive Officer
and the Chairman are invited, but are not entitled, to attend all meetings. Where appropriate,
other Executive Directors and managers also attend meetings at the Chairman’s invitation.
The external and internal auditors are provided with the opportunity to raise any matters
or concerns that they may have, in the absence of the Executive Directors, whether at
Committee meetings or, more informally, outside of them.
Responsibilities
The primary responsibilities of the Committee are to:
• monitor, on behalf of the Board, compliance with and the effectiveness of, the Company’s
accounting and internal control systems
• agree audit strategy
• monitor the scope and results of the Company’s annual external audit
•
•
review the independence and objectivity of its auditors
review the preliminary and interim results and financial statements before they are
presented to the Board
• approve and monitor the internal audit plan
•
review the appropriateness of the internal audit function.
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Annual Report & Accounts 2017
Mark Morris
Chairman of the Audit & Risk Committee
75
Governance
Audit & Risk Committee report (continued)
•
receive reports from the Company’s internal and external auditors
• make recommendations to the Board on accounting policies
• make recommendations to the Board for a resolution to be put to the shareholders
for their approval in general meeting for the appointment of the external auditor, the
approval of its remuneration and its terms of engagement
•
receive reports from the Group Risk Committee
• advise the Board on the Group’s overall risk appetite, tolerance and strategy
• advise the Board on current risk exposures and future risk strategy
•
•
review and approve the means by which the Group and its regulated subsidiary
undertakings seek to comply with their respective regulatory obligations
review the adequacy and security of the Company’s arrangements for its employees to
raise concerns, in confidence, about possible wrongdoing in financial reporting or other
matters.
Summary of meetings in the year
The Committee usually meets three times in the year and did so in FY17. During the year the
agenda has included the following items:
• Half year results
• Full year results
• Principal judgemental accounting matters
• External audit plans and reports
•
Internal audit plans and reports
• Risk assessments and reports
• Updates on regulatory compliance activity
• Updates on certain key risks, in particular, information security
• Whistleblower reports
•
Internal audit effectiveness and independence
• External audit effectiveness and independence.
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Annual Report & Accounts 2017
The Committee meets privately, without any of the Executive Directors or management
present, with the external and internal auditors after each Committee meeting.
The Chairman of the Committee provides an update in respect of the matters discussed to
the Board after each Committee meeting and the minutes of meetings are circulated to the
whole Board.
Significant issues related to the financial statements
The Committee assesses whether suitable accounting policies have been adopted and
whether management has made appropriate estimates and judgements. Management
prepares papers providing details on the key judgements and these are reviewed by the
Committee.
The Committee also reviews reports from the external auditor on the half year and full year
results, which provide an overview of the audit work undertaken and highlight any issues for
discussion.
The significant issues considered in the year were:
•
•
revenue recognition, specifically the timing of when to recognise revenue so that
sufficient revenue is deferred to cover future obligations
the carrying value of intangible assets (specifically acquisition intangible assets) and
goodwill arising on the purchase of businesses and books of policies and customers
• accounting in respect of new customers acquired through the Endesa, Suez and Enel
‘Sales Through Service’ channels
• accounting for the acquisition of USP, including the value of the acquisition intangible
and deferred tax assets to recognise.
The Committee addressed these matters using reports presented by management which
set out the basis for the assumptions used. All of the issues were also discussed with the
external auditor and its views were taken into account. The Committee is satisfied that the
judgements made are reasonable and appropriate disclosures have been included in the
accounts.
External auditor
The Committee is responsible for assessing the effectiveness of the external audit process,
for monitoring the independence and objectivity of the external auditor and for making
recommendations to the Board in relation to the appointment of the external auditor. The
Committee is also responsible for developing and implementing the Group’s policy on the
provision of non-audit services by the external auditor.
77
Governance
Audit & Risk Committee report (continued)
The Committee has agreed and implemented a procedure for reviewing and assessing
its own effectiveness and that of the internal and external audit process. The Committee
reviews the performance of the external auditor annually.
Deloitte LLP has been the Group’s auditor since 2002, although the lead audit partner
rotates every five years.
During the year the external auditor presented its transparency report to the Committee,
which is intended to demonstrate the steps it takes to ensure audit quality with reference
to the Audit Quality Framework issued by the Professional Oversight Board of the Financial
Reporting Council. The Committee also considered whether the auditor’s understanding
of the Group’s business and its understanding of the sectors in which the Group operates,
including the regulatory landscape, was appropriate to the Group’s needs. It also assessed
the performance of the audit, the auditor’s conduct of its relationship with the Group and
the requirements of the Group’s financial control process. On this basis, the Committee
concluded that the needs of the Group would not be best served by putting the external
audit out to tender at this time. The Committee has therefore recommended to the Board
that the re-appointment of Deloitte LLP should be proposed at the forthcoming Annual
General Meeting.
The Committee has noted the recent changes to EU audit legislation and the UK adoption
of this legislation, which will require mandatory rotation for auditors of public interest entities
at least every 20 years with a mandatory tender process being undertaken at the 10 year
point. The transitional rules for this new legislation mean that the Group would be required
to change its auditor after 2024. A recommended course of action will be proposed to the
Board in due course. The Committee has not identified any factors which might restrict its
choice of external auditor.
The Committee has implemented a policy relating to the use of the external auditors for
non-audit services and monitors fees paid in respect of such services. This policy provides
that the total fees payable to the auditor for non-audit related work in any financial year
should not normally be more than 100% of the total fees payable in respect of audit and
compliance services. In addition, any proposed spend over a predetermined limit must be
approved by the Committee.
The policy has been updated in respect of FY18 and beyond to comply with EU audit
regulation reforms.
The fees payable to the auditor for non-audit related work (excluding audit-related
assurance services) totalled £366,000 and the fees payable in respect of audit and audit-
related assurance services totalled £704,000 . Further detail on the fees paid is provided in
Note 6.
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Annual Report & Accounts 2017
In accordance with International Standards on Auditing (UK & Ireland) 260 and Ethical
Statement 1 issued by the Accounting Practices Board, and as a matter of best practice,
the external auditor has confirmed its independence as auditor of the Company.
Risk management and internal control
As stated in the Corporate Governance report, the Board has overall responsibility for the
Group’s system of internal control and for reviewing its effectiveness. The Audit & Risk
Committee supports the Board by advising on the Group’s overall risk appetite, tolerance
and strategy, current risk exposures and future risk strategy. The Committee reviews risk
registers produced by the management of each business and the plc function at each of its
meetings. On a periodic basis, it also reviews action plans in respect of significant risks.
The Committee also monitors, on behalf of the Board, the effectiveness of the Company’s
accounting and internal control systems. In fulfilling this responsibility, the Committee
receives reports from management and the internal and external auditors.
Further details in respect of risk management and controls are set out in the Corporate
Governance report.
Internal audit
The Committee considers and approves the internal audit plan which is based on an
assessment of the key risks faced by the Group. Progress in respect of the plan is monitored
throughout the year and care is taken to ensure that the internal audit function has sufficient
resource to complete the plan. The audit plan may be reviewed during the year as a result of
the ongoing assessment of the key risks or in response to the needs of the Group.
The Assurance & Risk Director reports ultimately to the Chairman of the Committee
although he reports on a day-to-day basis to the Chief Financial Officer. He attends all
meetings of the Committee and reports regularly to the Group Risk Committee. A report
on completed internal audits is presented to the Committee and, where appropriate, action
plans are reviewed. In addition, all grade 1 audit reports are circulated to the Committee as
soon as they are finalised so any issues can be addressed in a timely manner.
During the year, an external review of the effectiveness of the internal audit function was
completed by PwC. The review concluded that the function was operating effectively but a
number of improvement recommendations were made which will be implemented over the
coming year.
On behalf of the Audit & Risk Committee
Mark Morris
Chairman of the Audit & Risk Committee
23 May 2017
79
Governance
Remuneration report
Dear Shareholder
I am pleased to present the Remuneration report for the year ended 31 March 2017. It is
three years since we initially sought shareholder approval for our remuneration policy
so we will be seeking re-approval at the forthcoming AGM.
Performance and reward
It has been a very good year for the Group. We have delivered strong profit growth and all of
our established businesses have performed well. In particular, we have seen a rapid period of
expansion in North America where there have been record partner signings and significant
growth in customer numbers.
The stretching financial and non financial targets for the Group have been met with improved
performance in respect of customer satisfaction. In the UK, the cash target was not met and
the target in respect of core renewable customers was only partially met. The other UK targets
were met in full.
In respect of longer-term performance, the LTIP awards granted in 2013 vested in full during
the year with HomeServe’s TSR at the end of the performance period being 114.1% compared
to the FTSE 250 Index TSR of 30.1%. Based on TSR performance to 31 March 2017 of 91.9%
compared to the FTSE 250 Index TSR of 25.7%, it is expected that the awards granted in 2014
will also vest in full.
Following Johnathan Ford’s appointment as COO, his salary was increased by 6.6% to
£400,000. This increase reflected the change in his responsibilities and the importance of
the role.
The Committee is satisfied that the remuneration paid to the Executive Directors in the year
fairly reflects both corporate and individual performance during the year.
The Committee’s activities during the year are described in more detail later in this report.
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Annual Report & Accounts 2017
Stella David
Chairman of the Remuneration Committee
81
Governance
Remuneration report (continued)
Remuneration policy FY18
We will be re-submitting the remuneration policy to shareholders for approval at the AGM.
The policy has been updated for a number of operational changes in respect of how it is
applied but is largely unchanged from 2014. The key operational changes since 2014 have
been:
• The addition of a two year post vesting holding period to awards granted under the LTIP
which provides a 5 year perspective to the incentive programme
• An increase in the shareholding requirement for Directors from 100% of salary or fees
to 200%
• A rebalancing of the bonus objectives to increase the focus on financial measures
• An amendment to Richard Harpin’s contract to remove the entitlement to bonus in any
payment in lieu of notice.
Recovery and withholding policies are in place and we are comfortable that our approach is
robust and workable should these provisions ever need to be operated.
Salaries will increase by 1.5% with effect from 1 July 2017 in line with the average increase for
the UK workforce and the maximum bonus opportunity remains unchanged at 100% of salary.
Bonus remains strongly linked to customer measures in line with the business strategy, subject
to affordability underpins. Details of the performance targets used and performance against
them will be disclosed in next year’s report.
The FY18 Performance Share award for Executive Directors will be at 150% of salary.
Share awards are granted under the HomeServe 2008 Long-Term Incentive Plan (LTIP),
shareholder approval for which will expire in July 2018. The Remuneration Committee will
review the long-term incentive provision during the course of the year and consult with major
shareholders prior to the introduction of a replacement plan at the 2018 AGM.
The Remuneration Committee is satisfied that the remuneration policy continues to work
effectively and supports our strategy as an entrepreneurial, customer focused business.
Stella David
Chairman of the Remuneration Committee
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Annual Report & Accounts 2017
This report has been prepared in accordance with the disclosure requirements for directors’
pay - Schedule 8 of the Large and Medium Sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013. The report also satisfies the relevant requirements
of the Listing Rules and describes how the Board has applied the principles and complied
with the provisions relating to directors’ remuneration in the UK Corporate Governance Code.
Unless otherwise stated, this report is unaudited.
The Directors’ remuneration policy was approved by shareholders at the 2014 AGM and
as required under the regulations, will be re-submitted to shareholders for approval at the
2017 AGM. There are no material changes to the policy from that previously approved by
shareholders. Details of minor operational changes to the policy are set out in the Chairman’s
letter.
Remuneration policy
The Committee’s policy for the remuneration of Executive Directors and other senior
Executives is based on the following principles:
•
•
•
to align rewards with the Group’s financial and operational performance
to ensure that remuneration, in particular, variable pay, supports the Group’s strategy as a
customer focused operation
to promote high levels of executive share ownership to encourage a long-term focus and
alignment of interest between executives and shareholders
•
to attract, retain and motivate high calibre executives.
To that end, the Committee structures executive remuneration in two distinct parts:
fixed remuneration of basic salary, pension and benefits and variable performance-
related remuneration in the form of a cash bonus and long-term incentive arrangements.
Remuneration for Executive Directors is structured so that the variable pay element forms a
significant portion of each Director’s package.
The Committee is satisfied that neither the structure of the remuneration packages, with the
high weighting on variable pay, nor the performance measures targeted under the annual
bonus and long-term incentive arrangements, encourages inappropriate risk taking.
The remuneration arrangements are designed so as to provide a strong alignment of interest
between the Executives and shareholders and to support the growth and performance
aspirations of the Company. The Committee is satisfied that the current arrangements meet
these objectives. Furthermore there is a clawback provision in respect of annual bonuses and
long-term incentive awards which helps to guard further against excessive risk-taking.
A risk review of the remuneration policy has been completed.
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Governance
Remuneration report (continued)
Summary of components of Executive Directors’ remuneration
The table below summarises the Committee’s policy for the remuneration of Executive
Directors.
Element
Basic salary
Purpose and link to
strategy
Performance
Period
Operation (including performance measures and
maximum limits)
To reflect the particular
skills and experience
of an individual and to
provide a competitive
base salary compared
with similar roles in
similar companies.
Usually
reviewed
annually, with
any changes
normally
taking effect
from 1 July
each year.
Individual pay is determined by the Committee
taking into account the role, responsibilities,
performance and experience of the individual and
market data on comparable roles.
The Committee has not set a cap on the maximum
salary level that may be offered. However, any salary
increases will normally be no higher than the typical
level of increase awarded to other UK employees.
Increases above this level may be offered in
certain circumstances such as where an Executive
Director has been promoted, has had a change in
responsibility, to reflect increased experience in the
role, or where there has been a significant change
in the size and/or scope of the business.
When reviewing salary increases, the Committee
also takes into account the impact of any increase
to base salaries on the total remuneration package.
Details of the current salaries of the Executive
Directors are set out in the Annual Report on
Remuneration.
Annual
(determined
after the year
end).
Annual bonuses are determined by reference
to performance against a mix of financial, non
financial and personal objectives. Before any bonus
is payable a minimum level of both customer and
financial performance must be achieved.
Bonuses are based on Group performance and, if
relevant, the specific territory for which an Executive
Director is responsible. Individual performance
accounts for no more than 20% of the overall bonus
opportunity.
The maximum potential quantum is 100% of salary.
A minimum level of both customer and financial
performance must be achieved before any bonus
becomes payable.
Bonuses are payable in cash but may be voluntarily
deferred by the executive into shares under the
matching element of the LTIP.
Performance
related bonus
The annual bonus is
designed to drive and
reward the short-term
operating performance
of the Company and
encourage the delivery
of consistently good
customer outcomes.
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Annual Report & Accounts 2017
Purpose and link to
strategy
Performance
Period
Operation (including performance measures and
maximum limits)
Three years
Awards of performance and matching shares are
granted under the Long Term Incentive Plan (which
was approved by shareholders in 2008).
Element
Long-term
incentives
To drive long-term
delivery of the
Group’s objectives,
to align Directors’
interests with those
of the Company’s
shareholders and to
encourage exceptional
performance.
The maximum limit is 200% of salary for
performance share awards (normally, awards of
150% of salary are made to the Executive Directors)
and a maximum 2:1 match on voluntary investment
of bonus into shares.
The maximum amount of bonus that may be
invested is set at 75% of the maximum bonus
potential (i.e. 75% of salary). If the bonus earned
is less than 25% of salary, then the executive may
invest the equivalent of 25% of salary, from their
own money, in shares to receive a matching award.
In determining the number of matching awards to
be granted, the investment is deemed to be made
gross of tax.
Dividend equivalents may be awarded on shares
vesting under the Plan.
Both performance and matching awards are
currently subject to the same performance
conditions which are based on challenging
earnings per share and relative Total Shareholder
Return targets. Performance is measured over a
performance period of at least three years and,
for awards granted in FY16 onwards, a two year
post vesting holding period applies. Different
measures may be applied for future award cycles as
appropriate to reflect the business strategy.
Executive Directors may receive a pension
allowance of up to 20% of salary, to be paid, subject
to the scheme limits, into the HomeServe Money
Plan (a money purchase pension scheme) and/or
taken as a cash allowance in lieu.
Richard Harpin currently continues to participate in
the Water Companies Pension Scheme (a defined
benefit scheme which is closed to new members).
Retirement benefits under the scheme are restricted
by a notional earnings cap (£136,710 for FY17). An
unapproved pension contribution equal to 20%
of the amount by which basic salary exceeds the
notional cap is provided.
85
Pension
N/A
To provide benefits
comparable with
similar roles in similar
companies.
Governance
Remuneration report (continued)
Element
Other benefits
Purpose and link to
strategy
Performance
Period
Operation (including performance measures and
maximum limits)
N/A
Provides a competitive
package of benefits to
assist with recruitment
and retention of staff.
Other benefits include a fully expensed car (or cash
alternative), fuel allowance, private health cover
(for the individual, partner and dependant children),
death in service benefits (up to 8 x salary) and
permanent health insurance.
Other benefits may be provided as appropriate
and Directors can access HomeServe products
and services on the same terms as offered to
employees.
Any reasonable business related expenses (including
tax thereon) may be reimbursed.
There is no maximum limit on the value of the
benefits provided but the Committee monitors the
total cost of the benefit provision.
The Executive Directors may participate in any
HMRC tax-advantaged all employee share plans
offered by the Company on the same terms as
other employees, subject to limits on the level of
individual participation as set by HMRC.
Non-Executive Director fees are determined by the
Board. The fees for the Chairman are determined by
the Remuneration Committee taking into account
the views of the Chief Executive. The Chairman
excludes himself from such discussions.
The fee levels are reviewed periodically and are set
to reflect the responsibilities and time commitment
of the role and the experience of the individual. Fee
levels are set by reference to rates in companies of
comparable size and complexity. The fees for the
Non-Executive directors comprise a basic Board fee,
with additional fees paid for chairing a Committee
or for the Senior Independent Directorship. The
Chairman receives an all encompassing fee for
his role.
In exceptional circumstances, additional fees may
be payable to reflect a substantial increase in time
commitment. The fees are paid monthly in cash.
Any reasonable business related expenses (including
tax thereon) may be reimbursed.
The Chairman and Non-Executive Directors may be
eligible to access HomeServe products and services
on the same terms as offered to employees.
All Employee
Share Plans
To encourage
employee share
ownership.
Chairman and
Non-Executive
Directors’ fees
To attract and retain
Non-Executive
Directors of the right
calibre.
N/A
N/A
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Annual Report & Accounts 2017
Rationale behind performance metrics and targets
The Remuneration Committee works hard to ensure that the remuneration policy for the
Executive Directors supports the business strategy, and that the level of remuneration received
is reflective of the overall business performance and the returns received by shareholders.
A significant proportion of the remuneration package comes from variable pay with careful
consideration given to the choice of performance metrics to ensure that the executives are
not encouraged to take inappropriate risks.
Annual Bonus
The annual bonus is designed to drive and reward strong short-term operating performance.
No annual bonus is paid unless a high level of performance is achieved. The Committee
reviews the annual bonus plan measures annually in order to ensure that they are aligned
with the Group’s strategy and so that bonus arrangements are consistent amongst the senior
executive team. Performance targets are set at the start of the financial year and are linked to
the Group’s strategic and operational objectives. The customer focused culture across our
business is reflected in the use of non financial metrics in the annual bonus scheme. These are
balanced by the use of financial targets and personal objectives used to reflect other strategic
priorities.
The Committee retains the discretion to alter the choice and weighting of the metrics for
future bonus cycles to reflect the changing needs of the business. The payment of any bonus
is at the discretion of the Committee and bonuses will only be paid once a minimum level of
customer and financial performance is achieved.
LTIP
Long-term incentive awards will be granted in accordance with the rules of the shareholder
approved HomeServe 2008 Long-Term Incentive Plan (LTIP) (and any subsequent replacement
plan) and the discretions contained therein. The performance measures for the matching and
performance awards are set using a sliding scale of targets and no more than 25% of the award
(under each measure) will vest for achieving the threshold performance hurdle.
The choice of measures may change for future award cycles, but is currently based on the
following:
Metric
Link to strategy
Earnings per share (EPS)
Total Shareholder Return (TSR)
This provides an assessment of the profitability of the Group over the
longer-term and is strongly aligned to the execution of the business strategy.
Challenging targets are set for each award cycle based on internal and
external forecasts.
This measures the total return to shareholders provided through share price
appreciation and dividends. TSR is measured relative to the performance
of the FTSE 250 Index. TSR provides a clear alignment between the value
created for shareholders and the reward earned by executives.
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Governance
Remuneration report (continued)
The Committee would consult with shareholders in advance of a change in the choice or
weighting of the performance measures to be applied to future award cycles.
Under the rules of the plan, the Committee has the discretion to adjust the targets applying to
existing awards in exceptional circumstances providing the new targets are no less challenging
than originally envisaged. The Committee also has the power to adjust the number of shares
subject to an award in the event of a variation in the capital of the Company.
Awards under the LTIP may be granted as conditional allocations or nil (or nominal) cost
options with, or as, forfeitable shares. The Committee may also decide to grant cash based
awards of an equivalent value to share based awards or to satisfy share based awards in cash,
although it does not currently intend to do so. Awards are satisfied through a mixture of either
market purchase or new issue shares. To the extent new issue shares are used, the 2008 LTIP
will adhere to a 5% in 10 year dilution limit.
A post vesting holding period was introduced for awards granted in FY16 onwards. There
will be a minimum period of five years from the date of grant of an award before shares can
be sold. To the extent that nil cost options are exercised after the three year vesting point,
but before five years, the net of tax value of the vested shares must continue to be held. The
dividend roll up on unexercised nil cost options will continue until five years from grant. This
five year view provides a longer-term perspective to the incentive programme than the three
year performance period.
Clawback
The Committee has the power to reclaim some, or all, of a cash bonus and vested LTIP awards
(performance and matching) in exceptional circumstances, such as misstatement of financial
results, an error in assessment of performance, the use of misleading information and/or gross
misconduct on the part of the individual.
Pensions
Richard Harpin participates on a non-contributory basis in a funded, HMRC approved
occupational defined benefit scheme (with benefits limited to a notional capped salary) which
is closed to new members. An unapproved pension contribution is paid in respect of basic
salary above the cap.
The main features of the scheme are:
• pension at normal retirement age of one-half of final pensionable salary and a tax free
lump sum of one and a half times final pensionable salary on completion of 40 years’
service at an accrual rate of 80ths plus 3/80ths cash
•
life assurance of five times basic salary
• pension payable in the event of ill health; and spouse’s pension on death
• normal retirement at age 60.
88
Annual Report & Accounts 2017
Shareholding guidelines
It is the Board’s policy that Directors build up and retain a minimum shareholding in the
Company. Each Director is encouraged to hold shares of at least equal value to two times their
annual basic salary or fee.
If the holding guideline has not been fulfilled at the point of exercise of any option or the
vesting of any other long-term incentive award, the Director must retain 50% of the net
proceeds in the Company’s shares until the holding requirement is achieved. Details of the
current shareholdings of the Directors are provided later in this report.
How employees’ pay is taken into account
The remuneration policy for the Executive Directors is designed with regard to the policy for
employees across the Group as a whole. Our ability to meet our growth expectations and
compete effectively is dependent on the skills, experience and performance of all of our
employees. Our employment policies, remuneration and benefit packages for employees are
regularly reviewed.
There are some differences in the structure of the remuneration policy for the Executive
Directors and senior management team compared to other employees reflecting their
differing responsibilities, with the principal difference being the increased emphasis on
performance related pay for the more senior executives within the organisation. However,
there are many common themes. For example, the structure of the annual bonus, with the
focus on financial, non financial and personal performance, is the same for employees at
management grade and above.
Employee share ownership is encouraged and facilitated through extending participation
in the LTIP to other senior leaders within the business and all eligible employees are able to
participate in the HomeServe One Plan, a share incentive plan.
Although the Committee does not consult directly with employees on directors’ pay, the
Committee does take into consideration the pay and employment conditions of all employees
when setting the policy for directors’ remuneration. In terms of comparison metrics, the
Committee takes into account the average level of salary increase being budgeted for the UK
workforce when reviewing the salary levels of the Executive Directors. The Committee is also
mindful of any changes to the pay and benefit conditions for employees more generally when
considering the policy for directors’ pay.
How shareholders’ views are taken into account
The Committee considers shareholder feedback received regarding the Remuneration report
annually and guidance from shareholder representative bodies more generally. These views
are key inputs when shaping remuneration policy. The Committee consults with shareholders
when considering changes to remuneration arrangements.
89
Governance
Remuneration report (continued)
Overall balance of measures for variable pay for FY17
Remuneration scenarios for Executive Directors
The chart below details the composition of each Executive Director’s remuneration
package and how it varies at different levels of performance under the policy set out above.
It demonstrates the balance between fixed and variable pay at threshold, on-target and
maximum performance levels under the normal remuneration policy for the Executive
Directors.
