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2018
Annual Report
& Accounts
HomeServe plc Annual Report & Accounts 2018
Highlights
In our 2018 financial year, we
continued to deliver excellent
service to our customers and
strong business growth.
Customers +7%
8.4m
(FY17: 7.8m)
Retention rate
82%
(FY17: 82%)
Revenue +15%
£899.7m
(FY17: £785.0m)
Statutory operating profi t +29%
£135.0m
(FY17: £104.7m)
Basic earnings per share +26%
30.2p
(FY17: 24.0p)
Outstanding growth in North America,
including our largest ever policy book
acquisition
North American customers +20% to 3.6m
Adjusted operating profi t +146% to $64.4m
Read more about our North American business on page 38.
Acquisition of the remaining
60% of Checkatrade to
accelerate creation of a global
online marketplace for home
repairs and improvements
Checkatrade vetted
Tradespeople +22% to 29k
Read more about Home Experts on page 44.
Creation of four business lines to drive
global growth:
• Membership
• Home Experts
Ordinary dividend per share +25%
• HVAC
19.1p
(FY17: 15.3p)
Read more about our KPIs on page 15.
• Smart Home.
Read more about our strategy in the Chief Executive's
Read more about our strategy in the Chief Executive's
Read more about our strategy in the Chief Executive's
review on page 8.
HomeServe plc Annual Report & Accounts 2018
1
Our purpose:
HomeServe exists to help people
run their homes more easily.
Vision:
Our vision is to be the world’s
most trusted provider of home
repairs and improvements.
Contents
Strategic report
2 HomeServe at a glance
4 Chairman’s statement
8 Chief Executive’s review
12 Our business model
15 Our KPIs
16 Strategic priorities
20 Corporate & social responsibility
26 Principal risks and uncertainties
34 Operating review
46 Financial review
51 Viability statement
Governance
54 Corporate governance statement
84 Directors’ remuneration report
114 Directors’ report
120 Independent Auditor’s report
Financial Statements
134 Group fi nancial statements
188 Company fi nancial statements
209 Glossary
To view this report online,
go to homeserveplc.com
1 HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. APMs
used in the Annual Report and Accounts 2018 are non-GAAP measures which address profitability, leverage and liquidity and together with operational
KPIs give an indication of the current health and future prospects of the Group. Definitions of APMs and the rationale for their usage are included on
p209 with a reconciliation, where applicable, back to the equivalent statutory measure.
2
HomeServe plc Annual Report & Accounts 2018
HomeServe at a glance
HomeServe at a glance
HomeServe is an international home repairs and improvements business which provides
people with access to tradespeople and technology to help them run their homes more easily.
HomeServe was founded by Richard Harpin, our CEO, 25 years ago in the UK. We developed our Membership model in
partnership with utility companies, and expanded into France, North America, Spain and Italy. Our key source of current
growth is North America, where the acquisitions of Utility Service Partners Inc. in 2016 and the policy book of Dominion
Products and Services Inc. in 2017 are boosting strong organic performance. In 2017 we created four global business
lines to expand our business model. Together with our developing Home Experts business we are now present in the UK,
USA, Canada, France, Spain, Italy, Portugal, Brazil, Mexico, Argentina, Chile and Columbia.
Our business segments
Our primary reporting segmentation
is by geography.
North America
Fast growing Membership business with
c.550 utility partners together with an
HVAC business.
Read more about North America on page 38
Norwalk
Canonsburg
Chattanooga
Our first 25 years
French business launched
as a joint venture with Veolia
De-merged from South Staffordshire
Water and listed as HomeServe
Renewed customer focus following
customer service issues in the UK
1993
2001
2003
2004
2007
2012
HomeServe founded as a joint venture
with South Staffordshire Water
Entered the USA
Acquired Reparalia in Spain
Took full ownership of
France joint venture.
HomeServe plc Annual Report & Accounts 2018
HomeServe at a glance
3
Our 4 global business lines:
Membership
Subscription-based home assistance for
homeowners covering plumbing, heating,
electrical, locks, glazing, pest control and
technology.
HVAC
A complete solution to the installation,
repair, maintenance and financing of
heating, ventilation and air conditioning.
Home Experts
On demand, online marketplace to find
vetted and reviewed local tradespeople
for a broad range of home repairs and
improvements.
Smart Home
Development and distribution of
technology to enable home automation,
including LeakBot, smart thermostats
and connected boilers.
UK
Well established Membership business. Leading the
Group’s LeakBot opportunity and progress in HVAC
with acquisition of Help-Link in 2017.
Read more about the UK on page 36
Walsall
Lyon
Madrid
Spain
Well established Membership business and a Claims
business providing repair services for B2B clients.
Plans to develop HVAC.
Read more about Spain on page 42
France
Well established Membership business with two major
partners; entry into HVAC market with acquisition of
Electrogaz in 2017.
Read more about France on page 40
New Markets
New business development and innovation activities
including our Italian associate with Edison Energia and
our Home Experts businesses, Checkatrade in the UK and
Habitissimo in Spain. Opportunities to expand into new
geographies.
Read more about New Markets on page 44
Launched LeakBot
in the UK
Acquired 70% stake in
Habitissimo, in Spain, as part of
the Home Experts strategy.
£125m equity
placing
Gained 100% control
of Checkatrade
2016
2017
Acquired Utility Service
Partners Inc. (USP) in
North America
Acquired initial 40% stake
in Checkatrade as part
of the Home Experts
strategy
Joint venture with
Edison Energia in Italy
Acquired the Dominion
Products and Services
Inc. (DPS) policy book in
North America
4
HomeServe plc Annual Report & Accounts 2018
Chairman’s statement
Chairman’s statement
I am delighted to report
that HomeServe has had
another strong year, in
which we continued to
deliver excellent service to
our customers and further
business growth. We now
have 8.4 million customers
(FY17: 7.8m); the Group
retention rate is stable at
82%; and we delivered
a 24% increase in basic
earnings per share to 30.2p.
Dividend
Given the Group’s performance this
year and the Board’s confidence
in its future prospects, the Board
is proposing a final dividend of
14.4p per share, bringing the total
ordinary dividend for the year to
19.1p per share of 33.6p, an increase
of 25%. The proposed dividend is
1.76x covered by adjusted earnings
per share. The Board operates a
progressive dividend policy, and
targets dividend cover in the range
of 1.75x – 2x adjusted earnings per
share over the medium-term.
Strategically, this has been a very
important year for HomeServe, in
which the Board has taken a series
of decisions to move us closer to
achieving our vision of being the
world’s most trusted provider of
home repairs and improvements.
Organic growth augmented by
complementary acquisition is central
to our strategy in pursuit of that vision.
Equally important to the effectiveness
of this strategy is the continuing
development of our business model
with its five key sources of value –
partnerships, marketing expertise,
customer service, local networks
and financial resources. In FY18 we
created four global business lines
to implement our strategy even
more effectively and to leverage our
business model to greater advantage,
beyond our established Membership
business. Our four business lines are
Membership, Home Experts, Heating,
Ventilation and Air Conditioning
(HVAC) and Smart Home.
We continue to build our Membership
business in all geographies, with
notable success in North America.
The Board took the decision to
supplement strong organic growth
in North America with the acquisition
of the policy book of Dominion
Products and Services Inc. (DPS) –
our largest ever acquisition.
To fund the DPS acquisition and
retain balance sheet strength for a
pipeline of further opportunities,
HomeServe undertook its first ever
placing of equity. The Board was
strongly in favour of asking for direct
support from our shareholders
for an acquisition which clearly
benefited the core of our business.
We were delighted to receive a clear
endorsement of our strategy.
In Home Experts, the Board gave
the go-ahead to an important step
forward, with HomeServe taking
control of 100% of Checkatrade in
November 2017. Checkatrade gives
us the foundation we need to build
our Home Experts business in the
UK and combines well with the
digital expertise of Habitissimo in
Spain.
In HVAC, the Board advocated a
measured approach, authorising
the acquisitions of Help-Link
and Electrogaz to provide HVAC
bridgeheads in the UK and France
respectively.
In Smart Home the Board has
elected to focus on territory adjacent
to our core businesses - water
leakage with LeakBot and also smart
thermostat and connected boiler
technology.
HomeServe plc Annual Report & Accounts 2018
Chairman’s statement
5
for his service to HomeServe. He has
made an outstanding contribution
over the last 15 years, and in
particular since his appointment
to the Board in 2009, first as Chief
Financial Officer and latterly as UK
CEO. Our recent reorganisation to
create four global business lines gave
Martin the opportunity to consider
his next move, and we respect his
decision to move on. We all wish him
well for the future.
True to our values
As I travelled around HomeServe’s
offices this year, I have been
immensely impressed by the
everyday evidence I see of how true
we are to our global values. I would
like to take this opportunity to say
thank you to everyone at HomeServe
who has gone the extra mile this year
in service of our customers, partners,
communities and shareholders, and
to thank all of our stakeholders for
their continued support.
JM Barry Gibson
Chairman
22 May 2018
See page 12 for our business
model.
See page 16 for our strategic
priorities
See page 20 for more on our
people strategy, as part of
Corporate & social responsibility.
People
Underpinning HomeServe’s
ambitious growth strategy is a clear
focus on making sure we have the
right people in the right positions at
every level across the Group, and
on giving them the knowledge and
skills they need to deliver exceptional
performance. To encourage
everybody in HomeServe to prioritise
and value our people strategy, we
created a People Committee in 2017.
Its work to date has reviewed insights
from new disclosure, for example on
the gender pay gap.It has also been
instrumental in the development
of our global talent strategy and
will play a key role in monitoring its
implementation.
Board changes
At Board level, we welcomed three
Non-Executive Directors – Katrina
Cliffe, Edward Fitzmaurice and Ron
McMillan – together with one new
Executive Director – Tom Rusin.
We said farewell to Non-Executive
Directors Mark Morris and Ben
Mingay. I would like to extend my
thanks to both of them for their hard
work and insight during their time
on the Board. This has been a busy
year for the Board, and I am grateful
to all of my Board colleagues for the
dedication, challenge and expertise
they have brought to the Boardroom
this year.
After our 2018 financial year end,
we announced that Martin Bennett,
CEO, HomeServe UK, will step
down from the Board at the Annual
General Meeting on 20 July and
leave the business later in 2018. On
behalf of the Board, I would like to
take this opportunity to thank Martin
Our global
values
HomeServe has a vibrant corporate
culture based on four global
values which define the way we do
business. By living these values, we
have built our business on strong
foundations.
Put customers at the
heart of everything we do
Combine relentless
innovation with integrity
and professionalism
Strive to be the best
in the world at what
we do
Develop and encourage
great people who are
passionate about taking
responsibility and making
things happen
See page 20 for how we bring
these values to life through our
approach to Corporate & social
responsibility.
6
HomeServe plc Annual Report & Accounts 2018
HomeServe plc Annual Report & Accounts 2018
7
When water bills
break
How HomeServe solved
the mystery of the rising rates
“HOW MUCH?
I’d enough to worry about with a baby on the way.
Huge water bills were not what I was expecting.
Sky high and I couldn’t see why.
Enter two HomeServe engineers.
They quickly found the source.
A leak had sprung under the front garden.
They dug a hole, fixed the pipe.
And even put the lawn back.
Now my bills are back down to earth.
Thank you HomeServe.”
Mrs Bayliss, Walsall
United Kingdom
Discover how life keeps moving for our Customers at homeserve.com/customerstories
8
HomeServe plc Annual Report & Accounts 2018
Chief Executive’s review
Chief Executive’s
review
When we look back in
a few years’ time on
our 2018 financial year,
I think we may see it
as the year when we
further step changed
HomeServe’s growth
opportunities. Our
business continued to
perform well and the
strategic decisions we
took will have a major
influence on our long-
term growth prospects.
Progress in FY18
Our most exciting growth area in
the short to medium term is North
America. This year’s 20% increase
in customers was split 50:50
between organic growth and the
first tranche of customers acquired
with our largest ever acquisition
- the policy book of Dominion
Products and Services Inc (DPS).
Our North American team have
been signing new partners at a
rate of two per week, and I would
like to congratulate them for their
dedication and hard work in taking
our North American business to
scale.
The UK is our most developed,
cash generative business. Our
UK Membership base is stable at
around 2.2m customers, and we
continue to see opportunities
to improve its size and value
through product development,
marketing and selective policy
book acquisitions. The UK team
maintained high levels of customer
service all year, including during
adverse winter weather conditions,
thanks to improved facilities
to serve customers online and
redeploying an increasingly multi-
skilled workforce as the need arose.
Looking forward, our priorities in
the UK are to broaden our affinity
partnerships in new areas such as
energy, with partnerships signed this
year with E.ON and Octopus Energy;
to increase the efficiency of our
operations; to develop our Heating,
Ventilation and Air Conditioning
(HVAC) business; and to continue the
roll-out of LeakBot, which is looking
very promising.
In France, we continue to enjoy
strong relationships with our main
partners Veolia and Suez and remain
focused on business development
opportunities that could unlock new
partnerships and opportunities for
future growth. We took our first step
into HVAC installations in France in
December 2017, with the acquisition
of Electrogaz.
In Spain, revenue growth in
our Membership business and
increased efficiency in Claims drove
strong profit growth. The current
partnership with Endesa draws
to a close in the coming weeks.
Discussions continue to define a
future relationship, which could be
a non-exclusive claims handling
and service only arrangement. This
would enable us to enter discussions
with other energy companies.
The net effect of not marketing
with Endesa is expected to have
no significant impact on adjusted
operating profit in Spain over the
next two years
Our partnership with Edison Energia
in Italy continued to make progress,
with Edison marketing HomeServe
HomeServe plc Annual Report & Accounts 2018
Chief Executive’s review
9
Home Experts
For me, one of the most significant
decisions we took this year was
to purchase the remaining 60% of
Checkatrade, to give us full control
of that business. As we develop our
Home Experts strategy, Checkatrade
brings a strong UK brand and a great
process for certifying reputable
tradespeople. Over time, we will
combine this with the innovative
digital capabilities we have access
to at Habitissimo, as well as
Habitissimo’s ability to test different
revenue models and to expand
effectively into new markets: they are
already present in Spain, France, Italy,
Portugal, Brazil, Mexico, Argentina,
Chile and Columbia. With the
financial resources HomeServe can
add to the mix, we see enormous
potential to develop a scalable,
global Home Experts marketplace.
products as part of their strategy to
gain market share in the domestic
Italian energy supply market. We
continue to develop opportunities to
expand our Membership model into
new markets, and will ensure that
new entries are supported by large
and committed utility partners.
Positioning for future growth
I see it as crucial to my role as
founder and CEO of HomeServe to
position our business for the future
as well as the present. This year,
we continued to develop our five
strategic priorities - our people, our
affinity partnerships, our local repair
networks our digital capabilities
and the financial resources at our
disposal. These capabilities create
the opportunity to expand beyond
our traditional Membership business
and to this end, we have created
four global business lines with the
potential to expand our business
model.
• Membership – our core
subscription-based home
assistance service covering
plumbing, heating, electrical,
locks, glazing, pest control and
technology, which we have rolled
out successfully in the UK, North
America, France, Spain and Italy
• Home Experts – an online, on
demand marketplace which
matches younger, non insurance
minded consumers with vetted
and reviewed local tradespeople
to carry out a range of household
repairs and improvements
• HVAC – a complete solution
to the installation, repair,
maintenance and financing
of heating, ventilation and air
conditioning
• Smart Home – developing and
distributing technology to enable
home automation, including
LeakBot, smart thermostats and
connected boilers.
I am delighted to have been
able to promote members of my
management team to make the
most of these new opportunities,
in particular Tom Rusin, who is now
Global CEO of our Membership
business. Tom has been instrumental
to our recent success in North
America and will bring invaluable
insight and energy to drive all of our
Membership businesses forward. He
has a worthy successor – John Kitzie
– already in place in North America,
and will continue to be based in
Norwalk, Connecticut.
10
HomeServe plc Annual Report & Accounts 2018
Chief Executive’s review
Chief Executive’s review
continued
Market insight
My interest in Home Experts
began with an analysis of our
wider market, including not
only home repairs but also
home improvements. Our
core Membership subscription
business continues to appeal to
around a third of addressable
households - homeowners
who want to avoid unexpected
costs and who value our reliable
customer service when fixing
problems that occur around
their homes. However there
is great growth potential with
opportunities outside our
traditional base - amongst a
younger demographic, who are
less likely to buy an insurance-
type product and more likely to
look online for a tradesperson
when the need arises. We can
deploy our core capabilities to
service these consumers and
offer a wider range of home
improvements as well as repairs.
Home repairs and
improvements
£400bn
Membership
£14bn
In our existing markets...
● Membership; UK ONS survey
+ HomeServe estimate
● Home Repairs + improvement;
HomeServe estimate
And...
● An opportunity in Habitissimo’s
other territories
HVAC and Smart Home
We also made progress in FY18
on defining our HVAC and Smart
Home propositions. Based upon the
success of our boiler and furnace
installation and repair business in
North America, we have started
to develop this business line in the
UK and France via the acquisitions
of Help-Link and Electrogaz
respectively. HVAC is a highly
fragmented market and one where
we see potential to grow our market
share amongst a new group of high
value Membership customers. In
the Smart Home market, we will
engage in areas adjacent to our
other businesses, for example smart
thermostats and plumbing-related
products. I am delighted that our
LeakBot smart water leak detector
is starting to gain traction, and we
have developed a WiFi version to
facilitate broader coverage. Further
test agreements have been signed
and the first sizeable volume orders
agreed with partners in Denmark and
the UK.
Looking forward to FY19
We will remain true to our growth
strategy. Our priorities in delivering
our growth strategy are as follows,
• To continue to grow our core
Membership businesses
- In North America where we
expect to complete the second
tranche of DPS this autumn and
through further organic and
acquisition opportunities
- In the UK, France and Spain
by continuing to develop
our affinity partnerships and
increasing the efficiency of our
operations.
- In new geographies by
exploring opportunities for joint
ventures with utility partners.
• To further develop our Home
Experts proposition and scale our
Checkatrade business in the UK by
recruiting more tradespeople and
attracting more consumers and
internationally via Habitissimo
• To roll out our HVAC proposition
in the UK, North America, France
and Spain
• To progress Smart Home
initiatives, including converting
LeakBot test agreements to
volume orders and signing further
insurance partners.
With significant initiatives underway
in all four business lines, we have
made notable progress this year
towards our vision of becoming the
world’s most trusted provider of
home repairs and improvements.
We have done so by remaining true
to our purpose - to help people run
their homes more easily - and to our
customer centric values. Every day,
I hear heart-warming stories about
the lengths our people go to in
delivering service to our customers
– the Customer Stories featured in
this year’s Annual Report give you a
flavour of this. It is this commitment
and enthusiasm above all which
powers our business, and I would like
to conclude by thanking everyone at
HomeServe for their hard work this
year.
Richard Harpin
Founder and Chief Executive
22 May 2018
HomeServe plc Annual Report & Accounts 2018
Chief Executive’s review
11
“I see it as crucial to my role as Founder and CEO of HomeServe
to position our business for the future, as well as the present.”
Richard Harpin
Founder and Chief Executive
12
12
HomeServe plc Annual Report & Accounts 2018
HomeServe plc Annual Report & Accounts 2018
Our business model
Strategic report
Our business model
Page header
What we do
HomeServe delivers home repairs and improvements to help people run their homes more easily. Our vision is to
be the world’s most trusted provider of home repairs and improvements.
We have five key sources of value, which give us the capabilities we need to build four global business lines. These
are in different stages of development in different geographies.
Membership
HVAC
Home Experts
Smart Home
HomeServe plc Annual Report & Accounts 2018
HomeServe plc Annual Report & Accounts 2018
Our business model
Strategic report
13
13
How do we do it?
We have five key sources of value for our stakeholders. These are distinct to us and crucial to the success of our business.
We have listed against each source of value the KPIs that measure our progress and the most relevant risks.
Our most established route to market is through long-term, exclusive partnerships with utilities, heating
manufacturers, insurance companies and specialist service providers. We have a substantial network of over 570
utility partners, and considerable expertise in managing these partnerships for mutual benefit. Our utility partners earn
commission on every policy we secure through them and benefit from our long-term approach to delivering value. In
highly concentrated markets such as France and Spain, we work with a small number of very large partners, whereas in
the fragmented North American market we work with a wide range of small and large partners. HomeServe acts as an
insurance intermediary, and does not take any material insurance risk. Our Membership products are underwritten by
independent third party underwriters, who are also important long-term partners.
KPI: Affinity partner households
Principal risks: Market disruption (1), Commercial partnerships (2), International development (3)
We have three key areas of expertise.
•
Innovative product design, where our expertise is focused on adapting to the needs of individual markets to provide
products that customers value and use; responding efficiently to market or regulatory change; and creating,
developing, testing, launching and assessing the performance of our products in a streamlined fashion
• Data-rich marketing, optimised across a range of channels including direct mail, contact centres and online, with
sophisticated monitoring of campaign paybacks
• An increasingly powerful global brand that complements our partner brands.
KPIs: Customers, Policies
Principal risks: Market disruption (1), Digital and innovation (11)
Putting the customer at the heart of everything we do is the first and most important of our corporate values. This
shines through in the way that our local contact centres operate to handle customer claims and enquiries, and also in
the way our engineers behave in customers’ homes. We engage the best people right across our business and provide
them with the tools and technology they need to do a great job. We have internal measures for customer satisfaction
in each of our businesses and we are proud of the external awards we win in each of our businesses.
KPI: Retention rate
Principal risks: Market disruption (1), Regulation and customer focus (8), Digital and innovation (11)
We rely on our local networks to deliver consistently high service in our customers’ homes and we have many years
of experience and expertise in managing these networks. We devote considerable time to recruiting and maintaining
those in the network and to providing the infrastructure and technology required for them to operate efficiently. In
our Membership business we optimise our mix of directly employed engineers and sub-contractors and in our Home
Experts business we are focused on delivering rapid growth in the number of tradespeople we work with to deliver on
demand repairs and improvements.
KPI: Tradespeople
Principal risks: Market disruption (1), Recruitment and talent (9)
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Our business is predictable, sustainable and cash generative. Our revenue streams are largely subscription based
and we invest in our people, our network, our brand, our partnerships and our technology systems and processes to
generate growth. We have opportunities to grow organically and through acquisition in all of our markets and have
a strong track record of successful acquisition and integration. To grow our business, we invest in our key sources of
value, for the benefit of multiple commercial stakeholders.
KPIs: Adjusted PBT, Net Debt: EBITDA
See Glossary on p209 for full detail of our alternative performance measures.
Principal risks: Recruitment and talent (9), Financial (12)
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See page 15 for our KPIs
See page 26 for our Principal risks and uncertainties.
14
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HomeServe plc Annual Report & Accounts 2018
Our business model
Our business model
continued
Our principal stakeholders, and why they benefit from working with us.
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“HomeServe helps me run my home more easily.
With HomeServe cover, if something goes wrong,
I call them up and they’ll fix it.”
“As a utility company, it makes sense to work with HomeServe
to deliver top quality home assistance to our customers.
In partnership with HomeServe, we can provide the services our
customers expect and generate value for our company.”
“HomeServe places great emphasis on its customers and I feel
empowered to deliver great service when I’m in customers’
homes at their time of need”
“HomeServe is a great place to work. The company is growing
fast and offers me opportunities to develop
my skill set and build my career.”
“HomeServe people really care about the communities
around them, and take on community projects
with commitment and enthusiasm.”
“HomeServe is a well-run, cash-generative business
with attractive, sustainable growth prospects.”
Value creation
The value we create for all of our stakeholders has the potential to be compounded as we expand our four
business lines.
• Consumers may transition to become customers of more than one HomeServe business. For example,
Membership subscribers may use on demand Home Experts to access a broader range of trades, or install a
new boiler through HVAC
• Tradespeople can find support and opportunity at HomeServe throughout their working lives, whether as
employees or small business owners
• Partnerships may expand, for example by creating a joint venture in a new geography.
HomeServe plc Annual Report & Accounts 2018
Our business model
15
15
Our KPIs
Our KPIs are the measures we use to track progress against our strategic priorities and in building our sources of value.
They help us analyse past performance and give us insight into future prospects.
Affinity partner households (m)
Customers (m)
Tracks the growth in our addressable market
delivered through existing and new partnerships
with utilities and municipals.
Tracks our success in converting our addressable
market into revenue-generating customers, by
delivering great products and service.
85
89
92
109
102
FY14
FY15
FY16
FY17
FY18
8.4
7.8
6.3
7.0
5.5
FY14
FY15
FY16
FY17
FY18
Retention rate
Policies (m)
Reflects our ability to deliver fit-for-purpose
products and great service to our customers.
Illustrates our ability to grow our product line
through customer focus and innovation.
83%
83%
83%
82%
82%
11.9
12.8
10.9
15.7
14.3
FY14
FY15
FY16
FY17
FY18
FY14
FY15
FY16
FY17
FY18
Income per customer
Measures our ability to design and market
increasingly valuable products, and sell them
efficiently. Due to currency differences, we track this
measure at a geographic level.
Tradespeople ('000)
Our customers in our Home Experts business.
Growing our network of vetted and reviewed
tradespeople will enable us to meet consumer
needs and grow our business.
£106
$91
+5%
UK
-12%*
North America
€106
+6%
France
€47
+57%
Spain
* Reflects rapid growth and changes in mix
FY18 vs FY14
29
29
22
25
FY17
FY18
FY17
FY18
Habitissimo
Checkatrade
Adjusted profit before tax
Is our key profit measure, by which we monitor
business growth, efficiency and sustainability.
Net debt to EBITDA
Our key cash ratio, which we use to monitor
usage of our financial resources within agreed risk
parameters.
141.7
112.4
93.0
FY16
FY17
FY18
84.1
FY14
85.4
FY15
0.4x
0.6x
1.4x
1.7x
1.2x
FY14
FY15
FY16
FY17
FY18
Further details on KPIs including calculations can be found in the glossary on page 209.
16
HomeServe plc Annual Report & Accounts 2018
Strategic priorities
Strategic priorities
The following strategic priorities are pursued in all of our segments and support our four global business lines. These
priorities will retain and advance our existing core strengths and ensure we approach future growth initiatives with the
appropriate focus to meet our vision to become the world’s most trusted provider of home repairs and improvements.
Overview
Results
We recruit and retain the right people in the right roles to ensure we
have the expertise to meet both regulatory requirements and the
exacting and changing needs of our customers. Detailed succession
plans and fulfilling careers will lay the foundation to take advantage
of the opportunities in our four business lines.
Risks: Regulation and customer focus (8), Recruitment and talent (9)
KPI(s): Customers
FY18: 5,855 employees
(FY17: 5,008 employees)
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We have active business development exploring new partnerships
and we will continue to evaluate and seek to renew our existing ones.
Our North American pipeline is particularly strong and we expect to
complete tranche 2 of the DPS acquisition in autumn 2018.
FY18: 570+ partners
(FY17: 500+ partners)
We intend to enter new territories by agreeing joint ventures with utilities.
Risks: Market disruption (1), Commercial partnerships (2),
International development (3)
KPI(s): Affinity partner households
Managing a large claims network and ensuring we get the right
tradesperson to the right place at the right time is one of our core
strengths and a key barrier to entry. We optimise our Membership
networks for subcontractors and directly employed engineers. We
will recruit and grow our Home Experts tradespeople.
FY18: 7,000+ engineers & franchisees,
58k Home Experts
(FY17: 5,400+ engineers & franchisees,
46k Home Experts
Risks: Market disruption (1), Recruitment and talent (9)
KPI(s): Tradespeople
Our customers, partners and tradespeople continue to demand
greater interaction online. We are committed to providing the
smoothest customer experience and to developing products
that complement our existing businesses and meet the changing
demands and needs of our customers.
I
Risks: IT investment (10), Digital and innovation (11)
KPI(s): Policies
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n
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HomeServe has a disciplined approach to financial resource
management and all investment decisions are assessed against strict
criteria. Capital projects will drive a better customer experience and
ensure we scale efficiently. We have options to acquire customers
organically through successful marketing programmes and we have
proved that we can integrate complementary bolt on M&A effectively
in our membership business.
M&A also presents an opportunity to accelerate our progress in newer
business lines such as Home Experts or HVAC.
Risks: Financial (12)
KPI(s): Financial metrics including adjusted
PBT and net debt: EBITDA
HomeServe plc Annual Report & Accounts 2018
Strategic priorities
17
Update
How this helps achieve our vision
In 2017 we established a People Committee chaired by our Senior
Independent Director and we appointed a Director of Group
Talent to ensure this receives the required focus. We value the
efforts of all of our staff and are proud of the employer awards we
win.
Ensuring our people are skilled, experienced and
have the opportunity to develop their own careers
is fundamental to HomeServe’s success. Talented
people who embrace our values and our sharp
customer focus will drive the business forward.
KPI(s): Customers
For more detail on our people priorities see page 22
We sign the majority of our new partnerships in North America
and in FY18 we were pleased to sign Octopus Energy and E.ON in
the UK presenting an exciting opportunity in the energy space. We
continue to renew partnerships in all of our businesses. With such
a wide portfolio of partners there will now inevitably be a small
degree of churn but we will seek to grow the overall base.
Our partnerships are a key competitive barrier
to entry. Growing our businesses in existing
territories and expanding to new areas with utility
brands that customers recognise and trust is
fundamental to realising our growth ambitions in
Membership.
KPI(s): Affinity partner households
Our Operating review begins on page 34
KPI(s): Tradespeople
Our Home Experts initiatives are detailed on page 44
Our Membership businesses completed over 2.6m jobs in FY18.
Our 100% ownership of Checkatrade has enabled us to commit
financial backing to grow the network more quickly e.g. by
allowing monthly rather than annual payments. Habitissimo
generated a record number of leads and is developing product
and pricing initiatives to grow their networks.
We will extend our reach and broaden our
product offering in all countries in which we
operate. Large networks of skilled and reliable
tradespeople and easily accessible, independent
online customer reviews will increase consumer
trust and satisfaction.
KPI(s): Policies
More customers are choosing to purchase, manage and claim
online. A new App has proven popular in the UK and our
development of a wifi LeakBot will provide greater reach and scale.
Our plans to develop an online, on demand Home Experts solution
were boosted by accelerating our 100% ownership of Checkatrade
and will enable us to reach a more tech-reliant demographic.
LeakBot and Home Experts detail is in the Operating
review beginning on page 34
A wider reach and high customer trust and
satisfaction is only possible if we provide solutions
that meet the changing needs of consumers.
We continue to manage resources effectively and evaluate
investment opportunities. Having completed significant
programmes in recent years we now see capital expenditure
reducing in the near term. We will continue to evaluate M&A
opportunities.
Strong financial management and investment
discipline will ensure we are well placed to
be able to take advantage of our growth
opportunities.
KPI(s): Financial metrics including adjusted
PBT and net debt: EBITDA
Our financial review begins on page 46
18
18
HomeServe plc Annual Report & Accounts 2018
HomeServe plc Annual Report & Accounts 2018
Strategic report
Page header
Fix it ... better than patching it up
HomeServe’s commitment to offer customers the best technical solution.
“My wife and I have small children. This is the main reason why we signed up to a water leaks
policy with HomeServe. Just a few months after we subscribed, we had to call them up because
of a massive water leak. We were pleasantly surprised by HomeServe’s handling of this emergency:
they reacted fast and we really appreciated the efficiency of the engineers. We got our water
supply back in no time and we were able to get on with our family life. A year later, the same pipe
sprang another leak. HomeServe sent an engineer round quickly, and he suggested changing the
pipe rather than patching it up, to avoid further problems with the damaged pipe. This was a more
complex, more expensive option: it cost over 1000 Euros which HomeServe paid. We didn’t have
to pay a thing! Even better, we can now be sure that the problem has been solved for good.”
HomeServe plc Annual Report & Accounts 2018
HomeServe plc Annual Report & Accounts 2018
Strategic report
19
19
Réparer…
mieux que panser
Comment HomeServe s’engage à toujours
proposer la meilleure solution technique
à ses clients.
“Ma femme et moi avons des enfants en bas-âge.
C’est notamment pour ça que l’on a pris un contrat fuites
d’eau chez HomeServe. Quelques mois seulement après
avoir souscrit j’ai dû les appeler pour une grosse fuite.
Nous avons eu une belle surprise en constatant la grande
maîtrise de l’urgence de HomeServe : l’intervention a été
rapide et nous avons apprécié l’efficacité des prestataires.
L’alimentation d’eau a été rétablie rapidement et notre vie de
famille a pu reprendre son cours rapidement.
Un an plus tard, une seconde fuite s’est déclarée sur la
même canalisation. HomeServe nous a envoyé un
prestataire rapide-ment qui a préconisé un changement de
canalisation plutôt qu’un simple colmatage pour éviter de
futures pannes sur la partie vétuste. Une option plus complexe
et plus coûteuse : plus de 1000€ que HomeServe a pris en
charge entièrement. Nous n’avons rien eu à payer ! Mieux, nous
avons eu l’assurance que le problème était définitivement réglé.”
M. R. Guessas, Vénissieux
France
Discover how life keeps moving for our Customers at homeserve.com/customerstories
20
20
HomeServe plc Annual Report & Accounts 2018
Corporate & social responsibility
Corporate & social
Page header
responsibility
Our corporate responsibility
objectives support our vision and
help bring our corporate values to
life. They focus on four areas:
1. Putting Customers at the heart of
everything we do by ensuring that
customers are treated fairly and
that we provide the high levels of
service expected of us
2. Giving our People the opportunity
to work in an environment which
values innovation, integrity and
professionalism, rewards success
and encourages responsibility and
accountability.
3. Using our skills and resources
to drive a positive Social impact
for the benefit of the wider
community and support and
encourage employee involvement
in charitable activities.
4. Having regard for our
Environment, ensuring we use
resources wisely and efficiently
to lessen our own impact and
encourage awareness in others
wherever.
Our business model and strategy
aim to create value and build
relationships with all of our key
stakeholders; customers, partners,
tradespeople, employees,
communities and investors. Our
approach to corporate and social
responsibility is also largely people-
centric.
See page 5 for our global values.
See page 14 for more information
on our principal stakeholders.
We are committed to developing and implementing a
successful corporate and social responsibility programme
that benefits key stakeholders. We believe that a
successful business must also be a responsible business.
HomeServe plc Annual Report & Accounts 2018
Corporate & social responsibility
21
21
HomeServe's impact
Our business model on page 12 lists
the sources of value which are key to
HomeServe’s success. In developing
these sources of value, Homeserve
is respectful of its wider impacts and
responsibilities with regards to social,
community and environmental
matters. Our business model is not
believed to present a significant risk
in any of these areas.
People are fundamental to
our ongoing success and their
recruitment and development is one
of our principal risks on page 32.
Addressing this risk and developing
sources of value such as our
local contractor networks places
HomeServe in a unique position to
be able to have a positive impact on
the communities and environment
around us. Our strategic initiative
to innovate (p16) may also generate
positive environmental impacts e.g.
reducing water loss through LeakBot
or improving energy awareness
and usage through smart boiler
technology.
Policies
Detailed policies can all be found on
our website for;
• Anti-Fraud and Bribery
• Whistleblowing
• Code of Business Conduct
• Environment and Health & Safety
http://www.homeserveplc.
com/about-us/corporate-
governance/policies.aspx
All Membership businesses were
deemed compliant with these
policies throughout FY18. Our
recent acquisitions of Help-Link
and Checkatrade in the UK and
Electrogaz in France did not form part of any detailed reviews. Due diligence
procedures completed as part of the acquisition processes did not highlight
any concerns and all businesses are expected to adopt and comply with
HomeServe’s policies in FY19.
The Group did not have an approved policy on Human Rights, however
we endeavour to demonstrate respect for all people our business touches
either directly through our customers, employees and other stakeholders
or indirectly throughout our supply chains. A policy will be developed and
implemented during FY19.
Customers
Our Customer Promises demonstrate our commitment to our customers.
The promises exist in all of our businesses and are embraced by all levels
from the front line to senior management and the Board. Our employees are
empowered to always do the right thing along every step of the customer
journey and we have fostered a culture which places the customer at the heart
of our operations. We value our reputation and we continue to win awards for
high levels of customer service in all of our businesses.
Our UK 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
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1,538re a l r
95of customers would
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22
HomeServe plc Annual Report & Accounts 2018
Corporate & social responsibility
Corporate & social responsibility
continued
People
HomeServe’s continuing success
is reliant on having the best people
in all areas of our businesses. A
customer focus runs through our
recruitment and development
processes ensuring all employees
share the same purpose.
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
FY18 across the Group was 54:46
(FY17:55:45) (Male:Female) with
a team of over 5,800. 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 career development of our
employees with talent development
a specific focus in FY18. 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 use a range of regular
communication channels to keep
employees briefed on the Group’s
strategic and financial progress
and any ongoing initiatives that
may affect them. This is a two way
process and employees are actively
encouraged to share ideas and
opinions with senior management
on HomeServe’s internal social
media platforms or confidentially
through “suggestion boxes”. All
local CEOs also encourage staff of
all levels to attend 1-2-1s with them
to discuss anything from product
improvement ideas to individual
career progression.
There is a Group wide employee
share scheme – “One Plan” in which
all employees are able to participate
and to share in HomeServe’s success.
Talent
Developing our global talent strategy
has been a key focus during FY18
with a plan in place to drive the
attraction, growth and retention of
talented employees with the right
capabilities to deliver our growth
strategy. During FY18 a Group
Talent & Development team was
established, focused on building a
solid foundation for a global talent
agenda. The plan was approved by
the newly formed People Committee
in January 2018.
Central to our work is defining
the ‘HomeServe Way’ which
describes the ‘DNA’ of successful
HomeServe Senior Leaders in terms
of knowledge, skills and attitude. This
is being developed in partnership
with the Executive Committee, and
provides a clear and consistent
framework for hiring, developing and
promoting the right people within
our most senior population.
It is especially important to
HomeServe that we have the right
level of diversity responsible for
our strategic thinking and decision
making. As in many organisations
women are currently under-
represented at HomeServe’s senior
levels. At these levels our data
shows that 25.5% of our most senior
leadership roles globally and 18.2%
of our Executive Committee roles
and their direct reports are held
by women. Whilst this is a good
representation, there is more to
do to improve this, in particular
ensuring that talented womenare
appropriately recognised and
represented on succession plans
for roles that sit on the Executive
Committee and on our Board.
Diversity
Ensuring that our future senior
leadership team better reflects
the diversity of the markets we
serve and the people we employ is
now a key objective of our global
talent strategy. A diversity ‘lens’
will be incorporated into the way
we hire, develop and promote our
senior talent globally, and we are
committed to reporting the resulting
impact that this makes in our Annual
Report going forward.
The primary principle behind the
plan is to ‘widen the gate – not lower
the bar’, and like many organisations
we are starting this journey by
focusing on a plan to drive increasing
levels of gender diversity, both
within our current senior leadership
team and the succession ‘pipeline’
that sits beneath this. We recognise
that diversity is much broader than
gender, but believe that achieving
sustainable traction in this critical
area of talent will give us strategies
that can be applied more broadly to
ensure we release the talent of every
employee.
HomeServe plc Annual Report & Accounts 2018
Corporate & social responsibility
23
Gender Pay
Under UK legislation we reported our required gender pay data for our UK operations in March 2018. The gender pay
gap is the difference in the average hourly wage of all men and women across our workforce. HomeServe has always
had equal pay for equal roles in all of its businesses, however, like many companies we have significant progress to
make to address the balance of our gender pay. We are committed to making improvements in this area with the
People Committee engaged to oversee a number of initiatives to improve all diversity, not just gender. These can read
about on our UK website at https://www.homeserve.com/~/ media/uk/documents/gender-pay/ gender-pay-2017-
final.pdf.
In March 2018 we reported our gender pay gap for our UK operations. Our UK pay is distributed
across four equally sized quartiles as follows.
46.5%
53.5%
53.4%
46.6%
20.6%
24.5%
79.4%
75.5%
Lower
Lower middle
Upper middle
Upper
Across the whole HomeServe Group, our gender split in FY18 was 54:46 (FY17: 55:45) with a team of over 5,800
employees as detailed below.
Total employees at 31 March 2018
Total employees at 31 March 2017
Male
3,134
2,879
Female
2,712
2,363
Total
5,846
5,242
Regarding our senior leadership teams, our gender splits were as follows:
Population
Plc Board (Executive & Non Executive Directors)
Executive Committee
Executive Committee & their direct reports
Global Senior Leadership team
% Female
External Benchmark*
18.2%
0%
25.5%
29.6%
22.8%
16.6%
24.0%
N/A
*The external benchmark used is the Hampton Alexander report 2017, FTSE 250 data. This outlines a target of 33% female by 2020 for FTSE250 Boards & Executive & Direct
Report Teams
24
HomeServe plc Annual Report & Accounts 2018
Corporate & social responsibility
Corporate & social responsibility
continued
UK
We have participated in five BBC TV DIY SOS Big Builds.
Spain
Our Spanish team cares passionately
about environmental impacts with
specific targets to reduce paper and
print usage. 90 volunteers participated
in a reforestation day in Madrid,
planting 120 trees towards offsetting
the impact of our Spanish offices’
paper consumption.
France
HomeServe France has been building a major charitable partnership
with the “Habitat & Humanisme” foundation (H&H) since 2014 helping
less privileged people and their housing. Amongst various initiatives this
year were a series of running events to raise awareness and funds for the
foundation.
Social
We are committed to local causes
that our employees feel passionate
about and that make a positive
contribution in the communities in
which we work and they live. Our
People are also rewarded for the
time they give to their community
and we encourage our People to
volunteer and support their local
communities.
Our business model and our sources
of value - in particular our people
and tradespeople networks - place
us in a unique position to be able to
use our skills around the home to
help our communities and many of
our community projects focus on
this area.
The UK has four principal
engagement programmes - iServe,
CommunityServe, BuildServe and
TeamServe. These are various
incentive programmes for people
who volunteer their personal time,
support local schools, participate
in initiatives that use our practical
engineering and DIY skills, and
opportunities for departments or
teams to support local causes they
feel passionate about.
Our international businesses have
also established programmes
to encourage all employees to
participate in activities they feel
passionate about for the benefit of
their own communities. This year
We have completed a number of
projects in local communities in all
of our businesses using engineer and
office staff skills.
HomeServe plc Annual Report & Accounts 2018
Corporate & social responsibility
25
North America
Much of North America’s
CSR programme also focuses
on housing needs and
utilising our core skills. The
“HomeServe Cares” programme
helped 33 disadvantaged
homeowners receive over
$90,000 in urgent repairs
across territories in Baltimore,
Maryland and Birmingham,
Alabama. The ongoing “jeans
pass” programme in which
HomeServe matches employee
donations in return for a simple
opportunity to dress more
casually in the office also
raised much needed funds to
aide disaster relief following
hurricanes Harvey, Irma and
Marie, which all had widespread
impacts on homes and housing.
Environment, Health & Safety
Health, safety, well being and
environmental guardianship
remain central to everything we
do. All of our businesses comply
with ten guiding principles for
occupational health and safety and
for environmental management. We
focus on safe working environments
for employees in all areas of our
business whether they are routinely
office based or, for example,
engineers working in our customers’
homes. Our employees are
supported in all aspects of their work
and we strive for zero work-related
injuries and illnesses.
Johnathan Ford, Group Chief
Operating Officer is the director
responsible for environment, health
and safety matters.
Following a review of our policies
and procedures we have introduced
a new Group Health, Safety and
Environment policy into which
all our businesses are aligned,
the HR directors lead Health and
Safety matters in each business
and are responsible for the policy
execution, except in the UK where
the responsibility is with the Chief
Risk Officer.
Intra company Safety benchmarking
remains strong and both accident
frequency rates and lost time
injury rates are used to compare
and monitor the safety culture and
levels of engagement across the
businesses.
Across the group we have continued
to see a positive trend in the
reduction of accident and incidents
in FY18 and as a result the amount of
lost time because of injury. Because
of our growth in our Heating,
Ventilation and Air Conditioning
businesses alongside our growth in
Gas policies within the UK, this has
resulted in an increase of directly
employed engineers grow, we have
continued to increased our focus
on Health and Safety through more
resources and support for our service
operations areas.
The UK has continued to review
its operating procedures and has
actively undertaken employee
campaigns and training to further
raise health and safety awareness
especially the reporting and
recording of near misses. It has also
promoted the health and wellbeing
of employees through various
campaigns and awareness sessions
e.g. benefits of exercise and quit
smoking sessions.
France has seen a significant
reduction in the number of work
related accidents with an increased
focus on employee education
through the implementation of new
‘e-learning’ for all employees and
training on the prevention of road
risks for employees.
The US has continued to see an
improvement to both the number
of injuries and severity of injuries
throughout the year, this is due to
the multi-faceted safety programme
launched in FY17 which focused
not only on awareness & training.
Part of the US team (South Jersey
Energy Service Plus team) achieved
the National Safety Council's Perfect
Record Award of 60,000 hours with
no work time loss incidents
In Spain the accident rate continues
to be low, HomeServe Spain
continue to raise awareness through
campaigns regarding road safety
to prevent accidents to and from
the place of work. In addition, they
have undertaken additional activity
regarding Fire Risk Management
with a review of the fire evacuation
processes across the offices and
additional fire drills.
There has been no prosecution or
other enforcement actions taken
in respect of our business by any of
the health, safety or environmental
regulators
26
26
HomeServe plc Annual Report & Accounts 2018
HomeServe plc Annual Report & Accounts 2018
Principal risks and uncertainties
Strategic report
All risks could negatively impact
HomeServe’s success or reputation
and together have the potential to
lead to reduced profitability, higher
cash outflows, reduced cash inflows
and ultimately lower returns for all
stakeholders including employees,
partners, creditors and shareholders.
HomeServe’s robust risk management
framework ensures that risks do not
go unchecked and controls and
mitigations are put in place to reduce
exposure and promote the continued
success of the business.
Risk registers are maintained by the
management of each business and
are reviewed by the Audit and Risk
Committee at each of its meetings.
Risks are scored on a gross basis
following a standard framework
according to likelihood and impact
and are reduced on a net basis after
consideration and application of
relevant mitigations and controls.
Changes in Principal risks in FY18
As the largest business line in each
geographic segment, Membership
forms the spine of HomeServe’s
strategic risks and there is
considerable overlap with the other
three areas; Home Experts, Smart
Home and HVAC. As a result, the
substance of the majority of the
strategic risks remains unchanged
since the prior year. However, the
crystallisation of four distinct areas
to support HomeServe’s vision to be
the world’s most trusted provider of
home repairs and improvements has
leant additional emphasis to certain
areas and risks have now been
categorised to provide further clarity.
Operational and financial risks also
remain largely unchanged.
Principal risks and uncertainties
Page header
HomeServe has a robust risk management framework
which encompasses the Group’s risk policy and overall
risk appetite. The framework provides a disciplined and
consistent approach across all of HomeServe’s business,
ensuring a structured response at all levels throughout
the Group and across all businesses and geographies, to
capture monitor and mitigate risk.
• The Audit & Risk Committee is chaired by one of the Non-Executive
Directors and is composed of independent Non-Executive directors.
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.
The Audit & Risk Committee advises the Board on risk appetite and risk
strategy, maintains the quality and effectiveness of risk management
processes under review and receives regular reports from the Group Risk
Committee.