’
s
0
0
0
£
3,200
3,000
2,800
2,600
2,500
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
£3,008
£2,217
56%
46%
£1,611
£2,198
57%
£2,123
£1,555
57%
47%
£1,128
47%
20%
19%
£748
100%
34%
25%
21%
19%
£522
£888
30%
27%
39%
27%
£378
£499
21%
19%
100%
32%
24%
100%
43%
34%
100%
32%
24%
Fixed
Target Max
Fixed
Target Max
Fixed
R Harpin
M Bennett
Target Max
D Bower
Fixed
Target Max
J Ford
Key
Long-term share grants
Annual bonus
Total fixed pay
Assumptions
Fixed
On target
Maximum
fixed pay only (salary plus benefits plus pension).
target annual bonus of 80% of salary plus target LTIP awards of 90% of salary plus matching awards of 90% of salary.
maximum annual bonus of 100% of salary plus maximum LTIP awards of 200% of salary plus matching awards of 150% of salary.
Salary levels (on which other elements of the packages are calculated) are based on those applying from July 2017.
The value of taxable benefits is based on the actual values paid in FY17 apart for David Bower where expected benefits are shown.
Richard Harpin participates in a defined benefit scheme which has been valued according to BIS regulations. The other Executives receive a pensions
allowance of 20% of basic salary. The Executive Directors may participate in all-employee share schemes on the same basis as other employees. The
value that may be received under these schemes is subject to tax approved limits. For simplicity, the value that may be received from participating in these
schemes has been excluded from the above charts. The chart excludes the impact of share price growth.
David Bower will not receive a matching award in FY18 having only recently been appointed to the Board.
90
Annual Report & Accounts 2017
Executive Directors’ service agreements and policy on payments for loss of office
Under the Executive Directors’ service contracts up to twelve months’ notice of termination of
employment is required by either party (reduced to six months if following a prolonged period
of incapacity).
Dates of current contracts are summarised in the table below:
Name
R Harpin
M Bennett
D Bower
J Ford
Date of contract
18 January 2002
1 January 2013
3 February 2017
1 October 2012
Should notice be served, the Executives can continue to receive basic salary, benefits and
pension for the duration of their notice period. The Company may require the individual to
continue to fulfil their current duties, or may assign a period of garden leave. The Company
applies a general principle of mitigation in relation to termination payments and supports the
use of phased payments.
Outplacement services may be provided where appropriate, and any statutory entitlements
or sums to settle or compromise claims in connection with a termination (including, at the
discretion of the Committee, reimbursement for legal advice) would be paid as necessary.
The service contracts also enable the Company to elect to make a payment in lieu of notice
equivalent in value to twelve months’ base salary, benefits and pension. Mr Harpin’s contract
was amended during the year to remove the entitlement to bonus as part of any payment in
lieu of notice.
In the event of cessation of employment, the executives may still be eligible for a performance
related bonus for the period worked. Different performance measures may be set to reflect
changes in the director’s responsibilities until the point of departure.
The rules of the LTIP set out what happens to outstanding share awards if a participant leaves
employment before the end of the vesting period. Generally, any outstanding share awards
will lapse when an Executive leaves employment, except in certain circumstances. If the
Executive leaves employment as a result of redundancy, death, ill-health, injury, disability,
retirement, transfer of employment or any other reason at the discretion of the Committee,
then they will be treated as a ‘good leaver’ under the plan rules.
For a good leaver, any outstanding unvested LTIP awards will vest on the normal vesting date
subject to an assessment of performance, with a pro-rata reduction to reflect the proportion
of the vesting period served. The Committee may dis-apply the time pro-rating requirement
if it considers it appropriate to do so. In the case of cessation due to death, the Committee
can determine that the awards vest early. Outstanding vested but not exercised awards can be
exercised by a good leaver until the expiry of the normal exercise period (or within 12 months
in the case of death).
91
Governance
Remuneration report (continued)
In determining whether an Executive should be treated as a good leaver and the extent to
which their award may vest, the Committee will take into account the circumstances of an
individual’s departure.
The treatment of share awards on a change of control is the same as that set out above in
relation to a good leaver (albeit with the vesting period automatically ending on the date of
the change in control).
Recruitment Policy
Base salary levels will be set in accordance with HomeServe’s remuneration policy, taking
account of the executive’s skills, experience and their current remuneration package. Where
it is appropriate to offer a lower salary initially, a series of increases to the desired salary
positioning may be given over subsequent years subject to individual performance. Benefits
will generally be provided in accordance with the approved policy, with relocation expenses
and/or an expatriate allowance paid for if necessary. For an overseas appointment (which may
include the relocation of an existing Director), the benefit and pension arrangements may be
tailored to reflect local market practice (subject to the overall maximum limits on pension set
out in the policy table).
The structure of the variable pay element will be in accordance with HomeServe’s policy as
detailed above. The maximum permitted variable pay opportunity is 450% of salary (100% of
salary bonus + 200% of salary LTIP + 150% of salary matching award). However, the normal
award limits are a bonus of 100% of salary, a performance share award of 150% of salary and
up to a 150% of salary matching award. In the case of the matching awards, a new recruit
may be invited to invest up to 25% of salary from their own funds in the first year in order to
receive a matching award (in determining the number of matching awards to be granted, the
investment is deemed to be made gross of tax). LTIP awards may be made shortly following an
appointment (assuming the Company is not in a closed period).
The performance and matching awards would be granted on a consistent basis to the other
Executive Directors. In the case of the annual bonus, different performance measures may be
set for the first year, taking into account the responsibilities of the individual and the point in
the financial year at which they joined. If it is necessary to buy-out incentive pay (which would
be forfeited on leaving the previous employer) in order to secure the appointment, this would
be provided for taking into account the form (cash or shares), timing and expected value (i.e.
likelihood of meeting any existing performance criteria) of the remuneration being forfeited.
The LTIP permits the grant of restricted share awards to Executive Directors in the case of
recruitment to facilitate this, although awards may also be granted outside of this scheme if
necessary, and as permitted under s.9.4.2.2 of the Listing Rules.
The service contract for a new appointment would be in accordance with the policy for the
current Executive Directors.
92
Annual Report & Accounts 2017
In the case of an internal hire, any outstanding variable pay awarded in relation to the previous
role will be allowed to pay out according to its terms of grant.
Fees for a new Chairman or Non-Executive Director will be set in line with the approved
policy.
Non-Executive Directors’ letters of appointment
Non-Executive Directors serve under letters of appointment for periods of three years. The
Non-Executive Directors (including the Chairman) have a notice period of three months but
no liquidated damages are payable.
Fees are determined by the Executive Directors within the limits set by the Articles of
Association, and are based on information on fees paid in similar companies and the skills and
the expected time commitment of the individual concerned.
Details of their current three year appointments are as follows:
Name
J M B Gibson
S David
C Havemann
B Mingay
M Morris
Date of contract
1 April 2016
23 November 2016
1 December 2015
1 January 2015
27 February 2015
Outside Appointments
Executive Directors may hold one outside appointment and can retain any fees received.
93
Governance
Remuneration report (continued)
Annual Report on Remuneration
This part of the report has been prepared in accordance with Part 3 of the revised Schedule
8 set out in The Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013, and 9.8.6R of the Listing Rules. The annual report on
remuneration will be put to an advisory shareholder vote at the 2017 Annual General Meeting.
Remuneration Committee Members
Stella David (Chairman)
JM Barry Gibson
Mark Morris
Ben Mingay
All of the members are independent Non-Executive Directors. The Board determined that
the Company Chairman, Barry Gibson, should remain a member of the Committee taking
account of the fact that he was considered to be independent on appointment and also that,
as a former Chairman of the Remuneration Committee, his knowledge of the development
of the remuneration policy and practices at HomeServe is invaluable. He takes no part in
discussions relating to his own remuneration.
Responsibilities
The primary responsibilities of the Committee are to:
• determine the Group’s overall remuneration strategy
• determine the remuneration packages of the Executive Directors and other members of
the Executive Committee
• approve the grant and exercise of executive long-term incentive arrangements and
oversee the operation of other share-based plans across the Group.
In determining remuneration policy, the Committee is free to obtain such professional advice
as it sees fit, and it periodically monitors both the policies of comparator companies and
current market practice in order to ensure that the packages provided are sufficient to attract
and retain Executive Directors of the necessary quality.
The Committee aims to develop and recommend remuneration strategies that drive
performance and reward it appropriately. In determining its policy, the Committee has paid
regard to the principles and provisions of good governance contained in the Code and the
guidelines issued by institutions such as the Investment Association, ISS and the NAPF. The
Committee operates under the delegated authority of the Board and its terms of reference are
available on the website.
94
Annual Report & Accounts 2017
The remuneration of Non-Executive Directors is a matter for the Board. No Director is involved in
determining his or her own remuneration.
The Committee has agreed and implemented a procedure for reviewing and assessing its own
effectiveness.
Advisers
During the year New Bridge Street (’NBS‘), a firm of independent remuneration consultants,
served as advisers to the Committee. NBS also provided technical implementation and
accounting advice in relation to the administration of the Company’s share schemes. Other
than in relation to advice on remuneration, NBS has no other connections with the Company.
NBS is a trading name of Aon Hewitt Ltd, the ultimate parent company of which is Aon plc. Aon
UK Ltd (another Aon company) provides insurance broking services to HomeServe and Aon
Risk Services Ltd provides health and safety assurance services. The Remuneration Committee
is comfortable that this does not present a conflict of interest as Aon UK and NBS operate
entirely independently of one another. The fees paid to NBS during the year for services to the
Committee were £31,000.
The Committee has also received assistance from Richard Harpin, Group Chief Executive, Emma
Thomas, Group Legal and HR Director and Anna Maughan, Company Secretary, all of whom
attended meetings of the Committee as required. No Executive took part in discussions in
respect of matters relating directly to their own remuneration.
95
Governance
Remuneration report (continued)
Remuneration for the year under review (Audited)
Taxable
Salary
and
fees benefits 3 Pensions 4
£000
£000
£000
Year
Bonus
£000
LTIP 5
£000
Other 6
£000
Total
FY17
£000
Total
FY16
£000
Executives
R Harpin
M Bennett
D Bower ¹
J Ford
Non-Executives
J M B Gibson
S David
C Havemann ²
B Mingay
M Morris
Total FY17
Total FY16
FY17
555
FY16
550
FY17
412
FY16
406
FY17
FY16
46
—
FY17
394
FY16
363
FY17
250
FY16
230
FY17
FY16
FY17
FY16
FY17
FY16
FY17
FY16
65
63
55
18
55
53
73
71
28
26
21
20
4
—
17
17
—
—
—
—
—
—
—
—
—
—
155
555 2,929
34 4,256
113
539 2,127
—
3,355
82
81
8
—
76
73
—
—
—
—
—
—
—
—
—
—
313 2,313
34 3,175
350 1,240
46
—
—
—
—
31
—
135
2,097
—
394 1,166
— 2,047
368
—
10
831
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 250
—
—
—
—
—
—
—
—
—
65
55
55
73
230
63
18
53
71
1,905
1,754
70
63
321 1,308 6,408
99 10,111
267 1,257 3,367
10
6,718
¹ David Bower was appointed on 6 February 2017.
² Chris Havemann was appointed on 1 December 2015.
3 Benefits comprise company car, fuel allowance and medical insurance.
4 Details of pension benefits and contributions can be found later on in the report.
5 LTIPs vested in full in FY16 and FY17.
6 ‘Other’ represents the value of any sharesave options exercised.
96
Annual Report & Accounts 2017
Details of variable pay earned in the year (Audited)
Annual Bonus
For FY17, the annual bonus was based on the following stretching targets:
Financial and non financial bonus targets for Richard Harpin (CEO), Johnathan Ford (COO) and David Bower (CFO)
Financial
measures
Non financial
measures
Group adjusted profit before tax
Group net debt 1
Customer growth
Customer satisfaction (measured as
a weighted average level of customer
satisfaction across UK, US, France,
Spain and Italy) 1
Weighting
% Payable at
Threshold
Threshold
Target/
Stretch
Actual
% Payable
25%
5%
25%
25%
25%
£96.9m £102.0m £112.4m
100%
–
– £273.4m £261.4m
100%
0%
7.024m 7.167m 7.530m
100%
–
–
8.2
8.7
100%
Financial and non financial bonus targets for Martin Bennett (UK CEO)
Financial
measures
Group adjusted profit before tax
UK adjusted profit before tax
Non financial
measures
UK net cash 1
UK customer growth
UK customer satisfaction 1
¹ No bonus was payable for below target performance.
Weighting
% Payable
at threshold
Threshold
Target/
Stretch
Actual
% Payable
10%
15%
5%
25%
25%
25%
£96.9m £102.0m £112.4m
100%
25% £60.0m £63.2m £63.2m
100%
–
–
£20.4
£10.2m
0%
2.197m 2.237m 2.212m
0%
40%
–
–
8.2
9.3
100%
97
Governance
Remuneration report (continued)
Personal bonus targets
Objectives
Weighting
Outcome
R Harpin
Mr Harpin’s objectives
related to strategic
development, innovation
and people development.
M Bennett
Mr Bennett’s objectives
related to business
development, innovation,
cost efficiencies and delivery
of key IT programmes.
D Bower
J Ford
Mr Bower’s objectives
related to his previous role
as Group Finance Director
and were focused on M&A
activity, cash and working
capital efficiency and
investor relations.
Mr Ford’s objectives related
to M&A activity, operational
efficiencies, digital activity
and investor relations.
% Payable
100%
20% Key achievements included:
•
Investing in Checkatrade and acquiring
Habitissimo
• Agreed a joint venture with Edison Energia
in Italy
• Developing a leadership plan and vision
20% Key achievements included:
70%
•
Integrating the Home Energy Services
business
• Launching Leakbot, a smart home water
leak detector
• Establishing a cost conscious culture in the
UK business
20% Key achievements included:
100%
• Supporting and overseeing the integration
•
of Utility Service Partners in the US
Identifying and implementing cash and
working capital improvements
• Overseeing and challenging the delivery of
efficiency plans
20% Key achievements included:
100%
• Stepping up M&A activity (Checkatrade,
Habitissimo, the npower ‘domestic care
and maintenance’ contracts business and
the Italian joint venture)
• Rolling out a model to reduce network
repair costs
• Leading global digital development
• Holding a successful Capital Markets Day
In addition to the above, minimum customer and financial (PBT) performance levels had to be
achieved before any bonuses could be paid. These were both achieved.
Following the strong performance of the business in the year and in particular, reflecting the
robust customer and profit growth, the following bonuses were payable:
Name
R Harpin
M Bennett
D Bower 1
J Ford
¹ David Bower was appointed on 6 February 2017.
98
Bonus £
555,156
313,399
46,250
393,750
% of salary
100.0
76.1
100.0
100.0
Annual Report & Accounts 2017
Long-term Incentive Plan
Details of the performance conditions for the 2013 and 2014 LTIP awards are set out below.
2013 awards (vested in FY17)
The 2013 LTIP awards were granted on 24 June 2013. The performance condition for these
awards was as follows:
Condition
Performance period
Threshold target
Stretch target
Actual performance
Vesting
TSR
(underpinned
by underlying
financial
performance)
3 years to 24
June 2016
TSR equal to
the FTSE 250
index (25%
vests)
TSR exceeds
the index by
an average
of 15% p.a.
(100% vests)
HomeServe
TSR of 114.1%
compared to
Index TSR of
30.1%
100% vesting
2014 awards (due to vest in FY18)
The 2014 LTIP awards were granted on 23 June 2014. The performance condition for these
awards was as follows:
Condition
Performance period
Threshold target
Stretch target
Actual performance
Vesting
TSR
(underpinned
by underlying
financial
performance)
3 years to 23
June 2017
TSR equal to
the FTSE 250
index (25%
vests)
TSR exceeds
the index by
an average
of 15% p.a.
(100% vests)
—
Performance
period not
yet ended
Based on performance to 31 March 2017, which was 91.9% compared to the FTSE 250 Index
TSR of 25.7%, the 2014 awards are likely to vest in full. The value of the awards on vesting will
be included in remuneration for FY18.
99
Governance
Remuneration report (continued)
Summary of outstanding awards (Audited)
LTIP
Details of the maximum number of shares receivable from awards made under the LTIP are as
follows:
31 March 2017
Awarded
during year
Lapsed
during year
Vested
during year
31 March 2016
Date granted
Type of award
R Harpin
M Bennett
D Bower ¹
J Ford
—
—
247,301
247,298
251,774
188,135
—
—
—
—
—
—
211,338
211,338
155,521
155,521
—
—
184,615
175,958
186,770
136,825
—
—
—
—
—
—
156,774
156,774
115,366
115,366
14,192
14,192
37,766
31,779
18,975
—
—
130,096
130,094
171,664
111,171
—
—
—
—
—
—
—
—
—
—
—
144,094
144,094
106,034
106,034
¹ David Bower was appointed on 6 February 2017.
100
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
289,528
289,528
24.6.13 Performance
282,464
282,464
24.6.13 Matching
—
—
—
—
—
—
247,301
23.6.14 Performance
247,298
23.6.14 Matching
251,774
25.6.15 Performance
188,135
25.6.15 Matching
—
—
1.7.16 Performance
1.7.16 Matching
202,630
202,630
24.6.13 Performance
192,038
192,038
24.6.13 Matching
—
—
—
—
—
—
—
—
—
—
—
184,615
23.6.14 Performance
175,958
23.6.14 Matching
186,770
25.6.15 Performance
136,825
25.6.15 Matching
—
—
14,192
14,192
37,766
31,779
18,975
1.7.16 Performance
1.7.16 Matching
23.6.14 Performance
23.6.14 Restricted
25.6.15 Performance
1.7.16 Performance
1.7.16 Restricted
152,310
152,310
24.6.13 Performance
75,457
75,457
24.6.13 Matching
—
—
—
—
—
—
130,096
23.6.14 Performance
130,094
23.6.14 Matching
171,664
25.6.15 Performance
111,171
25.6.15 Matching
—
—
1.7.16 Performance
1.7.16 Matching
Annual Report & Accounts 2017
The performance conditions are as follows:
• 2013 and 2014 awards – 100% comparative TSR (FTSE 250 Index + 15% per annum for
maximum vesting)
• 2015 awards – 25% comparative TSR (FTSE 250 Index + 15% per annum for maximum
vesting) and 75% compound annual EPS growth (15% for maximum vesting)
• 2016 awards up to 150% of salary – 25% comparative TSR (FTSE 250 Index + 15% per
annum for maximum vesting) and 75% compound annual EPS growth (15% for maximum
vesting)
• 2016 awards above 150% of salary – compound annual EPS growth of 15% to 20% (20%
for maximum vesting).
David Bower has two restricted share awards which pre-date his appointment as CFO. These
awards are not subject to performance conditions.
Further details on awards granted in the year
On 1 July 2016, the following performance and matching share awards were granted to the
Executive Directors under the LTIP:
Performance share awards
R Harpin
M Bennett
J Ford
Date of grant
1.7.16
1.7.16
1.7.16
Matching share awards
R Harpin
M Bennett
Date of grant
1.7.16
1.7.16
Number of
shares
211,338
156,774
144,094
Share price used
to determine
awards
£5.27
£5.27
£5.27
Award size
(% salary)
Face value £
% that vests at
threshold
200%
1,113,751
200%
200%
826,199
759,375
25%
25%
25%
Number of
Investment
Shares
purchased
Number of
shares subject
to Matching
Award
Share price
used to
determine
awards
Award Size
Face value £
% that vests
at threshold
41,213 2:1 match
155,521
£5.26 818,040
30,572 2:1 match
115,366
£5.26 606,825
J Ford
1.7.16
28,099 2:1 match
106,034
£5.26
557,739
25%
25%
25%
101
Governance
Remuneration report (continued)
The performance awards up to 150% of salary and the matching awards are subject to two
performance conditions. 25% of the awards are subject to a relative total shareholder return
performance condition that requires HomeServe’s TSR to match that of the FTSE 250 Index
over a three year performance period for threshold vesting, increasing on a straight-line basis
to Index + 15% pa. for full vesting. The other 75% of the awards are subject to an earnings per
share condition that requires compound annual EPS growth of 6% to 15% per annum. 6%
growth would result in threshold vesting, increasing on a straight-line basis to full vesting if
growth of 15% per annum is achieved.
The performance awards over the remaining 50% of salary are subject to an earnings per share
condition that requires compound annual growth of 15% to 20% pa. for between 0% and 100%
of this part of the awards to vest.
As set out in last year’s report, the Committee considered that granting awards at this level was
appropriate given the stretching performance conditions attached. Major shareholders were
consulted prior to the awards being made and were supportive of the proposals.
Vesting is also subject to underlying financial performance.
Further details on awards vested in the year
Performance and matching awards granted on 24 June 2013 vested in full during the year.
Awards were structured as nil cost options.
Date of grant
Type of Award
Date of
exercise
No of Shares
Share price
at exercise
Face value at
exercise £
R Harpin
24.6.13
Performance
6.7.16
289,528
£5.12
1,482,383
24.6.13
Matching
6.7.16
282,464
£5.12
1,446,216
M Bennett
24.6.13
Performance
21.2.17
202,630
£5.86
1,187,412
24.6.13
Matching
21.2.17
192,038
£5.86
1,125,343
J Ford
24.6.13
Performance
6.7.16
152,310
24.6.13
Matching
6.7.16
75,457
£5.12
£5.12
779,827
386,340
102
Annual Report & Accounts 2017
Save as you earn (Sharesave) scheme
31 March 2017
Granted
during year
Lapsed
during year
Exercised
during year 31 March 2016 Option price Date granted
R Harpin
M Bennett
D Bower ¹
—
—
—
—
—
—
—
—
—
8,152
8,152
8,152
8,152
8,152
8,152
£1.84
19.12.11
£1.84
19.12.11
£1.84
19.12.11
Date
exercisable
from
1.3.17
1.3.17
1.3.17
¹ David Bower was appointed on 6 February 2017.
SAYE options are exercisable for a six month period from the date shown. Mr Harpin and
Mr Bennett exercised their options on 1 March 2017. The share price on that day was £5.95.
Mr Bower exercised his option on 8 March 2017. The share price on that day was £5.635.
One Plan Matching Shares (Share Incentive Plan)
R Harpin
M Bennett
D Bower ¹
J Ford
31 March 2017
Acquired during year
31 March 2016
88
88
88
63
88
88
26
63
—
—
62
—
Aggregate face value
of shares awarded
during the year2
£523.89
£523.89
£149.82
£374.12
¹ David Bower was appointed on 6 February 2017.
² Based on the acquisition price of the associated Partnership Shares. The highest share price was £6.28 and the lowest share price was
£5.64.
Participants receive one Matching Share for every two Partnership Shares they purchase.
Shares are purchased on a monthly basis. Matching Shares are normally kept in trust for a
minimum period of three years.
103
Governance
Remuneration report (continued)
Shareholding Guidelines (Audited)
It is the Board’s policy that Executive Directors build up and retain a minimum shareholding in
the Company. Each Director is encouraged to hold shares of at least equal value to 200% of
their annual basic salary or fee.
If the holding guideline has not been fulfilled at the point of exercise of any option or the
vesting of any other long-term incentive award, the Director must retain 50% of the net
proceeds in the Company’s shares until the holding requirement is achieved. Details of the
current shareholdings of the Directors are in the table below.
The beneficial interests of Directors who served at the end of the year, together with those of
their families, in the shares of the Company are as follows:
23 May 2017
31 March 2017
31 March 2016
Outstanding
LTIP awards
Total
31 March 2017
Value of
shares
counting
towards
guideline
holding (as a
% of salary) ¹
Guideline
met?
R Harpin ²
39,160,715
39,160,649 38,519,655
1,301,367 40,462,016
39,732%
M Bennett
533,816
533,750
353,094
956,308
1,490,058
D Bower ³
66,074
66,008
57,778
116,904
182,912
J Ford
171,218
171,152
82,525
793,153
964,305
J M B Gibson
150,070
150,070
126,070
S David
68,945
68,945
26,128
C Havemann 4
20,000
20,000
—
B Mingay
M Morris
57,142
71,716
57,142
37,142
71,716
30,468
—
—
—
—
—
150,070
68,945
20,000
57,142
71,716
730%
124%
255%
339%
599%
205%
587%
559%
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
¹ Calculated using the share price on 31 March 2017 of £5.65 divided by the Executive’s salary or Non-Executive’s fee on that date.
² Includes an indirect interest of 28,500.
³ David Bower was appointed on 6 February 2017.
4 Chris Havemann was appointed on 1 December 2015.
104
Annual Report & Accounts 2017
Directors’ pensions (Audited)
Members of the Water Companies Pension Scheme
Details of the calculation of the single figures relating to Richard Harpin’s individual pension
entitlements in the HomeServe plc Section of the Water Companies Pension Scheme, as
required under Schedule 8 of the Large Companies Regulations and the Listing Rules, are
shown below:
Accrued pension per annum at end of period 1
Accrued lump sum at end of period 1
Director’s contributions in the period
Single figure of pension remuneration attributable to the Scheme 2
Unapproved pension contributions paid as cash
2017
£000
58
174
—
71
84
2016
£000
55
165
—
30
83
¹ The accrued pension and lump sum figures are the leaving service benefits to which the Director would have been entitled had they left
the Section at the relevant date.