• The Group Executive Risk Committee is chaired by the Group Chief
Financial Officer, it is composed of the Executive Directors and other
representatives of each of the Group businesses. The Committee reports
to the Audit & Risk Committee. The Board retains the responsibility for the
overall evaluation of the Group’s risk management processes.
• The Group Risk Management Team proposes the risk framework
across the Group and supports the businesses with the implementation,
monitoring of the risk maturity and progress of everyday risk management
across each business in the Group.
Strategic risks are specific to HomeServe’s business model and strategy
and may pose a fundamental challenge to its future prospects. They include
decisions made and actions taken, or indeed not taken, by the Board to
determine HomeServe’s direction and positioning within the home repairs and
improvements market in multiple geographies.
Operational risks relate to failure in HomeServe’s processes. Examples
include human error, system failure, failure to comply with prevailing legal
and regulatory frameworks etc and may lead to, amongst others, business
interruption, financial losses and reputational damage.
Financial risks relate to an inability to secure an adequate amount or
appropriate mix of short-term and long-term funding (from capital and debt),
failure to comply with debt covenants or failure to allocate or invest capital
appropriately or on a timely basis.
HomeServe plc Annual Report & Accounts 2018
Principal risks and uncertainties
27
Principal risks and uncertainties
1
4
3
7
6
2
9
t
c
a
p
m
I
8
10
5
NEW
11
Likelihood
Strategic risks
1. Market disruption
2. Commercial partnerships
3.
4. M&A strategy
5. HVAC Integration
International development
Operational risks
6.
7. Underwriting Capacity and
IT & Cyber Security
Concentration
8. Regulation & Customer Focus
9. Recruitment & Talent
10. IT Investment
11. Digital & Innovation
NB. Financial risks (12) are not scored
Movement in FY18
The table below 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. All risks carry
equal importance and weighting for the Board, however additional focus and priority may be given to specific risks for
a period of time in certain circumstances e.g. following a material acquisition or to implement plans to reduce any risk
which exceeds the appetite threshold.
The principal risks and uncertainties below should be read in conjunction with the Business Review and the Financial
Review. Additional risks and uncertainties of which HomeServe is not currently aware or which are believed not to be
significant may also adversely affect strategy, business performance or financial condition in the future.
1. Market Disruption (Strategic risk)
There are a number of competitors providing similar products and services in HomeServe’s existing markets. There
is the potential for competitors to expand into other geographies and for new entrants to introduce new products or
new technologies that erode HomeServe’s market share.
Over time market disruption may have a negative impact on KPIs such as customers and policy retention rates.
Net income per customer may decrease if HomeServe is forced to reduce prices to retain market share and affinity
partner households may reduce if a partner were lost to a competitor or decided to offer competing products in-
house.
FY18 update
HomeServe’s acquisition of 100% of Checkatrade in FY18 and 70% of Habitissimo in FY17 marked an entry into the
online home repairs and improvements sector. As one of the few remaining industries to undergo a substantial shift
online there are a number of companies exploring opportunities in this sector. There have been no new competitive
entrants in Membership.
Mitigation(s)
HomeServe believes that home assistance cover and the online model as offered by Checkatrade serve different
customer demographics and needs so there is little cannibalisation expected of the existing 8.4m membership
customers and it should not interfere with growth plans for that area of the business.
28
28
HomeServe plc Annual Report & Accounts 2018
Principal risks and uncertainties
Principal risks and uncertainties
continued
2. Commercial Partnerships (Strategic Risk)
Underpinning HomeServe’s success in its chosen markets are close commercial relationships (affinity partner
relationships) principally with utility companies, and municipal utility providers. The loss of one of these relationships
could impact HomeServe’s future customer and policy growth plans and retention rates. Similarly growth plans,
particularly in North America, are focused on signing new partners to extend reach and provide new marketing
opportunities to grow the business.
FY18 update
HomeServe’s North American business signed over 100 partners in FY18 and received Hart-Scott Rodino competition
clearance for the Dominion Products and Services Inc. (DPS) policy book acquisition. Tranche 1 completed on 18
December 2017 and tranche 2 is expected to complete in autumn 2018, bringing additional partner opportunities.
In the UK HomeServe signed new deals with E.ON and Octopus Energy and HomeServe continues to work
with key partners in France. In Spain the current partnership with Endesa draws to a close in the coming weeks.
Discussions continue to define a future relationship, which could be a non-exclusive claims handling and service only
arrangement. This would enable HomeServe to enter discussions with other energy companies. The net effect of not
marketing with Endesa is expected to have no significant impact on adjusted operating profit in Spain over the next
two years.
Mitigation(s)
With over 570 partners across the Group it is inevitable that HomeServe or a partner may choose not to renew a
partnership as circumstances and priorities change. With wider portfolios of partners in the UK and North America
this is less of an issue. Where relationships are more concentrated e.g. France and Spain HomeServe regularly
monitors partnerships and maintains frequent two-way dialogue. The majority of partnerships are secured under
long-term contracts which HomeServe will often seek to proactively renew prior to the end of the contract term.
3. International Development (Strategic Risk)
Part of HomeServe’s stated strategy is to pursue opportunities to expand into new geographies via a joint venture
with a utility partner. There is a risk that this strategy is not executed due, for example, to an inability to find a suitable
partner. As a consequence HomeServe may incur investment in management time and company resources that does
not provide a return. There is also the risk that a partner may be signed and at a later date either the partner or the
geography are found to be inappropriate.
If no new geographies are entered, there will be slower progress in increasing Affinity Partner Households and there
may be a decline in other KPIs and profitability generally if management time and resource becomes strained.
FY18 update
HomeServe continues to explore international development opportunities. As yet no firm agreement has been
reached but there remains a pipeline of active partner discussions.
Mitigation(s)
HomeServe conducts thorough market research on all potential geographies and will only enter those perceived
as lower risk on the basis of micro and macro factors including, amongst others, corruption index, ease of doing
business, quality of housing stock, quality and experience of potential utility partners. A dedicated International
Development team ensures sufficient management bandwidth for the overall business.
HomeServe plc Annual Report & Accounts 2018
Principal risks and uncertainties
29
4. M&A strategy (Strategic Risk)
HomeServe has increased its M&A activity in recent years as a means to accelerate a number of strategic goals e.g.
partner and customer growth in North America, customer acquisition in the UK. There is a risk that HomeServe
overpays for transactions or underestimates the time and resource required to integrate new businesses, potentially
leading to lower than anticipated cash inflows and revenue, increased costs, reduced profitability and an increased
likelihood of impairment. By contrast a successful M&A strategy should diversify risk by, for example, introducing new
partners and channels, increasing profitability and should lead to increases in KPIs such as customers and policies.
FY18 update
During FY18 HomeServe completed a number of acquisitions, the largest of which were the policy book of DPS in
North America, the remaining 60% share of Checkatrade and Help-Link in the UK.
Mitigation(s)
HomeServe conducts thorough due diligence and consults with experienced advisers when considering any
transaction. The Group has strict investment hurdles and all transactions are expected to clear these. All transactions
are subject to local Board approval with Plc Board approval required for all material transactions. There are dedicated
transformation and integration teams in all businesses and HomeServe may seek to retain key management and
personnel to provide greater surety around the achievement of the associated investment cases.
5. HVAC Integration (Strategic Risk)
The acquisition and integration of smaller HVAC businesses is a way to accelerate HomeServe’s progress in this
business line. As distinct from the M&A risk listed above, the integration risk relates specifically to integrating the
HVAC businesses with HomeServe’s existing Membership businesses and its ability to provide HVAC products, like
installations, to Membership customers and also provide HVAC customers with Membership products. Failure to
integrate businesses quickly and effectively could increase cost, resulting in failure to achieve predicted revenues and
potentially lead to impairment.
FY18 update
There has been an HVAC acquisition in each of the UK and France.
Mitigation(s)
There are dedicated teams in each business tasked with business change and transformation and ensuring
businesses are integrated and their subsequent performances are appraised. The single acquisitions in the UK and
France will enable a blueprint for successful integration and best practice for any further similar acquisitions.
30
HomeServe plc Annual Report & Accounts 2018
Principal risks and uncertainties
Principal risks and uncertainties
continued
6. IT & Cyber Security (Operational Risk)
In line with other businesses HomeServe is subject to the increased prevalence and sophistication of cyber-attacks
which could result in unauthorised access to customer and other data or cause business disruption to services.
A successful cyber attack might have a significant impact on reputation, reducing the trust that customers place
in HomeServe and could lead to legal liability, regulatory action and increased costs to rectify. A lapse in internal
controls and a subsequent data breach or loss would have a similar impact.
Total customer numbers and policy retention rates may reduce and partners may terminate affinity relationships if
they perceive customer data to be at risk.
FY18 update
Managing this risk remains a key area of focus and a high priority. A permanent Group Chief Information Security
Officer to oversee information security strategy and governance across the Group is now in position. HomeServe has
a dedicated role responsible for information security in each business and during the year, defined an Information
and Cyber Security Strategy to focus improvement activities over the next 4 years. HomeServe continued to
complete cyber audits as part of its annual assurance plan and will continue to do so in FY19.
General Data Protection Regulation (GDPR) regulation introduces wide ranging changes affecting data protection
and data privacy. A Group initiative has been led by HomeServe’s Data Protection Officer to ensure compliance
ahead of the 25 May 2018 enforcement date.
Mitigation(s)
HomeServe has a number of defensive and proactive practices across the Group to mitigate this risk. There is a
detailed information security policy, which is communicated across the Group and training is provided as required.
Regular penetration testing is in place to assess defences and HomeServe continues to invest in IT security, ensuring
a secure configuration, access controls, data centre security and effective communication of policies and procedures
to all employees.
7. Underwriting Capacity and Concentration (Operational Risk)
The Membership business line markets and administers policies that are underwritten by independent third party
underwriters. HomeServe acts as an insurance intermediary and does not take on any material insurance risk. If
underwriters were unable or unwilling to underwrite these risks and HomeServe were unable to find alternative
underwriters it would require the risk to be underwritten directly, thereby exposing the business to material insurance
risk, which is contrary to its preferred operating model. Obtaining relevant regulatory approvals for a new underwriter
may take time, leading to business disruption. A material change in the operating model would also drive a change
in accounting policy that could affect short term profitability. Customer numbers and retention rates may fall if
customers experience reduced service levels or are not covered throughout any period of disruption.
FY18 update
Underwriting capacity was increased in FY17 with additional underwriters added in North America, France and Spain.
There have been no new relationships entered into this year but all existing relationships remain strong.
Mitigation(s)
Regular meetings take place in all territories to review and understand underwriting performance and to
accommodate growth in the customer and policy books as a result of M&A activity. With the exception of the UK,
HomeServe works with a number of different underwriters so is not materially dependent on one sole provider. In
the UK where there is one main underwriter, HomeServe maintains relationships with a number of other underwriters
who are willing and able to underwrite the business. HomeServe undertakes regular reviews with all underwriters to
ensure that current product performance and trends are understood.
HomeServe plc Annual Report & Accounts 2018
Principal risks and uncertainties
31
8. Regulation & Customer Focus (Operational Risk)
HomeServe is subject to regulatory requirements in each of its markets, particularly relating to product design,
marketing materials, sales processes and data protection. Failure to comply with regulatory requirements in any of its
countries could result in the suspension, either temporarily or permanently, of certain activities.
Much regulation is intended to protect the rights and needs of consumers and failure to adhere to the high
expectations customers have for HomeServe could lead to reduced retention and higher customer losses.
In addition, legislative changes relating to partners may change their obligations with regard to the infrastructure
they currently manage and hence the products and services HomeServe can offer to customers. It is possible such
legislative changes could reduce, or even remove, the need for some of HomeServe products and services.
HomeServe is also subject to wider regulation concerning companies outside of its industry including e.g. anti-
corruption, anti-fraud and bribery, modern slavery etc. Specific policies can be found at http://www.homeserveplc.
com/about-us/corporate-governance/policies.aspx.
FY18 update
New regulation came into effect in the UK in FY18 affecting the whole insurance industry, which requires companies
to disclose prior year prices on customer renewal documents. HomeServe has ensured all renewal documents are
compliant and changes were made in line with the required timescale.
The Insurance Distribution Directive (IDD) is a further piece of EU-led regulation affecting all of HomeServe’s
European businesses, applied from February 2018 and requiring that all sales adequately assess and demonstrate
customer demands and needs for HomeServe’s products. Steps have been taken in each of the UK, France and Spain
to ensure full compliance.
In the prior year the primary regulator in the UK, the Financial Conduct Authority (FCA), reduced the intensity of its
supervision. The reduced level of supervision has continued throughout this financial year.
Mitigation(s)
HomeServe believes that regulation has a positive impact on the business and encourages a culture that promotes
customers’ interests and will improve HomeServe’s prospects over both the short and long term. HomeServe
complies with local regulation in all of its businesses as a minimum but will also seek to take best practice from one
business and apply it to all others.
HomeServe has regulatory specialists, compliance teams and Non-Executive Directors in each of business to help
ensure that all aspects of the legislative regime in each territory are fully understood and adopted as required.
Specifically in the UK, HomeServe maintains regular dialogue with the FCA, while in North America there is regular
contact with the Attorneys General. In other businesses, dialogue is maintained with local regulators.
HomeServe keeps up to date with changes in government and regulatory policy, which ensures that products and
services are designed, marketed and sold in accordance with all relevant legal and regulatory requirements and that
the terms and conditions are appropriate and meet the needs of customers.
32
HomeServe plc Annual Report & Accounts 2018
Principal risks and uncertainties
Principal risks and uncertainties
continued
9. Recruitment & Talent (Operational Risk)
HomeServe’s ability to meet growth expectations and compete effectively is, in part, dependent on the skills,
experience and performance of its personnel. The inability to attract, motivate or retain key talent could impact
overall business performance.
FY18 update
HomeServe continued to enjoy growth throughout FY18. The Group is larger than 12 months ago and engaging
skilled personnel remains of utmost importance.
Mitigation(s)
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
HomeServe is managing succession planning effectively. A Director of Group Talent was appointed in FY18, looking
at how HomeServe develops and promotes its best talent and future leaders.
10. IT Investment (Operational Risk)
The Group relies on several key systems to manage its customer interactions. Appropriate and timely maintenance
and investment is required to ensure systems continue to meet the changing needs of the business and its
customers. Failure to invest appropriately to manage customer interactions and provide high quality service may
result in lower retention and higher customer losses. There is also a dependence on quality ‘back-office’ systems
and any failure in those may lead to business interruption and could jeopardise the ability to analyse performance
indicators and react to any trends. Over investment in any new initiatives could see investment outweigh future
benefits and lead to impairment.
FY18 update
The UK continues to develop its replacement customer management system. This is a significant project intended to
deliver an improved customer experience and a number of marketing opportunities and operational efficiencies. Any
significant delays in the project or faults in its design or implementation could adversely impact the intended benefits
and lead to increased costs, reduced revenues and asset impairment.
There has also been investment in the core claims handling and network management software in the UK, North
America and Spain. Such investments enable an effective customer journey and efficient and scalable management
of networks.
Mitigation(s)
All investment decisions are subject to the Group’s strict investment criteria and hurdles. Major IT programmes
are allocated specific governance structures and oversight with members of senior management sitting on the
Programme Board.
HomeServe engages a number of external advisers on large software projects to provide appropriate breadth
and depth of experience and expertise to ensure there is no over-reliance on any one supplier and to support
management in project delivery.
HomeServe plc Annual Report & Accounts 2018
Principal risks and uncertainties
33
11. Digital & Innovation (Operational Risk)
As in other industries, customers in all businesses increasingly wish to engage with HomeServe by digital means:
joining online and maintaining details or making a claim via HomeServe’s website and App or posting onto social
media channels such as Twitter and Facebook. If HomeServe is not flexible enough to respond to changing needs,
customers may explore competitor products and choose not to renew. There is also a reputational risk as complaints
logged via social media can quickly escalate if not dealt with in an appropriate and timely manner.
There is also an increasing demand for innovative products in HomeServe’s markets and the adoption of ‘Smart
Home’ products continues to grow.
FY18 update
A comprehensive HomeServe App was launched in the UK in FY18 enabling customers to manage details, make
claims and explore hints and tips from their smart phone.
HomeServe owns a stake in tado°, a smart thermostat manufacturer and developed a wifi version for its smart water
leak detector “LeakBot” in FY18.
Mitigation(s)
HomeServe continues to review and respond to customer comments and needs and customers are offered a
number of channels through which they can engage with HomeServe: telephone, website, Digital Live Chat, paper,
email and social media. The developing Home Experts business also offers an alternative for customers seeking a
fully digital experience.
12. Financial
The main financial risks are the availability of short-term and long-term funding to meet business needs and take
advantage of strategic priorities such as M&A opportunities, 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.
FY18 update
On 1 August 2017, the Group entered into a new multi-currency revolving credit facility with both existing and
new banking partners. The new terms of the facility provide committed credit of £400m which runs until 31 July
2022 with two one-year extension options, subject to agreement by the banking partners, which would extend
the maturity to 31 July 2024. Loans have variable interest rates linked to LIBOR or EURIBOR. With other funding,
principally from Private Placements, HomeServe had over £270m headroom against its available sources of debt at
the year end.
HomeServe completed a successful £125m equity placing on 19 October 2017 retaining balance sheet strength and
liquidity and providing flexibility for the acquisition of DPS and for future inorganic investment opportunities.
Interest rate risk
HomeServe’s policy is to manage interest cost using a mix of fixed and variable rate borrowings. Where necessary,
this is achieved by entering into interest rate swaps for certain periods, in which HomeServe agrees 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
HomeServe manages liquidity risk by maintaining adequate reserves and banking facilities and continuously
monitoring forecast and actual cash flows.
Foreign exchange risk
Short term foreign exchange risk is mitigated with the natural hedging provided by the geographical spread of the
businesses. While this will protect against some of the transaction exposure, HomeServe’s reported results would still
be impacted by the translation of non-UK operations.
34
HomeServe plc Annual Report & Accounts 2018
Operating review
Operating review
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) 1
2018
365.6
282.1
100.0
141.3
18.6
(7.9)
2017
326.5
227.8
91.1
130.2
16.6
(7.2)
2018
59.3
40.5
25.1
16.5
(6.4)
—
2017
62.0
14.7
21.1
13.0
(6.1)
—
2018
61.1
48.6
31.5
16.6
(4.4)
—
899.7
785.0
135.0
104.7
153.4
2017
63.2
21.2
27.1
13.3
(6.0)
—
118.8
Key Performance Indicators for the year ended 31 March
UK
North America
France
Spain
New Markets
Group
Affinity partner
households (m)
2018
2017
26
55
15
12
1
24
50
15
12
1
109
102
Customer
numbers (m)
Policy retention
rate
2018
2.2
3.6
1.1
1.3
0.2
8.4
2017
2.2
3.0
1.0
1.3
0.3
7.8
2018
79%
83%
88%
78%
—
82%
2017
80%
82%
89%
78%
—
82%
1 HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. APMs
used in the Annual Report and Accounts 2018 are non-GAAP measures which address profitability, leverage and liquidity and together with operational
KPIs give an indication of the current health and future prospects of the Group. Definitions of APMs and the rationale for their usage are included on
p209 with a reconciliation, where applicable, back to the equivalent statutory measure.
HomeServe plc Annual Report & Accounts 2018
Operating review
35
HomeServe had a very good year
with strong underlying performance
boosted by strategic acquisitions,
notably in North America with the
policy book of Dominion Products
and Services Inc. (DPS), in the UK
with Help-Link Limited and the AA’s
home emergency policy book and
in France where the acquisition of
Electrogaz marked a first step into
HVAC installations.
Total customers increased to
8.4m from 7.8m and the Group
now has over 570 affinity partner
relationships that provide access to
109m households, up from 102m in
the prior year. Customers continue
to value HomeServe’s products and
the Group retention rate remained
strong at 82%.
The continued organic success
of the North American business
allied to the acquisition of DPS
and the successful integration of
Utility Service Partners (USP) saw
North American adjusted operating
profit grow by 129% to £48.6m, as
the Group delivered total adjusted
operating profit of £153.4m, up 29%.
Over half of the Group’s profits are
now generated overseas, with further
profit progression in France and
Spain complementing outstanding
growth in North America. The UK
remains highly cash generative and
the largest single contributor to
Group profits.
The New Markets segment
contains the Group’s investments
in international development, the
Home Experts opportunity via
Checkatrade and Habitissimo and its
Italian associate.
36
HomeServe plc Annual Report & Accounts 2018
Operating review
Affinity Partner
Households +12%
Page header
26m
(FY17: 24m)
Customers -1%
2.2m
(FY17: 2.2m)
Income per
customer +10%
£106
(FY17: £96)
Policies +6%
5.9m
(FY17: 5.6m)
Policy retention
rate -1ppt
79%
(FY17: 80%)
Operating review
United Kingdom
As HomeServe’s most
developed business, the UK
is highly cash generative
and the largest contributor
to the Group’s operating
profit. It has made good
strategic progress in FY18
with further investment
in growth opportunities
including LeakBot and boiler
installations.
Operational performance
Adjusted operating profit of £61.1m
(FY17: £63.2m) was down on the
prior year, having incurred a one-off
cost of c. £2.5m as headcount was
reduced as part of an ongoing drive
to reduce complexity and introduce
further efficiency into the UK
operations.
UK customers totalled 2.2m at year
end, reflecting a retention rate of 79%
(FY17: 80%) and 0.3m new customers
added through marketing campaigns
(FY17: 0.4m). Included in the year end
total are 0.1m customers who are
expected to transfer to HomeServe
over the course of FY19 following
the acquisition of the AA’s home
emergency services policy book.
This acquisition also saw 70 AA
plumbing and gas engineers move
over to join HomeServe’s 1,000-plus
strong national network of directly
employed engineers (FY17: 850
engineers), further strengthening
HomeServe’s position in the UK
Home Assistance market.
The value of HomeServe’s UK
customer base is increasing, with
customers taking advantage of more
cover, with a resultant 10% increase
in income per customer and average
policies per customer up to 2.7
(FY17: 2.5).
New affinity partnerships were
agreed in the year with E.ON and
Octopus Energy. The partnership
with Octopus is an opportunity to
work with an innovative challenger
in the energy space and there is
great potential from partnering with
E.ON to market products to their
customers. Both partnerships offer
an opportunity to expand beyond
the UK’s traditional base of water
utility partners.
£million
Revenue
Net policy income
Repair services
Other
Total revenue
2018
2017
Change
221.6
106.3
37.7
365.6
213.4
100.3
12.8
326.5
+4%
+6%
+193%
+12%
+16%
-3%
-2ppts
Adjusted operating costs
(304.5)
(263.3)
Adjusted operating profit
Adjusted operating margin
61.1
17%
63.2
19%
HomeServe plc Annual Report & Accounts 2018
Operating review
37
Other revenue includes transactions
with other Group companies and
income from the installation of
boilers and smart thermostats. The
rise in FY18 was due to the additional
revenue generated from boiler
installations following the acquisition
of Help-Link.
Adjusted operating costs increased
16% reflecting the increased repair
cost to complete 12% more jobs.
There was also additional one-off
investment incurred to integrate
Help-Link and remove the previous
heating franchise model. In the
second half of the year, HomeServe
took action to structure its UK
business more effectively, resulting in
headcount reductions and a one-
off cost of c. £2.5m. Although this
represents a small proportion of the
overall UK workforce, it was a difficult
decision but one reached without
any impact on customer facing roles
and to ensure that the business is
placed well for the future.
The two percentage points reduction
in adjusted operating margin was
largely a result of the increased
number of repair jobs which carry
little margin, costs associated with
the headcount reduction and the
effect of additional revenue from
Help-Link which was loss making
in the year due to integration and
associated transaction costs.
market share and offer customers
access to a local tradesperson,
combined with the scale and
expertise of a national network with
a wider choice of complementary
products including smart
thermostats.
There was good progress on Smart
Home with LeakBot, HomeServe’s
smart water leak detector. Additional
investment was made in the year to
support the development and launch
of a WiFi version that will facilitate
broader coverage and appeal and
enable a faster roll out. Further test
agreements have been signed with a
number of other insurers and the first
sizeable orders agreed with partners
in Denmark and the UK.
The 100% investment in Checkatrade
presents additional exciting
opportunities for synergies with the
existing UK business, particularly
around heating, which will be
assessed and pursued throughout
FY19. Checkatrade is discussed in
more detail under the New Markets
section.
Financial performance
Net policy income increased by 4%
to £221.6m as a result of the increase
in net income per customer as
customers continued to take richer
products with more cover. This was
in part offset by the slight reduction
in the total customer count. The
0.1m customers from the AA
expected to transfer in FY19 did not
contribute any revenue to the FY18
results.
Repair network income rose due
to the increased number of jobs
completed for customers.
Customer satisfaction remains very
high, as evidenced by strong scores
on independent sites such as Reevoo
(95%) and Trustpilot (8.2), (FY17: 93%
and 8.3 respectively). The ability
to use products effectively when
customers most need HomeServe
is critical to maintaining high
satisfaction. In FY18 the UK network
completed a record number of 1.2m
jobs, up 12% on FY17. On average
the UK network was in a customer’s
home once every 26 seconds. There
is a strong correlation between
staff engagement and customer
satisfaction, which is why it was
important to HomeServe to have
maintained its Top 10 position on
Glassdoor’s Top Places to Work.
Customers are increasingly choosing
to interact online. Investment in
the core customer management
and claims systems has supported
this, together with the launch of a
new customer App. The ability to
enrol, manage and claim online aids
efficiency in the business, provides
alternative solutions for customers
and alleviates pressure on contact
centres during times of high volumes
- as happened at the end of FY18
with the extreme cold weather. An
increase in the ability to provide
claims solutions over the phone
or by helpful hints and tips on the
website also has the potential to
provide remedies for customers who
are happy to be guided through ‘self-
fix’ steps to fix common plumbing or
heating problems.
The acquisition of Help-Link
Limited in August 2017 expanded
HomeServe’s boiler installation
resources and formed an end-to-
end heating business encompassing
installation, assistance cover, service
and repair. Of the one million
domestic boiler installations in the
UK every year, the vast majority are
undertaken by local and regional
tradespeople. There is significant
opportunity for HomeServe to gain
38
HomeServe plc Annual Report & Accounts 2018
Operating review
Affinity Partner
Households +10%
Page header
55m
(FY17: 50m)
Customers +20%
3.6m
(FY17: 3.0m)
Income per
customer -6%
$91
(FY17: $97)
Policies +25%
5.6m
(FY17: 4.5m)
Policy retention
rate +1ppt
83%
(FY17: 82%)
Operating review
North America
North America is
HomeServe’s largest current
opportunity. FY18 saw an
outstanding performance
as continued double digit
organic expansion was
supplemented by strategic
M&A to accelerate ambitious
growth plans. Adjusted
operating profit more
than doubled to $64.4m,
demonstrating the ability
of the business to scale
and integrate its growth
opportunities efficiently.
Operational performance
The North American business
continues to go from strength to
strength with a proven track record of
strong organic growth supported by
the successful integration of acquired
policy books. This year Utility Service
Partners Inc. (USP) and the policy
book of Dominion Products and
Services Inc. (DPS) have both been
efficiently interfaced with existing
systems and processes, bringing a
key step up in operating leverage and
increased margin traction.
$million
Revenue
Net policy income
Repair services
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
Customer numbers increased 20%
to 3.6m (FY17: 3.0m). Customer
satisfaction remained very high
and was reflected in the strong
retention rate of 83% (FY17: 82%),
and successful marketing campaigns
added 1.0m gross new customers
(FY17: 0.8m). Double digit organic
customer growth of 11% was further
enhanced by HomeServe’s largest
ever acquisition; the policy book of
DPS.
The purchase of the DPS policy book
was announced on 19 October 2017.
It brings a total of c. 0.5m customers
and marketing opportunities to c. 7m
households, for a total enterprise
value of $143m. It is structured to
complete in two tranches. The first
tranche completed on 18 December
2017 and delivered an initial 0.3m
customers. Tranche 2 is expected to
complete in Autumn 2018, bringing
the remaining 0.2m customers. DPS
is a highly complementary policy
book and marketing has already
commenced utilising the Dominion
Energy brand to 4m households
under tranche 1. The second tranche
is expected to bring an additional 3m
households and further marketing
opportunities with Dominion
Energy’s own partners.
2018
2017
Change
349.1
273.5
12.0
14.1
7.7
11.8
375.2
293.0
(310.8)
(266.8)
+28%
+57%
+19%
+28%
+17%
64.4
17%
26.2
9%
+146%
+8ppts
HomeServe plc Annual Report & Accounts 2018
Operating review
39
Total affinity partner households
increased to 55m from 50m in FY17
as HomeServe signed an average of
two new partners every week, a total
of over a hundred new partners for
the year with access to around 10m
utility households (including tranche
1 of DPS). HomeServe now works
with a wide portfolio of almost 550
water, electric and energy utilities and
municipals.
It is inevitable that as the number
of partners continues to grow,
HomeServe or a partner may choose
not to renew or extend agreements
as circumstances and corporate
priorities change. The large portfolio
now present in North America
ensures that there is no over-reliance
on any one partner. During the year
the partnerships with Duke Energy
and AARP ended with the removal of
5m households from the household
count but with no change to our
growth expectations.
The pipeline of potential partner
opportunities remains strong and
HomeServe remains confident of
increasing its number of partners
throughout FY19. The National
League of Cities (NLC) relationship
that was acquired with USP has been
renewed and its endorsement and
support will continue to play an
important role.
The existing Membership customer
base offers great prospects for
HomeServe to market its installation
products. Total HVAC installations in
the year increased 15% as HomeServe
installed furnaces and boilers to meet
the wider needs of the customer base
beyond simply providing emergency
repairs.
The team in North America was
recognised with 18 awards at the
annual Stevie Awards for Sales &
Customer Service, including 3rd
place overall, rewarding its focus on
delivering great customer service.
HomeServe has continued to invest
at various stages of the customer
journey to further improve the
customer experience. Digital
channels experienced the largest
growth in FY18 with even more
customers now choosing to join
online. Other technology initiatives
such as new field management
software have enhanced the
operational efficiency of the network
and further improved engineer
attendance, ensuring customers
receive visits at the appointed
time. The network of 170 directly
employed engineers and over 1,300
sub contractors completed 0.4m
jobs, up 12% on FY17.
£million
Revenue
2018
2017
Change
Net policy income
262.4
212.7
Repair services
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
9.6
10.1
282.1
(233.5)
48.6
17%
6.0
9.1
227.8
(206.6)
21.2
9%
+23%
+58%
+12%
+24%
+13%
+129%
+8ppts
The Connecticut head office was
once again recognised as a Top Place
to Work and investment in a new
contact centre in Chattanooga will
greatly improve staff engagement
and establish a hub for customer
service excellence. Having begun in
Chattanooga with just 35 employees
in 2010, the new facility with 350
employees officially opened on 25
April 2018 and is a great indicator of
the progress made by HomeServe in
North America in less than a decade.
Financial Performance
Net policy income increased 28% to
$349.1m (FY17: $273.5m) reflecting
the larger customer base and the
successful integration of USP and the
first tranche of DPS. Repair services
income includes the jobs completed
by the directly employed network and
reflects the growing claim volumes
from a higher customer base. Other
income includes installation revenue
and rose 19%, illustrating the growing
HVAC installation volumes.
As expected, income per customer
fell slightly to $91 (FY17: $97) due
to the inclusion of USP and DPS
customers who hold a different
product mix and who were not in
the prior year metric. A medium
term target of $100 net income
per customer remains achievable,
particularly as excluding the impact
of USP and DPS, the income per
customer increased to $101
(FY17: $97).
Adjusted operating costs rose 17% to
$310.8m (FY17: $266.8m) reflecting
continued business growth, a full
year of USP and integration costs
associated with DPS. The significant
increase in the adjusted operating
margin, up 8 percentage points to
17%, demonstrates the ability of
the business to scale efficiently and
integrate the policy books of USP
and DPS without incurring substantial
additional operating costs.
40
HomeServe plc Annual Report & Accounts 2018
Operating review
Affinity Partner
Households
Page header
15m
(FY17: 15m)
Customers +1%
1.1m
(FY17: 1.0m)
Income per
customer +5%
€106
(FY17: €101)
Policies -1%
2.3m
(FY17: 2.3m)
Policy retention
rate -1ppt
88%
(FY17: 89%)
Operating review
France
HomeServe France’s core
Membership business
is highly profitable and
cash generative. Growth
opportunities were pursued
with potential new partners
and in December 2017
the French business made
its first step into providing
heating installations
through the acquisition of
Electrogaz.
Operational performance
Total customers increased to 1.1m
as France continued to have the
highest retention rate in the Group
at 88% (FY17: 89%). Customer
service standards remained very
high as evidenced by achieving the
Élu Service Client de l’Année for
the second year running. Partner
relationships with Veolia and Suez
are strong and delivered 0.1m new
customers (FY17: 0.2m).
Key to further growth in the
Membership business is unlocking
a new partnership and there is a
pipeline of opportunities at various
stages of discussion with energy
and water partners. Additional
partnership opportunities have been
agreed with Veolia to launch a multi-
channel approach to marketing,
reducing reliance on direct mail and
taking advantage of increased calls
into Veolia’s centralised contact
centre to grow the number of sales
made directly by the partner, similar
to the approach undertaken with
Suez. In energy, HomeServe has
worked with Butagaz for a number
of years and will now partner with
them to sell membership products
as Butagaz looks to grow its share of
the mains domestic gas and electric
supply market.
Initial steps were made in FY18
to pursue HomeServe’s strategy
in heating installations with the
acquisition of Electrogaz, a business
in the South of France with almost
60 years of expertise in the repair,
maintenance and installation of
hot water and heating systems,
renewable energy devices and
domestic air conditioning and
ventilation systems. The business
has already been successfully
integrated and is actively trading as
€million
Revenue
2018
2017
Change
Net policy income
111.7
106.9
Repair services
Other income
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
0.5
1.0
113.2
(77.5)
35.7
32%
0.5
—
107.4
(75.9)
31.5
30%
+5%
-4%
+100%
+5%
+2%
+13%
+2ppts
HomeServe plc Annual Report & Accounts 2018
Operating review
41
Electrogaz...A HomeServe Company.
FY19 will focus on proving out this
opportunity and assessing potential
to increase presence in this market.
France is also focused on becoming
a digital-first business, looking to
further improve customer interaction
and introduce greater operational
efficiency. FY18 focused on
enhancing the website and providing
the functionality for customers to
manage their policy details online.
These efforts will be continued by
providing customers in France with
the same opportunities as those in
the UK to also use a HomeServe App
and to make a claim online.
Financial performance
Total revenue increased by 5% to
€113.2m (FY17: €107.4m) primarily
due to a 5% increase in income per
customer which itself benefitted
from improved network efficiencies
and a reduced cost to serve. Included
in other income is €1m of post
acquisition income from Electrogaz,
which was acquired during the year.
Adjusted operating costs were
broadly stable at €77.5m (FY17:
€75.9m) resulting in two percentage
points improvement in the adjusted
operating margin to 32% as revenue
increases directly benefitted the
bottom line. Adjusted operating
margin is expected to remain at
around 30%.
£million
Revenue
2018
2017
Change
Net policy income
98.6
90.7
Repair services
Other income
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
0.4
1.0
100.0
(68.5)
31.5
32%
0.4
—
91.1
(64.0)
27.1
30%
+9%
+2%
+100%
+10%
+7%
+16%
+2ppts
42
HomeServe plc Annual Report & Accounts 2018
Operating review
Affinity Partner
Households
Page header
12m
(FY17: 12m)
Customers +1%
1.3m
(FY17: 1.3m)
Income per
customer +11%
€47
(FY17: €43)
Policies +2%
1.5m
(FY17: 1.5m)
Policy retention
rate
78%
(FY17: 78%)
Operating review
Spain
Good revenue growth from
the maturing Membership
policy book, together with
increased efficiency in the
repair services (Claims)
business delivered increased
profitability in Spain.
Operational performance
Total customers rose 1% to 1.3m as
the business in Spain continued to
add customers through its current
affinity partnership with Endesa.
After a strong first half, political
unrest and legislative change in
Catalonia, as well as launch delays
in other regions, slowed customer
acquisition in the final six months,
with a total of 0.4m gross new
customers (FY17: 0.5m) added in the
year. In Spain the current partnership
with Endesa draws to a close in the
coming weeks. Discussions continue
to define a future relationship,
which could be a non-exclusive
claims handling and service only
arrangement. This would enable
HomeServe to enter discussions with
other energy companies. The net
effect of not marketing with Endesa
is expected to have no significant
impact on adjusted operating profit
in Spain over the next two years.
The retention rate remained stable
at 78% and an increasing number
of renewers year on year has driven
strong progression in income per
customer.
The Claims business (“Repair
services”) works with a number
of Spain’s largest bancassurers
managing a large volume of claims
across multiple trades and closed
0.8m jobs, in line with the prior year.
Jobs continue to be completed
by a wide network of over 2,400
subcontractors and 198 franchisees
(FY17: 1,972 subcontractors and 197
franchisees).
The Spanish business also intends to
pursue a HVAC strategy similar to the
approach in the UK and France and is
exploring opportunities to enter this
space.
€million
Revenue
Net policy income
Repair services
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
2018
2017
Change
63.0
97.1
160.1
(141.2)
18.9
12%
57.2
97.1
154.3
(138.5)
15.8
10%
+10%
—
+4%
+2%
+20%
+2ppts
HomeServe plc Annual Report & Accounts 2018
Operating review
43
Financial performance
Total revenue increased 4% to
€160.1m driven principally by the
maturity of the Membership book
and the resultant 11% rise in income
per customer to €47.
Tight control ensured operating
costs rose at a lower rate than
revenue, increasing by only 2%
on prior year to €141.2m. The
higher income per customer in
Membership, a focus on operating
efficiencies in the Claims business
and an increasing mix of larger
value jobs contributed to the two
percentage points increase in the
adjusted operating profit margin.
£million
Revenue
Net policy income
Repair services
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
2018
2017
Change
55.6
85.7
141.3
(124.7)
16.6
12%
48.3
81.9
130.2
(116.9)
13.3
10%
+15%
+5%
+9%
+7%
+26%
+2ppts
44
HomeServe plc Annual Report & Accounts 2018
Operating review
Checkatrade
tradespeople +17%
Page header
29k
(FY17: 25k)
Habitissimo
tradespeople +29%
29k
(FY17: 22k)
Checkatrade
website hits +3%
16.1m
(FY17: 15.7m)
Habitissimo
website hits +46%
81.3m
(FY17: 55.7m)
Operating review
New Markets
Operational performance
HomeServe’s New Markets segment
contains its operations in Italy,
business development activities
to expand into new geographies
and the results of Checkatrade
and Habitissimo, its Home Experts
initiatives.
The Italian associate, in partnership
with Edison Energia had 0.2m
customers (FY17: 0.3m) and
continued to market HomeServe’s
products as part of it's own strategy
to gain market share of the domestic
Italian energy supply market.
Although no new partnerships
have yet been established, active
business development discussions
remain ongoing with a number
of prospective utility partners in
other geographies. HomeServe
continues to believe that its products
offer utilities a good opportunity
to improve their own profiles and
increase the engagement and loyalty
of their customers.
Notable progress was made in Home
Experts as HomeServe secured full
ownership of Checkatrade. Through
the initial 40% investment on 13
December 2016, HomeServe had
the option to increase its investment
by a further 35% in mid 2019 but on
17 November 2017 the option was
superseded and HomeServe secured
the remaining 60% to take full 100%
control.
Securing a controlling stake has
facilitated faster development
and testing to prove out the
proposed model and growth plans.
The additional investment that
HomeServe can provide has already
enabled new payment methods
for tradespeople, such as monthly
direct debits. Due to working capital
constraints Checkatrade previously
only offered annual payments but
the new options will now attract
more tradespeople and enable the
introduction of different pricing
initiatives. Since taking full control in
November 2017, total tradespeople
has already increased 9% to 29k and
the final quarter of FY18 saw three
record months for new tradespeople
joining Checkatrade. The pricing
initiatives introduced have also
already lifted Checkatrade’s average
revenue per trader.
£million
Revenue
Italy
Home Experts
Total revenue
Adjusted operating loss
2018
2017
Change
—
18.6
18.6
(4.4)
14.8
1.8
16.6
(6.0)
-100%
+958%
+12%
+29%
HomeServe plc Annual Report & Accounts 2018
Operating review
45
and all results after this date have
been fully consolidated. The
results of Habitissimo have been
consolidated for the full period.
Total investment in New Markets was
£4.4m (FY17: £6.0m), £5.7m on an
underlying basis, having benefitted
from a one-off re-measurement
gain of £1.3m before deal costs,
associated with the acquisition of the
remaining 60% of Checkatrade.
The Strategic Report was approved
by the Board and signed on its
behalf by Richard Harpin, Chief
Executive Officer on 22 May 2018.
Key to the long term success
of Checkatrade is defining and
refining the optimum model for
the benefit of consumers as well as
tradespeople. Checkatrade continues
to attract over a million unique users
to the website each month and
will look to increase this through
further investment in advertising
funded primarily by the new pricing
initiatives. Product development
such as priority membership options
for homeowners that reward repeat
usage are also being assessed, as is
an emergency on demand product.
Attracting more consumers to the
website and increasing consumer
usage will be a critical factor in
simultaneously increasing the
number of tradespeople.
Habitissimo, the Spanish Home
Experts business also had a
successful year, continuing to grow
the number of leads it generates
for its tradespeople, increasing to
2.1m from 1.4m in FY17. Habitissimo
possesses considerable technical
expertise and its digital capabilities
have enabled it to quickly and
efficiently test a number of additional
products and routes to markets.
Habitissimo has also developed
and piloted software which will
increase the engagement of its
tradespeople by providing a tool
for them to efficiently manage and
track their businesses. Checkatrade
will continue to develop and test in
the UK, but as the two businesses
work more closely together,
Habitissimo may ultimately provide
the technical skills and capabilities
to roll the model out efficiently
into other markets as it has already
demonstrated with a light footprint in
Latin America.
Financial Performance
HomeServe accounts for the net
result of its Italian operation as an
associate with its result included in
the overall New Markets investment.
Consequently there was no revenue
recorded for the year ended 31
March 2018.
The increase in Home Experts
revenue was driven largely by a full
year's ownership of Habitissimo and
acquiring 100% of Checkatrade.
Upon taking control on 17 November
2017, Checkatrade became a
subsidiary
Home Experts performance metrics
Checkatrade tradespeople
Habitissimo tradespeople
Checkatrade website hits
Habitissimo website hits
k
k
m
m
2018
29
29
16.1
81.3
2017
25
22
15.7
55.7
Change
+17%
+29%
+3%
+46%
46
HomeServe plc Annual Report & Accounts 2018
Financial review
Page header
Financial review
We have delivered
another strong set of
financial results and the
Group continues to be
highly profitable and
cash generative.
Group statutory results
The headline statutory financial
results for the Group are presented
below.
The Group delivered 25% growth
in profit before tax to £123.3m.
Operating profit growth was up
29% to £135.0m but was offset by
an increase in net finance costs to
£11.7m (FY17: £6.4m). Net finance
costs rose principally as a result
of unwinding interest on deferred
consideration in relation to previous
M&A activity and costs associated
with refinancing HomeServe’s debt
facilities at the beginning of the
financial year.
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 1
Amortisation of acquisition intangibles
Statutory profit before tax
Tax
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
2018
899.7
135.0
(11.7)
141.7
(18.4)
123.3
(27.4)
95.9
96.3
(0.4)
95.9
2017
785.0
104.7
(6.4)
112.4
(14.1)
98.3
(23.9)
74.4
74.4
—
74.4
1 HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. APMs
used in the Annual Report and Accounts 2018 are non-GAAP measures which address profitability, leverage and liquidity and together with operational
KPIs give an indication of the current health and future prospects of the Group. Definitions of APMs and the rationale for their usage are included on
p209 with a reconciliation, where applicable, back to the equivalent statutory measure.
HomeServe plc Annual Report & Accounts 2018
Financial review
47
Amortisation of acquisition
intangibles
The amortisation of acquisition
intangibles of £18.4m (FY17: £14.1m)
relates to customer and other
contracts held by businesses,
which were acquired as part of
business combinations and asset
purchases and has increased this
year principally due to the acquisition
of the policy book of Dominion
Products and Services Inc. (DPS) in
North America and Checkatrade in
the UK.
Tax strategy
The Group has continued to operate
within the tax strategy approved
by the Board during the financial
year ended 31 March 2017. The tax
strategy is subject to annual review
and reflects HomeServe’s status as
a plc, and the regulated nature of
its business which requires strong
governance and consideration of
reputation as well as compliance
with local laws, regulations and
guidance. HomeServe made the
UK elements of the tax strategy
document publicly available in April
2017 as required by UK legislation.
The Group tax strategy covers how
HomeServe:
(i) applies tax governance on an
ongoing basis and maintains
strong internal controls in order
to substantially reduce tax risk;
(ii) will not engage in artificial
transactions the sole purpose of
which is to reduce tax;
(iii) holds a strategic aim to retain its
low tax risk rating as determined
by the UK Tax Authority’s
Business Risk Review process;
and
(iv) works 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 £27.4m (FY17:
£23.9m), representing an effective
tax rate of 22% (FY17: 24%). The
corporate income tax rates in the
overseas countries in which the
Group operates continue to be
higher than the UK corporate income
tax rate of 19% (FY17: 20%), which
results in a Group effective rate
higher than the headline UK rate.
Changes to the corporate income tax
rates across a number of countries in
which the Group operates have been
announced. The UK corporation tax
rate of 19% in FY18 is also expected
to apply in FY19 and FY20, with a
reduction to 17% in FY21 onwards.
During December 2017, the US
enacted a comprehensive overhaul
of its tax system, which has resulted
in a blended (Federal/State) rate of
38% in FY18 (FY17: 40%), which will
reduce to 27% in FY19 onwards.
France also enacted new tax
legislation in December 2017 which
will see its main rate of corporate
income tax reduce from 33% in
FY18 (FY17: 33%) to 25% as of FY22.
Meanwhile, Spain’s corporate income
tax rate continues to be 25%
(FY17: 25%).
As the proportion of the Group’s
profits earned overseas continues
to grow the effective tax rate of 22%
(FY17: 24%) is expected to increase
slightly in future years.
Cash flow and financing
HomeServe’s business model
continues to be highly cash
generative with cash generated
by operations in FY18 of £164.2m
(FY17: £139.9m), representing a cash
conversion ratio against adjusted
operating profit of 107% (FY17:
118%). The cash conversion ratio
is expected to remain in excess of
100%.
Working capital increased by
£42.4m in FY18 reflecting the timing
of certain supplier payments and
continued growth in all businesses.
Capital expenditure included
£54.6m in relation to ordinary and
transformational capital expenditure,
the largest elements of which related
to the core customer management
system in the UK; claims handling
and job deployment systems in
the UK, North America and Spain;
ongoing digitisation in all businesses;
and the development of a WiFi
version of LeakBot in the UK. Total
partner payments amounted to
£16.5m (FY17: £14.1m) in respect
of the acquisition of customers
originated by Endesa in Spain and
Suez in France.