² This is calculated as 20 times the increase in the accrued pension over the period after allowing for CPI inflation plus the increase in
accrued lump sum (also after allowing for CPI inflation), less the contributions made by the Director over the period.
Other Directors
Martin Bennett, David Bower and Johnathan Ford received the following pension allowances:
M Bennett
D Bower ¹
J Ford
¹ David Bower was appointed on 6 February 2017.
2017
£000
82
8
76
2016
£000
81
—
73
105
Governance
Remuneration report (continued)
Performance graph
The graph below shows the Company’s performance, measured by TSR, compared with
the performance of the FTSE-250 Index (also measured by TSR) for the eight years ended
31 March 2017. This comparator has been chosen as it is a broad equity index of which the
Company is a constituent and it is also the one used in assessing relative TSR performance
under the LTIP.
Total shareholder return
Source: Datastream (Thomson Reuters)
400
350
300
250
200
150
100
50
0
)
£
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
31 March 09
31 March 10
31 March 11
31 March 12
31 March 13
31 March 14
31 March 15
31 March 16
31 March 17
This graph shows the value, by 31 March 2017, of £100 invested in HomeServe plc on 31 March 2009 compared with that
of £100 invested in the FTSE-250 Index. The other points plotted are the values at intervening financial year-ends.
FTSE-250 index
HomeServe plc
106
Annual Report & Accounts 2017
Chief Executive’s remuneration
The total remuneration figures for the Chief Executive during each of the last eight years
are shown in the table below. The figures include the annual bonus based on that year’s
performance and the matching awards plus the LTIP awards based on the three year
performance period ending in the relevant year. The annual bonus and long-term incentive
award vesting level as a percentage of the maximum opportunity are also disclosed below:
Total remuneration (£000s)
2010
1,030
2011
953
2012
559
2013
2014
2015
2016
2017
953
1,212 1,200 3,355 4,256
Annual bonus
100%
87%
0%
75% 100%
96%
98% 100%
LTIP awards vesting
21%1
51%2
60%
0%
0%
0% 100% 100%
1 No LTIPs were due to vest in FY10. The ESOP awards granted in 2006 lapsed as the performance conditions were not met. Awards made
under the Deferred Bonus Plan vested on the basis of 1.19 shares out of a maximum of 3.
2 No LTIPs were due to vest in FY11. The ESOP awards granted in 2007 lapsed as the performance conditions were not met. Awards made
under the Deferred Bonus Plan vested on the basis of 2.48 shares out of a maximum 3.
Percentage change in Chief Executive’s remuneration
The table below shows the percentage change in the Chief Executive’s total remuneration
(excluding the value of any pension, matching awards and performance awards receivable
in the year) between FY16 and FY17 compared to the average for all employees of
HomeServe plc.
Chief Executive Officer
Average of other HomeServe plc employees
% Change from FY16 to FY17
Salary
0.9%
10.2%
Benefits
Annual Bonus
6.0%
19.7%
2.9%
25.3%
Relative importance of spend on pay
The following table shows the Company’s actual spend on pay (for all employees) relative to
dividends, tax and retained profits:
Staff costs (£m)
Dividends (£m)
Tax (£m)
Retained profits (£m)
FY16
£m
190.5
37.6
21.0
61.6
FY17
£m
237.5
40.3
23.9
74.4
change
25%
7%
14%
21%
£7.8m of the staff costs figures relate to pay for the Executive Directors. This is different to the
aggregate of the single figures for the year under review due to the way in which the share
based awards are accounted for.
The dividends figures relate to amounts payable in respect of the relevant financial year.
107
Governance
Remuneration report (continued)
Loss of Office Payments (Audited)
No payments have been made for loss of office in the year.
Application of the remuneration policy for FY18
Basic salary
Basic salary for each Executive Director is determined by the Remuneration Committee taking
into account the roles, responsibilities, performance and experience of the individual. Salary
increases are determined taking into account pay and employment conditions of employees
elsewhere in the Company and market data on salary levels for similar positions at comparable
companies in the FTSE 250.
Salaries are normally reviewed in July each year (unless responsibilities change). Johnathan
Ford’s salary was increased by 6.6% to £400,000 following his appointment as COO to reflect
his changes in responsibility. This year salaries will increase by 1.5% which is in line with the
average increase for the UK workforce.
The salaries for the Executive Directors effective from 1 July 2017 will therefore be as follows:
Name of Director
R Harpin
M Bennett
D Bower ¹
J Ford
Salary as at
1 July 2016
Salary as at
1 July 2017
£556,875
£565,228
£413,100
£419,297
£300,000
£300,000
£400,000
£406,000
Increase
1.5%
1.5%
n/a
1.5%
¹ David Bower was appointed on 6 February 2017.
Fees for the Chairman and Non-Executive Directors
As detailed in the remuneration policy, the Company aims to set remuneration for Non-
Executive Directors at a level which is sufficient to attract and retain Non-Executive Directors
of the right calibre. The fees paid to the Chairman and the Non-Executive Directors are
reviewed periodically. The fees for the Non-Executive Directors were last reviewed during
FY15. The Chairman’s fee was reviewed in FY16.
Details of the current fees are detailed in the table below.
Chairman’s fees
Senior Independent Director additional fee
Non-Executive Directors’ base fee
Chair of Remuneration or Audit & Risk Committee
£250,000
£7,500
£55,000
£10,000
108
Annual Report & Accounts 2017
Annual bonus performance targets
The annual bonus plan for FY18 will operate on a similar basis to FY17 and is consistent with
the policy detailed earlier in this report.
The bonus measures will be as follows:
Financial measures (30% of bonus)
Non financial measures (50% of bonus)
Personal objectives (20% of bonus)
• Profit before tax (25%)
• Customer growth (25%)
• Net debt (5%)
• Customer satisfaction (25%)
• Up to five stretching
personal objectives
The financial and non financial measures for Richard Harpin, David Bower and Johnathan
Ford will be based on Group performance. The financial measures for Martin Bennett will
be based on Group and UK performance and the non financial measures will be based
on UK performance. The Committee considers the forward looking performance targets
to be commercially sensitive but more detailed disclosure will be provided in next year’s
remuneration report.
The Committee has discretion to scale back any bonus payments if it is deemed appropriate.
Long-term incentives
Performance criteria
The long-term incentive plan is a mix of a Performance Share award (up to 200% of salary) and
a Matching Share award (2:1 match on up to 75% of salary bonus invested in shares).
In line with the policy, the FY18 Performance Share award for Executive Directors will be at
150% of salary.
For Performance Share awards and Matching Share awards, the performance targets for FY18
grants will be:
FY18 weighting
3 year performance target
75% based on EPS
6% to 15% per annum EPS growth (for 25% to
100% vesting).
25% based on relative TSR
25% vesting for TSR equal to that of the FTSE 250
Index increasing on a straight-line basis to full
vesting for out-performance of the Index by 15%
per year or more.
Change from FY17
No change
No change
When setting the EPS target range for the FY18 grants, the Committee took into account
internal projections and external forecasts. Having considered these projections and forecasts,
the Committee believes that the EPS targets are appropriately stretching.
109
Governance
Remuneration report (continued)
Holding period for vested shares
The net of tax value of any shares vesting under the LTIP must be held for a further two years,
providing a longer-term perspective to the incentive programme.
Shareholding guidelines
The minimum required shareholding for each Executive Director will continue to be two times
annual basic salary. Executives will be required to retain no less than 50% of the net of tax value
of shares from vested awards until this threshold is exceeded. Shareholding guidelines at two
times their fee also applies to Non-Executive Directors.
Shareholder voting at the 2016 Annual General Meeting
At last year’s Annual General Meeting held on 15 July 2016, the following votes from
shareholders were received:
For
Against
Remuneration report
Total number of votes
% of votes cast
257,543,646
2,640,062
99%
1%
Total votes cast (for and against excluding withheld votes)
260,183,708
100%
Votes withheld
Total votes (including withheld votes)
2,279
260,185,987
The current remuneration policy was approved by shareholders at the 2014 AGM. 90.45% of
the votes cast were in favour of the policy.
General
The market price of the Company’s shares at 31 March 2017 was £5.65 (2016: £4.306). During
the year the price ranged from £4.13 to £6.30.
The shares required for share options and awards under any of the long-term incentive
schemes described above may be fulfilled by the purchase of shares in the market by the
Company’s Employee Benefit Trust (EBT). Awards may also be fulfilled through newly issued
shares, subject to the dilution limits within each scheme (which are fully compliant with
investor guidelines). As beneficiaries under the EBT, the Directors are deemed to be interested
in the shares held by the EBT which at 31 March 2017 amounted to 31,026 ordinary shares.
By Order of the Board
Stella David
Chairman of the Remuneration Committee
23 May 2017
110
Annual Report & Accounts 2017
Directors’ report
The Directors have pleasure in presenting their Annual Report and Accounts for
the year ended 31 March 2017. The Corporate Governance report forms part of this
report. An indication of likely future developments is included in the strategic report.
Information about the use of financial instruments by the Group is given in note 42
to the financial statements.
Dividends
The Directors are recommending the payment on 3 August 2017 of a final dividend of 11.2p
per ordinary share to shareholders on the register at the close of business on 7 July 2017
which, together with the net interim dividend of 4.1p per ordinary share paid on 6 January
2017, results in a total net dividend for the year of 15.3p per share (FY16: 12.7p).
Greenhouse Gas Emissions Reporting
Combustion of fuel and operation of facilities
Electricity, heat, steam and cooling purchased for
own use
Total
Tonnes of CO2e per thousand customers
Global tonnes of CO2e
FY17
Global tonnes of CO2e
FY16
8,835
3,656
12,491
1.60
7,783
3,468
11,251
1.59
We have reported on all of the emission sources required under the Large and Medium-
Sized Companies and Groups (Accounts and Reports) Regulation 2008 as amended in
August 2013. The reporting boundary used for collation of the above data is consistent with
that used for consolidation purposes in the financial statement. We have used the GHG
Protocol Corporate Accounting and Reporting Standard (revised edition), data gathered to
fulfil our requirements under the CRC Energy Efficiency scheme, and emission factors from
the UK Government’s GHG Conversion Factors for Company Reporting 2014 to calculate
the above disclosures.
111
Governance
Directors’ report (continued)
Capital Structure
Details of the issued share capital, together with details of shares issued during the year,
are set out in note 24. There is one class of ordinary shares which carries no right to fixed
income. Each share carries the right to one vote at a general meeting of the Company.
There are no specific restrictions on the size of a holding or on the transfer of shares,
which are both governed by the general provisions of the Articles of Association and
prevailing legislation. The Directors are not aware of any agreements between holders of
the Company’s shares that may result in restrictions on the transfer of securities or on voting
rights.
Details of employee share schemes are set out in note 35. No votes are cast in respect of the
shares held in the Employee Benefit Trust and dividends are waived.
No person has any special rights of control over the Company’s share capital and all issued
shares are fully paid. Subject to the Companies Act 2006 and any relevant authority of the
Company in general meeting, the Company has authority to issue new shares.
The AGM held in 2016 authorised the Directors to allot shares in the capital of the Company
within certain limited circumstances and as permitted by the Companies Act. A renewal of
this authority will be proposed at the 2017 AGM.
Authority to purchase shares
The Company was authorised at the 2016 AGM to purchase its own shares, within certain
limits and as permitted by the Articles of Association. A renewal of this authority will be
proposed at the 2017 AGM. No shares were purchased during the year and no shares are
held in Treasury.
Significant agreements – change of control
There are a number of agreements that take effect, alter or terminate upon a change
of control of the Company such as commercial contracts, bank loan agreements,
property lease arrangements and employees’ share plans. None of these are considered
to be significant in terms of their likely impact on the business of the Group as a whole.
Furthermore, the Directors are not aware of any agreements between the Company and its
Directors and employees that provide for compensation for loss of office or employment
that occurs because of a takeover bid.
Annual General Meeting
The 2017 Annual General Meeting of the Company is to be held on 21 July 2017.
112
Annual Report & Accounts 2017
Disclosure of Information to Auditor
Each of the Directors confirms that:
•
•
so far as the Director is aware, there is no relevant audit information of which the
Company’s auditor is unaware; and
the Director has taken all the steps that he or she ought to have taken as a director in
order to make himself or herself aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of
s418 of the Companies Act 2006.
Resolutions proposing the reappointment of Deloitte LLP as auditor and authorising the
Board to fix its remuneration will be put to the Annual General Meeting.
Fixed Assets
Capital expenditure on tangible fixed assets amounted to £8.0m (FY16: £8.7m) during
the year.
Substantial Shareholdings
As far as the Directors are aware, no person or company had a beneficial interest in 3% or
more of the voting share capital at 31 March and 23 May 2017, except for the following:
As at 31 March 2017
As at 23 May 2017
Name
Invesco Limited
Richard Harpin ¹
FIL Limited
ordinary shares
%
ordinary shares
61,868,233
19.9 61,868,233
39,160,649
12.6
39,160,715
30,436,067
9.8 30,436,067
Woodford Investment Management LLP
16,560,085
5.3 16,560,085
%
19.9
12.6
9.8
5.3
1 Includes an indirect interest of 28,500 shares.
Taxation status
The Company is not a close company within the meaning of the Income and Corporation
Taxes Act 1988.
By Order of the Board
Anna Maughan
Company Secretary
23 May 2017
113
Governance
Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and Accounts,
Remuneration report and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements for each financial year.
Under that law, the Directors are required to prepare the Group financial statements under
International Financial Reporting Standards (’IFRSs‘) as adopted by the European Union
and Article 4 of the IAS Regulation and have also chosen to prepare the parent Company
financial statements under IFRS as adopted by the European Union. Under company law, the
Directors must not approve the accounts unless they are satisfied that they give a true and
fair view of the state of affairs of the Company and of the profit or loss of the Company for
that period. In preparing these financial statements, the Directors are required to:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information; and
• provide additional disclosures when compliance with the specific requirements in IFRSs
are insufficient to enable users to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and financial performance and
make an assessment of the Company’s ability to continue as a going concern.
The Directors are responsible for keeping proper accounting records that are sufficient to
show and explain the Company’s transactions and that disclose with reasonable accuracy
at any time the financial position of the Company and enable them to ensure that the
financial statements comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and
financial information included on the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
114
Annual Report & Accounts 2017
Directors’ responsibilities statement
We confirm to the best of our knowledge:
•
•
•
the Group financial statements, prepared in accordance with IFRSs as adopted by the EU,
give a true and fair view of the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as a whole;
the strategic report includes a fair review of the development and performance of
the business and the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face; and
the annual report and financial statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for shareholders to assess the
Group’s performance, business model and strategy.
By Order of the Board
Richard Harpin
Chief Executive Officer
23 May 2017
David Bower
Chief Financial Officer
23 May 2017
115
Annual Report & Accounts 2017
“Over the past 23 years, we’ve learnt to
stay focused on our core purpose – to
solve the problem of rogue tradesmen,
extortionate prices and no-shows”
Richard Harpin, CEO
117
Financial statements
Strive to be the best in
the world at what we do
Our global values
Put customers at the heart
of everything we do
Develop and encourage great
people who are passionate
about taking responsibility and
making things happen
Combine relentless
innovation with integrity and
professionalism
Strive to be the best in the
world at what we do
116
Financial statements
Independent Auditor’s report
to the members of HomeServe plc
Opinion on financial statements of HomeServe plc
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the
Parent Company’s affairs as at 31 March 2017 and of the Group’s profit for the year
then ended;
the Group financial statements have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance
with IFRSs as adopted by the European Union and as applied in accordance with the
provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS
Regulation.
The financial statements that we have audited comprise:
•
•
•
•
•
•
the Group income statement;
the Group and Company statements of comprehensive income;
the Group and Company balance sheets;
the Group and Company statements of changes in equity;
the Group and Company cash flow statements; and
the related notes 1 to 56.
The financial reporting framework that has been applied in their preparation is applicable law
and IFRSs as adopted by the European Union and, as regards the Parent Company financial
statements, as applied in accordance with the provisions of the Companies Act 2006.
118
Annual Report & Accounts 2017
Summary of our audit approach
Key risks
The key risks that we identified in the current year were:
• carrying value of goodwill and other intangible assets;
• cancellation provision and revenue deferrals; and
•
the acquisition of Utility Service Partners Inc (“USP”).
Materiality
The materiality that we applied in the current year was £7.2m which was determined on the
basis of 7.5% of profit before tax.
Scoping
As in the prior year, we focused our Group audit scope primarily on the audit work at the
following components:
• UK;
• North America;
• France; and
• Spain.
All of these were subject to a full audit, whilst the New Markets segment was subject to
specific audit procedures.
Significant changes in our approach
In comparison to the prior year, we highlight the following changes:
• we identified a new key risk in relation to the Group’s acquisition of USP for consideration
of £60.9m on 1 July 2016; and
• we no longer consider regulatory risk to be a key risk as a result of a reduced level of
regulatory scrutiny from local regulatory bodies across the Group in recent years.
Other than the change in key risks as described above, there were no other significant
changes in our approach.
119
Financial statements
Independent Auditor’s report
to the members of HomeServe plc
(continued)
Going concern and the directors’ assessment of the principal risks that would threaten
the solvency or liquidity of the Group
As required by the Listing Rules we have reviewed the directors’ statement regarding the
appropriateness of the going concern basis of accounting contained within note 2 to the
financial statements and the directors’ statement on the longer-term viability of the Group
contained within the strategic report, on page 50.
We are required to state whether we have anything material to add or draw attention to in
relation to:
•
•
•
•
the disclosures on pages 42-49 that describe the principal risks and explain how they are
being managed or mitigated;
the directors’ confirmation on page 51 that they have carried out a robust assessment
of the principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity;
the directors’ statement in note 2 to the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing
them and their identification of any material uncertainties to the Group’s ability to
continue to do so over a period of at least twelve months from the date of approval of
the financial statements; and
the directors’ explanation on page 50 as to how they have assessed the prospects of
the Group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions.
We confirm that we have nothing material to add or draw attention to in respect of these
matters.
We agreed with the directors’ adoption of the going concern basis of accounting and we
did not identify any such material uncertainties. However, because not all future events
or conditions can be predicted, this statement is not a guarantee as to the Group’s ability
to continue as a going concern.
120
Annual Report & Accounts 2017
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for
Auditors and confirm that we are independent of the Group and we have fulfilled our other
ethical responsibilities in accordance with those standards.
We confirm that we are independent of the Group and we have fulfilled our other ethical
responsibilities in accordance with those standards. We also confirm we have not provided
any of the prohibited non-audit services referred to in those standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest
effect on our audit strategy, the allocation of resources in the audit and directing the efforts of
the engagement team.
Carrying value of goodwill and other intangible assets
Risk description
The carrying value of goodwill and other intangible assets is £590.5m (2016: £457.7m).
The Group’s assessment of the carrying value of goodwill is a judgemental process
which requires estimates concerning the future cash flows of each cash-generating-
unit and associated discount rates, growth rates, selling prices and direct costs based on
management’s view of future business prospects.
The key judgements in relation to other intangible assets relate to the expected future cash
flows assigned to each intangible asset and the value of costs to capitalise in relation to
the new CRM system which will be fully implemented within the UK business in FY18. The
cumulative value of costs capitalised to date in relation to the CRM system is £60.8m.
There is a risk that the management information used to make these judgements is either
incomplete or inaccurate, and costs that do not meet the criteria for capitalisation are
included within other intangible assets.
Further detail on the key judgements involved is set out within the Audit and Risk Committee
report on page 77, significant accounting policies in note 2 and the associated key
judgements involved are set out in the critical accounting judgements and key sources of
estimation uncertainty in note 3 to the financial statements.
How the scope of our audit responded to the risk
We assessed the design and implementation of controls that the Group has in place to assess
the carrying value of goodwill and other intangible assets, specifically the management
review process to assess the accuracy and completeness of key assumptions within the
impairment assessment.
121
Financial statements
Independent Auditor’s report
to the members of HomeServe plc
(continued)
We challenged management’s assessment of whether there are any impairment indicators
by considering the performance of each cash-generating-unit as well as any notable
business developments during the year.
We challenged management’s key assumptions relating to the estimated future cash flows,
growth rates, selling prices, direct costs and the discount rates applied to each cash-
generating-unit. Our procedures included reviewing forecast cash flows with reference
to historical trading performance, assessing the Group’s ability to accurately forecast
business performance, consideration of future prospects of the business and benchmarking
assumptions such as the discount rate to external macro-economic and market data using
our internal valuations specialists.
We have reviewed the consistency of the key assumptions used in the carrying value of
goodwill assessment to the budget used by the Group to assess longer term-viability and
going concern.
For other intangible assets we have assessed the key assumptions used within the expected
future cash flow assessment including the expected retention rates, and tested a sample of
costs capitalised during the year in relation to the CRM system to assess whether they met
the recognition criteria for capitalisation.
Key observations
We concluded that the key assumptions used within management’s goodwill impairment
assessment were reasonable.
The key assumptions used within the carrying value of goodwill assessment were consistent
with the Group’s longer term-viability and going concern assessment.
We are satisfied that the costs capitalised in relation to the CRM system meet the
recognition criteria for inclusion as an intangible asset.
Cancellation provision and revenue deferrals
Risk description
The recognition of revenue requires significant judgement by management to determine
key assumptions, particularly regarding the level of revenue to defer in order to satisfy the
Group’s obligations for future claims handling and policy cancellations.
The total amount of revenue deferred at 31 March 2017 in respect of the Group’s future
claim handing obligations is £76.7m (2016: £54.4m) and the amount of revenue provided in
respect of future cancellations is £18.0m (2016: £16.0m).
The key assumptions used by management for claims handling are the monthly exposures
to policy claims, frequency of claims per policy type and the average cost per claim. For
policy cancellations the key assumptions are retention rates and average revenue per policy.
122
Annual Report & Accounts 2017
Further detail on the Group’s revenue recognition policy is set out within the Audit and Risk
Committee report on page 77, significant accounting policies in note 2 and the associated
key judgements involved are set out in the critical accounting judgements and key sources
of estimation uncertainty in note 3 to the financial statements.
How the scope of our audit responded to the risk
We first understood management’s process and key controls around the cancellation
provision and revenue deferrals by undertaking a walk-through. Following identification of
the key controls we evaluated the associated design and implementation of such controls.
Specifically, we assessed the implementation of controls that the Group has in place to
manage the risk of inappropriate assumptions being used within the cancellation provision
and revenue deferrals.
We assessed the Group’s policy for deferring revenue, including considering whether the
policy is in accordance with current accounting standards.
We challenged and tested the methodology used for calculating the claims handling
revenue deferral by comparing the inputs and assumptions used by reference to policy
agreements, industry data provided by the underwriter and costs incurred in satisfying
claims in the current financial year.
For the policy cancellations provision we have challenged the key assumptions by reference
to the Group’s previous and recent retention experience and the level of revenue earned per
policy agreement originated in the current financial year.
Sensitivity analysis was also performed in relation to the key assumptions in order to assess
the potential for management bias.
Additionally we have assessed if the calculations are consistent across the membership
businesses worldwide and in line with Group policy.
Key observations
We were satisfied that appropriate revenue deferral policies have been adopted and
complied with across the Group.
We identified no issues with the key controls that we identified within the UK business.
We found the models used by management to determine the cancellation provision
and revenue deferrals to be working as intended and the underlying assumptions were
reasonable.
Acquisition of USP
Risk description
The most significant business combination during the year was the acquisition of USP on
1 July 2016 for total consideration of £60.9m. The acquisition of USP resulted in goodwill
of £33.2m, intangible assets of £34.8m and deferred tax assets of £11.4m.
123
Financial statements
Independent Auditor’s report
to the members of HomeServe plc
(continued)
Management are required to calculate the fair value of the acquired assets and liabilities,
including identification of any intangible assets. We focussed our assessment on the
recognition and valuation of acquired intangible assets, namely the acquired customer
back book and acquired partner relationships. Key assumptions in valuing the intangible
assets included the expected future cash flows and the discount rate applied to these cash
flows. Changes to these assumptions can have a material impact on the intangible assets
recognised, as well as the resulting level of goodwill identified.
There is also a risk that deferred tax assets in relation to acquired net operating losses are not
recognised appropriately, which is dependent on the Group being able to access and utilise
these losses over a number of years.
Further detail on the Group’s approach to accounting for business combinations is set out
within the significant accounting policies in note 2, the associated key judgements involved in
the valuation of acquisition intangibles are set out in the critical accounting judgements and
key sources of estimation uncertainty in note 3 and a full breakdown of the identifiable assets
and liabilities acquired is included within note 35.
How the scope of our audit responded to the risk
We assessed the design and implementation of controls that the Group has in place to
manage the risk of inappropriate assumptions being used within the fair value assessment.
We reviewed the Group’s methodology for accounting for the business combination and
assessed whether it has been performed in accordance with IFRS 3, as well as the approach
adopted to the identification of the fair value of assets and liabilities.
Internal valuation specialists were engaged to support our assessment of the Group’s
approach to the fair value assessment, including the identification of acquisition intangibles.
As part of this, an assessment of the appropriateness of key assumptions used to derive the
expected future cash flows and discount rate was performed.
Internal tax specialists were engaged to assess the appropriateness of the recognition of the
deferred tax asset in relation to acquired net operating losses by considering the expected
future profitability of the North America business as well as the Group’s ability to access and
utilise acquired losses.
Key observations
We concluded that management’s acquisition accounting for USP was performed in
accordance with IFRS 3 and the key assumptions used within management’s fair value
assessment were reasonable.
We are satisfied that the recognition of a deferred tax asset in relation to acquired net
operating losses is appropriate.
124
Annual Report & Accounts 2017
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that
makes it probable that the economic decisions of a reasonably knowledgeable person would
be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements
as a whole as follows:
Group materiality
£7.2m (2016: £6.1m).
Basis for determining materiality
7.5% (2016: 7.5%) of profit before tax.
Rationale for the benchmark applied
We determined materiality using profit before tax as we considered this to be the most
appropriate measure to assess the performance of the Group.
PBT £98.3m
PBT
Group materiality
Group materiality
£7.2m
Component
materiality range
£3.1m to £4.7m
Audit Committee
reporting threshold
£0.36m
We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of £360,000 (2016: £122,000), as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds. The change in the
reporting threshold has been made following our reassessment of what matters require
communicating. We also report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial statements.
125
Financial statements
Independent Auditor’s report
to the members of HomeServe plc
(continued)
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including Group-wide controls, and assessing the risks of material misstatement
at the Group level. Based on that assessment, as in the prior year, we focused our Group audit
scope primarily on the audit work at the following components:
• UK;
• North America;
• France; and
• Spain.
All of these were subject to a full audit, whilst the New Markets segment was subject to
specific audit procedures where the extent of our testing was based on our assessment of the
risks of material misstatement and of the materiality of the Group’s operations at this location.
The acquisition of USP is included within the North America component and was therefore
subject to a full audit.
The UK, North America, France and Spain components account for 97.9% (2016: 96.9%) of the
Group’s revenue and 100% (2016: 100%) of the Group’s profit before tax from profit-making
components (there was a loss for the year in the New Markets segment which is not subject
to a full audit). They were also selected to provide an appropriate basis for undertaking audit
work to address the risks of material misstatement identified above. Our audit work at the four
components was executed at levels of materiality ranging from £3.1m to £4.7m (2016: £3.0m
to £4.6m).
At the Parent entity level we also tested the consolidation process and carried out analytical
procedures to confirm our conclusion that there were no significant risks of material
misstatement of the aggregated financial information of the remaining components not
subject to audit or audit of specified account balances.
The Group audit team continued to follow a programme of planned visits that has been
designed so that a senior member of the Group audit team visits the UK, North America,
France and Spain at least once a year. This included participation in their audit close meetings
and reviewing documentation of the findings from their work.
126
Annual Report & Accounts 2017
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
•
the part of the Directors’ Remuneration Report to be audited has been properly prepared
in accordance with the Companies Act 2006;
the information given in the Strategic Report and the Directors’ Report for the financial
year for which the financial statements are prepared is consistent with the financial
statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment
obtained in the course of the audit, we have not identified any material misstatements in the
Strategic Report and the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
•
the Parent Company financial statements are not in agreement with the accounting
records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of directors’ remuneration have not been made or the part of the Directors’
Remuneration Report to be audited is not in agreement with the accounting records and
returns.
We have nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the Corporate Governance
Statement relating to the company’s compliance with certain provisions of the UK Corporate
Governance Code.
We have nothing to report arising from our review.
127
Financial statements
Independent Auditor’s report
to the members of HomeServe plc
(continued)
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to report to you if,
in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge
of the Group acquired in the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified any inconsistencies
between our knowledge acquired during the audit and the directors’ statement that they
consider the annual report is fair, balanced and understandable and whether the annual
report appropriately discloses those matters that we communicated to the audit committee
which we consider should have been disclosed.
We confirm that we have not identified any such inconsistencies or misleading statements.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the directors are
responsible for the preparation of the financial statements and for being satisfied that they
give a true and fair view. Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International Standards on Auditing
(UK and Ireland). We also comply with International Standard on Quality Control 1 (UK and
Ireland). Our audit methodology and tools aim to ensure that our quality control procedures
are effective, understood and applied. Our quality controls and systems include our dedicated
professional standards review team and independent partner reviews.
This report is made solely to the company’s members, as a body, in accordance with Chapter
3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we
might state to the company’s members those matters we are required to state to them in
an auditor’s 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 and the company’s
members as a body, for our audit work, for this report, or for the opinions we have formed.
128
Annual Report & Accounts 2017
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial
statements sufficient to give reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error. This includes an assessment
of: whether the accounting policies are appropriate to the Group’s and the Parent
Company’s circumstances and have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we read all the financial and
non-financial information in the annual report to identify material inconsistencies with the
audited financial statements and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
Matthew Perkins (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Birmingham, UK
23 May 2017
129
Financial statements
Group income statement
Year ended 31 March 2017
Continuing operations
Revenue
Operating costs
Share of results of associates
Operating profit
Investment income
Finance costs
Profit before tax, and amortisation
of acquisition intangibles
Amortisation of acquisition intangibles
Profit before tax
Tax
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Notes
4
6
18
8
9
6
10
2017
£m
785.0
(680.5)
0.2
104.7
0.3
(6.7)
112.4
(14.1)
98.3
(23.9)
74.4
74.4
—
74.4
2016
£m
633.2
(546.3)
—
86.9
0.3
(4.6)
93.0
(10.4)
82.6
(21.0)
61.6
61.6
—
61.6
Dividends per share, paid and proposed
Earnings per share
Basic
Diluted
11
15.3p
12.7p
12
12
24.0p
23.6p
19.6p
19.3p
130
Group statement
of comprehensive income
Year ended 31 March 2017
Profit for the year
Items that will not be classified subsequently to profit and loss:
Actuarial (loss)/gain on defined benefit pension scheme
Deferred tax credit/(charge) relating to components
of other comprehensive income
Items that may be reclassified subsequently to profit and loss:
Exchange movements on translation of foreign operations
Gain on revaluation of available for sale investments
Deferred tax charge relating to revaluation of available for sale investments
Notes
40
22
31
17
22
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Annual Report & Accounts 2017
2017
£m
74.4
(3.4)
0.6
(2.8)
20.8
—
—
20.8
92.4
92.4
—
92.4
2016
£m
61.6
0.5
(0.1)
0.4
14.8
2.5
(0.7)
16.6
78.6
78.6
—
78.6
131
Financial statements
Group balance sheet
31 March 2017
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in associates
Investments
Deferred tax assets
Retirement benefit assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Obligations under finance leases
Bank and other loans
Net current assets
Non-current liabilities
Bank and other loans
Other financial liabilities
Deferred tax liabilities
Obligations under finance leases
Total liabilities
Net assets
Equity
Share capital
Share premium account
Merger reserve
Own shares reserve
Share incentive reserve
Capital redemption reserve
Currency translation reserve
Available for sale reserve
Retained earnings
Attributable to equity holders of the parent
Non-controlling interests
Total equity
Notes
13
14
15
18
17
22
40
19
20
20
23
38
21
21
24
22
38
25
26
27
28
29
30
31
32
33
2017
£m
301.9
288.6
37.0
32.1
8.5
7.6
0.7
676.4
2.7
455.1
46.2
504.0
1,180.4
(456.2)
(9.2)
(0.6)
(35.9)
(501.9)
2.1
(270.1)
(14.4)
(23.0)
(1.0)
(308.5)
(810.4)
370.0
8.4
45.7
71.0
—
18.3
1.2
26.3
1.8
196.5
369.2
0.8
370.0
2016
£m
247.7
210.0
34.9
—
7.8
6.8
2.1
509.3
2.9
367.7
54.2
424.8
934.1
(360.7)
(7.0)
(0.9)
(25.0)
(393.6)
31.2
(196.5)
(5.6)
(20.5)
(1.3)
(223.9)
(617.5)
316.6
8.3
41.1
71.0
(0.1)
16.0
1.2
5.5
1.8
171.8
316.6
—
316.6
The financial statements were approved by the Board of Directors and authorised for issue on 23 May 2017. They were
signed on its behalf by:
David Bower
Chief Financial Officer
23 May 2017
132
Annual Report & Accounts 2017
Group statement of changes in equity
Year ended 31 March 2017
Balance at 1 April 2016
Profit for the year
Other comprehensive income
for the year
Dividends paid
Issue of share capital
Issue of trust shares
Share-based payments
Share options exercised
Changes in non-controlling interest
Obligation under put option
Tax on exercised share options
Deferred tax on share options
Balance at 31 March 2017
Year ended 31 March 2016
Share
Share premium
account
capital
£m
£m
Other
reserves
£m
Share Currency
translation
reserve
£m
incentive
reserve
£m
Available
for sale
reserve
£m
8.3
—
41.1
—
72.1
—
16.0
—
5.5
—
1.8
—
Attributable
Non-
to equity controlling
interest
£m
Retained
earnings
£m
holders
£m
171.8 316.6
74.4
74.4
Total
equity
£m
— 316.6
—
74.4
—
—
0.1
—
—
—
—
—
—
—
—
—
4.6
—
—
—
—
—
—
—
8.4 45.7
—
—
—
0.1
—
—
—
—
—
—
72.2
—
—
—
—
6.6
(4.3)
—
—
—
—
18.3
20.8
—
—
—
—
—
—
—
—
—
26.3
—
—
—
—
—
—
—
—
—
—
(2.8)
18.0
(40.3)
(40.3)
—
4.7
(0.1)
—
—
6.6
0.4
(3.9)
—
—
(9.3)
(9.3)
2.0
2.0
0.4
0.4
1.8 196.5 369.2
—
—
—
—
—
—
0.8
—
—
—
18.0
(40.3)
4.7
—
6.6
(3.9)
0.8
(9.3)
2.0
0.4
0.8 370.0
Share
Share premium
account
capital
£m
£m
Other
reserves
£m
Share Currency
translation
reserve
£m
incentive
reserve
£m
Available
for sale
reserve
£m
Retained
earnings
£m
Attributable
Non-
to equity controlling
interest
£m
holders
£m
Total
equity
£m
Balance at 1 April 2015
Profit for the year
Other comprehensive income
for the year
Dividends paid
Issue of share capital
Issue of trust shares
Share-based payments
Share options exercised
Tax on exercised share options
Deferred tax on share options
Balance at 31 March 2016
8.3
—
40.5
—
61.1
—
15.7
—
(9.3)
—
— 252.2 368.5
61.6
—
61.6
— 368.5
61.6
—
—
—
—
—
—
—
—
—
8.3
—
—
0.6
—
—
—
—
—
41.1
—
—
—
11.0
—
—
—
—
72.1
—
—
—
—
2.6
(2.3)
—
—
16.0
14.8
—
—
—
—
—
—
—
5.5
1.8
—
—
—
—
—
—
—
1.8
0.4
(137.0)
—
(9.8)
—
2.3
2.3
(0.2)
171.8
17.0
(137.0)
0.6
1.2
2.6
—
2.3
(0.2)
316.6
17.0
—
(137.0)
—
0.6
—
1.2
—
2.6
—
—
—
2.3
—
—
(0.2)
— 316.6
Other reserves comprise of the Merger, Own shares and Capital redemption reserves that were shown separately in
the Statement of Changes in Equity in last year’s Annual Report. Full details of these reserves are included in Notes 27, 28
and 30.
133
Financial statements
Group cash flow statement
Year ended 31 March 2017
Net cash inflow from operating activities
Investing activities
Interest received
Proceeds on disposal of property, plant and equipment
Disposal of subsidiary
Purchases of intangible assets
Purchases of property, plant and equipment
Acquisition of investment in associate
Acquisition of available for sale investments
Net cash outflow on acquisition of subsidiaries
Net cash used in investing activities
Financing activities
Dividends paid
Repayment of finance leases
Issue of shares from the employee benefit trust
Proceeds on issue of share capital
New bank and other loans raised
Movement in bank and other loans
Net cash generated by/(used in) financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
Notes
36
34
18
17
35
11
25
2017
£m
113.2
0.3
—
(1.7)
(50.9)
(7.6)
(24.7)
—
(74.2)
(158.8)
(40.3)
(1.0)
0.1
0.8
103.3
(29.8)
33.1
(12.5)
54.2
4.5
46.2
2016
£m
101.1
0.3
0.2
—
(56.8)
(7.1)
—
(0.5)
(5.3)
(69.2)
(137.0)
(0.5)
1.2
0.6
75.0
7.7
(53.0)
(21.1)
74.7
0.6
54.2
134
Annual Report & Accounts 2017
Notes to financial statements
Year ended 31 March 2017
1. General information
HomeServe plc is a company incorporated in the United Kingdom under the Companies Act. The address
of the registered office is Cable Drive, Walsall, WS2 7BN.
These financial statements are presented in pounds sterling because that is the currency of the primary
economic environment in which the Group operates. Foreign operations are included in accordance with
the policies set out in note 2.
2. Significant accounting policies
Basis of accounting
The financial statements have been prepared in accordance with IFRSs, adopted by the European
Union and therefore comply with Article 4 of the EU IAS Regulation. The financial statements have been
prepared on the historical cost basis, except for certain financial instruments that are measured at fair
value at the end of each reporting period as explained in note 42.
Adoption of new or revised standards and accounting policies
The following accounting standards have been adopted in the year:
Amendments to IFRS10,
IFRS12 and IAS28
Amendments to IAS1
Investment Entities – Applying the Consolidation Exception
Disclosure Initiative
None of the accounting standards listed above have had any material impact on the amounts reported in
this consolidated set of financial statements.
Standards in issue but not yet effective
At the date of authorisation of these 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):
IFRS9
IFRS14
IFRS15
IFRS16
Amendments to IFRS2
Amendments to IFRS4
Amendments to IAS12
Amendments to IAS7
Amendments to IAS40
Improvements to IFRS
IFRIC Interpretation 22
Financial Instruments
Regulatory Deferral Accounts
Revenue from Contracts with Customers
Leases
Classification and Measurement of Share-based payment Transactions
Applying IFRS9 Financial Instruments with IFRS4 Insurance Contracts
Recognition of Deferred Tax Assets for Unrealised Losses
Disclosure Initiative
Transfers of Investment Property
2014-2016 Cycle
Foreign Currency Transactions and Advance Consideration
135
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
2. Significant accounting policies (continued)
The implementation of IFRS9 may impact both the measurement and disclosures of financial
instruments. The implementation of IFRS15 may have an impact on revenue recognition and related
disclosures. IFRS16 will impact both the measurement and disclosures of leases. Beyond the information
above, it is not practicable to provide a reasonable estimate of the effect of IFRS9, IFRS15 and IFRS16 until
a detailed review has been performed. We have established a review team and are assessing the impact
in all of our businesses and expect this to be completed in the coming year. The Directors do not expect
that the adoption of the other Standards and Interpretations listed above will have a material impact on
the financial statements of the Group in future years.
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.
The Directors have reviewed the Group’s budget, forecast and cash flows for 2018 and beyond, and
concluded that they are in line with their 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 financial statements.
The principal accounting policies adopted are set out below:
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities
controlled by the Company made up to 31 March each year. Control is achieved where the Company has
the power to govern the financial and operating policies of an investee entity, is exposed or has rights to
variable returns from its involvement with the investee, and has the ability to use its power to affect
its returns.
Non-controlling interests in the net assets of the consolidated subsidiaries are identified separately from
the Group’s equity interest. Non-controlling interests consist of those interests at the date of the original
business combination and the minority’s share of the changes in equity since the date of
the combination.
On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their
fair values at the date of acquisition. The results of subsidiaries acquired or disposed of during the year
are included in the consolidated income statement from the effective date of acquisition or up to the
effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the
accounting policies used into line with those used by the Group. All intra-Group transactions, balances,
income and expenses are eliminated on consolidation.
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Annual Report & Accounts 2017
Interests in associates
The results and assets and liabilities of associates are incorporated into these financial statements using
the equity method of accounting.
Under the equity method, an interest in an associate is initially recognised in the consolidated balance
sheet at cost and adjusted thereafter to recognise the Group’s share of the profit and loss and other
comprehensive income of the associate.
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The
consideration for each acquisition is measured at the aggregate of the fair values (at the date of
exchange) of assets given, liabilities incurred or assumed in exchange for control of the acquiree.
Acquisition-related costs are recognised in the income statement, as incurred, in administrative expenses.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a
contingent consideration arrangement, measured at its acquisition-date fair value. Subsequent changes
in such fair values are adjusted against the cost of acquisition where they qualify as measurement period
(see below) adjustments. All other subsequent changes in the fair value of contingent consideration
classified as an asset or liability are accounted for in accordance with relevant IFRSs. Changes in the fair
value of contingent consideration classified as equity are not recognised.
If the initial accounting for a business combination is incomplete by the end of the reporting period
in which the combination occurs, the Group reports provisional amounts for the items for which the
accounting is incomplete. Those provisional amounts are adjusted during the measurement period
(see below), or additional assets or liabilities are recognised, to reflect new information obtained about
facts and circumstances that existed as of the acquisition-date that, if known, would have affected the
amounts recognised as of that date.
The measurement period is the period from the date of acquisition to the date the Group obtains
complete information about facts and circumstances that existed as of the acquisition date, subject to a
maximum of one year.
Any adjustments to contingent consideration for acquisitions made prior to 31 March 2010 which result in
an adjustment to goodwill continue to be accounted for under IFRS3 (2004) and IAS27 (2005).
137
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
2. Significant accounting policies (continued)
Goodwill
Goodwill arising in a business combination is recognised at cost as an asset at the date control is acquired
(the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred
over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed.
Goodwill is not amortised but is reviewed for impairment annually, or more frequently if there is an
indication that it may be impaired.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating-
units expected to benefit from the synergies of the combination. If the recoverable amount of the
cash-generating-unit is less than the carrying amount of the unit, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the cash-generating-unit and then to the other
assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment
loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the
profit or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous
UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves
under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent
profit or loss on disposal.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts
receivable for goods and services provided in the normal course of business, net of discounts, VAT,
Insurance Premium Tax and other sales related taxes.
Revenue recorded by the Group includes commissions receivable in the Group’s role as an intermediary
in the policy sale and administration process. Any third-party costs incurred on behalf of the principal that
are rechargeable under the contractual arrangement, or where the Group’s role is only as an intermediary
in the cash collection process, are not included in revenue. Consequently, on the sale of a policy, gross
revenue consists of only a component of the overall policy price, representing the commission receivable
for the marketing and sale of the policy, stated net of sales related taxes.
Where a contractual arrangement consists of two or more separate arrangements that can be provided to
customers either on a stand-alone basis or as an optional extra, revenue is recognised for each element
as if it were an individual contract. Accordingly, revenue is recognised on the sale of a policy except
where an obligation exists to provide future services, typically claims handling and policy administration
services. In these situations, a proportion of revenue, sufficient to cover future claims handling costs
and margin, is deferred over the life of the policy, as deferred income. The assessment of future claims
handling takes account of the expected numbers of claims and the estimated cost of handling those
claims, which are validated through experience of historical actual costs.
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Annual Report & Accounts 2017
The deferred revenue is released over the expected profile of anticipated claims over the policy period.
The deferral also includes a profit element to recognise the performance of these services in the future.
Revenue on sales of franchises is recognised when the obligations to the franchisee are complete.
Revenue on the sale of new franchise licences is recognised upon the signing of the related franchise
agreement. These franchise fees are non-refundable and primarily relate to initial set-up services.
Repair revenue relates to repairs undertaken on behalf of underwriters subject to separate contractual
arrangements. Such revenue is recognised on completion of the repair.
Revenue in respect of boiler installations and uninsured jobs is recognised when our performance
obligations are complete.
Annual service revenue is recognised on completion of the annual service. Ongoing service revenue is
recognised in equal instalments over the life of the policy.
Marketing expenses
Costs incurred in respect of marketing activity, including for example, direct mail and inbound/outbound
telephone costs, which is undertaken to acquire or renew a policy, are charged to the income statement
in the period in which the related marketing campaign is performed.
Marketing expenses also include payments made to Affinity Partners in recognition of their support for
the Group’s selling and policy renewal activities. The terms of their support and related payments are
included in contractual agreements with each Affinity Partner. Amounts incurred upon the sale and
renewal of an individual policy by the Group, referred to as Affinity Partner Commissions, are recognised
as an operating expense when individual policies incept or renew. Commissions are payable to Affinity
Partners only when the Group has collected the premium due on behalf of the third party underwriter
from the policy holder.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks
and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at
the present value of the minimum lease payments, each determined at the inception of the lease. The
corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease
payments are apportioned between finance charges and reduction of the lease obligation so as to
achieve a constant rate of interest on the remaining balance of the liability.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of
the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are
also spread on a straight-line basis over the lease term.
139
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
2. Significant accounting policies (continued)
Foreign currencies
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing
on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies except for those that are designated as long term equity investments,
are re-translated at the rates prevailing on the balance sheet date, with changes taken to the income
statement. Foreign exchange translation movements on monetary assets that are designated as long
term equity investments are transferred to the Group’s translation reserve. Non-monetary items that are
measured at historical cost in a foreign currency are not re-translated.
Borrowings in foreign currencies are treated as monetary liabilities and are translated at the rates
prevailing on the balance sheet date. Exchange rate movements on foreign currency borrowings are
recognised immediately in the income statement. Foreign currency borrowings are not treated as hedges
of net investments.
On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange
rates prevailing on the balance sheet date. Income and expense items are translated at the average
exchange rates for the period unless exchange rates fluctuate significantly. Exchange movements, if any,
are classified as equity and transferred to the Group’s translation reserve. Such cumulative exchange
movements are recognised as income or expense in the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
liabilities of the foreign entity and translated at the closing rate.
Borrowing costs
Borrowing costs are recognised in the income statement in the period in which they are incurred.
Operating profit
Operating profit is stated after charging all operating costs, but before investment income and
finance costs.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
For defined benefit retirement schemes, the cost of providing benefits is determined using the projected
unit credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains
and losses and the return on scheme assets (excluding interest) are recognised in full in the period in
which they occur. They are recognised outside the income statement and presented in the statement
of comprehensive income. Re-measurements recorded in the statement of comprehensive income are
not recycled.
Past service cost is recognised immediately to the extent that the benefits are already vested, and is
otherwise amortised on a straight-line basis over the average period until the benefits become vested.
Net interest is calculated by applying a discount rate to the net defined benefit liability or asset.
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Annual Report & Accounts 2017
Any retirement benefit obligation recognised in the balance sheet represents the present value of the
defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value
of scheme assets. Any asset resulting from the calculation is limited to past service cost, plus the present
value of available refunds and reductions in future contributions to the plan.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Any tax currently payable is based on taxable profit for the year. The Group’s liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the
asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is
settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when
it relates to items charged or credited in other comprehensive income or directly to equity, in which case
the deferred tax is also dealt with in other comprehensive income or within equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation.
Depreciation is charged so as to write off the cost of assets, other than land, over their estimated useful
lives, using the straight-line method, on the following bases:
Buildings
Furniture, fixtures and equipment
Computer equipment
Motor vehicles
25 – 50 years
5 – 7 years
3 – 7 years
3 years (with 25% residual value)
Assets held under finance leases are depreciated over their expected useful lives on the same basis as
owned assets or, where shorter, over the term of the relevant lease.
141
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
2. Significant accounting policies (continued)
Intangible assets
Acquisition intangible assets
Acquired access rights relate to the contractual agreements entered into with the former owners of
businesses acquired as part of business combinations. These agreements set out the contractual terms of
the Affinity Partnership and provide the contractual framework within which the Group markets, sells and
renews policies with the individual customers of the Affinity Partner. Acquired access rights are recorded
at fair value by using the estimated and discounted incremental future cash flows resulting from the
relationship. Acquired access rights are amortised on a straight-line basis over their estimated useful lives,
which are in the range of 3 - 20 years.
Acquired customer databases represent the value attributable to the portfolios of renewable customer
policies that exist at the date of acquisition and are acquired by the Group as part of a business
combination. Acquired customer databases are recorded at fair value using the estimated and discounted
incremental future cash flows resulting from the future renewal of the portfolio of acquired policies over
their estimated residual life. Acquired customer databases are amortised on a straight-line basis over their
estimated useful lives, which are in the range of 3 - 15 years.
Other intangible assets
Access rights arise from the contractual agreements with Affinity Partners which provide the contractual
framework within which the Group markets, sells and renews policies with the individual customers
of the Affinity Partner. Access rights are valued at the discounted present value of the contractually
committed payments, where such payments are not related to the success or otherwise of activity under
the contractual agreements and are amortised on a straight-line basis over the length of the contractual
agreement, up to a maximum of 20 years.
Trademarks represent costs incurred to legally protect the established brand names of the Group.
Trademarks are stated at cost and amortised on a straight-line basis over their useful economic lives, up
to a maximum of 20 years.