The core customer management
system is being replaced in the UK. It
is anticipated that this new customer-
centric system will improve agent
processes and provide more
opportunity to identify and offer the
best solutions for customers’ needs.
Investments in the engineer and
contractor networks in the UK, North
America and Spain will improve
customer service and enable claims
handling and job deployment
efficiencies.
An increasing proportion of
customers wish to engage with
HomeServe digitally at all stages of
the customer journey and further
investment was made to support this,
improving websites in all businesses
and enhancing the online claims
journey in the UK. This area remains
a focus in FY19 with plans to expand
the online and mobile self-serve
functionality in all businesses.
HomeServe will continue to invest
in all of its businesses, including in
its new global business lines where
it sees significant opportunity to
develop its presence in HVAC, Smart
Home and Home Experts. Capital
4848
HomeServe plc Annual Report & Accounts 2018
HomeServe plc Annual Report & Accounts 2018
Financial review
Strategic report
Financial review
Page header
continued
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 – Ordinary
Capital expenditure – Partner Payments
Repayment of finance leases
Free cash flow
Acquisition of associate
Acquisitions of subsidiaries
Acquisition of policy book
Dividend from associate
Disposal of subsidiary
Equity dividends paid
Issue of shares (net of associated issue costs)
Net movement in cash and bank borrowings
Impact of foreign exchange
Net debt acquired
Finance leases
Opening net debt
Closing net debt
2018
153.4
(18.4)
135.0
62.6
9.0
(42.4)
164.2
(10.5)
(27.2)
(54.6)
(16.5)
(0.6)
54.8
—
(54.2)
(53.6)
0.4
—
(50.4)
123.3
20.3
2.9
(0.1)
0.5
(261.4)
(237.8)
2017
118.8
(14.1)
104.7
49.5
6.8
(21.1)
139.9
(6.4)
(20.0)
(44.4)
(14.1)
(1.0)
54.0
(24.7)
(74.2)
—
—
(1.7)
(40.3)
0.9
(86.0)
(6.3)
(0.4)
0.8
(169.5)
(261.4)
HomeServe plc Annual Report & Accounts 2018
Financial review
49
expenditure in FY19 is expected to
be slightly lower than FY18 before
trending towards a normalised rate
of £35m per annum in FY20 and
beyond.
Acquisitions
The Group has incurred a net cash
outflow in respect of business
combinations of £54.2m in the year.
There were three key cash outflows
resulting from business combinations
in the year ended 31 March 2018;
On 2 August 2017 HomeServe
acquired 100% of the issued share
capital and obtained control of
Help-Link UK Limited for a total cash
outflow in the period of £6.7m.
On 17 November 2017 HomeServe
increased its investment in
Sherrington Mews Limited,
the holding company of the
Checkatrade Group, by 60%, taking
its total holding up to 100%. The
consideration for the remaining
60% was £50m which resulted in
a net cash outflow of £38.4m for
the year. Of the £50m, £10m was
utilised by Checkatrade’s founder to
subscribe for the allotment and issue
of 1,193,317 HomeServe plc shares at
a price of £8.38 per share (calculated
by reference to the closing price on
16 November 2017).
On 29 December 2017 HomeServe
acquired 100% of the issued share
capital of PXB Invest SAS, the holding
company of Electrogaz, a provider
of heating installations in France,
incurring a net cash outflow of
£4.6m
In addition to the net cash outflow
on the acquisitions above of £49.7m,
there was a further outflow of £4.5m
relating to deferred consideration in
respect of business combinations
in prior periods and an immaterial
acquisition in the UK (FY17 £3.1m).
A cash outflow of £53.6m was also
incurred in relation to the policy
book of DPS, following completion
of tranche 1 of the acquisition on 18
December 2017 by HomeServe.
Earnings per share
Basic earnings per share for the year
increased from 24.0p to 30.2p, an
increase of 26%. On an adjusted
basis, earnings per share increased
24% from 27.0p to 33.6p. The
weighted average number of shares
increased from 309.9m to 318.9m
primarily due to the equity placing
on 19 October 2017 and also due to
shares issued in part consideration
for the Checkatrade acquisition and
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 14.4p per share
(FY17: 11.2p) to be paid on 2 August
2018 to shareholders on the register
on 6 July 2018.
Together with the interim dividend
declared in November 2017 of
4.7p (November 2016: 4.1p), this
represents a 25% increase in the total
ordinary dividend payment for the
year of 19.1p (FY17: 15.3p), which is
1.76x covered by the FY18 adjusted
earnings per share (FY17: 1.76x).
As previously indicated, the Board
continues to adopt a progressive
dividend policy and targets a
dividend cover in the range 1.75 - 2x
over the medium term.
Financing
In FY18 the Group targeted net debt
in the range of 1.0-1.5x EBITDA,
measured at 31 March each year.
With net debt of £237.8m and
EBITDA of £197.6m the Group was
inside this range at 1.2x.
It is four years since the Board last
reviewed its capital structure policy,
during which time the Group has
grown considerably, made and
integrated a number of significant
acquisitions, and diversified its
revenue streams.
Accordingly, the Board has
determined that the Group can now
support a leverage policy range of
1.0 - 2.0x Net Debt: EBITDA at March
year-ends, compared to the previous
policy of 1.0 – 1.5x. As at present,
the Group will be prepared to see
leverage outside the new range
for reasonable periods of time if
circumstances warrant, and the new
range itself will be subject to periodic
review. With the ordinary seasonality
of the business, net debt is expected
to increase at the next half year.
During the year, the Group entered
into a new multi-currency revolving
credit facility with both existing
and new banking partners. The
new terms of the facility provide
committed credit of £400m which
runs until 31 July 2022 with two one-
year extension options, subject to
agreement by the banking partners,
which would extend the maturity
to 31 July 2024. Loans have variable
interest rates linked to LIBOR or
EURIBOR. With other funding,
principally from Private Placements,
the Group had over £270m
headroom against its available
sources of debt at the year end.
Net interest paid increased to £10.5m
(FY17: £6.4m) due principally to costs
associated with the renewal of the
Group’s debt facilities in early FY18.
On 19 October 2017, HomeServe
placed 15,243,903 new ordinary
shares in HomeServe plc at a price
of 820 pence per share, raising
gross proceeds of £125m. The
Placing Shares issued represented,
in aggregate, approximately 4.9
per cent of HomeServe’s issued
50
HomeServe plc Annual Report & Accounts 2018
Financial review
Financial review
continued
ordinary share capital. The successful
placing funded the acquisition of
DPS and retained balance sheet
strength and liquidity to provide
the flexibility for future inorganic
investment opportunities, including
the subsequent purchase of the
remaining 60% of Checkatrade.
Foreign exchange impact
The impact of changes in the Euro
and USD exchange rates between
FY17 and FY18 has resulted in a £1.6m
increase in the reported revenue
and a £0.8m decrease in adjusted
operating profit of the international
businesses as summarised in the
table below. Beneficial movements in
the Euro have been more than offset
by a strengthening of Sterling against
the USD, particularly in the second
half of the year when HomeServe
generated the majority of its profits.
There was no material difference for
the impact of foreign exchange on
statutory operating profit.
With an increasing proportion of
HomeServe’s profits generated
overseas, the potential translation
impact of foreign exchange
movements on reported profits
may have a larger impact. A ten cent
movement in the FY18 average USD
rate of 1.33 and the Euro rate of 1.13
would each have had approximately
a £3.5m impact on full year adjusted
operating profit.
David Bower
Chief Financial Officer
22 May 2018
Foreign exchange impact
£million
North America
France
Spain
New Markets
Total International
$
€
€
€
Average exchange rate
2018
2017
Change
1.33
1.13
1.13
1.13
1.31
1.19
1.19
1.19
2%
(5%)
(5%)
(5%)
Revenue
2018
(9.1)
3.9
6.3
0.5
1.6
Effect on (£m)
Adj. operating profit.
2018
(2.9)
1.2
0.9
–
(0.8)
HomeServe plc Annual Report & Accounts 2018
Viability statement
51
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 110m
households under Affinity Partner
brands. Retention rates are high
across all established businesses,
resulting in stable and recurring cash
flows 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 2021.
Going concern
The Directors continue to adopt the
going concern basis in preparing the
financial statements. Please refer to
page 140.
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 2021. 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
2018 were reviewed by the Executive
Committee in February and then
approved by the Board in March 2018.
In making this statement, the Board
carried out a robust assessment of
the principal risks facing the Group.
The Principal Risks and Uncertainties
sets out the principal strategic,
operational and financial risks
which could threaten HomeServe’s
business model, future performance
and growth plans and its liquidity or
solvency. HomeServe has a robust
risk management framework which
addresses its risk appetite and risk
policy. All major risks are scored
based on their potential impact and
likelihood and are reviewed regularly
by the Audit & Risk Committee.
Various severe but plausible stress
tests have been performed both on
individual and combined scenarios
which modelled;
• the impact of the loss of a key
commercial partner
• the impact of a reduced customer
focus and a resultant reduction in
customer satisfaction and retention
• market disruption from a new
competitor
• the impact of new or amended
regulation and legislation
• the impact of losing a key
underwriting relationship
Stress tests indicated that no single
scenario would impact the viability of
the Group over the next three years.
As might be expected the impact
increases if different risks were to
materialise simultaneously, however
it is considered unlikely that such
a scenario would occur given the
nature and relative diversification
of the business. In such scenarios
HomeServe would also be able
to take decisions to protect the
profitability of the business over a
three year period by, for example,
scaling back marketing investment to
offset any reductions in income.
The Directors’ assessment has
been made with reference to the
geographical spread of HomeServe’s
operations and its strong financial
position resulting from a large
portfolio of commercial partnerships
and high customer retention.
Read more about the potential impact of principal risks and uncertainties on page 26.
52
HomeServe plc Annual Report & Accounts 2018
Quick
off the mark
How HomeServe
defied expectation
“My boiler was always on and working overtime.
Costing me money – I couldn’t work it out.
Until I realised there was a leak.
I knew I was with HomeServe…
But I never knew just how fast they could be!
A fully equipped engineer arrived.
I just couldn’t believe how quick and easy it all was.
Boiler and day back on track!
No stress, no worry. Very happy!”
Mr Albaba
Birmingham
Discover how life keeps moving for our Customers at homeserve.com/customerstories
HomeServe plc Annual Report & Accounts 2018
53
Contents
Governance
54 Corporate governance statement
54 Chairman’s overview
56 Compliance and other statements
57 Application of principles
60 Relations with shareholders
61 Leadership
64 Board of Directors and Executive team
68 Effectiveness
70 Nomination Committee report
72 Accountability
76 Audit & Risk Committee report
84 Directors’ remuneration report
84 Annual statement
86 Directors’ remuneration policy
97 Annual report on remuneration
114 Directors’ report
118 Statements of responsibilities
120 Independent Auditor’s report
54
HomeServe plc Annual Report & Accounts 2018
Chairman’s overview
Chairman’s overview
Board focus
As a Board we regularly discuss and review:
• Our business model and its sources of value that give us advantage
• 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.
As I set out in my introduction to the Strategic report on page 4, this has
been a very important year for HomeServe, in which we have taken a series
of decisions to move us closer to achieving our vision of being the world’s
most trusted provider of home repairs and improvements. To help realise this
vision, we have created four global business lines to help drive performance
across multiple geographies – Home Assistance Membership, Home Experts,
Heating Installations and Smart Home. The Board has worked closely with
management to ensure that we have the right organisation structure to
support a more globally focused business.
We have continued to build our Home Assistance Membership business in all
geographies, with particular success in North America where we completed
our largest acquisition to date, of the policy book of Dominion Products and
Services Inc (DPS).
The Board debated how to finance the DPS acquisition and having
considered the options carefully, agreed that to maintain flexibility for future
opportunities, it would be beneficial to undertake a public placing. This was
the first public placing we had undertaken and we were pleased that it was
such a success.
In Home Experts, in November 2017, we were able to take control of 100% of
Checkatrade which gave us the platform we need to build our Home Experts
business and works well with the digital expertise to which we have access
through our shareholding in Habitissimo.
In Heating Installations and Smart Home, the Board advocated a measured
approach, approving the acquisitions of Help-Link in the UK and Electrogaz in
France to provide installation capability. Our Smart Home strategy will focus
on technology that is complementary to our core business, water leakage and
smart thermostats.
Dear Shareholder
I am pleased to present
this year’s Corporate
governance report.
As a Board, we continue
to believe that good
corporate governance
underpins good
business performance.
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 FY18.
HomeServe plc Annual Report & Accounts 2018
Chairman’s overview
55
Board changes
During the year we welcomed three new Non-Executive Directors to the Board; Katrina Cliffe, Edward Fitzmaurice and
Ron McMillan and one new Executive Director; Tom Rusin. We have also said farewell to Mark Morris and Ben Mingay
who both retired as Non-Executive Directors. Further details on these changes are set out on page 61. I would like to
extend my thanks to both Mark and Ben for their contribution and support during their time on the Board. In particular,
as Chairman of the Audit & Risk Committee, Mark made a significant impact on the Group’s governance arrangements
and culture.
We have announced today that Martin Bennett will be stepping down from the Board at the Annual General Meeting
on 20 July 2018. Martin has made an outstanding contribution to HomeServe and we would like to thank him and wish
him well for the future.
Culture
Culture is important both to the operation of the Board and the Group as a whole. I aim to facilitate an open and
collaborative culture and encourage constructive dialogue in Board meetings. Employee engagement surveys are
conducted at least annually throughout the Group and the results are reviewed at the Board and locally to enable us to
take action where needed.
Board effectiveness
During the year, a review of the Board and its committees was facilitated by Lintstock Limited. Further details on the
review is provided on page 68. 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
22 May 2018
56
HomeServe plc Annual Report & Accounts 2018
Compliance and other statements
Compliance and other statements
The Company is committed to the Principles of corporate governance contained in the 2016 UK Corporate
Governance Code (‘the Code’) which is available at http://www.frc.org.uk. Under the Code, the Board is required to
make a number of statements, as follows:
Compliance with the Code
The Directors confirm that, throughout FY18, the Company continued to apply the main Principles of the Code and
complied with all of the relevant Provisions of the Code, save that the Senior Independent Director did not meet with
any shareholders during the year although this opportunity was actively promoted.
Viability statement and going concern
Statements in respect of viability and going concern are set out on page 51.
Principal risks
The Directors confirm that they have carried out a robust assessment of the principal risks facing the Group (including
those which would threaten the business model, future performance, solvency or liquidity), their appetite with respect
to those risks and the systems required to mitigate and manage them. Details on the review process are set out on page
74. Further details on the principal risks and uncertainties can be found on pages 26 to 33.
Annual review of systems of risk management and internal control
The Board, through the Audit & Risk Committee, monitored the Group’s systems of risk management and internal
control and carried out a review of their effectiveness. The Board concluded that overall, these systems were effective.
Details on the review process are set out on page 72.
Fair, balanced and understandable
The Directors consider that, taken as a whole, this Annual Report is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s performance and position, business model and strategy.
Details on the process for arriving at this conclusion are set out on page 80.
HomeServe plc Annual Report & Accounts 2018
Application of principles
57
Application of principles
The section below sets out how the Company has continued to apply the main Principles of the Code during the year.
A. Leadership
A.1 Role of the Board
The Board is responsible for providing effective leadership. It met formally eight times during the year. 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. The full schedule is available on our
website http://www.homeserveplc.com/about-us/corporate-governance/our-board.
A.2 Division of responsibilities
The Chairman’s responsibilities are clearly defined in a written specification agreed by the Board which makes clear
the division of responsibilities between the Chairman and the Chief Executive. The Chairman’s responsibilities 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.
A.3 The Chairman
The Chairman, Barry Gibson, sets the agendas for meetings and ensures that appropriate time is available for discussion
of all agenda items, with particular focus on strategic issues. He facilitates open and constructive dialogue during
meetings and promotes productive relations between Executive and Non-Executive Directors.
On his appointment in April 2010, the Board considered Barry to be independent in character and judgement in
accordance with the Code.
A.4 Non-Executive Directors
The Non-Executive Directors provide the Board with a breadth of experience, independent judgement and constructive
challenge. They meet regularly without the Executive Directors and at least once a year without the Chairman. The
Senior Independent Director provides advice and support to the Chairman as required and to the other members of the
Board. The Chairman and Senior Independent Director are also available for shareholder meetings.
B. Effectiveness
B.1 Composition of the Board
At the year end, the Board comprised six Non-Executive Directors (including the Chairman) and five Executive
Directors. The Board considers all of the Non-Executive Directors (excluding the Chairman) to be independent in
character and judgement.
B.2 Appointments to the Board
The process for Board appointments is generally led by a sub-committee created for the purpose. This approach allows
those Directors with the most relevant experience to be involved in recruiting for particular roles. The committee then
makes recommendations to the Board. For more information on Board appointments and the work of the Nomination
Committee, please refer to pages 70 to 71.
B.3 Commitment
The commitment required of Directors is discussed prior to appointment.
58
HomeServe plc Annual Report & Accounts 2018
Application of principles
Application of principles
continued
B.4 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. Newly appointed Board members are
required to undergo an induction programme which includes obtaining a thorough understanding of the Group’s
various operations.
Training and development is provided on an ongoing basis as required and Board members have the opportunity to
receive formal training from external providers if they wish. The Chairman considered the training and development
needs of individual Directors and he has provided mentoring to the Chief Executive.
B.5 Information and support
The Chairman, supported by the Company Secretary, ensures that all Board members receive accurate and timely
information on matters being considered at Board or Committee meetings. In advance of each Board or Committee
meeting, all relevant papers are made available to the Directors via a secure electronic portal.
The Company Secretary is the secretary to the Board and its Committees and is also the secretary to the Executive
Committee. All Directors have access to the services of the Company Secretary and Directors may take independent
legal and other professional advice at the expense of the Company.
B.6 Evaluation
The Board conducts an annual, externally facilitated evaluation of its performance and that of its Committees. Further
details are set out on page 68.
B.7 Re-election of Directors
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.
C. Accountability
C.1 Financial and business reporting
The Strategic report is set out on pages 2 to 51 and provides information about the performance of the Group, the
business model, strategy and the principal risks and uncertainties relating to the Group’s future prospects.
C.2 Risk management and internal control
The Board sets the Group’s risk appetite and through the Audit & Risk Committee, monitors and annually reviews the
effectiveness of the Group’s systems of risk management and internal control. Further information on risk management
and internal control is provided on pages 72 to 75.
C.3 Audit & Risk Committee and Auditor
The Board has delegated a number of responsibilities to the Audit & Risk Committee which is responsible for
overseeing the Group’s financial reporting processes, internal controls and the work undertaken by the external auditor.
The Chairman of the Audit & Risk Committee provides regular updates to the Board.
Further detail on the work of the Audit & Risk Committee is provided on pages 76 to 83.
HomeServe plc Annual Report & Accounts 2018
Application of principles
59
D. Remuneration
D.1 Level and components of remuneration
The Remuneration Committee is responsible for setting a remuneration policy that will attract, retain and motivate
Executives. The focus of the policy is to align the interests of the Executives to those of shareholders and the long-term
success of the Company.
D.2 Procedure
Details of the work of the Remuneration Committee are provided on pages 84 to 113.
E. Relations with shareholders
E.1 Dialogue with shareholders
The Group actively engages with investors and solicits their feedback. The Chairman met with a number of
shareholders during the year and ensures that the Board is kept informed of shareholder views. The Senior
Independent Director is available for meetings with major shareholders and the Board receives a monthly report from
the Group Communications and Investor Relations Director along with analyst and broker briefings.
E.2 Constructive use of general meetings
The AGM gives all shareholders the opportunity to communicate directly with the Board. All Directors attend the AGM
and are available for questions both during the formal part of the meeting and informally afterwards.
60
HomeServe plc Annual Report & Accounts 2018
Relations with shareholders
Relations 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 Senior Independent Director, who are
available to discuss any questions which they may have in relation to the running of the Company.
During the year, the Chairman met with a number of major shareholders and contact was made with the top 10
shareholders offering a meeting with the Senior Independent Director. None of the shareholders contacted wished to
arrange a meeting.
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. Feedback is actively sought following the Interim and Preliminary
Results presentations and presented to the Board.
HomeServe plc Annual Report & Accounts 2018
Leadership
61
Leadership
The Board
The Board is responsible for the effective leadership and long-term success of the Group. It 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 Company’s future strategy
• the approval of major financial commitments
• the acquisition of significant companies or businesses
• the Company’s internal controls
• the recommendation or approval of dividends
• the approval of preliminary and interim financial statements
• appointments to the Board and its Committees.
The full schedule is available on our website http://www.homeserveplc.com/about-us/corporate-governance/our-
board.
The Board has delegated certain of its responsibilities to the Committees of the Board. Further detail on the work of
the Committees is provided later in the Annual Report. The terms of reference of each of the Board’s Committees are
available on request from the Company Secretary and are available on our website http://www.homeserveplc.com/
about-us/corporate-governance/committees
Board composition
As at 31 March 2018, the Board comprised six Non-Executive Directors (including the Chairman) and five Executive
Directors. The Non-Executive Directors have a diverse range of skills and experience which enables them to oversee
business performance and provide constructive challenge. The Executive Directors have extensive commercial,
financial and operational experience both within HomeServe and beyond.
During the year there were a number of changes to the Board:
• On 23 May 2017, Tom Rusin, Chief Executive, HomeServe North America was appointed as an Executive Director.
• On 23 May 2017, Katrina Cliffe was appointed as a Non-Executive Director and member of the Audit & Risk Committee.
• On 23 May 2017, Edward Fitzmaurice was appointed as a Non-Executive Director.
• On 27 October 2017, Ron McMillan was appointed as a Non-Executive Director and member of the Audit & Risk
Committee. He became Chairman of the Audit & Risk Committee on 27 February 2018.
• Mark Morris retired as Senior Independent Director and Chairman of the Audit & Risk Committee on 27 February 2018
after nine years on the Board.
• Stella David was appointed as Senior Independent Director on 27 February 2018.
• Ben Mingay retired as a Non-Executive Director on 26 March 2018 after six years on the Board.
Short biographies of each of the Directors, including their membership of Committees, are set out on pages 64 to 66.
62
HomeServe plc Annual Report & Accounts 2018
Leadership
Leadership
continued
Board meetings
Up to eight regular meetings are held each year to review and monitor current and forecast performance. Regular
reports on monthly financial and operational 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 members of the Executive Committee who are not on the
Board, to devise and discuss the Company’s medium and long-term strategic focus and development strategy.
Regular formal and informal presentations are given in order to inform Directors of issues of importance affecting the
Group. Occasionally, meetings of the Board are held at the Group’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 FY18, the Board held one meeting in Spain and the annual strategy meeting was held in the UK. These meetings
provided the Board with an invaluable insight into the two businesses and enabled the Directors to meet the local
senior management teams. In the UK, the Board also met front line staff including engineers.
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. 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 as the preference is for the Board as a whole
to consider succession planning. Specific sub-committees are established for new appointments to the Board. The
activities of this Committee are described on pages 70 to 71.
R Harpin
M Bennett
D Bower
J Ford
T Rusin ¹
J M B Gibson
K Cliffe ²
S David
E Fitzmaurice ³
C Havemann
R McMillan 4
B Mingay 5
M Morris 6
1 Tom Rusin joined the Board on 23 May 2017.
2 Katrina Cliffe joined the Board on 23 May 2017.
3 Edward Fitzmaurice joined the Board on 23 May 2017.
4 Ron McMillan joined the Board on 27 October 2017.
5 Ben Mingay retired from the Board on 26 March 2018.
6 Mark Morris retired from the Board on 27 February 2018.
Board
8/8
8/8
8/8
8/8
7/7
8/8
5/7
8/8
7/7
8/8
4/4
8/8
7/7
Audit & Risk
Committee
Remuneration
Committee
2/2
3/3
2/2
3/3
3/3
6/6
6/6
6/6
5/5
HomeServe plc Annual Report & Accounts 2018
Leadership
63
Executive Committee
Members
Richard Harpin (Chairman)
Martin Bennett
David Bower
Johnathan Ford
Guillaume Huser
H Stephen Phillips
Tom Rusin
Responsibilities
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, procedures and budgets
• the monitoring of operating and financial performance
• the prioritisation and allocation of resources and
• the oversight of group wide initiatives and investments.
The Committee has adopted formal terms of reference which are available on our website http://www.homeserveplc.
com/about-us/corporate-governance/committees.
Culture
The last few years have seen increased focus on culture across the Group. Central to this has been the development of
our Customer and People promises which are now well established in each business.
A Group wide employee engagement survey is run at least annually with the same set of questions used in each
territory. Questionnaires are completed by employees on an anonymous basis and the process is facilitated by an
external provider. The results of the surveys are reviewed and discussed by the Board and are used by local Executive
teams to develop engagement action plans.
The Board gains valuable insight and feedback from the Executive Directors in respect of the culture and behaviour
across the Group and the internal audit function also considers culture as part of its reviews.
64
HomeServe plc Annual Report & Accounts 2018
Board of Directors and Executive team
Board of Directors and Executive team
header
JM Barry Gibson (66)
Chairman
Appointed to the Board: April 2004
Appointed as Chairman: April 2010
Committee memberships:
Nomination (Chair), Remuneration
Key areas of prior experience:
Retailing, travel, leisure
Principal current external appointments:
None
Barry was 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 (53)
Chief Executive Officer
Appointed to the Board: May 2001
Committee memberships:
Executive
Key areas of prior experience:
Consumer marketing, management consultancy,
entrepreneurship
Principal current external appointments:
Growth Partner LLP
Richard is the Founder and Chief Executive Officer
of HomeServe, which was set up in 1993 as a
joint venture with South Staffordshire Group.
Also the founder and Non-Executive Director
of Growth Partner LLP, investing in and helping
small consumer businesses to step change their
growth and the Enterprise Trust, a charity that
encourages young enterprise, apprenticeships and
SME’s. Previously a brand manager with Procter &
Gamble, followed by management consultancy
with Deloitte and his own company.
Martin Bennett (49)
Chief Executive, HomeServe UK
Appointed to the Board: June 2009
Committee memberships:
Executive
Key areas of prior experience:
Accountancy, audit, mergers and acquisitions
Principal current external appointments:
None
Martin was appointed as Chief Executive 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.
David Bower (46)
Chief Financial Officer
Appointed to the Board: February 2017
Committee memberships:
Executive
Key areas of prior experience:
Accountancy, audit, investor relations, mergers
and acquisitions
Principal current external appointments:
None
David was 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.
HomeServe plc Annual Report & Accounts 2018
Board of Directors and Executive team
65
Johnathan Ford (48)
Chief Operating Officer
Appointed to the Board: September 2012
Committee memberships:
Executive
Key areas of prior experience:
Accountancy, audit, investor relations, mergers
and acquisitions
Principal current external appointments:
None
Johnathan was 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.
Tom Rusin (49)
Global CEO, Membership
Appointed to the Board: May 2017
Committee memberships:
Executive
Key areas of prior experience:
Affinity marketing
Principal current external appointments:
None
Tom was appointed as Global CEO, HomeServe
Membership in April 2018 following nearly seven
years as Chief Executive Officer, HomeServe USA.
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.
Katrina Cliffe (51)
Non-Executive Director (Independent)
Appointed to the Board: May 2017
Committee memberships:
Audit & Risk, Remuneration, Nomination
Key areas of prior experience:
Financial services
Principal current external appointments:
Non-Executive Director of Cembra Money Bank
AG, ABTA (Association of British Travel Agents) and
Shop Direct Finance Company Limited where she
chairs the Risk Committee
Stella David (55)
Senior Independent Director (Independent)
Appointed to the Board: November 2010
Committee memberships:
Remuneration (Chair), Nomination
Key areas of prior experience:
Marketing, drinks industry, international
Principal current external appointments:
Non-Executive Director of C&J Clark Ltd, Bacardi
Ltd and Norwegian Cruise Line Holdings
Katrina was previously General Manager at
American Express Global Business Travel, EMEA,
having been General Manager, Global Corporate
Payments, UK. Prior to American Express she held
senior roles at Lloyds TSB Group PLC, Goldfish
Bank Ltd and MBNA International Bank.
Stella was 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. She also spent seven years as
a Non-Executive Director at Nationwide Building
Society.
66
HomeServe plc Annual Report & Accounts 2018
Board of Directors and Executive team
Board of Directors and Executive team
continued
Edward Fitzmaurice (55)
Non-Executive Director (Independent)
Appointed to the Board: May 2017
Committee memberships:
Nomination
Key areas of prior experience:
Retailing, insurance
Principal current external appointments:
None
Edward was previously Chief Executive Officer of
Hastings Insurance Group and part of the MBO
team of that business in 2009. He served as the
Non-Executive Chairman of Hastings Insurance
Services Ltd 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. His earlier career was
spent at Dixons plc and Anglo American.
Chris Havemann (50)
Non-Executive Director (Independent)
Appointed to the Board: December 2015
Committee memberships:
Audit & Risk, Remuneration, Nomination
Key areas of prior experience:
Digital
Principal current external appointments:
CEO of RM222 Ltd, parent company of Reality
Mine Limited
Ron McMillan (65)
Non-Executive Director (Independent)
Appointed to the Board: October 2017
Committee memberships:
Audit & Risk (Chair), Remuneration, Nomination
Key areas of prior experience:
Accountancy, audit
Principal current external appointments:
Senior Independent Director and Chairman of
the Audit Committee of N Brown PLC, SCS PLC
and 888 Holdings PLC. Non-Executive Director
and Chairman of the Audit Committee of B&M
European Value Retail SA.
Chris 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.
A Chartered Accountant, Ron worked in PwC’s
assurance business for 38 years and has
extensive knowledge and experience in auditing,
financial reporting and governance. During his
time at PwC, his roles included Global Finance
Partner, Chairman of the North of England and
Deputy Chairman and Head of Assurance for the
Middle East.
HomeServe plc Annual Report & Accounts 2018
Board of Directors and Executive team
67
H Stephen Phillips (51)
CEO, Global Partnerships
Committee memberships:
Executive
Key areas of prior experience:
Business development, marketing, international
Principal current external appointments:
None
Stephen was appointed as CEO, Global
Partnerships in January 2018 having led
HomeServe Spain since 2005. 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.
Guillaume Huser (51)
Chief Executive, HomeServe France
Committee memberships:
Executive
Key areas of prior experience:
Financial services, business development, affinity
marketing, international
Principal current external appointments:
None
Guillaume was appointed as Chief Executive,
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 (48)
Company Secretary
Appointed as Company Secretary: July 2008
Key areas of prior experience:
Company secretarial, pensions
Principal current external appointments:
Trustee of, and Secretary to, the industry wide
Water Companies Pension Scheme
Anna started her career at Severn Trent plc
and joined South Staffordshire plc as Assistant
Company Secretary in 1996. Following the
demerger of HomeServe plc and South
Staffordshire plc in 2004 she continued as Assistant
Company Secretary of HomeServe plc, becoming
Company Secretary in 2008.
68
HomeServe plc Annual Report & Accounts 2018
Effectiveness
Effectiveness
Director induction
During the year, Tom Rusin visited the UK, Edward Fitzmaurice visited the UK and US, Katrina Cliffe visited the US, UK and
Spain and Ron McMillan visited the UK, France and the US. Both Katrina and Ron have spent a day on the road in the UK
with an engineer which provided them with an opportunity to gain a real insight into the customer experience.
Board development
During the year, training has been provided for the Board as a whole on information security and cyber risks and health
and safety both of which had been identified as key risks. In addition, the Executive Directors have taken part in leadership
development activity and a digital workshop designed to improve their knowledge of this important area.
Time commitment
Time commitment is discussed with prospective Non-Executive Directors as part of the recruitment process. The Board is
satisfied that all Non-Executive Directors have sufficient time to meet their commitment to the Company.
Executive Directors may serve as a Non-Executive Director on one other board so long as this does not interfere with their
time commitment to the Company. If they do, they may retain the fees. None of the Executive Directors currently have
other relevant board appointments.
Re-election of Directors
Ron McMillan has been appointed since the last AGM and as such will be proposed for election at the 2018 AGM. All other
Directors will offer themselves for re-election apart from Martin Bennett who will be stepping down from the Board. The
Board is content that each of the Non-Executive Directors is independent.
Board evaluation
The Board has implemented a formal process for reviewing its own effectiveness, that of its 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.
The Board evaluation is facilitated by Lintstock Limited. Online questionnaires are completed by all Directors on an
annual basis and responses are collated into a report which is discussed at a Board meeting. Every third year, Lintstock
interview all of the Directors so that any themes can be developed and feedback investigated in more depth. Lintstock
Limited has no other connections with the Company.
The FY17 review highlighted the need to develop the Group’s people strategy. In direct response to this, the People
Committee was established to provide additional focus and impetus to people related activity. It was also agreed that
the Board should continue to visit different HomeServe operations and interact with the wider management teams and
to this end, during FY18, the Board visited Spain and the UK.
In FY18, Directors completed evaluation questionnaires in January 2018 and these were followed up in February 2018
by individual interviews with Lintstock who then compiled a formal written report summarising the Directors’ views.
This report was discussed by the Board in March 2018.
HomeServe plc Annual Report & Accounts 2018
Effectiveness
69
The overall performance of the Board was rated very highly. In particular the Non-Executives’ support and challenge
of management was positively rated as was the relationship between the Board and the Chief Executive and the
atmosphere at meetings. As a result of the review, the following priorities were identified:
• ensuring that the new Board members were appropriately embedded;
• monitoring the changes in the management structure to support the growth across four global business lines;
• overseeing delivery of the Home Experts strategy; and
• progressing the talent agenda.
It was agreed that all of these priorities should be given appropriate time on the Board agenda over the coming year.
In FY18, for the first time, an upward review of the Board was also completed. Senior executives who had regular
exposure to the Board and had presented at Board or Committee meetings were asked a series of questions about
the support and challenge provided by the Board and how interaction with the Board could be improved. Generally,
feedback was positive but some useful suggestions were made in respect of increasing the visibility of the Board across
the Group and improving the process around attending and presenting at Board meetings. These suggestions are being
integrated into the planning for future Board meetings.
70
HomeServe plc Annual Report & Accounts 2018
Nomination Committee report
Nomination Committee report
Members
J M Barry Gibson (Chairman)
Katrina Cliffe (appointed 23 March 2018)
Edward Fitzmaurice (appointed 23 March 2018)
Stella David
Chris Havemann
Ron McMillan (appointed 23 March 2018)
Ben Mingay (retired 26 March 2018)
Mark Morris (retired 27 February 2018)
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.
The Committee has adopted formal terms of reference which are available
on our website http://www.homeserveplc.com/about-us/corporate-
governance/committees
Key issues considered during the year
The Nomination Committee did not meet formally during the year. Succession
planning arrangements were considered by the Board as a whole rather than
by the Nomination Committee to ensure that both Executives and Non-
Executives were fully aligned.
Specific sub-committees were appointed during the year to consider the
appointment of Tom Rusin to the Board and the appointment of three Non-
Executive Directors, Katrina Cliffe, Edward Fitzmaurice and Ron McMillan. The
creation of specific sub-committees enabled those Directors with relevant
experience to be involved in the recruitment and appointment process. For
example, it was felt that it was important for Mark Morris’s experience as the
outgoing Audit & Risk Committee Chairman to be leveraged when searching
for his successor.
Support was provided for board appointments by Spencer Stuart. Spencer
Stuart has no other connection to the Company. Led by the Chairman, the
sub-committees met informally on a number of occasions to consider the
candidates for the roles and Directors not on the committees were given
the opportunity to meet with the shortlisted candidates. Following this,
recommendations were made to the Board.
Dear Shareholder
As a Board, we
recognise that having
the right people is vital
to the success of our
business and whilst the
Nomination Committee
has a formal role to play
in ensuring that the Board
has the right mix of skills
and experience to deliver
our strategy, we believe
that succession planning
is best addressed by
the Board as a whole.
This ensures that the
Executives as well as
the Non-Executives
can be fully involved in
discussions on talent.
We recognise that we
have more to do on
the people agenda
and we have therefore
established a People
Committee to move
us forward in respect
of talent and diversity
throughout the Group.
HomeServe plc Annual Report & Accounts 2018
Nomination Committee report
71
Succession planning
We recognise the importance of ensuring 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. The process
identifies emergency, short-term and long-term successors for each role and therefore allows any training and
development requirements or recruitment issues to be highlighted. 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 as a whole reviews the high level plan at
least annually.
Diversity
We are committed to ensuring that our Board is appropriately diverse. We are supportive of the recommendations in
the review of the Davies Report and the Hampton-Alexander Review to promote greater female representation on
corporate boards and when seeking to recruit for Board positions we ensure that ‘long lists’ include women candidates.
We have also considered the McGregor-Smith Review and will ensure that the recommendations of this review are
taken into account going forward.
We believe that a diversity of experience and psychological profile is also 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.
Currently, the Board does not have a formal diversity policy but it is intended that this will be actively considered over
the coming year through the People Committee.
We have recently commissioned a specialist consultancy to undertake a benchmark review of our diversity and
inclusion policies and procedures and to facilitate interviews and focus groups across the business with the aim of
gaining a better understanding of whether our employees feel that we operate a fair and undiscriminating approach.
The outcome of this benchmark review will be discussed at the People Committee and will provide useful background
for the development of our policy.
More information is provided in the Corporate responsibility report on pages 20 to 25.
People Committee
The People Committee was formed in 2017 in response to the FY17 board effectiveness review which recognised that
the Group as a whole needed to do more to promote the people agenda. The Committee is chaired by Stella David,
our Senior Independent Director and is made up of both Non-Executive and Executive Directors. The Group Legal and
HR Director and the newly recruited Group Director of Talent also attend.
Reporting to the Board, the Committee has adopted formal terms of reference which include the determination and
oversight of the Group’s people related strategies including succession planning, employee engagement and culture,
diversity and learning and development.
JM Barry Gibson
Chairman
22 May 2018
72
HomeServe plc Annual Report & Accounts 2018
Accountability
Accountability
Board assessment of risk management and internal control
The Board has overall responsibility for the Group’s system of risk management and internal control including setting
of risk appetite. The Audit & Risk Committee has a key role to play in overseeing risk management and 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 on pages 76 to 83.
The Board is responsible for reviewing the effectiveness of risk management and internal control systems, specifically
that:
• There is an ongoing, systemised process for identifying, evaluating and managing the principal risks faced by the
Group.
• This system has been in place for the year under review and up to the date of approval of this Annual Report.
• The system is regularly reviewed by the Board.
• The system accords with the FRC guidance on risk management, internal control and related financial and business
reporting.
During the year, the Board has directly, or through the Audit & Risk Committee, overseen and reviewed the
development and performance of risk management activities and practices and the systems of internal control in place
across the Group. As a result, the Board is satisfied that the risk management and internal control systems that are in
place remain effective.
The Board delegated the responsibility for conducting the work required for it to provide the ‘fair, balanced and
understandable’, ‘going concern’ and ‘viability’ statements to the Audit & Risk Committee. In conducting this work, the
Audit & Risk Committee acts on behalf of the Board and its activities remain the responsibility of the Board. The relevant
Board statements on these matters are set out on pages 51 and 56.
The principal risks and uncertainties are set out on pages 26 to 33.
HomeServe plc Annual Report & Accounts 2018
Accountability
73
System of risk management and control
The Board has delegated the day-to-day management of the Group 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 risk governance model is based on the ‘three lines of defence’ as follows:
1st line of defence
A risk management framework is in place which includes the agreed risk appetite, policies and procedures. The Group’s
management operates a formal process for identifying, managing and reporting on the 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 Executive Risk Committee and the Audit & Risk Committee. Support is provided by the 2nd line of defence
oversight functions.
2nd line of defence
Independent oversight is provided by the various control functions including risk, compliance and specialist functions
such as health and safety and information security. The 2nd line provides advice on risk appetites, independent review
of risk ratings and action plans and reports on risk management to the Board and the Audit & Risk Committee.
3rd line of defence
The Group has a dedicated internal audit function and a formal audit plan is in place to address the key risks across the
Group and the operation and effectiveness of internal controls. The function reports to the Board through the Audit &
Risk Committee.
74
HomeServe plc Annual Report & Accounts 2018
Accountability
Accountability
continued
Risk management cycle
Risk appetite
Risk appetite is defined as the amount and type of risk we are willing to pursue or retain in order to meet our strategic
objectives. Our assessment of risk appetite is guided by our vision and mission and informed by our strategic objectives.
It is used as a measure against which all of our current and proposed activities are tested.
Risk appetite is reviewed bi-annually to ensure that it is aligned with the strategy.
Risk framework
A risk framework is in place across the Group which includes risk appetite, materiality and scoring matrices and key risk
indicators. Each business is expected to adhere to the Group risk framework and to report regularly on its risk registers
and key risk indicators but if appropriate, the Group framework may be customised to local requirements as long as
minimum standards are met. A mechanism exists to extend the Group’s risk framework to any significant new business
that is acquired or established immediately upon acquisition or start-up.
Risk assessment and risk registers
All businesses assess risks for likelihood and impact based on the materiality matrix included in the Group risk
framework. Controls are then implemented to manage the risks. Risks are scored on a gross and net basis and rated as
red, amber or green. Risk registers capture key risks and these are reviewed at local risk committees with the principal
risks being reviewed by the Group Executive Risk Committee and the Audit & Risk Committee.
Consideration is given to whether risks are within or outside appetite and particular attention is given to actions being
taken to mitigate risks. Incidents are recorded and reported on at the various committees.
Risk oversight
Oversight of the risk management process is provided by the Assurance & Risk Director and local risk and compliance
teams, the Audit & Risk Committee and ultimately, the Board.
Internal control
Internal audit acts as the 3rd line of defence. In order to ensure the independence of the internal audit function, the
Assurance & Risk Director’s primary reporting line is to the Chairman of the Audit & Risk Committee.
The internal audit function fulfils its role and responsibilities by delivery of the annual, risk based audit plan. There are
no restrictions on the scope of internal audit’s work.
A report is issued after each audit which provides an opinion on the control environment and details any issues found.
Internal audit then work with the businesses to agree remedial actions which are tracked to completion.
The Assurance & Risk Director submits reports to local boards and committees and attends those meetings as required.
He attends and reports to every Audit & Risk Committee.
HomeServe plc Annual Report & Accounts 2018
Accountability
75
Financial reporting
Three year business plans, annual budgets and investment proposals for each business are formally prepared, reviewed
and approved by the Board.
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, with all
material transactions being approved by the Board.
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. Ahead of the financial results being presented to the Board, monthly business review calls are held,
attended by Executives, representatives from the Group finance function and local senior management. These calls
provide an opportunity for a detailed review of performance and to identify any issues or trends.
Half year and annual 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.
The Board considers that the processes undertaken by the Audit & Risk Committee are appropriately robust, effective
and in compliance with the guidelines issued by the Financial Reporting Council. During the year, the Board has not
been advised by the Audit & Risk Committee on, or had identified itself, any failings, fraud or weaknesses in internal
control which have been determined to be material in the context of the financial statements.
Viability statement
The approach to the viability statement and the statement itself are shown on page 51.
Whistle blowing
A whistle blowing policy is in place and 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.
Issues are independently investigated by internal audit and feedback is provided through the external hotline.
A number of calls were made to the external hotline during the year but no issues were raised that required any action
from the Board.
76
HomeServe plc Annual Report & Accounts 2018
Audit & Risk Committee report
Page header
Audit & Risk
Committee report
Members
Ron McMillan (Appointed to the Committee on 27 October 2017 and became
Chairman on 27 February 2018)
Mark Morris (Chairman until 27 February 2018, when he retired)
Katrina Cliffe (appointed 23 May 2017)
Chris Havemann
Ben Mingay (retired 26 March 2018)
All members of the Committee are independent Non-Executive Directors and
the Committee as a whole has competence relevant to our sector. Both Mark
Morris and I have recent and relevant financial experience. Mark 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.
I was appointed to succeed Mark as Chairman of the Committee on his
retirement. I joined the Committee on 27 October 2017 and attended the
November and February meetings to ensure that there was an appropriate
handover. I worked in PwC’s assurance business for 38 years with 28 years as an
audit partner and have extensive knowledge and experience in auditing, financial
reporting and governance. During my time at PwC, my roles included Global
Finance Partner, Chairman of the North of England and Deputy Chairman and
Head of Assurance for the Middle East. I also chair the Audit Committees of N
Brown PLC, SCS PLC, 888 Holdings Plc and B&M European Value Retail SA.
All members of the Committee are expected to have an understanding of
financial reporting, relevant corporate legislation, the functions of internal and
external audit and the regulatory and compliance framework of the Group.
Katrina Cliffe brings experience in financial services to the Committee. She
chairs the Risk Committee and is a member of the Audit Committee of Shop
Direct Finance Company Limited. Chris Havemann is from an entrepreneurial
background and also brings a wealth of experience in respect of digital.
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.
Board reporting
I provide 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.
Dear Shareholder
Having being appointed
as Chairman of the
Committee on 27 February
2018, I am pleased to
present the Committee’s
report for the year.
The Committee is an
important element of
the Group’s governance
structure. Our role is
to review and advise
the Board on financial
reporting including the
various statements made
in the Annual Report on
viability, going concern,
risk and controls and
whether, when read
as a whole, the Annual
Report is fair, balanced
and understandable and
provides the information
necessary for shareholders
to assess the Group’s
performance, business
model and strategy.
HomeServe plc Annual Report & Accounts 2018
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77
Committee Effectiveness
The effectiveness of the Committee is reviewed as part of the annual Board review process facilitated by Lintstock
Limited. The FY18 review concluded that the Committee was operating effectively and benefitted from a high quality
cycle of work. Particular mention was made of the transparency in respect of audit findings. Positive comments were
made in respect of the clarity of the reporting to the Board by my predecessor and I will be looking to ensure that I
continue with this.
Responsibilities
The primary responsibilities of the Committee are to:
• monitor, on behalf of the Board, compliance with and the effectiveness of, the Group’s accounting and internal
control systems
• review the independence of the external auditor and agree their terms of engagement and remuneration
• review the scope of and outputs from the external audit
• approve the scope of the work undertaken by and the outputs from the work done by internal audit
• make recommendations to the Board on accounting policies and their application
• review the annual and interim financial statements before they are presented to the Board
• advise the Board on the Group’s overall risk appetite, tolerance and strategy
• monitor, on behalf of the Board, current risk exposures
• receive reports from compliance functions and 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 Group’s arrangements for its employees to raise concerns, in confidence,
about possible wrongdoing in financial reporting or other matters.
The Committee has adopted formal terms of reference which are available on our website http://www.homeserveplc.
com/about-us/corporate-governance/committees.
Summary of meetings in the year
The Committee usually meets three times in the year and did so in FY18. Details of meeting attendance are set out
on page 62. The timing of Committee meetings is arranged to accommodate the release of financial information, the
approval of the external and internal audit plans and the review of the outputs of those plans. In addition to scheduled
meetings, I met with the CFO and members of his team, the Assurance & Risk Director and the external auditors.
78
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continued
During the year the agenda included the following items:
• Half year results
• Full year results
• Consideration of new accounting standards (IFRS 9, IFRS 15 and IFRS 16)
• External audit plans and reports
•
Internal audit plans and reports
• Risk registers from each territory
• Updates on regulatory compliance activity including the General Data Protection Regulation
• Updates on certain key risks, in particular, information security
• Updates on the efforts to improve the focus on cash management and efficiency
• Consideration of governance and controls in partly owned subsidiaries and joint ventures
• Whistle blowing reports
•
Internal audit effectiveness and independence including the external quality review completed by PwC
• External audit effectiveness and independence.