Customer databases represent the value attributable to the portfolios of renewable customer policies
that have been created by our Affinity Partners through their own sales and marketing activity and
subsequently purchased by the Group. Such customer databases are recorded at their fair value based
on the amount paid to the Affinity Partner. These customer databases are amortised on a straight-line
basis over the expected duration of the customer relationship, which are in the range of 3 - 10 years.
Computer software and the related licences are stated at cost and amortised on a straight-line basis over
their useful lives of 3 –10 years.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets
to determine whether there is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss, if any. Where the asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the cash-generating-unit to which the asset
belongs.
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Annual Report & Accounts 2017
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the assets for
which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying
amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.
An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating
unit is increased to the revised estimate of its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have been determined had no impairment loss
been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is
recognised as income immediately.
Inventories
Inventories are stated at the lower of cost and net realisable value. Costs comprise direct material cost
only. Cost is measured on a first-in, first-out (FIFO) basis. Net realisable value represents the estimated
selling price less all estimated costs of completion and costs to be incurred in marketing, selling and
distribution. Provision is made for obsolete, slow moving or defective items where appropriate.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group
becomes a party to the contractual provisions of the instrument. The classification depends on the nature
and purpose of the financial assets or liabilities and is determined at the time of initial recognition.
Available for sale investments
At each balance sheet date the Group conducts a fair value assessment of its investments, the difference
between the fair value and carrying value is charged or credited to the Statement of Comprehensive
Income accordingly and held in the available for sale reserve.
Trade receivables
Trade receivables do not carry any interest and are stated at amortised cost as reduced by appropriate
allowances for estimated irrecoverable amounts.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and demand deposits, and other short-term highly
liquid investments that are readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.
143
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
2. Significant accounting policies (continued)
Financial instruments (continued)
Borrowings
Interest-bearing loans and overdrafts are stated at amortised cost and are recorded at the proceeds
received, net of direct issue costs. Finance charges, including premiums payable on settlement or
redemption and direct issue costs, are accounted for on an accruals basis using the effective interest
method and are added to the carrying amount of the instrument to the extent that they are not settled in
the period in which they arise.
Trade payables
Trade payables are not interest-bearing and are stated at amortised cost.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct
issue costs.
‘Put’ options over the equity of subsidiary companies
The potential cash payments related to put options issued by the Group over the equity of subsidiary
companies are accounted for as financial liabilities. The amounts that may become payable under the
option on exercise are initially recognised at the present value of the expected gross obligation with the
corresponding entry being recognised in retained earnings.
Such options are subsequently measured at amortised cost, using the effective interest rate method,
in order to accrete the liability up to the amount payable under the option at the date at which it first
becomes exercisable. The charge arising is recorded as a financing cost. In the event that options expire
unexercised, the liability is derecognised with a corresponding adjustment to retained earnings.
Other ‘put’ and ‘call’ options
Other put and call options are recognised at fair value with any associated benefit being recognised
directly in the profit and loss account.
Share-based payments
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based
payments are measured at fair value at the date of grant. The fair value determined at the grant date of
the equity-settled share-based payments is expensed on a straight-line basis over the vesting period,
based on the Group’s estimate of shares that will eventually vest. The Group also provides employees
with the ability to purchase the Group’s ordinary shares at a discount to the current market value through
Save As You Earn schemes. In addition, the Group provides employees with the ability to purchase shares
through its One Plan scheme. For every two shares purchased, employees will receive one free matching
share at the end of the vesting period.
Fair value is measured by use of the Black-Scholes model or Monte Carlo simulation models depending
on the type of scheme.
144
Annual Report & Accounts 2017
Own shares reserve
Shares of the parent Company that were purchased by the HomeServe plc Employee Benefit Trust were
held at cost and shown as a deduction in equity. Cost comprised consideration paid, including directly
attributable costs. The shares were held to satisfy obligations under the Group’s equity settled share based
payment schemes.
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 2, the Directors are
required to make judgements, estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The estimates and associated assumptions are
based on historical experience and other factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the revision affects both current and future
periods.
Revenue recognition
Claims handling obligations
A key accounting judgement in respect of revenue recognition is the proportion of revenue to defer to
cover the Group’s future obligations in respect of handling future claims arising on those policies that are
on risk at the year end.
The key sources of estimation uncertainty in determining an appropriate proportion of revenue to defer
are the assumptions made with regards to claims frequency and the estimated cost of handling a claim.
The Group uses historical experience of claim volumes and forecast activity levels to estimate these
assumptions. The total amount of revenue deferred at 31 March 2017 in respect of the Group’s future
claim handing obligations is £76.7m (FY16: £54.4m). If either of these assumptions were individually higher
or lower than the Group’s historical experience by 10% the impact to the profit in the year would
be £7.7m.
Policy Cancellations
A further judgement is in respect of those policies that may be cancelled by the customer part way
through the contractual term, which will affect the economic benefits that flow to the Group. To the
extent that policies are expected to cancel ‘mid-term’ and hence all the economic benefits of those
policies is not expected to flow to the Group, an estimate of the related revenue is not recognised.
The key source of estimation uncertainty in calculating the provision for policy cancellations are the
expected mid-term cancellation percentage and the period of cover remaining on the policy at the
point of cancellation. The Group uses historical experience to determine the appropriate assumptions
to be used in this calculation. The total amount of revenue not recognised at 31 March 2017 in respect
of potential future cancellations is £18.0m (FY16: £16.0m) and is recognised as a reduction in the value
of trade receivables. The most material estimation uncertainty within this judgement is the mid-term
cancellation percentage. If this assumption was individually higher or lower than the Group’s historical
experience by 10% the impact to profit in the year would be £1.8m.
145
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
3. Critical accounting judgements and key sources of estimation uncertainty (continued)
Valuation of acquisition intangible assets
Acquisitions may result in acquired access rights and acquired customer databases being recognised as
intangible assets. These are valued using the excess earnings method taking into account a number of
key assumptions such as retention and net income. In applying this methodology, certain key judgements
and estimates are required to be made in respect of future cash flows together with an appropriate
discount factor for the purpose of determining the present value of those cash flows.
The key sources of estimation uncertainty with respect to customer databases are the future retention
rate and the income per customer generated from those customers. The carrying value of acquired
customer databases at 31 March 2017 is £90.0m (FY16: £66.7m). If the retention rate or income per
customer was individually higher or lower by 10% the impact to profit in the year would be £9.0m.
In respect of intangible assets for acquired access rights, the key sources of estimation uncertainty relate
to the assumptions regarding the number of policy sales and associated penetration of the customer list
along with the cost of acquisition, retention rate and costs associated with servicing those customers.
The total value of acquired access rights at 31 March 2017 is £24.0m (FY16: £8.6m), therefore if the
assumptions used in this valuation were individually higher or lower by 10% the impact to the profit in the
year would be £2.4m.
Impairment of goodwill and acquisition intangible assets
The annual impairment assessment in respect of goodwill and acquisition intangibles requires estimates
of the value in use (or fair value less costs to sell) of cash-generating units to which goodwill and
acquisition intangibles have been allocated. CGUs are aligned to the regions in which we operate. As a
result, estimates of future cash flows are required, together with an appropriate discount factor for the
purpose of determining the present value of those cash flows. The carrying value of goodwill is £301.9m
(FY16: £247.7m). The carrying value of acquisition intangibles is £114.0m (FY16: £75.3m). Following the
annual impairment review, no impairment charge has been recorded against goodwill or acquisition
intangibles.
As set out in note 13, changes in respect of commercial outcomes around sales volumes, prices, margins
and discount rates can impact the recoverable value. Management do not believe that any reasonably
possible changes to the key assumptions would produce an impairment in the forthcoming year.
In addition to the amounts above, there is goodwill of £25.7m included in the interests in associates in
relation to our recent investment in Sherrington Mews Limited, the holding company of the Checkatrade
Group. Each individual associate will be assessed as a single asset if there are any indications of
impairment.
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Annual Report & Accounts 2017
2017
£m
587.3
197.7
785.0
0.3
785.3
2016
£m
480.0
153.2
633.2
0.3
633.5
4. Revenue
An analysis of the Group’s revenue is as follows:
Sale of home assistance and emergency policies
Provision of repair services
Investment income (note 8)
5. Business and geographical segments
Segment revenues and results
IFRS8 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 profit/(loss) represents the result of each segment including allocating costs associated with
head office and shared functions, but before 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. Group cost allocations are deducted in arriving at segmental operating profit. Inter-
segment revenue is charged at prevailing market prices.
During the year the USA segment has been renamed “North America” reflecting the increased presence
that the Group has in Canada, which is managed and considered together with our business in the United
States of America. Other than the change in name of the USA segment, no other changes have been
made to the operating segments.
2017
Revenue
Total revenue
Inter-segment
External revenue
Result
Segment operating profit/(loss) pre amortisation
of acquisition intangibles
Amortisation of acquisition intangibles
Operating profit/(loss)
Investment income
Finance costs
Profit before tax
Tax
Profit for the year
North
UK America
£m
£m
France
£m
New
Spain Markets
£m
£m
Total
£m
326.5 227.8
—
319.3 227.8
(7.2)
91.1
—
91.1
130.2
—
130.2
16.6 792.2
(7.2)
16.6 785.0
—
63.2
(1.2)
62.0
21.2
(6.5)
14.7
27.1
(6.0)
21.1
13.3
(0.3)
13.0
(6.0)
(0.1)
(6.1)
118.8
(14.1)
104.7
0.3
(6.7)
98.3
(23.9)
74.4
147
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
5. Business and geographical segments (continued)
Segment revenues and results (continued)
2016
Revenue
Total revenue
Inter-segment
External revenue
Result
Segment operating profit/(loss) pre amortisation
of acquisition intangibles
Amortisation of acquisition intangibles
Operating profit/(loss)
Investment income
Finance costs
Profit before tax
Tax
Profit for the year
Segment information
UK
North America
France
Spain
New Markets
Inter-segment
Total
North
UK America
£m
£m
France
£m
New
Spain Markets
£m
£m
Total
£m
291.8
(5.8)
286.0
152.6
—
152.6
77.4
—
77.4
97.5
—
97.5
20.1 639.4
(0.4)
(6.2)
19.7 633.2
58.0
(0.6)
57.4
12.1
(4.3)
7.8
23.2
(5.2)
18.0
9.9
(0.3)
9.6
(5.9)
—
(5.9)
97.3
(10.4)
86.9
0.3
(4.6)
82.6
(21.0)
61.6
Assets
Liabilities
2017
£m
817.8
279.8
208.8
137.0
15.6
(278.6)
2016
£m
2017
£m
2016
£m
719.4 472.5 365.5
317.2 256.7
160.6
130.5
153.4
194.3
90.3
108.2
110.2
42.7
37.7
17.8
(268.2)
(278.6)
(268.2)
Depreciation
Capital amortisation
a dditions
and impairment
2016
£m
12.0
8.5
6.3
8.6
0.4
—
2017
£m
16.1
13.1
7.8
12.3
0.2
—
2016
£m
34.1
10.2
5.4
13.8
1.7
—
2017
£m
36.1
11.7
3.9
17.5
0.2
—
1,180.4 934.1 810.4
617.5
69.4
65.2
49.5
35.8
All assets and liabilities including inter-segment loans and trading balances are allocated to reportable
segments.
Revenue from major products and services
Sale of home assistance and emergency policies
Provision of repair services
Consolidated revenue (excluding investment revenue)
2017
£m
587.3
197.7
2016
£m
480.0
153.2
785.0
633.2
148
Annual Report & Accounts 2017
Geographical information
The Group operates in three principal geographical areas – UK, Continental Europe and North America.
The Group’s revenue from external customers and information about its segment assets (non-current
assets excluding deferred tax and retirement benefit assets) by geographical location are detailed below:
UK
North America
Continental Europe
Revenue from
external customers
2016
2017
£m
£m
287.9
319.3
152.6
227.8
192.7
237.9
633.2
785.0
Non-current assets
2016
2017
£m
£m
281.8
341.0
36.6
113.6
182.0
213.5
500.4
668.1
Information relating to Continental Europe in the table above includes our businesses in France, Spain
and Italy (up to the date of disposal).
Information about major customers
There are no customers in the current year from which the Group earns more than 10% of its revenues
(FY16: nil).
6. Profit for the year
Profit for the year has been arrived at after (crediting)/charging:
Included in operating costs:
Staff costs
Cost of inventories recognised as an expense
Depreciation of property, plant and equipment
Amortisation of acquisition intangible assets
Amortisation of other intangibles
Loss on disposal of property, plant and equipment and software
Profit on disposal of a subsidiary
Bargain purchase on acquisition
Impairment loss recognised on trade receivables
The analysis of auditor’s remuneration is as follows:
Fees payable to the Company’s auditor for the audit of the
Company’s annual financial statements
The audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Audit-related assurance services
Tax compliance services
Tax advisory services
Total non-audit fees
2017
£m
237.5
17.2
6.9
14.1
28.5
0.4
(0.1)
(0.7)
0.5
2017
£000
69
587
656
48
243
123
414
2016
£m
190.5
11.4
5.4
10.4
20.0
—
—
—
0.6
2016
£000
65
432
497
40
110
243
393
149
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
6. Profit for the year (continued)
Fees payable to Deloitte LLP and their associates for non-audit services to the Company are not required
to be disclosed because the consolidated financial statements are required to disclose such fees on
a consolidated basis. A description of the work of the Audit Committee is set out in the Corporate
Governance report and includes an explanation of how auditor objectivity and independence are
safeguarded when non-audit services are provided by the auditor. Audit-related assurance services
include fees in respect of the half year review of £48,000 (FY16: £40,000).
7. Staff costs
The average monthly number of employees (including Executive Directors) was:
UK (including head office)
Continental Europe
North America
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs (note 40)
8. Investment income
Interest on bank deposits
9. Finance costs
Interest on bank and other loans
Unwinding of discount on deferred and contingent consideration
Exchange movements
2017
number
2,940
1,258
810
5,008
2017
£m
204.9
28.6
4.0
237.5
2017
£m
0.3
2017
£m
7.0
0.5
(0.8)
6.7
2016
number
2,489
1,203
733
4,425
2016
£m
163.1
23.8
3.6
190.5
2016
£m
0.3
2016
£m
4.4
0.2
—
4.6
150
Annual Report & Accounts 2017
2017
£m
23.6
1.3
24.9
(1.0)
23.9
2016
£m
20.1
(0.4)
19.7
1.3
21.0
10. Tax
Current tax
Current year
Adjustments in respect of prior years
Total current tax charge
Deferred tax (note 22)
Total tax charge
UK corporation tax is calculated at 20% (FY16: 20%) of the estimated assessable profit for the year.
Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions, these
being 40% in the US (FY16: 40%), 33% in France (FY16: 33%), 25% in Spain (FY16: 27%) and 28% in Italy
(FY16: 28%), which explains the ‘Overseas tax rate differences’ below.
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax on continuing operations
Tax at the UK corporation tax rate of 20% (FY16: 20%)
Tax effect of items that are not (taxable)/deductible in determining taxable profit
Adjustments in respect of prior years – current tax
Overseas tax rate differences
Movement in deferred tax liability
Effect of overseas losses
Tax expense for the year
2017
£m
98.3
19.7
(0.2)
1.3
2.7
0.4
—
23.9
2016
£m
82.6
16.5
2.3
(0.4)
2.4
0.1
0.1
21.0
Given the UK parented nature of the Group, the majority of financing that the overseas businesses
require is provided from the UK, and as such the UK has provided a number of intra-group loans to its
overseas operations in order to fund their growth plans. In light of the different tax rates applicable in
each of the markets in which the Group operates, as noted above, these loans result in a reduction in the
Group’s effective tax rate, which is included in ‘Overseas tax rate differences’ in the table above.
A retirement benefit tax credit amounting to £0.6m (FY16: £0.1m charge) has been recognised directly in
other comprehensive income. In addition to the amounts credited/(charged) to the income statement
and other comprehensive income, the following amounts relating to tax have been recognised directly
in equity:
Current tax
Excess tax deductions related to share-based payments on exercised options
Deferred tax
Change in estimated excess tax deductions related to share-based payments
Total tax recognised directly in equity
2017
£m
2.0
0.4
2.4
2016
£m
2.3
(0.2)
2.1
151
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
11. Dividends
Amounts recognised as distributions to equity holders in the year:
Special dividend of 30p per share paid in July 2015
Final dividend for the year ended 31 March 2016 of 8.9p (2015: 7.87p) per share
Interim dividend for the year ended 31 March 2017 of 4.1p (2016: 3.8p) per share
2017
£m
—
27.6
12.7
40.3
2016
£m
99.4
25.9
11.7
137.0
The proposed final dividend for the year ended 31 March 2017 is 11.2p per share amounting to £34.8m
(FY16: 8.9p per share amounting to £27.6m). The proposed final dividend is subject to approval by
shareholders at the Annual General Meeting and has not been included as a liability in these financial
statements.
12. Earnings per share
Basic
Diluted
Adjusted basic
Adjusted diluted
2017
pence
24.0
23.6
27.0
26.5
The calculation of the basic and diluted earnings per share is based on the following data:
Number of shares
Weighted average number of shares
Basic
Dilutive impact of share options
Diluted
Earnings
Profit for the year
Amortisation of acquisition intangibles
Tax impact arising on amortisation of acquisition intangibles
Adjusted profit for the year
2017
m
309.9
5.4
315.3
2017
£m
74.4
14.1
(4.9)
83.6
2016
pence
19.6
19.3
21.8
21.4
2016
m
313.9
6.1
320.0
2016
£m
61.6
10.4
(3.6)
68.4
Basic and diluted earnings per ordinary share have been calculated in accordance with IAS33 Earnings
Per Share. Basic earnings per share is calculated by dividing the profit or loss in the financial year by the
weighted average number of ordinary shares in issue during the period. Adjusted earnings per share is
calculated excluding amortisation of acquisition intangibles. The Group uses adjusted operating profit,
EBITDA, adjusted profit before tax and adjusted earnings per share as its primary performance measures.
These are non-IFRS measures which exclude the impact of the amortisation of acquisition intangible
assets (FY17: £14.1m, FY16: £10.4m). Acquisition intangible assets principally arise as a result of the past
actions of the former owners of businesses in respect of marketing and business development activity.
Therefore, the adjusted measures reflect the post acquisition revenue attributable to, and operating costs
incurred by, the Group. Diluted earnings per share includes the impact of dilutive share options in issue
throughout the period.
152
Annual Report & Accounts 2017
£m
236.6
4.6
6.5
247.7
44.1
10.1
301.9
301.9
247.7
13. Goodwill
Cost
At 1 April 2015
Recognised on acquisition of subsidiary
Exchange movements
At 1 April 2016
Recognised on acquisition of subsidiaries
Exchange movements
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
In addition to the amounts above, there is goodwill of £25.7m included in the interests in associates in
relation to our recent investment in Sherrington Mews Limited, the holding company of the Checkatrade
Group. Each individual associate will be assessed as a single asset if there are any indications of
impairment.
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating-units
(‘CGUs’) that are expected to benefit from that business combination. The Group defines its CGUs as
geographical territories, because they represent the smallest identifiable group of assets that generate
cash flows. The Group tests goodwill annually for impairment, or more frequently if there are indications
that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in
use calculations.
The key assumptions for the value in use calculations are those regarding the discount rate, growth rates
and expected changes to selling prices and direct costs during the period. Management estimates the
discount rates using pre-tax rates that reflect current market assessments of the time value of money.
The growth rates are based on detailed business plans. Changes in selling prices and direct costs are
based on expectations of future changes in the market.
The Group prepares cash flow forecasts derived from the most recent financial budgets and plans for
the next three years approved by the Directors and extrapolates the annual cash flow using estimated,
country specific, long-term growth rates. The pre-tax cost of capital rates used to discount the forecast
pre-tax cash flows are different for each territory and are detailed below:
• UK
8.7% (FY16: 7.5%)
• North America
12.2% (FY16: 10.6%)
•
France
• Spain
10.4% (FY16: 7.8%)
10.0% (FY16: 8.0%)
Pre-tax cost of capital rates reflect the latest cost of debt and equity for a sample of comparable
companies in accordance with the market participant premise detailed in IAS 36.
The Group has conducted a sensitivity analysis on the impairment test of each CGU’s carrying
value, which also reflects the different risk profile of each CGU. The Group believes that there are no
reasonably possible changes to the key assumptions in the next year which would result in the carrying
amount of goodwill exceeding the recoverable amount.
153
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
13. Goodwill (continued)
This view is based upon inherently judgemental assumptions, however, it takes account of the headroom
in the value in use calculation versus the current carrying value.
The carrying amount of goodwill has been allocated as follows:
UK
North America
France
Spain
2017
£m
159.3
40.8
77.3
24.5
301.9
2016
£m
159.3
4.7
71.2
12.5
247.7
The Group’s CGUs do not contain any intangible assets with indefinite useful economic lives. The long-
term growth rate is 2% (FY16: 2%).
14. Other intangible assets
Acquisition intangibles represent non-monetary assets, arising on business combinations, and include
acquired access rights and acquired customer databases. Other intangibles include trademarks, access
rights, customer databases and software.
Cost
At 1 April 2015
Additions
Acquisition of a subsidiary
Disposals
Exchange movements
At 1 April 2016
Additions
Acquisition of subsidiaries
Disposals
Exchange movements
At 31 March 2017
Accumulated amortisation and impairment
At 1 April 2015
Charge for the year
Disposals
Exchange movements
At 1 April 2016
Charge for the year
Disposals
Exchange movements
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
154
Acquired Acquired
Total Trademarks
access customer acquisition
rights databases intangibles
£m
£m
£m
& access Customer
rights databases
£m
£m
Total
Software intangibles
£m
£m
25.5
—
—
—
1.7
27.2
—
16.3
—
4.0
47.5
15.1
2.4
—
1.1
18.6
2.8
—
2.1
23.5
102.0
1.0
9.2
—
6.6
118.8
—
28.0
—
12.3
127.5
1.0
9.2
—
8.3
146.0
—
44.3
—
16.3
159.1 206.6
41.5
8.0
—
2.6
52.1
11.3
—
5.7
69.1
56.6
10.4
—
3.7
70.7
14.1
—
7.8
92.6
30.2
1.3
—
(0.3)
0.4
31.6
0.3
—
—
1.3
33.2
15.2
4.4
(0.3)
0.2
19.5
4.5
—
0.6
24.6
35.6
15.3
—
—
4.1
55.0
16.7
—
—
4.9
76.6
9.4
7.6
—
1.3
18.3
11.6
—
1.9
31.8
90.6 283.9
38.9
56.5
9.2
—
(4.9)
(5.2)
1.1
13.9
125.7
358.3
44.4
61.4
1.3
45.6
(0.2)
(0.2)
3.2
25.7
174.4 490.8
36.2
8.0
(4.9)
0.5
39.8
12.4
(0.2)
1.2
117.4
30.4
(5.2)
5.7
148.3
42.6
(0.2)
11.5
53.2 202.2
24.0
8.6
90.0
66.7
114.0
75.3
8.6
12.1
44.8
36.7
121.2 288.6
210.0
85.9
Annual Report & Accounts 2017
Software includes £60.8m (FY16: £43.5m) in respect of the new Customer Relationship Management
(CRM) system which will be rolled out in the UK business during FY18. The asset will be amortised over
10 years on a straight-line basis from the point at which the asset is complete.
15. Property, plant and equipment
Cost
At 1 April 2015
Additions
Disposals
Acquisition of a subsidiary
Exchange movements
At 1 April 2016
Additions
Disposals
Acquisition of subsidiaries
Disposal of a subsidiary
Exchange movements
At 31 March 2017
Accumulated depreciation and impairment
At 1 April 2015
Charge for the year
Disposals
Exchange movements
At 1 April 2016
Charge for the year
Disposals
Disposal of a subsidiary
Exchange movements
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
Land &
Furniture
fixtures & Computer
buildings equipment equipment
£m
£m
£m
30.7
1.5
(0.9)
—
0.2
31.5
1.4
(0.6)
—
—
0.6
32.9
10.0
1.6
(0.9)
0.2
10.9
1.5
(0.6)
—
0.3
12.1
7.5
1.5
(0.9)
0.1
0.1
8.3
1.1
—
0.3
(0.1)
0.2
9.8
4.6
1.0
(0.9)
—
4.7
1.4
—
—
0.2
6.3
14.9
4.2
(3.1)
0.1
0.2
16.3
5.2
(0.3)
0.1
(0.2)
0.9
22.0
9.3
2.1
(3.1)
0.1
8.4
3.1
—
(0.2)
0.5
11.8
Motor
vehicles
£m
3.6
1.5
(0.5)
—
0.2
4.8
0.3
(0.1)
—
—
0.7
5.7
1.5
0.7
(0.3)
0.1
2.0
0.9
—
—
0.3
3.2
Total
£m
56.7
8.7
(5.4)
0.2
0.7
60.9
8.0
(1.0)
0.4
(0.3)
2.4
70.4
25.4
5.4
(5.2)
0.4
26.0
6.9
(0.6)
(0.2)
1.3
33.4
20.8
20.6
3.5
3.6
10.2
7.9
2.5
2.8
37.0
34.9
The carrying amount of the Group’s property, plant and equipment includes an amount of £2.3m (FY16:
£2.5m) in respect of assets held under finance leases.