Significant issues related to the financial statements
The Committee oversaw the process used by the Board to assess going concern and the viability of the Group, the stress
testing of key trading assumptions and the preparation of the viability statement which is set out on page 51.
The Committee also satisfied itself that the disclosures in relation to accounting judgements and key sources of
estimation uncertainty were appropriate and obtained, from the external auditor, an independent view of the key
disclosure issues and risks. Management present reports to the Committee setting out the basis for the assumptions used
and these reports are then discussed and challenged by the Committee. All of the issues were also discussed with the
external auditor and their views taken into account. The Committee is satisfied that the judgements made are reasonable
and appropriate disclosures have been included in the accounts.
The Committee assessed whether suitable accounting policies had been adopted and whether management had made
appropriate estimates and judgements. The Committee also reviewed reports from the external auditor on the half year
and full year results, which provided an overview of the audit work undertaken and highlighted any issues for discussion.
HomeServe plc Annual Report & Accounts 2018
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79
The significant issues considered in the year were:
Issue
How it was addressed by the Committee
Revenue recognition
As an insurance intermediary, the Company is required to recognise
revenue at the point at which a policy goes on risk. As such, revenue
reflects commission due from underwriters and is therefore
considered to be on a net basis. Some elements of revenue are
deferred to cover future costs and also to provide for policies which
may cancel mid term.
The Committee reviewed the approach
taken to estimate claims handling
costs, indirect costs associated with job
completion and processes for policy
cancellations and satisfied itself that a
consistent approach had been taken.
Accounting for new customer acquisitions
Customer acquisition costs are either expensed directly to the
income statement or are capitalised and amortised over the life of the
customer depending on the nature of the agreement with the partner.
The Committee reviewed the treatment
of acquisition costs in relation to three
partners, Endesa in Spain, Suez in France
and Veolia in France and satisfied itself
that the treatment was appropriate.
Carrying value of goodwill
The total goodwill balance at 31 March 2018 of £387m has been
allocated to the relevant cash generating units (CGUs) and tested for
impairment by comparing the carrying value of net assets (including
allocated goodwill and acquisition intangibles) with the value in use,
defined as the present value of future cashflows attributable to the
CGUs.
The Committee reviewed the ‘headroom’
to ensure that the value in use supported
the carrying value of the net assets and
satisfied itself that no impairment was
required.
Business combinations and asset purchases
During the year the Group completed a number of acquisition
transactions.
The Committee reviewed the Group’s
accounting for these acquisitions and
satisfied itself that it was appropriate.
Capitalisation of development costs
The Group has incurred significant costs in relation to the
development of new IT systems, a programme which is expected to
complete during FY19.
The Committee considered the benefits
due to be delivered by the programme
and the costs and satisfied itself that the
discounted benefits of the new systems
were significantly higher than the
carrying value of the asset.
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continued
Board statements
Going concern
The Committee reviewed whether it was appropriate to adopt the going concern basis for the preparation of the Annual
Report. Consideration was given to the Group’s three year forecasts, availability of committed bank facilities and expected
headroom under the financial covenants and a report from management was considered. The Committee ensured
that the assumptions underpinning the forecasts were stress tested and that the factors which impact on risks and
uncertainties were properly considered.
Following the Committee’s review, it recommended to the Board that it was appropriate to adopt the going concern basis.
The going concern statement is shown on page 51.
Viability statement
The Committee reviewed a report from management setting out the basis for the conclusions in the viability statement.
The approach to the viability statement and the statement itself are shown on page 51.
Fair, balanced and understandable
Having reviewed the Annual Report and taking into account the verification exercise completed, the Committee
confirmed to the Board that it was fair, balanced and understandable and provided the necessary information for
shareholders to assess the Group’s performance and position, business model and strategy.
Risk management and internal control
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, we also review action plans in respect of significant risks.
Information security and cyber risks were a particular focus during the year.
The Committee also monitors, on behalf of the Board, the effectiveness of the Company’s material accounting and
internal control systems. In fulfilling this responsibility for FY18, the Committee considered reports from management and
the internal and external auditors.
The Committee considers that appropriate controls are in place across the Group, that the Group has a well defined
organisational structure with clear lines of responsibility and a comprehensive financial reporting system. The Committee
also considers that the Group complies with the FRC guidance on risk management, internal control and related financial
reporting.
Further details in respect of risk management and internal controls are set out on pages 72 to 75. Details in respect of the
principal risks and uncertainties are set out on pages 26 to 33.
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81
Regulation and compliance
The Group operates in a regulated marketplace and is subject to different regulatory requirements designed to protect
customers across its different territories. This creates risk for the business as non compliance can lead to reputational
damage, financial penalties and potential loss of licence to operate.
The Committee receives regular updates on legal and compliance from management and believes that key compliance
indicators are strong across the Group. All established businesses outside the UK are required to complete Annual
Compliance Reports to confirm that the requirements of the Group Compliance Framework have been met and that
processes and controls are sufficient to identify breaches in local law and regulations.
The Committee reviewed the Group’s readiness for the General Data Protection Regulations (GDPR) which are due to
come into force in May 2018 and is comfortable that each business will meet the implementation date.
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.
Deloitte LLP has been the Group’s auditor since FY03, although the lead audit partner rotates every five years. The current
lead audit partner, Matthew Perkins, was appointed in FY15.
The Committee reviews the performance of the external auditor annually based on their understanding of the Group,
their approach to key areas of judgement and the extent of challenge, the quality of reporting and the efficiency and
conduct of the audit. Feedback is also sought from Group finance and local management on the external auditor’s
performance. We also reviewed the external auditor’s transparency report, 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 is satisfied that the audit continues to be effective and that Deloitte LLP continues to provide constructive
and independent challenge to management and consistently demonstrates a realistic and commercial view of the
business. 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 Company confirms that it has complied with the provisions of the CMA’s Statutory Audit Services Order for the
financial year under review.
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continued
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.
During the year, the Committee approved a revised policy in respect of non-audit services which reflected the revised
Ethical Standards. The revised policy sets out an updated list of prohibited services and in particular, prevents Deloitte LLP
from providing almost all taxation services. The 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 50% 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 fees payable to the auditor in respect of audit and audit-related assurance services totalled £901,000 and the fees for
non-audit related work (excluding audit-related assurance services) totalled £9,000 which equated to 1% of the audit fees.
Further detail on the fees paid is provided in Note 6.
Interaction with regulators
The Financial Reporting Council reviewed the FY17 Annual Report as part of its thematic review of alternative performance
measures. Feedback from the review was shared with the Chairman of the Committee and discussed with management
and the external auditor. No substantive issues were raised but we will continue to consider how we can improve the
disclosure of alternative performance measures.
Internal audit
The Committee considers and approves the internal audit plan which is based on an assessment of the strategic risks
faced by the Group which are regularly reviewed locally and by the Committee. In addition, key control processes are
reviewed on a cyclical basis. 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 Executive
Risk Committee. A regular 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. Reports are graded as 1 if the controls currently operated are
inadequate and expose the business to significant loss or regulatory breach. There were no such reports in the year.
During the year, the Committee received 42 reports in respect of the following areas:
Finance
Operations
IT controls
Information Security
Key financial controls and processes including balance sheet control reviews,
purchase to pay, order to cash and record to report cycles
Key operations processes including fulfilment, contractor management, business
continuity planning and disaster recovery, compliance and risk management
Key IT controls including disaster recovery, mobile device management and
general controls such as logical access, back up and restore processes and
controls
Developments in information and cyber security including penetration testing,
firewalls, server security and crisis management
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83
In relation to each of the above, internal audit made recommendations for improvements, the vast majority of which have
been or are being implemented by management.
During the first half of the year, in line with best practice, an external quality assessment of the internal audit function was
completed by PwC. PwC were selected to undertake the assessment following a formal tender process which included a
second tier provider.
PwC concluded that the internal audit function was providing effective assurance to the Group but there were some
opportunities to improve the efficiency and effectiveness of the function. The output from that review was discussed by
the Committee in May 2017 and it was agreed that it would be beneficial to augment the internal skills and experience
available by entering into a co-sourced arrangement to ensure that the Group could access appropriate technical and
specialised resource on a global and flexible basis.
A tender process was undertaken in July 2017 which included first and second tier providers as well as a boutique firm. As
a result of the process, PwC were chosen as the most appropriate co-source partner and they started working with the
internal team during the year.
Looking ahead
Going forward, I shall ensure that the Committee continues to acknowledge and embrace its role of protecting the
interests of shareholders as regards the integrity of the published financial information and the effectiveness of audit.
I shall be available at the AGM to answer any questions and would like to thank my colleagues on the Committee for their
help and support.
Ron McMillan
Chairman of the Audit & Risk Committee
22 May 2018
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Directors’ remuneration report
Directors’ remuneration report
In respect of longer-term performance, the LTIP awards granted in 2014
vested in full in June 2017 with HomeServe’s total shareholder return (TSR) at
the end of the three year performance period to 22 June 2017 being 124.1%
compared to the FTSE 250 Index TSR of 33.3%. The 2014 awards were based
solely on relative TSR performance.
The LTIP awards granted in June 2015 were based 25% on TSR performance
and 75% on adjusted earnings per share (EPS) performance, with both
conditions measured over a three year performance period to 31 March 2018.
Based on TSR performance to 31 March 2018 of 139.8% compared to the
FTSE 250 Index TSR of 29.6% and EPS growth of 21.05% per annum, the 2015
awards will vest in full in June 2018. A two year posting vesting holding period
applies to the 2015 awards.
Although the 2014 and 2015 LTIP awards were granted, and will vest, one year
apart, both are disclosed in the remuneration table as the performance period
for both awards ended during FY18. This is a one off situation caused by a
change in the performance period following the reintroduction of EPS as a
performance condition. From next year, the position will revert to normal and
only one award will be disclosable.
The Committee is satisfied that the remuneration paid to the Executive
Directors in the year fairly reflects both corporate and individual performance.
Remuneration policy FY19
The remuneration policy was approved by shareholders at last year’s AGM.
Our LTIP expires during the course of 2018 and we have given consideration
to what should follow.
The LTIP has proven to be a successful tool for incentivising and rewarding
our senior management team and has generated strong alignment between
the returns received by shareholders and the reward paid to management
over the last ten years. Having consulted with shareholders we are therefore
proposing a renewal of the current Plan with some minor operational changes
to reflect updated market practice.
The minor changes to be made to the LTIP are:
• The ability to grant uncapped awards in exceptional circumstances has
been removed;
• The recovery and withholding provisions have been enhanced to cover a
period of three years from vesting (previously one year); and
• The circumstances in which the recovery and withholding provisions
can be invoked have been expanded to include a substantial failure of
risk management, material reputational damage and/or evidence of
misbehaviour or material error by the relevant individual (alongside the
existing criteria). We are comfortable that our approach is robust and
workable should these provisions ever need to be operated.
Dear Shareholder
I am pleased to present the
Remuneration report for
the year ended 31 March
2018.
Performance and reward
It has been a year of record
profit growth in which
we continued to deliver
excellent service to our
customers. In particular,
we have seen outstanding
growth in North America
including our largest ever
policy book acquisition.
The stretching financial
and non financial targets
for the overall Group
have been met. In the UK,
despite good operational
performance, the
challenging profit target
was not met. As such, no
bonuses were payable in
respect of the UK.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
85
Under the LTIP, HomeServe is able to offer annual awards of performance shares to Executive Directors and Executives
may voluntarily invest a portion of their annual bonus to be matched with additional shares up to a 2:1 ratio. The
maximum individual award limits have not changed since 2008 and will remain unchanged in the new Plan to be put to
shareholders. Performance share awards for FY19 will be limited to 150% of salary.
The Committee is aware that some institutional investors consider matching arrangements to be overly complex.
However, having operated the same scheme successfully for 10 years our Executives are very familiar with it. We
considered alternative long-term incentive structures as part of our review, including the possibility of consolidating the
reward elements into a single performance share grant, but concluded that there was significant merit in retaining the
current structure, namely:
•
It requires Executives to invest in the Company providing absolute alignment (both upside and downside risk) with
the Company’s shareholders;
• The investment is done primarily through the annual bonus. In years where no bonus is payable, the investment
opportunity is capped at 25% of salary, providing an automatic scale back to the available reward in periods where
the Company is not performing as well as expected; and
• The overall rewards on offer are considered appropriate taking into account the Company’s size and the emphasis
within our reward framework towards long-term performance.
The Committee therefore concluded that retaining the current structure is the optimal approach.
Consideration has been given to the performance targets for the FY19 grant and it has been agreed that awards will
continue to be based 25% on TSR performance and 75% on EPS performance. The threshold EPS growth target will
require 9% cumulative annual growth which is higher than the 6% threshold set for previous grants. The stretch target
will remain unchanged at 15% per annum.
In terms of the other element of the reward package for Executive Directors for FY19:
•
•
•
The maximum bonus opportunity remains unchanged at 100% of salary. The 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.
Emphasising the importance the company places on Directors’ shareholdings, the minimum guideline
shareholding for Directors will be increased to 300% of salary/fee for FY19.
Following Tom Rusin’s appointment as Global CEO, HomeServe Membership in April 2018, his basic salary was
increased by 8.3% from $600,000 to $650,000. This increase reflected the global nature of the role and the size
of the business he is now leading. Salaries for other Executive Directors will increase by 2% with effect from 1 July
2018 in line with the average increase for the UK workforce.
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
22 May 2018
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Directors’ remuneration report
continued
Directors’ remuneration policy
The Directors’ remuneration policy was approved by shareholders at the 2017 AGM and is not subject to a shareholder
vote this year. The policy is set out below for information only. In order to assist shareholders, the remuneration
scenario charts later in the report have been updated to reflect the proposed remuneration levels for FY19 and we have
added additional commentary, where relevant, to explain how the policy will be operated in FY19.
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 was completed in April 2017 by the Company Secretary and Assurance & Risk
Director and considered by the Committee in May 2017. The review identified the potential risks in respect of the policy
and assessed the controls and procedures in place to mitigate those risks. The Committee concluded that overall, the
remuneration policy was appropriate and did not encourage excessive risk taking.
HomeServe plc Annual Report & Accounts 2018
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87
Summary of components of Executive Directors’ remuneration
The table below summarises the Committee’s policy for the remuneration of Executive Directors.
Element
Purpose and link to strategy
Performance Period
Operation (including performance measures and maximum limits)
Basic salary
Usually reviewed
annually, with
any changes
normally taking
effect from 1
July each year.
To reflect the
particular skills
and experience
of an individual
and to provide a
competitive base
salary compared with
similar roles in similar
companies.
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.
Details of the current salaries of the Executive Directors
are set out in the Annual Report on Remuneration.
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.
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. Individual
performance accounts for no more than 20% of the
overall bonus opportunity.
The maximum potential quantum is 100% of salary.
Bonuses are payable in cash but may be voluntarily
deferred by the executive into shares under the matching
element of the LTIP.
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continued
Element
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 and will be put to shareholders
for re-approval at the 2018 AGM).
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 (currently, 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 (£143,560 for FY19). An unapproved
pension contribution equal to 20% of the amount by
which basic salary exceeds the notional cap is provided.
Pension
N/A
To provide benefits
comparable with
similar roles in similar
companies.
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89
Element
Purpose and link to strategy
Performance Period
Operation (including performance measures and maximum limits)
Other benefits Provides a
N/A
competitive package
of benefits to assist
with recruitment and
retention of staff.
All Employee
Share Plans
To encourage
employee share
ownership.
Chairman and
Non-Executive
Directors’ fees
N/A
N/A
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 if determined to be a taxable
benefit.
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 if determined to be a taxable
benefit.
The Chairman and Non-Executive Directors may be
eligible to access HomeServe products and services on
the same terms as offered to employees.
90
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
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 excellent short-term operating performance of the Company. 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.
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.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
91
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 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.
Changes to operation in FY19
The existing LTIP expires in 2018 and we will be seeking to renew the Plan at the 2018 AGM. Further information is
provided later in this report.
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.
Changes to operation in FY19
In respect of the LTIP, we are taking the opportunity to update the clawback provisions in the Rules when the Plan is
renewed at the AGM. The period during which clawback can be invoked will be extended to three years and the criteria
will be expanded to include a substantial failure of risk management, material reputational damage and/or evidence of
misbehaviour or material error by the relevant 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.
92
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
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.
Changes to operation in FY19
The shareholding guideline will be increased in FY19 to three times annual basic salary or fee.
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 and did so in
respect of the renewal of the LTIP.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
93
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.
Fixed
100%
£750
Target
Max
33%
24%
21%
19%
Fixed
100%
£533
46%
£2,250
57%
£3,058
Target
32%
21%
47%
£1,646
Max
24%
19%
57%
£2,245
Fixed
100%
£385
Target
43%
27%
30%
£905
Max
33%
27%
40%
£1,150
Fixed
100%
£512
Target
32%
21%
47%
£1,588
Max
24%
19%
57%
£2,168
Fixed
100%
£507
Target
28%
22%
50%
£1,784
i
n
p
r
a
H
R
t
t
e
n
n
e
B
M
r
e
w
o
B
D
d
r
o
F
J
n
i
s
u
R
T
Max
20%
20%
60%
£2,471
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800 3,000
3,200
£000's
Key
Total fixed pay
Annual bonus
Long-term share grants
Assumptions
Fixed
On target
Maximum
fixed pay only (salary plus benefits plus pension).
target annual bonus of 80% of salary plus target LTIP awards in FY19 of 90% of salary plus matching awards of 90% of salary.
maximum annual bonus of 100% of salary plus maximum LTIP awards in FY19 of 150% 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 2018.
The value of taxable benefits is based on the actual values paid in FY18 apart from for Tom Rusin where expected benefits are shown.
Richard Harpin participates in a defined benefit scheme which has been valued according to BIS regulations. The other UK Executives receive a pension 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.
94
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
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
Date of contract
R Harpin
18 January 2002
M Bennett
1 January 2013
D Bower
3 February 2017
J Ford
T Rusin
1 October 2012
4 April 2018
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.
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 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.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
95
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).
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.
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.
96
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
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. The terms and
conditions of appointment for Non-Executive Directors are available for inspection.
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
Date of contract
J M B Gibson
1 April 2016
K Cliffe
S David
23 May 2017
23 November 2016
E Fitzmaurice
23 May 2017
C Havemann
1 December 2015
R McMillan
27 October 2017
Outside Appointments
Executive Directors may hold one outside appointment and can retain any fees received. No Executive Director
currently has a relevant outside appointment.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
97
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 2018 Annual
General Meeting.
Remuneration Committee Members
Stella David (Chairman)
JM Barry Gibson
K Cliffe (appointed 23 March 2018)
C Havemann (appointed 23 March 2018)
R McMillan (appointed 23 March 2018)
Mark Morris (retired 27 February 2018)
Ben Mingay (retired 26 March 2018)
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.
The full schedule is available on our website: http://www.homeserveplc.com/about-us/corporate-governance/our-
board.
98
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
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 Pensions and Lifetime Savings Association. The Committee operates under the delegated authority of the Board
and its terms of reference are available on the website.
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.
Key issues considered during the year
Aside from the usual cycle of discussions in respect of pay and bonuses, the key issue discussed by the Committee
during the year was the renewal of the LTIP. Consideration was given to whether an entirely new plan should be
implemented but having looked at the alternatives, it was agreed that the existing Plan had provided a strong link
between pay and performance and continued to be the most appropriate solution for the business.
Advisers
During the year New Bridge Street (’NBS‘), a firm of independent remuneration consultants, served as advisers
to the Committee. The Committee selects its own advisers. 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. 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 £49,000.
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.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
99
Remuneration for the year under review (Audited)
Taxable
benefits 8
£000
Pensions 9
£000
Bonus
£000
2013-
2016
LTIP
£000
2014-
2017
LTIP 10
£000
2015-
2018
LTIP 10
£000
Other 11
£000
Total
FY18
£000
Total
FY17
£000
Salary
and
fees
£000
563
555
418
412
300
46
405
394
399
—
250
250
47
—
65
65
47
—
55
55
25
—
55
55
66
73
Year
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
FY18
FY17
Executives
R Harpin
M Bennett
D Bower ¹
J Ford
T Rusin 2
Non-Executives
J M B Gibson
K Cliffe 3
S David
E Fitzmaurice 4
C Havemann
R McMillan 5
B Mingay 6
M Morris 7
Total FY18
Total FY17
26
28
21
21
19
4
17
17
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
147
155
84
82
60
8
81
76
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
300
46
380
394
372
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
541
555
—
— 3,769
3,517
— 8,563
2,929
—
—
34
4,256
—
2,747
2,587
— 5,857
313
2,313
—
216
—
—
451
—
1,983
2,261
—
—
—
1,166
—
—
34
3,175
— 1,346
31
—
—
5,127
— 1,688
1,889
— 4,360
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
250
47
65
47
55
25
55
66
135
2,047
—
250
—
65
—
55
—
55
73
2,695
1,905
89
70
378
321
1,593
— 10,403 10,705
— 25,863
1,308
6,408
—
—
99
10,111
¹ David Bower was appointed to the Board on 6 February 2017.
² Tom Rusin was appointed to the Board on 23 May 2017. He is paid in USD and the USD amounts have been converted into GBP for the purposes of this table using the
average exchange rate for FY18.
3 Katrina Cliffe was appointed to the Board on 23 May 2017.
4 Edward Fitzmaurice was appointed to the Board on 23 May 2017.
5 Ron McMillan was appointed on to the Board 27 October 2017.
6 Ben Mingay retired from the Board on 26 March 2018.
7 Mark Morris retired from the Board on 27 February 2018.
8 Benefits comprise company car, fuel allowance and medical insurance.
9 Details of pension benefits and contributions can be found later in the report.
10 The 2014 LTIP award was granted on 23 June 2014 and vested based on relative total shareholder return over the three year performance period to 22 June 2017. The 2015
LTIP awards was granted on 25 June 2015 and will vest based on earnings per share and relative total shareholder performance over the three year period to 31 March 2018.
The awards were granted and will vest approximately a year apart in accordance with our LTIP grant policy. However, as the performance period for both awards ends during
the same financial year (albeit nine months apart), we are obliged to include both awards in this year’s remuneration table. The value shown for each LTIP award includes an
amount in respect of dividend equivalents which are paid in cash.
11 ‘Other’ represents the value of any sharesave options exercised.