At the balance sheet date, there are no contractual commitments for the purchase of property, plant and
equipment (FY16: £nil).
16. Group companies
All companies listed overleaf are owned by the Group and all interests are in the ordinary share capital.
All subsidiaries, where control is exercised, have been consolidated. Associates have been accounted for
using the equity accounting method. All companies operate principally in their country of incorporation.
155
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
16. Group companies (continued)
Place of
Name of legal entity
Directly held entity of HomeServe plc:
HomeServe Enterprises Limited
ownership
incorporation Proportion
of voting
(or registration) interest and
power %
Activity and operation
Registered address
Trading
England
100
Cable Drive, Walsall, WS2 7BN
Trading
Trading
Trading
Trading
Dormant
Trading
Trading
Trading
Trading
Dormant
Trading
Trading
Trading
Trading
Trading
Trading
Dormant
Trading
Indirectly held entities of HomeServe plc:
Holding Companies
HomeServe Assistance Limited
HomeServe International Limited
Home Service GB Limited
(No. 3546370) 6
HomeServe France Holdings SAS
HomeServe USA Holdings Corp
HomeServe Beteiligungs GmbH
Sherrington Mews Limited 2
UK & Ireland
HomeServe Membership Limited
HomeServe Servowarm Limited
HomeServe At Home Limited
(No. 4186398) 6
Vetted Limited 2
Checkatrade National Limited 2
Checkatrade.com Limited 2
Checkaprofessional.com Limited 2
Checkagroup Holdings Limited 2
Checkatrade Limited 2
247999 Limited (No. 7183505) 6
Home Energy Services Limited
HomeServe Manufacturer Warranties
Limited (No. 4079068) 6
HomeServe Heating Services Limited
HomeServe Trustees Limited
HomeServe France Limited
HomeServe USA Limited
HomeServe Europe Limited
HomeServe America Limited
HomeServe Gas Limited
(No. 2248585) 6
HomeServe (GB) Limited
(No. 5536994) 6
Fastfix Plumbing and Heating Limited
(No. 3120932) 6
HomeServe Care Solutions Limited
(No. 3228902) 6
HomeServe Warranties Limited
(No. 3156861) 6
Dormant
Multimaster Limited (No. 3670180) 6 Dormant
Trading
AskDad Limited
Trading
HomeServe Labs Limited
Dormant
Trading
Trading
Trading
Trading
Non-Trading
Non-Trading
Dormant
Dormant
Dormant
Dormant
England
England
England
France
USA
Germany
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Ireland
Ireland
England
England
England
England
England
England
England
England
Continental Europe
HomeServe France SAS
(formerly Domeo SAS)
HomeServe Assistencia Spain SAU
(formerly Reparalia Direct S.L.) 7
HomeServe Spain SLU
(formerly Reparalia SA) 7
Seguragua SAU 5 7
Trading
France
Trading
Spain
Trading
Trading
Spain
Spain
156
100
100
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
100
9, rue Anna Marly, CS 80510 , 69365 LYON Cedex 7
100
601 Merritt 7, Norwalk, CT 06851
100
100
Rheinstr. 30-32, 65185, Wiesbaden
40 5-6 Sherrington Mews, Ellis Square, Selsey, W. Sussex, PO20 0FJ
100
100
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
100
Cable Drive, Walsall, WS2 7BN
40 5-6 Sherrington Mews, Ellis Square, Selsey, W. Sussex, PO20 0FJ
40 5-6 Sherrington Mews, Ellis Square, Selsey, W. Sussex, PO20 0FJ
40 5-6 Sherrington Mews, Ellis Square, Selsey, W. Sussex, PO20 0FJ
40 5-6 Sherrington Mews, Ellis Square, Selsey, W. Sussex, PO20 0FJ
40 5-6 Sherrington Mews, Ellis Square, Selsey, W. Sussex, PO20 0FJ
40 5-6 Sherrington Mews, Ellis Square, Selsey, W. Sussex, PO20 0FJ
Cable Drive, Walsall, WS2 7BN
100
Cable Drive, Walsall, WS2 7BN
100
100
100
100
100
100
100
100
100
100
100
100
100
100
15
100
100
100
100
100
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
25-28 Adelaide Road, Dublin 2
25-28 Adelaide Road, Dublin 2
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
24 St John Street, London, EC1M 4AY
Cable Drive, Walsall, WS2 7BN
9, rue Anna Marly, CS 80510 , 69365 LYON Cedex 7
Camino del Cerro de los Gamos 1, Parque empresarial
– Edificios 5 y 6, 28224 Pozuelo de Alarcon
Camino del Cerro de los Gamos 1, Parque empresarial
– Edificios 5 y 6, 28224 Pozuelo de Alarcon
Camino del Cerro de los Gamos 1, Parque empresarial
Annual Report & Accounts 2017
Place of
Name of legal entity
ownership
incorporation Proportion
of voting
(or registration) interest and
power %
Activity and operation
Habitissimo S.L. 3 7
Trading
Trading
Trading
Dormant
Dormant
Dormant
Trading
Trading
Trading
Trading
Trading
Dormant
Dormant
Bit Advanced Marketing S.L. 3 7
Assistenza Casa Srl 4
North America
HomeServe USA Corp
HomeServe USA Repair
Management Corp
HomeServe USA Repair
Management (Florida)
Leakguard Inc
Leakguard Repair Services Inc
HomeServe USA Repair
Management Corp (Iowa)
HomeServe USA Repair
Management Corp (California)
HomeServe USA Repair
Management Corp (Virginia)
HomeServe USA Repair
Management Corp (Wisconsin)
HomeServe USA Energy Services LLC
HomeServe USA Energy Services
Trading
(New England) LLC
Trading
LI PH Enterprises LLC
Trading
NYC PH Enterprises LLC
USP Holding 1 LLC 1
Trading
USP Holdings 2 LLC 1
Trading
Utility Service Partners Inc. 1
Trading
Utility Service Partners Private Label, Inc 1 Trading
USP Water Heater Rentals LLC 1
Trading
Utility Service Partners Private
Label of Virginia, Inc 1
Columbia Service Partners Inc 1
Service Line Warranties of America,
Inc - Delaware. 1
Service Line Warranties of America,
Inc - California. 1
Service Line Warranties of Canada
Holdings, Inc. 1
Columbia Service Partners of
Pennsylvania, Inc 1
Columbia Service Partners of
Kentucky, Inc. 1
Columbia Service Partners of
Ohio, Inc. 1
Columbia Service Partners of
West Virginia, Inc. 1
Service Line Warranties of
Canada Inc. 1
Australia
Home Service Direct Pty Limited Non-Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Spain
Spain
Italy
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
70
70
49
100
100
100
100
100
100
100
100
100
100
100
49
49
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Registered address
– Edificios 5 y 6, 28224 Pozuelo de Alarcon
c/Blaise Pascal Edifici W, 1º Piso Parc Bit CP 07121,
Palma de Mallorca, Baleares
Passeig Mallorca 17C, 07011 Palma de Mallorca
Via Giovanni Battista Cassinis, 7, 20139 Milano
601 Merritt 7, Norwalk, CT 06851
1232 Premier Drive, Chattanooga, TN 37421
1232 Premier Drive, Chattanooga, TN 37421
601 Merritt 7, Norwalk, CT 06851
601 Merritt 7, Norwalk, CT 06851
601 Merritt 7, Norwalk, CT 06851
601 Merritt 7, Norwalk, CT 06851
601 Merritt 7, Norwalk, CT 06851
601 Merritt 7, Norwalk, CT 06851
500 Bi-County Blvd, Farmingdale, NY 11735
5 Constitution Way, Woburn, MA 01801
1307 Manatuck Blvd, Bay Shore, NY 11706
4295 Arthur Kill Rd, Staten Island, NY 10309
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
11 Grandview Circle, Canonsburg, PA 15317
Australia
100
50 Queen Street, Melbourne, VIC 3000
1 On 1 July 2016 Homeserve USA, a Group company, acquired 100% of the issued share capital and obtained control of Utility Service
Partners Inc (USP).
2 On 13 December 2016 the Group invested in 40% of Sherrington Mews Limited, the holding company of the ‘Checkatrade’ Group. It has
been accounted for as an associate using the equity method.
3 On 27 January 2017 the Group acquired 70% of Habitissimo S.L. Non controlling interests of £0.8m were recognised as a result of this
investment.
4 On 9 March 2017 the Group disposed of 51% of Assistenza Casa Srl.
5 During the year, the Group increased its investment in Seguragua SAU from 49% to 100%.
6 The Group has taken advantage of the S479A exception from audit of the dormant subsidiaries registered in England. The registered
numbers of the dormant subsidiaries are provided above.
7 These companies have a 31 December year end due to the statutory reporting requirements in Spain.
157
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
17. Other investments
Available for sale investments carried at fair value
At 1 April 2015
Gain on revaluation
Increase in investment
Exchange movements
At 1 April 2016
Exchange movements
At 31 March 2017
£m
4.4
2.5
0.5
0.4
7.8
0.7
8.5
On 4 July 2014, HomeServe entered into an equity partnership investment agreement with a
manufacturer of smart thermostat connected home technology. On 12 August 2015, HomeServe
invested a further £0.5m into the equity partnership investment agreement. The fair value of this
investment has been assessed at 31 March 2017 by reviewing the future outlook for the business along
with other comparative transactions during the period.
18. Interests in associates
On 13 December 2016 the Group acquired a 40% stake in Sherrington Mews Limited, the holding
company of the Checkatrade Group, for cash consideration of £24.0m. There is further contingent
consideration of £4.0m that is payable subject to financial performance conditions being met by the
business, the present value of which is £2.7m. Legal costs of £0.7m associated with the transaction were
added to the cost of the investment.
On 9 March 2017 the Group disposed of 51% of Assistenza Casa Srl, a wholly owned Group company.
The remaining 49% has been accounted for as an associate using the equity method. The Group realised
a gain of £0.1m as a result of this transaction.
The following amounts relate to the results of associates:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to the owners of the company
Controlling interest
Proportion of the Group’s ownership interest in the associates
Summary income statement
Revenue
Profit after tax
Amounts recognisable
Sherrington
Mews Limited
£m
9.4
2.2
(13.6)
(0.7)
(2.7)
1.6
(1.1)
£m
4.7
—
—
Assistenza
Casa Srl
£m
21.4
4.2
(15.4)
—
10.2
(5.5)
4.7
£m
1.2
0.4
0.2
Total
£m
30.8
6.4
(29.0)
(0.7)
7.5
(3.9)
3.6
£m
5.9
0.4
0.2
158
Annual Report & Accounts 2017
Reconciliation of the above summarised financial information to the carrying amount of the interest in
associates recognised in the consolidated financial statements:
Proportion of the Group’s ownership interest in the associates
Intangible asset
Deferred tax
Goodwill
Carrying amount of the Group’s interest in the associates
Sherrington
Mews Limited
£m
(1.1)
3.4
(0.6)
25.7
27.4
Assistenza
Casa Srl
£m
4.7
—
—
—
4.7
Total
£m
3.6
3.4
(0.6)
25.7
32.1
A list of the investments in associates, including the name, address, country of incorporation, and
proportion of ownership is given in note 16.
Through a call option the Group has the means to acquire a further 35% of the shares in Sherrington
Mews Limited at a valuation which is the higher of a) the pro-rata of the amount payable for the initial
40% investment and b) 10 times adjusted EBITDA for the year ending 31 March 2019 multiplied by
35%, subject to a cap of £35m. In accordance with IAS39 the valuation of this call option has been
considered and it is not deemed to have any material value at 31 March 2017 as it would not currently
allow the Group to acquire an additional stake at less than market value. In addition, the current
controlling shareholders of Sherrington Mews Limited have a put option requiring the Group to acquire
a further 35% of their shareholdings at the same price as that determined above in respect of the call
option, though subject to additional financial performance conditions also being met by the business.
Again, the valuation of this put option has been considered in accordance with IAS39 and it is not
deemed to have any material value at 31 March 2017.
19. Inventories
Consumables
2017
£m
2.7
2016
£m
2.9
159
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
20. Other financial assets
Trade and other receivables
Amounts receivable for the provision of services
Other receivables
Prepayments and accrued income
2017
£m
292.3
143.0
19.8
455.1
2016
£m
250.7
99.4
17.6
367.7
Trade receivables
The Group has provided fully for those receivable balances that it does not expect to recover. This
assessment has been undertaken by reviewing the status of all significant balances that are past due and
involves assessing both the reason for non-payment and the creditworthiness of the counterparty.
Of the trade receivables balance at the end of the year, there is no significant concentration of credit risk,
with exposure spread across a large number of counterparties and customers. There are no customers
that represent more than 5% of the total balance of trade receivables.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £12.1m (FY16:
£7.1m) which are past due at the reporting date but for which the Group has not provided for as there
has not been a significant change in credit quality and the amounts are still considered recoverable. The
Group does not hold any collateral over these balances. The average age of receivables not impaired is
21 days (FY16: 30 days). Trade debtors to be received from customers relating to instalments of policy
premiums that are not yet due have been excluded from the average age calculation.
Ageing of past due but not impaired receivables:
1 - 30 days
31 - 60 days
61 - 90 days
91 days +
Balance at 31 March past due but not impaired
Current/not yet due
Balance at 31 March
Movement in the allowance for doubtful debts:
At 1 April
Impairment losses recognised
Reclassification to cancellation provision
Amounts recovered during the year
Acquisition of a subsidiary
Exchange movements
Balance at 31 March
160
2017
£m
8.6
3.0
0.2
0.3
12.1
280.2
292.3
2017
£m
2.5
0.7
(1.6)
(0.2)
0.5
—
1.9
2016
£m
5.1
1.8
0.2
—
7.1
243.6
250.7
2016
£m
1.8
2.4
—
(1.8)
—
0.1
2.5
Annual Report & Accounts 2017
In determining the recoverability of a trade receivable, the Group considers any change in the credit
quality from the date credit was initially granted up to the reporting date. The concentration of credit risk
is limited due to the customer base being large and unrelated. Accordingly, the Directors believe that
there is no further credit provision required in excess of the allowance for doubtful debts.
Ageing of impaired trade receivables:
1 - 30 days
31 - 60 days
61 - 90 days
91 days +
Current/not yet due
2017
£m
—
—
0.2
1.3
0.4
1.9
2016
£m
—
—
—
2.2
0.3
2.5
The Directors consider that the carrying amount of trade and other receivables approximates to their
fair value.
Other receivables
The Group serves as an intermediary, whereby it is responsible for the collection of cash on behalf of
third parties. Other receivables mainly represent those amounts to be collected from policyholders
and are to be remitted to third parties for obligations such as the cost of underwriting and Insurance
Premium Tax. The concentration of credit risk is limited due to individual receivables being small and
spread across a diverse policyholder base. In addition, overall balance sheet exposure is mitigated as
defaults on these receivables can, in the most part, be offset against the corresponding payable included
in ’Other creditors’.
Cash balances and cash equivalents
Cash balances and cash equivalents of £46.2m (FY16: £54.2m) comprise cash held by the Group and
short-term bank deposits with an original maturity of three months or less. The carrying amount of these
assets approximates to their fair value.
21. Bank and other loans
Sterling denominated
Euro denominated
Due within one year
US dollar denominated
Euro denominated
Sterling denominated
Due after one year
Total bank and other loans
2017
£m
25.0
10.9
35.9
59.0
32.1
179.0
270.1
306.0
2016
£m
25.0
—
25.0
56.5
—
140.0
196.5
221.5
The US Dollar and Euro denominated borrowings are used to provide debt funding to North America
and Continental Europe respectively. Foreign currency borrowings are drawn in the UK and passed to the
overseas subsidiaries of the Group by way of intercompany loans, denominated in the same currencies.
These external borrowings and the equivalent intercompany receivable loans are treated as monetary
liabilities and assets respectively and, as such, the Group’s foreign currency exposure risk is minimised.
161
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
21. Bank and other loans (continued)
The weighted average interest rates paid were as follows:
Bank and other loans
2017
%
2.1
2016
%
2.0
All the Group’s borrowings are unsecured. The carrying amount of the Group’s borrowings approximates
to their fair value and the currencies in which they are denominated reflect the geographical segments
for which they have been used.
The other principal features of the Group’s borrowings are as follows:
• The Group has a £300m revolving credit facility with five banks. This facility was taken out on 31 July
2014 and has a term of five years. The financial covenants associated with the credit facilities are
‘net debt to EBITDA of less than 3.0 times’ (FY16: 3.0 times) and ‘interest cover greater than 4.0 times
EBITDA’ (FY16: 4.0 times). Interest is charged at floating rates at margins of between 1.05% and 1.25%
(FY16: 0.9% and 1.25%) above the relevant reference rate, thus exposing the Group to cash flow and
interest rate risk. At 31 March 2017, the Group had available £174.0m (FY16: £155.6m) of undrawn
committed borrowing facilities in respect of which all conditions precedent had been met
• The Group has £110m of US Private Placements (FY16: £50m). An additional £60m US Private
Placement was taken out on 6 March 2017 and has a term of seven years. The financial covenants
associated with this facility are the same as the £300m revolving credit facility and interest is charged
at a fixed rate of 2.59%. The existing £50m US Private Placement was taken out on 7 October 2015
and has a term of seven years. The financial covenants associated with this facility are the same as the
£300m revolving credit facility and interest is charged at a fixed rate of 3.44%
• The Group secured additional funding via a €50m amortising term loan which was taken out on
13 September 2016 and has a term of 4 years. The financial covenants associated with this facility are
the same as the £300m revolving credit facility and interest is charged at floating rates at margins of
0.9% above the relevant reference rate, thus exposing the Group to cash flow and interest rate risk
•
•
The Group renewed a £25m short term loan on 1 February 2017 which has a term of six months. The
financial covenants associated with this facility are the same as the £300m revolving credit facility
and interest is charged at floating rates at margins of 0.63% above the relevant reference rate, thus
exposing the Group to cash flow and interest rate risk
The Group has a $5m facility in the USA, of which $2.3m / £1.9m (FY16: $3.1m / £2.1m) was drawn at
the 31 March. The weighted average interest rate was 2.0% (FY16: 1.5%).
The Group has complied with all covenant requirements in the current and prior year. Information about
liquidity risk is presented in note 42.
162
Annual Report & Accounts 2017
22. Deferred tax
The following are the major deferred tax assets/(liabilities) recognised by the Group and the movements
during the current and prior year:
Asset/(liability)
At 1 April 2015
(Charge)/credit to Income
Charge to equity
Charge to Comprehensive Income
Acquisition of a subsidiary
Exchange movements
At 1 April 2016
(Charge)/credit to Income
Credit to equity
Credit to Comprehensive Income
Acquisition of subsidiaries
Exchange movements
At 31 March 2017
Timing
Elected Retirement
benefit
goodwill
differences deductions obligations
£m
—
(0.3)
—
(0.1)
—
—
(0.4)
(0.4)
—
0.6
—
—
(0.2)
£m
(0.2)
—
—
—
—
—
(0.2)
0.1
—
—
—
—
(0.1)
£m
7.1
(3.0)
—
—
—
0.3
4.4
(2.6)
—
—
—
0.8
2.6
Share
schemes
£m
4.0
—
(0.2)
—
—
0.1
3.9
0.2
0.4
—
—
0.2
4.7
Acquired
intangible Unutilised Available for
losses sale reserve
£m
—
—
—
(0.7)
—
—
(0.7)
—
—
—
—
—
(0.7)
assets
£m
(19.0)
2.0
—
—
(1.8)
(1.5)
(20.3)
3.2
—
—
(15.6)
(2.3)
(35.0)
£m
0.1
—
—
—
—
—
0.1
—
—
—
12.7
0.5
13.3
Acquired
property
£m
(0.5)
—
—
—
—
—
(0.5)
0.5
—
—
—
—
—
Total
£m
(8.5)
(1.3)
(0.2)
(0.8)
(1.8)
(1.1)
(13.7)
1.0
0.4
0.6
(2.9)
(0.8)
(15.4)
Certain deferred tax assets and liabilities have been offset in the table above. The following is the analysis
of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
Net deferred tax (liability)/asset
UK
£m
—
(5.5)
(5.5)
France
£m
—
(17.1)
(17.1)
New
North
Spain America Markets
£m
£m
—
4.3
(0.4)
—
(0.4)
4.3
£m
3.3
—
3.3
2017
£m
7.6
(23.0)
(15.4)
2016
£m
6.8
(20.5)
(13.7)
At the balance sheet date, the Group recognised a deferred tax asset of £13.3m (FY16: £0.1m) on unused
tax losses of £30.4m (FY16: £0.3m) available for offset against future profits, based on estimates of
budgeted profits in the forthcoming years. The increase in unused tax losses in the year primarily relates
to the Group’s acquisition of Utility Service Partners Inc. Deferred tax has not been recognised on £1.1m
(FY16: £18.3m) of unused losses due to the uncertainty over the timing of future recovery. The reduction
this year is due to the disposal of Assistenza Casa Srl.
There are no expiry dates in respect of the unrecognised tax losses (FY16: £nil).
163
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
23. Current liabilities
Trade and other payables
Trade creditors and accruals
Contingent consideration
Deferred consideration
Deferred income
Taxes and social security, excluding current tax
Other creditors
2017
£m
118.9
—
2.6
76.7
12.0
246.0
456.2
2016
£m
121.6
0.2
1.0
54.4
9.9
173.6
360.7
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing
costs. The average credit period taken for trade purchases is 70 days (FY16: 69 days).
Deferred income represents revenue where an obligation exists to provide future services. An appropriate
proportion of monies received in advance are treated as deferred income and recognised over the
relevant period.
Other creditors mainly represent those amounts to be collected from policyholders but to be remitted to
third parties for obligations such as the cost of underwriting and Insurance Premium Tax.
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
24. Non-current liabilities
Other financial liabilities
Contingent and deferred consideration
At 1 April
Acquisition of subsidiaries
Acquisition of associates
Obligation under put option
Other movement in year
At 31 March
2017
£m
5.6
0.3
2.7
9.3
(3.5)
14.4
2016
£m
2.1
4.3
—
—
(0.8)
5.6
Contingent and deferred consideration relates to future amounts payable on acquisitions. The other
movement in the year represents the reclassification of an element of the liability to less than one year,
unwinding of discount, foreign exchange movements and payments in the year.
Through a call option the Group has the means to acquire the remaining 30% of the shares in Habitissimo
S.L which can be exercised in either 2020 or 2021. In addition, the non-controlling shareholders have a
put option requiring the Group to acquire the remaining 30% of their shareholding. There is no market
value defined in the shareholder agreement but a floor of €6.4m, based on the current price of the
remaining 30%, and a cap of €30m. The fair market value of the company will be mutually agreed by
HomeServe and the founders at the point at which the options become exercisable.
164
Annual Report & Accounts 2017
The potential cash payment relating to the put option issued by the Group over the equity of subsidiary
companies has been accounted for as a financial liability. This has been recognised at a fair value
of £9.3m with the corresponding charge being recognised in retained earnings. The option will be
subsequently measured at amortised cost, using the effective interest rate method, in order to accrete the
liability up to the amount payable under the option at the date at which it first becomes exercisable.
25. Share capital
Issued and fully paid 310,689,548 ordinary shares of 2 9/13p each (FY16: 307,892,426)
2017
£m
8.4
2016
£m
8.3
The Company has one class of ordinary shares which carry no right to fixed income. Share capital
represents consideration received or amounts, based on fair value, allocated to LTIP and One Plan
participants on exercise. The nominal value was 2 9/13p per share on all issued and fully paid shares.
During the period from 1 April 2016 to 31 March 2017 the Company issued 2,797,122 shares with a
nominal value of 2 9/13p creating share capital of £75,307 and share premium of £4,696,129.
During the period from 1 April 2015 to 20 July 2015 the Company issued 90,856 shares with a nominal
value of 2.5p creating share capital of £2,271 and share premium of £166,370. Following payment of a
special dividend in July 2015, the Company completed a share consolidation of existing ordinary shares
on the basis of 13 new ordinary shares for every 14 existing ordinary shares.
During the period from 21 July 2015 to 31 March 2016 the Company issued 219,592 shares with a
nominal value of 2 9/13p creating share capital of £5,912 and share premium of £436,918.
26. Share premium account
Balance at 1 April 2015
Premium arising on issue of equity shares
Balance at 1 April 2016
Premium arising on issue of equity shares
Balance at 31 March 2017
£m
40.5
0.6
41.1
4.6
45.7
The share premium account represents consideration received or amounts, based on fair value, allocated
to LTIP and One Plan participants on exercise, for authorised and issued shares in excess of the nominal
value of 2 9/13p (FY16: 2.5p up to 20 July 2015 and 2 9/13p per share thereafter).
27. Merger reserve
Balance at 1 April 2015, 1 April 2016 and 31 March 2017
£m
71.0
The merger reserve represents the issue on 6 April 2004 of 11.6m new shares relating to the acquisition
of the minority interest held in the Group at that date. The reserve reflects the difference between the
nominal value of shares at the date of issue of 12.5p and the share price immediately preceding the issue
of 624.5p per share.
165
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
28. Own shares reserve
Balance at 1 April 2015
Issued from the employee benefit trust
Balance at 1 April 2016
Issued from the employee benefit trust
Balance at 31 March 2017
Number
m
3.2
(3.2)
—
—
—
£m
11.1
(11.0)
0.1
(0.1)
—
The own shares reserve represents the cost of shares in HomeServe plc purchased in the market and
held by the HomeServe plc Employee Benefit Trust. The shares are held to satisfy obligations under the
Group’s share option schemes and are recognised at cost.
29. Share incentive reserve
Balance at 1 April 2015
Share-based payment charges in the year
Share options exercised in the year
Balance at 1 April 2016
Share-based payment charges in the year
Share options exercised in the year
Balance at 31 March 2017
£m
15.7
2.6
(2.3)
16.0
6.6
(4.3)
18.3
The share incentive reserve represents the cumulative charges to income under IFRS2 ‘Share-based
payments’ on all share options and schemes granted after 7 November 2002 that had not vested as at
1 January 2005, net of share option exercises.
30. Capital redemption reserve
Balance at 1 April 2015, 1 April 2016 and 31 March 2017
£m
1.2
The capital redemption reserve arose on the redemption of 1.2m £1 redeemable preference shares on
1 July 2002.
31. Currency translation reserve
Balance at 1 April 2015
Movement in the year taken to comprehensive income
Balance at 1 April 2016
Movement in the year taken to comprehensive income
Credit to the profit and loss on disposal of subsidiary
Balance at 31 March 2017
£m
(9.3)
14.8
5.5
21.2
(0.4)
26.3
The currency translation reserve represents the cumulative foreign currency translation movement on the
assets and liabilities of the Group’s international operations at year end exchange rates.
166
Annual Report & Accounts 2017
32. Available for sale reserve
Balance at 1 April 2015
Movement in the year taken to comprehensive income
Balance at 1 April 2016
Balance at 31 March 2017
£m
—
1.8
1.8
1.8
The available for sale reserve represents the gain on revaluation of the Group’s available for sale
investments as disclosed in note 17.
33. Non-controlling interests
Summarised financial information in respect of the non-controlling interest arising on the acquisition
of Habitissimo S.L. is set out below. Habitissimo S.L. is based in Mallorca and operates across Southern
Europe and South America. The proportion of ownership interests held by non-controlling interests is
30%. The summarised financial information below represents amounts before intra-group eliminations.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners of the Company
Non-controlling interests
£m
1.1
3.2
(1.3)
(0.3)
2.7
0.8
34. Disposal of subsidiary
On 9 March 2017 the Group disposed of 51% of its 100% interest in Assistenza Casa Srl, the fair value of
the consideration was £6.8m, of which £4.4m was received during the year. The Group realised a net
profit on disposal as a result of this transaction of £0.1m. The net assets of the Group’s interest in the
business at the date of disposal were as follows:
At fair value
Non-current assets
Cash and cash equivalents
Trade and other receivables
Current liabilities
Total identifiable net assets
Release of currency revaluation reserve
Gain on disposal
Total consideration
Satisfied by:
Cash
Deferred consideration
Interest in associate
Net cash outflow arising on disposal:
Consideration received in cash and cash equivalents
Less: cash and cash equivalent balances disposed
£m
0.1
6.1
19.2
(13.4)
12.0
(0.4)
(0.1)
11.5
4.4
2.4
4.7
11.5
4.4
(6.1)
(1.7)
167
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
35. Business combinations
The Group has incurred a net cash outflow in respect of business combinations of £74.2m in the year
(2016: £5.3m).
There were three material acquisitions in the year ended 31 March 2017.
On 1 July 2016 Homeserve USA Corp, a Group company, acquired 100% of the issued share capital
and obtained control of Utility Service Partners Inc (USP). USP is a leading provider of home assistance
services. Like our existing business, USP operates an affinity partner model and is the exclusive home
warranty partner of the National League of Cities (NLC), an organisation that advocates to around 19,000
towns and cities, covering 66m households in the USA.
On 1 December 2016 HomeServe Membership Limited, a Group company, purchased npower’s
‘domestic care and maintenance’ contracts business. The acquisition included 76 heating engineers.
On 27 January 2017 HomeServe International Limited, a Group company, acquired 70% of the issued
share capital and obtained control of Habitissimo S.L, a specialist online lead generation business
operating across Southern Europe and South America.
The recognised amounts of identifiable assets acquired and liabilities assumed are set out in the
table below:
At fair value
Property, plant and equipment
Intangible assets
Deferred tax assets
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Other loans
Intangible assets identified on acquisition
Deferred tax on acquisition intangibles
Total identifiable net assets
Less non-controlling interests
Net assets acquired
Bargain purchase
Goodwill
Total consideration
Satisfied by:
Cash
Deferred consideration
Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalent balances acquired
USP
£m
0.3
0.1
11.4
5.8
1.8
(12.9)
—
34.8
(13.6)
27.7
—
27.7
—
33.2
60.9
60.3
0.6
60.9
60.3
(5.8)
54.5
npower Services
£m
—
—
—
—
0.7
(0.3)
—
7.0
(1.4)
6.0
—
Habitissimo
£m
0.1
1.2
0.2
0.8
0.1
(1.1)
(0.4)
2.4
(0.6)
2.7
(0.8)
6.0
(0.7)
—
5.3
5.3
—
5.3
5.3
—
5.3
1.9
—
10.9
12.8
12.8
—
12.8
12.8
(0.8)
12.0
Total
£m
0.4
1.3
11.6
6.6
2.6
(14.3)
(0.4)
44.2
(15.6)
36.4
(0.8)
35.6
(0.7)
44.1
79.0
78.4
0.6
79.0
78.4
(6.6)
71.8
168
Annual Report & Accounts 2017
The goodwill arising on the excess of consideration over the fair value of the assets and liabilities acquired
represents the expectation of synergy savings and efficiencies. None of the goodwill is 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.
The provisional fair values for USP Inc. disclosed as part of the Group’s interim results in November 2016
have been updated, resulting in a reduction to goodwill of £0.5m.
The post-acquisition revenue, operating profit and acquisition-related costs (included in administrative
expenses) from these acquisitions in the year ended 31 March 2017 was as follows:
Revenue
Operating profit/(loss)
Acquisition-related costs
USP
£m
21.1
(0.7)
0.4
npower Services
£m
2.0
1.4
0.2
Habitissimo
£m
1.8
(0.2)
0.3
Total
£m
24.9
0.5
0.9
If all of the acquisitions had been completed on the first day of the financial year, Group revenues for the
period would have been £802.0m and Group profit before taxation would have been £100.1m.
In addition to the net cash outflow on the acquisitions above of £71.8m, deferred consideration was paid
relating to prior year business combinations of £3.1m (FY16: £1.1m) and net cash was acquired as part of an
immaterial acquisition in Spain of £0.7m.
Through a call option the Group has the means to acquire the remaining 30% of the shares in Habitissimo
S.L. which can be exercised in either 2020 or 2021. In addition, the non-controlling shareholders have a
put option requiring the Group to acquire the remaining 30% of their shareholding. There is no market
value defined in the shareholder agreement but a floor of €6.4m, based on the current price of the
remaining 30%, and a cap of €30m. The fair market value of the company will be mutually agreed by
HomeServe and the founders at the point at which the options become exercisable.
The potential cash payment relating to the put option issued by the Group over the equity of Habitissimo
S.L. has been accounted for as a financial liability. This has been recognised at the present value of the
expected gross obligation of £9.3m with the corresponding entry being recognised in retained earnings.
The option will be subsequently measured at amortised cost, using the effective interest rate method,
in order to accrete the liability up to the amount payable under the option at the date at which it first
becomes exercisable.
169
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
36. Notes to the cash flow statement
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share-based payments expense
Share of profit of associates
Loss on disposal of property, plant and equipment and software
Bargain purchase on acquisition
Profit on disposal of subsidiary
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
Increase in receivables
Increase in payables
Cash generated by operations
Income taxes paid
Interest paid
Net cash inflow from operating activities
37. Operating lease arrangements
The Group as lessee
Minimum lease payments under operating leases recognised in income for the year
2017
£m
104.7
6.9
42.6
7.4
(0.2)
0.4
(0.7)
(0.1)
161.0
0.4
(75.5)
54.0
139.9
(20.0)
(6.7)
113.2
2017
£m
11.2
2016
£m
86.9
5.4
30.4
5.1
—
—
—
—
127.8
(1.7)
(25.1)
20.7
121.7
(17.3)
(3.3)
101.1
2016
£m
8.1
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments
under non-cancellable operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
2017
£m
12.4
21.4
3.0
36.8
2016
£m
8.5
16.8
0.8
26.1
Operating lease payments principally represent rentals payable by the Group for certain of its land and
buildings, motor vehicles and office equipment. The leases have varying terms and some have renewal
options.
170
Annual Report & Accounts 2017
38. Obligations under finance leases
Amounts payable under finance leases:
Amounts due for settlement within 12 months
Amounts due for settlement after 12 months: in the second to fifth years inclusive
Present value of lease obligations
Minimum lease payments:
Within one year
In the second to fifth years inclusive
Present value of lease obligations
2017
£m
0.6
1.0
1.6
0.6
1.0
1.6
2016
£m
0.9
1.3
2.2
0.9
1.3
2.2
Certain motor vehicles are held under finance leases. The average lease term is 5 years (FY16: 5 years). For
the year ended 31 March 2017, the average effective borrowing rate was 2.5% (FY16: 2.5%). Interest rates
are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been
entered into for contingent rental payments.
All lease obligations are denominated in US dollars. The fair value of the Group’s lease obligations is
approximately equal to their carrying amount. The Group’s obligations under finance leases are secured
by the lessors’ rights over the leased assets.
39. Share-based payments
During the year ended 31 March 2017, the Group had three (FY16: four) share-based payment schemes,
which are described below:
i) Long-Term Incentive Plan (‘LTIP’)
The LTIP provides for the grant of performance, matching and restricted awards. The vesting period
is normally three years. Restricted awards are not subject to performance conditions. Vesting of
performance and matching awards granted in 2013 and 2014 is dependent upon comparative Total
Shareholder Return performance. For performance and matching awards granted in 2015 and 2016,
75% of each award is subject to an Earnings Per Share performance condition and the remaining 25%
is subject to comparative Total Shareholder Return performance. In 2016, members of the Executive
Committee received an additional performance award which was subject to a more stretching Earnings
Per Share performance condition.
ii) Save As You Earn Scheme (‘SAYE’)
The SAYE was open to all UK employees and provides for an exercise price equal to the closing quoted
market price on the day before the date of grant, less a discretionary discount. The options can be
exercised during a six month period following the completion of either a three or five year savings period.
There were no awards made in the year.
iii) One Plan
One Plan is a share incentive scheme which is available to all employees. For every two partnership
shares purchased, participants will receive (or have the right to receive) one free matching share.
Matching shares are held in trust for a period of up to three years.
171
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
39. Share-based payments (continued)
2017
Number
Outstanding at 1 April 2016
Granted
Forfeited
Exercised
Outstanding at 31 March 2017
Exercisable at 31 March 2017
Weighted average exercise price (£)
Outstanding at 1 April 2016
Granted
Forfeited
Exercised
Outstanding at 31 March 2017
Exercisable at 31 March 2017
Range of exercise price of options outstanding at 31 March 2017
£0.01 to £0.99
£1.00 to £1.99
£2.00 to £2.99
£3.00 to £3.99
Weighted average remaining contractual life
Weighted average fair value of options awarded in 2017
LTIP
SAYE
One Plan
6,345,953
2,181,315
(33,448)
(2,302,887)
6,190,933
25,026
2,100,447
—
(190,832)
(428,401)
1,481,214
45,676
—
—
—
—
—
—
—
—
—
—
2
£4.81
2.70
—
3.00
1.93
2.88
1.90
—
129,995
680,918
670,301
2
—
—
35,098
(1,147)
(140)
33,811
—
—
—
—
—
—
—
—
—
—
—
3
£5.96
2016
Number
Outstanding at 1 April 2015
Granted
Forfeited
Exercised
Outstanding at 31 March 2016
Exercisable at 31 March 2016
Weighted average exercise price (£)
Outstanding at 1 April 2015
Granted
Forfeited
Exercised
Outstanding at 31 March 2016
Exercisable at 31 March 2016
Range of exercise price of options outstanding at 31 March 2016
£0.01 to £0.99
£1.00 to £1.99
£2.00 to £2.99
£3.00 to £3.99
Weighted average remaining contractual life
Weighted average fair value of options awarded in 2016
—
—
—
—
2
£3.98
LTIP
SAYE
ESOP
DBP
6,985,223
2,053,907
(252,564)
(2,440,613)
6,345,953
9,189
1,818,777
827,601
(235,483)
(310,448)
2,100,447
39,068
292,705
—
—
(292,705)
—
—
256,995
—
—
(256,995)
—
—
—
—
—
—
—
—
2.25
3.35
2.48
1.97
2.70
2.01
—
557,741
752,827
789,879
3
£1.35
1.92
—
—
1.92
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The weighted average share price at the date of exercise for share options exercised during the year was
£5.28 (FY16: £4.24).
172
Annual Report & Accounts 2017
The estimated fair values are calculated by applying a Black-Scholes option pricing model for SAYE and
One Plan and Monte Carlo simulations for the LTIP. The assumptions used in the models (which are
comparable to the prior year) are as follows:
Input
Share price
Exercise price
Expected volatility
Option life
Expected dividends
Risk free interest rate
Assumption
Price at date of grant
Per scheme rules
23% – 52%
Per scheme rules
Based on historic dividend yield
0.1% – 1.3%
Levels of early exercises and lapses are estimated using historical averages. Volatility is calculated
by looking at the historical share price movements prior to the date of grant over a period of time
commensurate with the remaining term for each award.
The Group recognised total expenses of £7.4m (FY16: £5.1m) related to equity-settled share-based
payment transactions.
40. Retirement benefit schemes
Defined contribution schemes
The Group operates a defined contribution retirement benefit scheme for all UK employees. The assets
of the scheme are held separately from those of the Group in funds under the control of trustees. Where
there are employees who leave the scheme within two years of joining and they choose to take a refund,
the contributions paid by the Group are forfeited by the employee.
In addition to the scheme in the UK, the Group operates a defined contribution retirement benefit
scheme for North America employees.
The total cost charged to income of £3.8m (FY16: £3.4m) represents contributions payable to the
schemes by the Group at rates specified in the rules of the schemes. At 31 March 2017, contributions
of £323,000 (FY16: £311,000) due in respect of the current reporting period had not been paid over to
the schemes.
Defined benefit scheme
The Group participates in a defined benefit scheme, the Water Companies Pension Scheme, which is
closed to new members. This is a sectionalised scheme and the Group participates in the HomeServe
plc Section of the Scheme. The Section is administered by a Trustee and is independent of the Group’s
finances. Contributions are paid to the Section in accordance with the recommendations of an
independent actuary.
The results of the actuarial valuation as at 31 March 2014 were updated to the accounting date by a
qualified independent actuary in accordance with IAS19. Remeasurements are recognised immediately
through other comprehensive income.
173
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
40. Retirement benefit schemes (continued)
Defined benefit scheme (continued)
Key assumptions used:
Discount rate at 31 March
Consumer price inflation
Retail price inflation
Expected rate of salary increases
Future pension increases
Life expectancy of female aged 60 at balance sheet date
Life expectancy of male aged 60 at balance sheet date
2017
2.6%
2.4%
3.4%
2.4%
2.4%
29.8yrs
27.9yrs
Valuation at
2016
3.5%
2.2%
3.2%
2.2%
2.2%
29.7yrs
27.8yrs
Pensions accounting entries are subject to judgement and volatility, as the assets are largely linked to
the equity market, whereas the present value of the obligation is linked to yields on AA-rated corporate
bonds.
As an indication, all other things being equal:
•
•
•
an increase in the discount rate of 0.1% would lead to a reduction in the value placed on the
obligations of the Section of approximately £0.8m
an increase in the inflation assumption rate of 0.1% would lead to an increase in the value placed on
the obligations of the Section of approximately £0.7m
an increase of life expectancy of one year would lead to an increase in the value placed on the
obligations of the Section of approximately £0.9m.
Amounts recognised in income in respect of the defined benefit scheme are as follows:
Current service cost
Interest income
Recognised in operating costs
2017
£m
0.2
(0.1)
0.1
2016
£m
0.2
—
0.2
The actual return on scheme assets was a gain of £4.4m (FY16: loss of £1.5m).
The amount included in the balance sheet arising from the Group’s obligations in respect of its defined
benefit retirement scheme is as follows:
Present value of defined benefit obligations
Fair value of scheme assets
Surplus in scheme recognised in the balance sheet in non-current assets
2017
£m
(35.2)
35.9
0.7
2016
£m
(26.6)
28.7
2.1
174
Annual Report & Accounts 2017
Movements in the present value of defined benefit obligations in the current year were as follows:
At 1 April
Employer’s part of the current service cost
Interest cost
Actuarial losses/(gains)
Benefits paid
At 31 March
Movements in the fair value of scheme assets in the current year were as follows:
At 1 April
Interest on Section assets
Actual return less interest on Section assets
Contributions from the employer
Benefits paid
At 31 March
2017
£m
26.6
0.2
0.9
7.8
(0.3)
35.2
2017
£m
28.7
1.0
4.4
2.1
(0.3)
35.9
2016
£m
28.0
0.2
0.9
(2.0)
(0.5)
26.6
2016
£m
28.1
0.9
(1.5)
1.7
(0.5)
28.7
The amount recognised outside the income statement in the statement of comprehensive income for
FY17 is a loss of £3.4m (FY16: gain of £0.5m). The cumulative amount recognised outside profit and loss
at 31 March 2017 is a loss of £7.3m (FY16: loss £3.9m).
The analysis of the scheme assets at the balance sheet date was as follows:
Equity instruments
Diversified growth funds
Liability driven investment funds
Other
Fair value of assets
2017
£m
14.0
3.3
14.4
4.2
35.9
2016
£m
11.8
3.2
10.1
3.6
28.7
The estimated amounts of contributions expected to be paid to the scheme during the forthcoming
financial year is £2.1m (FY17: actual £2.1m) plus any Pension Protection Fund levy payable.
175
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
41. 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 between the Company and its
subsidiaries are disclosed in the Company’s separate financial statements (note 52).
Trading transactions
Group companies purchased services of £0.3m (FY16: £0.1m) from Harpin Limited, £0.1m (FY16: £nil) from
Pilot Services Limited and £0.1m (FY16: £0.3m) from Harpin Parkin Limited, none of which are members
of the Group. These companies are related parties because they are controlled by Richard Harpin, Chief
Executive Officer of the Group and Director of the parent company of the Group. Amounts outstanding
to all of these companies on 31 March 2017 amounted to £0.1m (FY16: £0.3m).
Provision of services to and the purchase of services from related parties were made at arm’s length
prices. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been
given or received. No provisions have been made for doubtful debts in respect of the amounts owed by
related parties.
Remuneration of key management personnel
The remuneration of the Directors and members of the Executive Committee, who are the key
management personnel of the Group, is set out below in aggregate for each of the categories specified
in IAS24 Related Party Disclosures. Further information about the remuneration of individual Directors is
provided in the audited part of the Remuneration report.
Short-term employee benefits
Post-employment benefits
Share-based payments expense
2017
£m
5.9
0.3
5.6
11.8
2016
£m
4.9
0.3
3.9
9.1
Except as noted above, there were no other transactions with Directors requiring disclosure.
176
Annual Report & Accounts 2017
42. Financial instruments
Principal financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises are
as follows:
• cash and cash equivalents
• bank overdrafts, revolving credit facilities, bank loans and Private Placements
•
trade receivables
• other receivables
•
trade payables
• contingent and deferred consideration
• other creditors
•
investments.
All principal financial instruments are stated at amortised cost, with the exception of contingent and
deferred consideration and investments which are held 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 or
Level 2 and there were no transfers of assets or liabilities between levels during the period. There are no
non-recurring fair value measurements. The Group held the following Level 3 financial instruments at
fair value:
Investments (note 17)
Call option over associate
Contingent and deferred consideration at fair value through profit and loss:
Current liabilities
Non-current liabilities
2017
£m
8.5
—
(2.6)
(5.1)
2016
£m
7.8
—
(1.2)
(5.6)
The movement in investments versus the prior year relates to the foreign exchange movement as a result
of the weakening of Sterling versus the Euro.
The ‘call option over associate’ included above relates to the option the Group has to acquire a further
35% of the shares in Sherrington Mews Limited, as referred to in note 18. In accordance with IAS39 the
valuation of this call option has been considered and it is not deemed to have any material fair value at
31 March 2017 as it would not currently allow the Group to acquire an additional stake at less than
market value.
177
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
42. Financial instruments (continued)
Principal financial instruments (continued)
Contingent and deferred consideration liabilities are calculated using forecasts of future performance
of acquisitions discounted to present value. The reconciliation of Level 3 fair value measurements of
financial liabilities is shown below:
Balance at 1 April 2015
Unwinding of discount through the income statement
Payments
Additions
Exchange movements
Balance at 1 April 2016
Unwinding of discount through the income statement
Payments
Additions
Exchange movements
Balance at 31 March 2017
£m
3.0
0.2
(1.1)
4.5
0.2
6.8
0.5
(3.1)
3.2
0.3
7.7
Capital risk management
The Group manages its capital to ensure that entities in the Group are able to continue as going concerns
while maximising the return to stakeholders through the appropriate balance of debt and equity. The
capital structure of the Group consists of debt, which includes the borrowings disclosed in note 21,
cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued
capital, reserves and retained earnings as disclosed in notes 25 to 32 and the Group Statement of
Changes in Equity.
The table below presents quantitative data for the components the Group manages as capital:
Attributable to equity holders of the parent
Bank and other loans
2017
£m
369.2
270.1
2016
£m
316.6
196.5
Certain of the entities in the Group are subject to externally imposed capital requirements from the
Financial Conduct Authority. Where such requirements exist, the Group manages the risk through the
close monitoring of performance and distributable capital within the entities impacted by the regulations.
The Group has complied with all such arrangements throughout the current and preceding year.
178
Annual Report & Accounts 2017
Financial risk management objectives
The Group’s principal financial instruments comprise bank and other loans, overdrafts and cash and cash
equivalents. The main purpose of these financial instruments is to raise finance for the Group’s operations.
The Group also has various other financial instruments such as trade receivables and trade payables which
arise directly from its operations.
Financial risk management is overseen by the Board according to objectives, targets and policies set
by the Board. Treasury risk management, including management of currency risk, interest rate risk and
liquidity risk is carried out by a central Group Treasury function in accordance with objectives, targets and
policies set by the Board. Treasury is not a profit centre and does not enter into speculative transactions.
Classification of financial instruments
In addition to the other financial assets and liabilities set out above in ‘Principal financial instruments’, the
Group also has financial assets and liabilities disclosed in notes 20, 23 and 24. The main risks arising from
the Group’s financial instruments are interest rate risk, credit risk and liquidity risk.
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates primarily relates to the Group’s long-
term debt requirements with floating interest rates. The Group’s policy is to manage its interest cost using
a mix of fixed and variable rate debts.
It is, and has been throughout the period under review, the Group’s policy that no trading in financial
instruments shall be undertaken.
The following table demonstrates the sensitivity to a reasonably possible change of 10% increase in the
cost of borrowing, with all other variables held constant, of the Group’s profit before tax (through the
impact on floating rate borrowings).
Increase in cost of borrowing
Reduction in profit before tax (£m)
2017
10%
0.1
2016
10%
0.1
Credit risk
The Group trades only with creditworthy third parties. It is the Group’s policy that, with the exception of
our policy membership customers, customers who wish to trade on credit terms are reviewed for financial
stability.
The majority of the Group’s trade receivables consist of a large number of individual members and hence
for these balances the Group does not have any significant credit risk exposure to a single counterparty.
As a result, the Group’s exposure to bad debts is not considered to be significant. Note 3 to the accounts
contains further detail regarding the potential risk if cancellations were to be 10% higher than expected.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and
cash equivalents, the Group’s exposure to credit risk arises from default of the counterparty.
The Group manages the risk associated with cash and cash equivalents through depositing funds only
with reputable and creditworthy banking institutions.
179
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Group’s Board which sets the
framework for the management of the Group’s short, medium and long-term funding and liquidity
management requirements. The Group manages liquidity risk by maintaining adequate reserves and
banking facilities and continuously monitoring forecast and actual cash flows. Included in note 21 are
details of the undrawn facilities that are available to the Group to reduce liquidity risk further.
With the exception of deferred and contingent consideration, the revolving credit facilities, half of the
amortising four year term loan, a loan in the USA and the US Private Placements, all of the Group’s
financial liabilities are due for payment within two years, based on contractual payment terms.
The maturity profile of the Group’s financial liabilities based on contractual maturities is provided in
the table below. Interest is payable on all bank and other loans. Deferred and contingent consideration
payments are stated on the basis of expected cash outflows before discounting.
The actual payment profile of ‘Other creditors’ is principally dependent upon the collection of the
corresponding ’Other receivables’ from policyholders. These amounts principally relate to underwriting,
which are collected from policyholders and remitted to underwriters following cash collection.
Therefore, the actual cash flows may differ from those presented, but will not result in the acceleration
of the settlement of the liability.
2017
Under 2 months
Between 2 and 6 months
Between 6 and 12 months
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
After 5 years
Total
2016
Under 2 months
Between 2 and 6 months
Between 6 and 12 months
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
After 5 years
Total
Bank and
other loans
£m
Trade
payables
£m
Other
creditors
£m
Deferred and
contingent
consideration
£m
1.3
36.9
3.8
16.8
140.9
14.2
3.5
116.7
334.1
84.9
21.1
11.8
1.1
—
—
—
—
118.9
68.8
77.4
98.2
1.6
—
—
—
—
246.0
—
0.3
2.3
2.4
4.1
12.1
—
—
21.2
Bank and
other loans
£m
Trade
payables
£m
Other
creditors
£m
Deferred and
contingent
consideration
£m
1.3
25.9
2.7
4.4
4.4
147.1
1.9
54.1
241.8
85.9
23.4
11.2
1.1
—
—
—
—
121.6
62.3
59.1
50.9
1.3
—
—
—
—
173.6
0.2
0.1
0.9
2.7
3.2
0.1
—
—
7.2
Total
£m
155.0
135.7
116.1
21.9
145.0
26.3
3.5
116.7
720.2
Total
£m
149.7
108.5
65.7
9.5
7.6
147.2
1.9
54.1
544.2
The revolving credit facility is drawn down and associated interest is settled on a monthly basis. The
principal is included in the previous table when the facility is due to expire.
180
Annual Report & Accounts 2017
Company statement
of comprehensive income
Year ended 31 March 2017
Profit for the year
Items that will not be classified subsequently to the profit and loss:
Actuarial (loss)/gain on defined benefit pension scheme
Deferred tax credit/(charge) relating to components of
other comprehensive income
Total comprehensive income for the year
Notes
40
51
2017
£m
33.4
2016
£m
111.1
(3.4)
0.5
0.6
30.6
(0.1)
111.5
181
Financial statements
Company balance sheet
31 March 2017
Non-current assets
Other intangible assets
Property, plant and equipment
Investment in subsidiaries
Deferred tax assets
Retirement benefit assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Bank and other loans
Net current assets
Non-current liabilities
Bank and other loans
Total liabilities
Net assets
Equity
Share capital
Share premium account
Merger reserve
Share incentive reserve
Capital redemption reserve
Retained earnings
Total equity
Notes
46
47
48
51
40
49
49
50
54
54
25
26
27
55
30
2017
£m
4.8
0.3
194.6
0.8
0.7
201.2
371.3
—
371.3
572.5
(12.5)
(5.4)
(40.1)
(58.0)
313.3
(268.2)
(268.2)
(326.2)
246.3
8.4
45.7
71.0
16.2
1.2
103.8
246.3
2016
£m
3.3
0.2
194.6
1.1
2.1
201.3
232.7
62.1
294.8
496.1
(22.9)
(6.1)
(25.0)
(54.0)
240.8
(194.4)
(194.4)
(248.4)
247.7
8.3
41.1
71.0
13.9
1.2
112.2
247.7
As provided by s408 of the Companies Act 2006, the Company has not presented its own income
statement. The Company’s profit for the year was £33.4m (FY16: £111.1m).
The financial statements of HomeServe plc were approved by the Board of Directors and authorised for
issue on 23 May 2017. They were signed on its behalf by:
David Bower
Chief Financial Officer
23 May 2017
Registered in England No. 2648297
182
Company statement
of changes in equity
Year ended 31 March 2017
Balance at 1 April 2016
Profit for the year
Other comprehensive income
Dividends paid
Issue of share capital
Share-based payments
Share options exercised
Tax on exercised share options
Balance at 31 March 2017
Year ended 31 March 2016
Balance at 1 April 2015
Profit for the year
Other comprehensive income
Dividends paid
Issue of share capital
Issue of trust shares
Share-based payments
Share options exercised
Tax on exercised share options
Balance at 31 March 2016
Share
Share premium
account
capital
£m
£m
41.1
8.3
—
—
—
—
—
—
4.6
0.1
—
—
—
—
—
—
45.7
8.4
Share
Share premium
account
capital
£m
£m
40.5
8.3
—
—
—
—
—
—
0.6
—
—
—
—
—
—
—
—
—
41.1
8.3
Merger
reserve
£m
71.0
—
—
—
—
—
—
—
71.0
Merger
reserve
£m
71.0
—
—
—
—
—
—
—
—
71.0
Share
Capital
incentive redemption
reserve
£m
1.2
—
—
—
—
—
—
—
1.2
reserve
£m
13.9
—
—
—
—
6.6
(4.3)
—
16.2
Share
Capital
incentive redemption
reserve
£m
1.2
—
—
—
—
—
—
—
—
1.2
reserve
£m
13.3
—
—
—
—
—
2.6
(2.0)
—
13.9
Annual Report & Accounts 2017
Retained
earnings
£m
112.2
33.4
(2.8)
(40.3)
—
—
0.4
0.9
103.8
Total
equity
£m
247.7
33.4
(2.8)
(40.3)
4.7
6.6
(3.9)
0.9
246.3
Retained
earnings
£m
144.6
111.1
0.4
(137.0)
—
(9.8)
—
2.0
0.9
112.2
Total
equity
£m
278.9
111.1
0.4
(137.0)
0.6
(9.8)
2.6
—
0.9
247.7
183
Financial statements
Company cash flow statement
Year ended 31 March 2017
Net cash outflow from operating activities
Notes
44
Investing activities
Interest received
Dividends received from subsidiary undertakings
Amounts received from subsidiary undertakings for share incentive schemes
Purchases of intangible assets
Purchases of tangible assets
Issue of shares from the employee benefit trust
Proceeds from transfer of intangibles to subsidiary undertaking
Net cash from investing activities
Financing activities
Dividends paid
Share capital issued
New bank and other loans raised
Movement in bank and other loans
Net cash generated by/(used in) financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
49, 54
2017
£m
(150.2)
0.1
48.3
4.4
(3.7)
(0.2)
—
—
48.9
(40.3)
0.8
103.3
(29.8)
34.0
(67.3)
62.1
0.8
(4.4)
2016
£m
(72.8)
0.1
115.8
5.3
(0.3)
(0.2)
1.2
19.0
140.9
(137.0)
0.6
75.0
8.8
(52.6)
15.5
46.2
0.4
62.1
184
Annual Report & Accounts 2017
Notes to financial statements
(continued)
Year ended 31 March 2017
Company only
The following notes 43 to 56 relate to the Company only position and performance for the year ended
31 March 2017.
43. Significant accounting policies
As provided by s408 of the Companies Act 2006, the Company has not presented its own income
statement. The Company’s profit for the year was £33.4m (FY16: £111.1m).
The separate financial statements of the Company are presented as required by the Companies Act
2006. As permitted by that Act, the separate financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRSs) adopted by the European Union.
The financial statements have been prepared on the historical cost basis. The principal accounting
policies adopted are the same as those set out in note 2 to the consolidated financial statements except
that investments in subsidiaries are stated at cost less impairment.
Included within ‘Amounts receivable from Group companies’ were amounts advanced to the HomeServe
plc Employee Benefit Trust for the purchase of shares. The shares were held in trust to satisfy obligations
under share option schemes and are recognised at cost.
44. Notes to the cash flow statement
Operating loss
Adjustments for:
Amortisation of intangible assets
Depreciation of property, plant and equipment
Share-based payment expense
Operating cash flows before movements in working capital
Increase in receivables
(Decrease)/increase in payables
Cash used in operations
Income taxes received
Interest paid
Net cash outflow from operating activities
45. Other information
Fees payable to the Company’s auditor for the audit of the
Company’s financial statements
Total audit fees
2017
£m
(20.2)
1.6
0.1
3.1
(15.4)
(112.6)
(17.4)
(145.4)
1.5
(6.3)
(150.2)
2017
£000
69
69
2016
£m
(13.0)
0.2
0.1
2.3
(10.4)
(64.4)
3.1
(71.7)
2.1
(3.2)
(72.8)
2016
£000
65
65
185
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
46. Other intangible assets
Cost
At 1 April 2015
Additions
Transfer to subsidiary undertaking
At 1 April 2016
Additions
At 31 March 2017
Accumulated amortisation
At 1 April 2015
Charge for the year
Transfer to subsidiary undertaking
At 1 April 2016
Charge for the year
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
47. Property, plant and equipment
Cost
At 1 April 2015
Additions
Disposals
At 1 April 2016
Additions
At 31 March 2017
Accumulated depreciation
At 1 April 2015
Charge for the year
Disposals
At 1 April 2016
Charge for the year
At 31 March 2017
Carrying amount
At 31 March 2017
At 31 March 2016
186
Trademarks
& access
rights
£m
Software
£m
Total
intangibles
£m
1.8
—
—
1.8
—
1.8
0.5
0.1
—
0.6
0.1
0.7
1.1
1.2
1.9
1.5
(1.1)
2.3
3.1
5.4
0.9
0.1
(0.8)
0.2
1.5
1.7
3.7
2.1
3.7
1.5
(1.1)
4.1
3.1
7.2
1.4
0.2
(0.8)
0.8
1.6
2.4
4.8
3.3
Leasehold
Improvements
£m
Computer
equipment
£m
Total
tangible
assets
£m
—
0.2
—
0.2
0.1
0.3
—
0.1
—
0.1
—
0.1
0.2
0.1
0.3
0.1
(0.3)
0.1
0.1
0.2
0.3
—
(0.3)
—
0.1
0.1
0.1
0.1
0.3
0.3
(0.3)
0.3
0.2
0.5
0.3
0.1
(0.3)
0.1
0.1
0.2
0.3
0.2
Annual Report & Accounts 2017
48. Subsidiaries
Details of the Company’s subsidiaries at 31 March 2017, including the name, address, country of
incorporation and proportion of ownership interest is given in note 16 to the Group financial statements.
Cost and net book value
At 1 April 2015, 1 April 2016 and 31 March 2017
49. Financial assets
Trade and other receivables
Amounts receivable from Group companies
Other receivables
Prepayments and accrued income
£m
194.6
2016
£m
230.0
0.6
2.1
232.7
2017
£m
368.3
0.9
2.1
371.3
Trade receivables
The Company has a policy for providing fully for those receivable balances that it does not expect to
recover. This assessment has been undertaken by reviewing the status of all significant balances that
are past due and involves assessing both the reason for non-payment and the creditworthiness of the
counterparty.
Ageing of past due but not impaired receivables:
Current
Balance at 31 March
2017
£m
368.3
368.3
2016
£m
230.0
230.0
In determining the recoverability of a trade receivable, the Company considers any change in the
credit quality of the trade receivable from the date credit was initially granted up to the reporting date.
The concentration of credit risk is mitigated through the close management and regular review of
performance of the subsidiary companies.
No allowance for doubtful debts is considered necessary based on prior experience and the Directors’
assessment of the current economic environment.
The Directors consider that the carrying amount of trade and other receivables approximates to their
fair value.
Cash balances and cash equivalents
Cash balances and cash equivalents of £nil (FY16: £62.1m) comprise cash held by the Company and
short-term bank deposits with an original maturity of three months or less. The carrying amount of these
assets approximates to their fair value.
187
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
50. Financial liabilities
Trade and other payables
Trade creditors and accruals
Amounts payable to Group companies
Taxes and social security, excluding corporation tax
Other creditors
2017
£m
9.4
—
3.1
—
12.5
2016
£m
8.6
11.2
1.6
1.5
22.9
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing
costs. The average credit period taken for trade purchases is 12 days (FY16: 19 days).
The Directors consider that the carrying amount of trade payables approximates to their fair value.
51. Deferred tax
The following are the major deferred tax assets recognised by the Company and movements thereon:
At 1 April 2015
Charge to income
Charge to comprehensive income
At 1 April 2016
Charge to income
Credit to comprehensive income
At 31 March 2017
Retirement
Benefit
obligations
£m
—
(0.3)
(0.1)
(0.4)
(0.4)
0.6
(0.2)
Share
scheme
£m
1.8
(0.1)
—
1.7
(0.2)
—
1.5
Timing
differences
£m
(0.2)
—
—
(0.2)
(0.3)
—
(0.5)
Total
£m
1.6
(0.4)
(0.1)
1.1
(0.9)
0.6
0.8
52. Related party transactions
Group companies purchased services of £0.3m (FY16: £0.1m) from Harpin Limited, £0.1m (FY16: £nil) from
Pilot Services Limited and £0.1m (FY16: £0.3m) from Harpin Parkin Limited, none of which are members
of the Group. These companies are related parties because they are controlled by Richard Harpin, Chief
Executive Officer of the Group and Director of the parent company of the Group. Amounts outstanding
to all of these companies on 31 March 2017 amounted to £0.1m (FY16: £0.3m).
The Company also provided goods of £nil (FY16: £0.3m), provided services of £5.5m (FY16: £5.5m),
lent monies to of £44.5m (FY16: £106.3m) and borrowed monies from of £10.6m (FY16: £29.1m) with
subsidiary companies of the Group. Amounts due to subsidiary companies total £nil (FY16: £11.2m).
Amounts owed by subsidiary companies total £368.3m (FY16: £230.0m).
Provision of services to and the purchase of services from related parties were made at arm’s length
prices. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been
given or received. No provisions have been made for doubtful debts in respect of the amounts owed by
related parties.
188
Annual Report & Accounts 2017
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Company, is set
out below in aggregate for each of the categories specified in IAS24 Related Party Disclosures. Further
information about the remuneration of individual Directors is provided in the audited part of the
Remuneration report.
Short-term employee benefits
Post-employment benefits
Share-based payments expense
2017
£m
3.0
0.2
3.1
6.3
2016
£m
2.6
0.2
2.6
5.4
Except as noted above there were no other transactions with Directors requiring disclosure.
53. Share-based payments
During the year ended 31 March 2017, the Company had three (FY16: four) share-based payment
arrangements, which are described in note 39.
LTIP
SAYE
One Plan
2017
Number
Outstanding at 1 April 2016
Granted
Transfer
Forfeited
Exercised
Outstanding at 31 March 2017
Exercisable at 31 March 2017
Weighted average exercise price (£)
Outstanding at 1 April 2016
Transfer
Forfeited
Exercised
Outstanding at 31 March 2017
Exercisable at 31 March 2017
Range of exercise price of options outstanding
at 31 March 2017
£0.01 to £0.99
£1.00 to £1.99
£2.00 to £2.99
£3.00 to £3.99
Weighted average remaining contractual life
Weighted average fair value of options awarded in 2017
3,105,096
778,611
—
(7,471)
(1,402,609)
2,473,627
—
—
—
—
—
—
—
—
—
—
—
2
£4.83
108,649
—
2,149
(1,804)
(32,626)
76,368
1,398
2.53
3.35
2.60
1.91
2.82
1.92
—
1,398
51,496
23,474
2
—
—
2,376
—
(74)
—
2,302
—
—
—
—
—
—
—
—
—
—
—
3
£5.95
189
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
53. Share-based payments (continued)
2016
Number
Outstanding at 1 April 2015
Granted
Forfeited
Exercised
Outstanding at 31 March 2016
Exercisable at 31 March 2016
Weighted average exercise price (£)
Outstanding at 1 April 2015
Granted
Forfeited
Exercised
Outstanding at 31 March 2016
Exercisable at 31 March 2016
Range of exercise price of options outstanding
at 31 March 2016
£0.01 to £0.99
£1.00 to £1.99
£2.00 to £2.99
£3.00 to £3.99
Weighted average remaining contractual life
Weighted average fair value of
options awarded in 2016
LTIP
SAYE
ESOP
DBP
3,618,101
830,676
(197,181)
(1,146,500)
3,105,096
9,189
119,011
21,325
(16,247)
(15,440)
108,649
459
255,000
—
—
(255,000)
—
—
256,995
—
—
(256,995)
—
—
—
—
—
—
—
—
—
—
—
—
2
2.33
3.35
2.60
2.07
2.53
1.96
—
31,813
55,511
21,325
2
£3.98
£1.35
1.92
—
—
1.92
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The weighted average share price at the date of exercise for share options exercised during the year was
£5.22 (FY16: £4.23).
The estimated fair values are calculated by applying a Black-Scholes option pricing model for the ESOP
and SAYE and Monte Carlo simulations for the LTIP and DBP. The assumptions used in the models are set
out in note 39.
The Company recognised total expenses of £3.1m (FY16: £2.3m) related to equity-settled share-based
payment transactions.
190
Annual Report & Accounts 2017
2017
£m
4.4
35.7
40.1
268.2
268.2
308.3
2016
£m
—
25.0
25.0
194.4
194.4
219.4
54. Bank and other loans
Bank overdraft
Bank loans
Due within one year
Bank and other loans
Due after one year
Total bank and other loans
The bank overdraft of £4.4m (FY16: £nil) is part of the Group’s cash pooling arrangements. The weighted
average interest paid was 2.1% (FY16: 2.0%)
The bank position fluctuates from being cash to overdraft and is therefore classified as cash and cash
equivalents in the cashflow.
Bank loans due in less than one year of £35.7m (FY16: £25.0m) comprise the £25.0m short term loan and
£10.7m of the €50m amortising loan. The principal features of these loans are set out in note 21.
Bank and other loans due after more than one year comprise of the revolving credit facility, the US Private
Placement and the remainder of the €50m amortising loan. The principal features of these loans are set
out in note 21.
55. Share incentive reserve
Balance at 1 April 2015
Share-based payment charges in the year
Share options exercised in year
Balance at 1 April 2016
Share-based payment charges in the year
Share options exercised in year
Balance at 31 March 2017
£m
13.3
2.6
(2.0)
13.9
6.6
(4.3)
16.2
191
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
56. Financial instruments
Principal financial instruments
The principal financial instruments used by the Company from which financial instrument risk arises are
as follows:
• cash and cash equivalents
• bank overdrafts, revolving credit facilities, bank loans and Private Placements
•
trade receivables
• other receivables
•
trade payables
• other creditors.
All principal financial instruments are stated at amortised cost.
Capital risk management
The Company manages its capital to ensure that it is able to continue as a going concern while
maximising the return to stakeholders through the appropriate balance of debt and equity. The capital
structure of the Company consists of debt, which includes the borrowings disclosed in note 21, cash and
cash equivalents and equity comprising issued capital, reserves and retained earnings as disclosed in this
note and notes 25 to 30 and the Company Statement of Changes in Equity.
The table below presents quantitative data for the components the Company manages as capital:
Shareholders’ funds
Bank and other loans
2017
£m
246.3
268.2
2016
£m
247.7
194.4
Financial risk management objectives
The Company’s principal financial instruments comprise bank and other loans, overdrafts and cash and
cash equivalents. The main purpose of these financial instruments is to raise finance for the Company’s
operations. The Company also has various other financial instruments such as trade receivables and trade
payables which arise directly from its operations.
The main risks arising from the Company’s financial instruments are interest rate risk, foreign currency
risk, credit risk and liquidity risk.
Interest rate risk
The Company’s exposure to the risk of changes in market interest rates primarily relates to the Company’s
long-term debt requirements with floating interest rates. The Company’s policy is to manage its interest
cost using a mix of fixed and variable rate debts.
192
Annual Report & Accounts 2017
Foreign currency risk
The Company has exposure to fluctuations in foreign currencies due to borrowings made to fund
investments in its overseas subsidiaries which are affected by foreign exchange movements.
The carrying amount of the Company’s foreign currency denominated monetary assets and monetary
liabilities at the year end are as follows:
Euro
US dollar
Assets
Liabilities
2017
£m
31.7
214.4
2016
£m
14.6
119.7
2017
£m
(43.0)
(57.0)
2016
£m
(42.7)
(63.5)
The following table demonstrates the sensitivity to a reasonably possible change of 10% increase in
sterling against the relevant foreign currencies, with all other variables held constant, of the Company’s
profit before tax and equity.
Increase in £:$ exchange rate:
Effect on profit before tax (£m)
Effect on equity (£m)
Increase in £:€ exchange rate:
Effect on profit before tax (£m)
Effect on equity (£m)
2017
10%
(14.3)
(14.3)
10%
1.0
1.0
2016
10%
(5.1)
(5.1)
10%
2.6
2.6
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Company’s Board which sets the
framework for the management of the Company’s short, medium and long-term funding and liquidity
management requirements. The Company manages liquidity risk by maintaining adequate reserves
and banking facilities and continuously monitoring forecast and actual cash flows. Included in note 21
are details of the undrawn facilities that are available to the Company and the Group to further reduce
liquidity risk.
With the exception of the revolving credit facilities, half of the amortising four year term loan and the US
Private Placements, all of the Company’s financial liabilities are due for payment within two years, based
on contractual payment terms.
The maturity profile of the Company’s financial liabilities is provided in the table below. The revolving
credit facility is drawn down and associated interest is settled on a monthly basis. The principal is included
in the table below when the facility is due to expire.
193
Financial statements
Notes to financial statements
(continued)
Year ended 31 March 2017
56. Financial instruments (continued)
Liquidity risk (continued)
2017
Under 2 months
Between 2 and 6 months
Between 6 and 12 months
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Over 5 years
Total
2016
Under 2 months
Between 2 and 6 months
Between 6 and 12 months
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Over 5 years
Total
Bank and
other loans
£m
Trade, other
and group
payables
£m
1.3
36.8
3.1
16.6
140.7
14.0
3.3
115.9
331.7
2.5
5.8
1.1
—
—
—
—
—
9.4
Bank and
other loans
£m
Trade, other
and group
payables
£m
1.3
25.9
2.1
4.2
4.2
146.9
1.7
53.4
239.7
17.7
3.6
—
—
—
—
—
—
21.3
Total
£m
3.8
42.6
4.2
16.6
140.7
14.0
3.3
115.9
341.1
Total
£m
19.0
29.5
2.1
4.2
4.2
146.9
1.7
53.4
261.0
It is, and has been throughout the year under review, the Company’s policy that no trading in financial
instruments shall be undertaken.
The following table demonstrates the sensitivity to a reasonably possible change of 10% increase in the
cost of borrowing, with all other variables held constant, of the Company’s profit before tax (through the
impact on floating rate borrowings).
Increase in the cost of borrowing
Reduction in profit before tax (£m)
2017
10%
0.2
2016
10%
0.2
194
Annual Report & Accounts 2017
Five year summary
Continuing operations
Unaudited
External revenue
UK
North America
France
Spain
New Markets
External sales
Profit/(loss)
UK
North America
France
Spain
New Markets
Amortisation of acquisition intangibles
Exceptional items
Operating profit
Net interest
Profit before tax
2017
£m
319.3
227.8
91.1
130.2
16.6
785.0
63.2
21.2
27.1
13.3
(6.0)
118.8
(14.1)
—
104.7
(6.4)
98.3
2016
£m
286.0
152.6
77.4
97.5
19.7
633.2
58.0
12.1
23.2
9.9
(5.9)
97.3
(10.4)
—
86.9
(4.3)
82.6
2015
£m
279.6
125.3
74.9
90.9
13.5
584.2
56.4
6.4
23.4
7.5
(5.9)
87.8
(10.4)
1.7
79.1
(2.4)
76.7
2014
£m
283.1
110.9
77.3
82.6
14.4
568.3
53.4
12.9
22.3
4.0
(5.7)
86.9
(13.0)
(46.7)
27.2
(2.8)
24.4
2013
£m
302.0
100.8
73.8
60.5
9.4
546.5
78.3
9.5
21.5
3.1
(4.8)
107.6
(13.4)
(25.1)
69.1
(2.6)
66.5
195
Financial statements
Shareholder information
Financial calendar
2017
21 July
3 August
21 November
2018
January
May
June
Annual General Meeting
Final dividend for the year ended 31 March 2017
Interim results for the six months ending 30 September 2017
Interim dividend for the year ending 31 March 2018
Preliminary results for the year ending 31 March 2018
2018 Annual Report and Accounts available
Shareholder helpline
HomeServe’s shareholder register is maintained by Computershare Investor Services PLC who are
responsible for making dividend payments and updating the register, including details of changes to
shareholders’ addresses. If you have a query about your shareholding in HomeServe, you should contact
Computershare.
Tel:
Address:
Website:
0370 707 1053
PO Box 82, The Pavilions, Bridgwater Road, Bristol, BS99 7NH
www.investorcentre.co.uk/contactus
Website
The HomeServe website at homeserveplc.com provides news and details of the Company’s activities plus
information for shareholders. The investor section of the website contains real time and historical share
price data as well as the latest results and announcements.
196
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HomeServe plc
Registered Office:
Cable Drive, Walsall, WS2 7BN
Registered in England No. 2648297
Tel: 01922 426262
homeserveplc.com