100
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
Details of variable pay earned in the year (Audited)
Annual Bonus
For FY18, 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)
Weighting
% Payable at
Threshold
Financial
measures
Group profit before tax
Group net debt 1 2
Non financial
measures
Customer growth
(excluding Italy)
25%
5%
25%
25%
—
0%
Threshold
Target/Stretch
Actual
% Payable
£131.0m
£135.0m
£141.7m
—
£255.7m
£237.8m
100%
100%
7.9m
8.1m
8.1m
100%
Customer satisfaction
(measured as a
weighted average level
of customer satisfaction
across UK, US, France,
Spain and Italy) ¹
25%
—
—
8.6
8.9
100%
¹ No bonus was payable for below target performance
² Adjusted for equity placing and acquisitions completed in the year
Financial and non financial bonus targets for Martin Bennett (UK CEO)
Weighting
% Payable at
Threshold
Threshold
Target/Stretch
Actual
% Payable
Financial
measures
Non financial
measures
Group profit before tax 2
10%
25%
£131.0m
£135.0m
£141.7m
Adjusted UK profit
before tax
UK net cash ¹
UK customer growth
UK customer
satisfaction 1 2
15%
5%
25%
25%
25%
—
0%
—
£69.4m
£73.1m
£61.1m
—
£0.9m
£(25.8)m
2.216m
2.236m
2.200m
—
9.0
9.3
0%
0%
0%
0%
0%
¹ No bonus was payable for below target performance
² Although these targets were met, nothing is payable as the UK profit target was not met
Financial and non financial bonus targets for Tom Rusin (US CEO)
Financial
measures
Non financial
measures
Group profit before tax
10%
25%
£131.0m
£135.0m
£141.7m
100%
Weighting
% Payable at
Threshold
Threshold
Target/Stretch
Actual
% Payable
Adjusted US profit
before tax
US net debt ¹
US customer growth
US customer
satisfaction ¹
15%
5%
25%
25%
25%
—
0%
—
$53.5m
$56.3m
$64.4m
—
$275.9m
$242.4m
3.159m
3.325m
3.566m
100%
100%
100%
—
8.6
8.7
100%
¹ No bonus was payable for below target performance
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
101
Personal bonus targets
Objectives
Weighting Outcome
R Harpin
• Prove out the Home Experts
20% Key achievements included:
%
Payable
80%
model
• Achieve a step change in internal
and external communications
Implement a personal leadership
development plan
•
• Successful test of Home Experts model
completed
• Reorganisation of management structure to
prepare for growth across four global business
lines
• Sign an agreement to open in one
• Global Talent Director appointed and
new country
• Successfully complete HVAC
acquisitions in three countries
development programmes for senior talent
established, including a forum for potential
senior successors
• HVAC acquisitions completed in the US,
France and the UK
M Bennett
• Create a separate HVAC business
20% As the stretching UK profit target was not met,
0%
no bonus was payable in respect of personal
performance.
unit in the UK
• Complete the implementation of
the new CRM solution in the UK
and commence implementation of
the new claims solution
• Support development and delivery
of key strategic initiatives in
Checkatrade
• Take action to drive 50k – 100k of
new customers per annum in the
UK
Implement a recruitment,
induction and training programme
to deliver the best frontline in the
UK
•
D Bower
•
Improve the Group wide focus and
performance in respect of cash
20% Key achievements included:
100%
• Cash workshops held in each business and a
• Provide support for HVAC
new dashboard implemented
acquisition strategy including
implementation of appropriate
approval process and performance
monitoring
Implement a co-sourced
arrangement for internal audit and
improve the efficiency of the audit
plan
•
• Develop a co-ordinated and
consistent communication and
investor relations strategy
• Refinance the revolving credit
facility and secure additional long-
term funding
• HVAC acquisitions completed in the US,
France and the UK and a streamlined approval
process implemented
• PwC were selected as the co-source partner
for internal audit and commenced work
alongside the internal team
• Vision and strategy video produced in
different languages and event driven
communication implemented internally and
externally
• Revolving Credit Facility refinanced in FY18
and HomeServe’s first ever equity placing
completed
102
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
J Ford
•
Implement automation, self serve
and self fix solutions across the
Group
• Develop, agree and commence
implementation of a software plan
for new countries
Implement detailed strategic plan
for HVAC
•
• Deliver a global recruitment and
training plan for senior executives
• Deliver two significant digital
developments
20% Key achievements included:
70%
• Progress made in respect of online claims,
automated calls and self fix to differing
degrees in each territory
• New Group Chief Information Officer
appointed and software solution selected for
new countries and implemented for claims in
Spain
• Business plan, target operating model and
acquisition criteria approved for HVAC and
acquisitions completed in the US, France and
the UK
• Global Talent Director appointed and
development programmes for senior talent
established
T Rusin
• Acquire and integrate at least three
20% Key achievements included:
85%
contractors
• Acquisition of two contractors with another
• Step change the brand position of
HomeServe in North America
• Complete the roll out of the
full digital road map for the US
business
• Develop systems pricing capability
• Complete one or more utility or
HVAC policy book acquisitions
one in progress
• Renewal of the relationship with the National
League of Cities and an improvement in the
Better Business Bureau rating
• Digital road map agreed and roll out will
complete in FY19
• Acquisition of DPS policy book
Details of the bonuses payable are shown below. The Group as a whole delivered record profit growth but despite
good operational performance in the UK, the stretching profit target was not met. As a result, no bonuses were payable
in respect of the UK business.
Name
R Harpin
M Bennett
D Bower
J Ford
T Rusin 1
¹ Tom Rusin was appointed on 23 May 2017.
Bonus £
% of salary
540,614
—
300,000
380,230
372,312
96%
—
100%
94%
97%
Annual bonuses are paid in cash but the Executive Directors have the opportunity to invest their bonuses (up to 75% of
the maximum) in HomeServe shares in order to participate in the matching element of the LTIP.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
103
Long-term Incentive Plan
Details of the performance conditions for the 2014 and 2015 LTIP awards are set out below.
2014 awards (vested in FY18)
The 2014 LTIP performance and matching 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)
100% vesting
HomeServe
TSR of 124.1%
compared to
Index TSR of
33.3%
The awards vested in full on 28 June 2017. As the performance period for the awards ended during the financial year,
the awards have been included in the remuneration table on page 99 based on the value of the shares on vesting.
Details of the number and value of shares vesting to each Executive Director are set out in the table on page 106.
2015 awards (due to vest in FY19)
The 2015 LTIP performance and matching awards were granted on 25 June 2015. The performance conditions for
these awards were as follows:
Condition
TSR
(underpinned
by underlying
financial
performance)
EPS
Percentage of
award to which the
condition applies
25%
3 years to 31
March 2018
75%
3 years to 31
March 2018
Performance period
Threshold target
Stretch target
Actual performance
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 139.8%
compared to
Index TSR of
29.6%
Compound
annual growth
of 6%
Compound
annual growth
of 15%
Compound
annual growth
of 21.05%
Vesting
25%
75%
Performance for both the total shareholder return and earnings per share condition was based on performance over
the three financial years ended 31 March 2018. Based on the strong performance of HomeServe over this period the
stretch performance targets were exceeded and the awards will vest in full in June 2018. A two year post-vesting
holding requirement applies to 2015 awards.
As the performance period for the 2015 awards ended during the year under review, the awards have also been
included in the remuneration table on page 99 (alongside the 2014 awards). The 2015 awards have been valued for the
purpose of the remuneration table on page 99 using the average share price over the last three months of the financial
year.
Whilst we are obliged to include both the 2014 and 2015 awards in the remuneration table on page 99, the awards
were granted and will vest approximately one year apart (in accordance with our annual grant policy).
104
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
Summary of outstanding awards (Audited)
31 March 2018
Awarded during year
Lapsed during year
Vested during year
31 March 2017
Date granted
Type of award
R Harpin
M Bennett
D Bower ¹
J Ford
T Rusin 2
—
—
251,774
188,135
211,338
155,521
111,632
107,547
—
—
186,770
136,825
156,774
115,366
82,810
79,781
—
—
37,766
31,779
18,975
59,250
—
—
171,664
111,171
144,094
106,034
80,184
76,279
—
—
154,740
81,557
155,624
112,223
93,920
83,823
—
—
—
—
—
—
111,632
107,547
—
—
—
—
—
82,810
79,781
—
—
—
—
—
59,250
—
—
—
—
—
—
80,184
76,279
—
—
—
—
—
—
93,920
83,823
¹ David Bower was appointed on 6 February 2017.
2 Tom Rusin was appointed on 23 May 2017.
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
247,301
247,298
—
—
—
—
—
—
184,615
175,958
—
—
—
—
—
—
14,192
14,192
—
—
—
—
130,096
130,094
—
—
—
—
—
—
135,971
85,513
—
—
—
—
—
—
247,301
247,298
251,774
188,135
211,338
155,521
—
—
184,615
175,958
186,770
136,825
156,774
115,366
—
—
14,192
14,192
37,766
31,779
18,975
23.6.14 Performance
23.6.14 Matching
25.6.15 Performance
25.6.15 Matching
1.7.16 Performance
1.7.16 Matching
27.6.17 Performance
27.6.17 Matching
23.6.14 Performance
23.6.14 Matching
25.6.15 Performance
25.6.15 Matching
1.7.16 Performance
1.7.16 Matching
27.6.17 Performance
27.6.17 Matching
23.6.14 Performance
23.6.14 Restricted
25.6.15 Performance
1.7.16 Performance
1.7.16 Restricted
—
27.6.17 Performance
130,096
130,094
171,664
111,171
144,094
106,034
—
—
135,971
85,513
154,740
81,557
155,624
112,223
—
—
23.6.14 Performance
23.6.14 Matching
25.6.15 Performance
25.6.15 Matching
1.7.16 Performance
1.7.16 Matching
27.6.17 Performance
27.6.17 Matching
23.6.14 Performance
23.6.14 Matching
25.6.15 Performance
25.6.15 Matching
1.7.16 Performance
1.7.16 Matching
27.6.17 Performance
27.6.17 Matching
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
105
The performance conditions are as follows:
• 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% CAGR 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% CAGR for maximum vesting)
• 2016 awards above 150% of salary – compound annual EPS growth of 15% to 20% (20% CAGR for maximum vesting)
• 2017 awards – 25% comparative TSR (FTSE 250 Index + 15% per annum for maximum vesting) and 75% compound
annual EPS growth (15% CAGR for maximum vesting)
David Bower had two outstanding restricted share awards which pre dated his appointment as CFO. These awards are
not subject to performance conditions.
Further details on LTIP awards granted in the year (Audited)
On 27 June 2017, the following performance and matching share awards were granted to the Executive Directors under
the LTIP:
Performance share awards
R Harpin
M Bennett
D Bower
J Ford
T Rusin
Date of grant
Number of shares
Share price used to
determine awards
Award size
(% salary)
27.6.17
27.6.17
27.6.17
27.6.17
27.6.17
111,632
82,810
59,250
80,184
93,920
£7.595
£7.595
£7.595
£7.595
£7.595
150%
150%
150%
150%
150%
Face value at
grant £
847,845
628,942
450,004
608,998
713,322
% that vests at threshold
25%
25%
25%
25%
25%
Matching share awards
R Harpin
M Bennett
J Ford
T Rusin
Date of grant
Shares purchased
Award size
Matching award
Determine awards
27.6.17
27.6.17
27.6.17
27.6.17
28,500
2:1 match
107,547
21,142
2:1 match
20,214
2:1 match
22,213
2:1 match
79,781
76,279
83,823
£7.595
£7.595
£7.595
£7.595
Face value at
grant £
816,819
605,937
579,339
636,636
% that vests at
threshold
25%
25%
25%
25%
The performance awards and the matching awards are subject to a three year vesting period and 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.
Vesting is also subject to underlying financial performance and a two year post vesting holding period applies.
106
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
Further details on awards vested in the year
Performance and matching awards granted on 24 June 2014 vested in full during the year. In addition, a restricted
award granted to David Bower before he was appointed as CFO also vested.
Date of grant
Type of Award
Date of exercise
No of Shares
Share price at exercise
Face value at exercise £
R Harpin
23.6.14
Performance
23.6.14
Matching
M Bennett
23.6.14
Performance
23.6.14
Matching
D Bower
23.6.14
Performance
23.6.14
Restricted
J Ford
23.6.14
Performance
23.6.14
Matching
T Rusin
23.6.14
Performance
23.6.14
Matching
28.6.17
28.6.17
28.6.17
28.6.17
28.6.17
28.6.17
28.6.17
28.6.17
28.6.17
28.6.17
247,301
247,298
184,615
175,958
14,192
14,192
130,096
130,094
135,971
85,513
£7.26
£7.26
£7.26
£7.26
£7.26
£7.26
£7.26
£7.26
£7.26
£7.26
1,884,358
1,884,338
1,406,711
1,340,747
108,139
108,139
991,292
991,277
1,036,058
651,583
The face value shown includes an amount in respect of dividend equivalents which are paid in cash.
One Plan Matching Shares (Share Incentive Plan)
R Harpin
M Bennett
D Bower ¹
J Ford
T Rusin 2
31 March 2018
Acquired during year
31 March 2017
207
207
207
182
226
119
119
119
119
103
88
88
88
63
123
Aggregate face value
of shares awarded
during the year £ 3
898
898
898
898
796
¹ David Bower was appointed on 6 February 2017.
2 Tom Rusin was appointed on 23 May 2017.
3 Based on the acquisition price of the associated Partnership Shares. The highest share price was £8.24 and the lowest share price was £6.55.
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.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
107
Shareholding Guidelines (Audited)
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 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.
The beneficial interests of Directors who served during the year, together with those of their families, in the shares of
the Company are as follows:
22 May 2018
31 March 2018
31 March 2017
Outstanding LTIP
awards
Total
31 March 2018
Value of shares counting
towards guideline holding
(as a % of salary or fee) ¹
Guideline met?
39,684,172
39,684,114
39,160,649
1,025,947
40,710,061
51,814%
R Harpin ²
M Bennett
D Bower
J Ford
T Rusin ³
555,316
555,258
533,750
758,326
1,313,584
81,428
81,370
66,008
147,770
229,140
191,788
191,730
171,152
689,426
881,156
477,938
477,879
371,546
681,887
1,159,766
J M B Gibson
150,070
150,070
150,070
K Cliffe 4
S David
12,076
68,945
12,076
68,945
E Fitzmaurice 5
786,265
786,265
—
68,945
—
C Havemann
20,000
20,000
20,000
R McMillan 6
B Mingay 7
M Morris 8
—
n/a
n/a
—
57,142
71,716
—
57,142
71,716
—
—
—
—
—
—
—
—
150,070
12,076
68,945
786,265
20,000
—
57,142
71,716
977%
200%
349%
779%
443%
162%
702%
10,550%
268%
—
n/a
n/a
Yes
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
No
n/a
n/a
¹ Calculated using the shareholding and share price on 29 March 2018 of £7.38 divided by the Executive’s salary or Non-Executive’s fee on that date.
² Includes an indirect interest of 28,500.
3 Tom Rusin was appointed to the Board on 23 May 2017.
4 Katrina Cliffe was appointed to the Board on 23 May 2017.
5 Edward Fitzmaurice was appointed to the Board on 23 May 2017.
6 Ron McMillan was appointed to the Board on 27 October 2017.
7 Ben Mingay retired from the Board on 26 March 2018.
8 Mark Morris retired from the Board on 27 February 2018.
108
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
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. His normal retirement age is 60.
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
2018
£000
61
184
—
62
85
2017
£000
58
174
—
71
84
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.
2018
£000
84
60
81
2017
£000
82
8
76
Tom Rusin participates in a US 401k pension plan (a defined contribution scheme) to which the Company contributed
£5,806 ($7,690) between 23 May 2017 (his date of appointment to the Board) and 31 March 2018.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
109
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 nine years ended 31 March 2018. 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)
)
£
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
400
350
300
250
200
150
100
50
0
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
31 March 18
FTSE-250 index
HomeServe plc
This graph shows the value, by 31 March 2018, 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.
110
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
Chief Executive’s remuneration (Audited)
The total remuneration figures for the Chief Executive during each of the last nine 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)
Annual bonus
2010
1,030
100%
2011
953
87%
2012
559
0%
LTIP awards vesting
21%1
51%2
60%
2013
953
75%
0%
2014
1,212
100%
0%
2015
2016
2017
2018
1,200
3,355
4,256
8,5633
96%
98%
100%
96%
0%
100%
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.
3 The total includes the 2014 and 2015 LTIP awards which were granted and will vest a year apart.
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 FY17 and FY18 compared to the
average for all employees of HomeServe plc.
Chief Executive Officer
Average of other HomeServe plc employees
% Change from FY17 to FY18
Salary
1.5%
3.0%
Benefits
-7.6%
3%
Annual Bonus
1.4%
20.1%
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 attributable to equity holders of the parent (£m)
FY17
£m
237.5
40.3
23.9
74.4
FY18
£m
267.5
50.4
27.4
96.3
change
13%
25%
15%
29%
£10.7m 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.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
111
Loss of Office Payments (Audited)
No payments have been made for loss of office in the year.
Application of the remuneration policy for FY19
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). Following Tom Rusin’s appointment as
Global CEO, HomeServe Membership in April 2018, his basic salary was increased by 8.3% from $600,000 to $650,000.
This increase reflected the global nature of the role and the size of the business he is now leading.
Salaries for the other Executives will increase by 2% which is in line with the average increase for the UK workforce.
The salaries for the Executive Directors effective from 1 July 2018 will therefore be as follows:
Name of Director
R Harpin
M Bennett
D Bower
J Ford
T Rusin ¹
¹ Tom Rusin was appointed on 23 May 2017.
Salary as at
1 July 2017
£565,228
£419,297
£300,000
£406,000
$600,000
Salary as at
1 July 2018
£576,533
£427,683
£306,000
£414,120
$650,000
Increase %
2.0%
2.0%
2.0%
2.0%
8.3%
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 reviewed during
the year but no changes were made.
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
112
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
Directors’ remuneration report
continued
Annual bonus performance targets
The annual bonus plan for FY19 will operate on a similar basis to FY18 and is consistent with the policy detailed earlier
in this report.
Financial measures (30% of bonus)
Non financial measures (50% of bonus)
Personal objectives (20% of bonus)
• Profit before tax (25%)
• Customer growth (25%)
• Up to five stretching personal
• Net debt (5%)
• Customer satisfaction (25%)
objectives
The Committee considers the forward looking performance targets to be commercially sensitive, therefore a 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
Renewal of the LTIP
Subject to shareholder approval of the 2018 LTIP at our AGM in July, the long-term incentive plan will continue to
provide a mix of performance (up to 200% of salary) and matching share awards (2:1 match on up to 75% of salary
bonus invested in shares). In line with the policy, the FY19 Performance Share award for Executive Directors will be at
150% of salary.
Performance criteria
For Performance Share awards and Matching Share awards, the performance targets for FY19 grants will be:
FY19 weighting
75% based on EPS
25% based on relative TSR
3 year performance target
9% to 15% per annum EPS growth
(for 25% to 100% vesting).
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 FY18
Threshold increased
from 6% to 9%
No change
When setting the EPS target range for the FY19 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.
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 has been increased to three 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 three times their fee also applies to Non-Executive Directors.
HomeServe plc Annual Report & Accounts 2018
Directors’ remuneration report
113
Shareholder voting at the 2017 Annual General Meeting
At last year’s Annual General Meeting held on 21 July 2017, the following votes from shareholders were received:
Remuneration report
Policy
Total number of votes
% of votes cast Total number of votes
% of votes cast
For
Against
256,946,678
99%
251,822,236
2,680,918
1%
2,890,417
Total votes cast (for and against excluding withheld votes)
259,627,596
100%
254,712,653
Votes withheld
Total votes (including withheld votes)
1,488,726
261,116,322
6,403,669
261,116,322
99%
1%
100%
General
The market price of the Company’s shares at 29 March 2018 was £7.38 (2017: £5.65). During the year the price ranged
from £5.635 to £8.67.
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 2018 amounted to 25,089 ordinary shares.
By Order of the Board
Stella David
Chairman of the Remuneration Committee
22 May 2018
114
HomeServe plc Annual Report & Accounts 2018
Directors’ report
Directors’ report
The Directors have pleasure in presenting their Annual Report for the year ended 31 March 2018.
Management report
The Directors’ report, together with the Strategic report set out on pages 2 to 51 form the Management Report for the
purposes of Disclosure Guidance and Transparency Rule (DTR) 4.1.5R.
Statutory information contained elsewhere in the Annual Report
Information required to be part of this Directors’ Report can be found elsewhere in the Annual Report as indicated in
the table below and is incorporated into this report by reference.
Information
Location in Annual Report
Likely future developments in the business of the Company or its subsidiaries
Page 9
Employees (employment of disabled persons, employee engagement and
policies)
Page 22 to 23
Corporate governance statement
Directors’ details (including changes made during the year)
Related party transactions
Diversity
Share capital
Going concern and viability statement
Page 54 to 76
Pages 61 and 64 to 66
Note 46 on page 205
Page 22
Note 25 on page 177
Page 51
Employee share schemes (including long-term incentive schemes)
Note 29 on pages 179 to 182
Financial instruments: Information on the Group’s financial instruments and risk
management objectives and policies, including our policy for hedging
Disclosure of information to Auditor
Note 24 on pages 172 to 177
Page 118
Results and Dividends
The Directors are recommending the payment on 2 August 2018 of a final dividend of 14.4p per ordinary share to
shareholders on the register at the close of business on 6 July 2018 which, together with the net interim dividend
of 4.7p per ordinary share paid on 5 January 2018, results in a total net dividend for the year of 19.1p per share (FY17:
15.3p).
HomeServe plc Annual Report & Accounts 2018
Directors’ report
115
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
1 Data excludes Checkatrade, a company only fully owned from November 2017.
Global tonnes of CO2e
FY18 1
Global tonnes of CO2e
FY17
11,366
2,423
13,789
1.65
8,835
3,656
12,491
1.60
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 statements. 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.
Political donations
No political donations were made during the year.
Rules on appointment and replacement of Directors
Apart from Martin Bennett who is stepping down from the Board, all the Directors will seek election or re-election at
the AGM in accordance with the Company’s Articles of Association and the recommendations of the Code.
A Director may be appointed by ordinary resolution of the shareholders in a general meeting following nomination
by the Board or a member (or members) entitled to vote at such meetings. In addition, the Directors may appoint a
Director to fill a vacancy or as an additional Director, provided that the individual seeks election at the next AGM.
A Director may be removed by the Company in certain circumstances set out in the Articles of Association or by an
ordinary resolution of the Company.
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.
Articles of Association
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.
116
HomeServe plc Annual Report & Accounts 2018
Directors’ report
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 25. 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 29. 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 2017 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 2018 AGM.
Authority to purchase shares
The Company was authorised at the 2017 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 2018 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 2018 Annual General Meeting of the Company will be held on 20 July 2018.
HomeServe plc Annual Report & Accounts 2018
Directors’ report
117
Fixed Assets
Capital expenditure on tangible fixed assets amounted to £11.0m (FY17: £8.0m) during the year.
Directors’ interests in shares
The beneficial interests of the Directors in the shares of the Company and the options held as at 31 March and 22 May
2018 are set out in the Remuneration report on page 107. None of the Directors serving at the year end had a beneficial
interest in the share capital of any subsidiary company.
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 22 May 2018, except for the following:
Name
Invesco Limited
Richard Harpin ¹
Baillie Gifford & Co
Woodford Investment Management LLP
1 Includes an indirect interest of 28,500 shares
As at 31 March 2018
As at 22 May 2018
ordinary shares
45,708,633
39,684,114
17,124,224
16,560,085
%
ordinary shares
13.9
45,708,633
12.0
39,684,172
5.2
5.0
17,124,224
16,560,085
%
13.9
12.0
5.2
5.0
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
22 May 2018
118
HomeServe plc Annual Report & Accounts 2018
Statements of responsibilities
Statements of 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.
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.
HomeServe plc Annual Report & Accounts 2018
Statements of responsibilities
119
Website publication
The Directors are responsible for ensuring the Annual Report, including the financial statements, is made available on
a website. Financial statements are published on the Company’s website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in
other jurisdictions. The maintenance and integrity of the Company’s website http://www.homeserveplc.com is
the responsibility of the Directors. The Directors’ responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Directors’ responsibility 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; and
• 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.
By Order of the Board
Richard Harpin
Chief Executive Officer
22 May 2018
David Bower
Chief Financial Officer
22 May 2018
120
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
Independent Auditor’s report
to the members of HomeServe plc
Opinion
In our opinion:
• The financial statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31
March 2018 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 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.
We have audited the financial statements of HomeServe plc (the ‘Company’) and its subsidiaries (the ‘Group’) which
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 46.
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 Company financial statements, as applied in accordance with the provisions of
the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the Company in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that
the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
121
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Carrying value of goodwill;
• Carrying value of the new Customer Relationship Management (“CRM") system; and
• Cancellation provision and revenue deferrals.
Within this report, the key audit matters identified are the same as the prior year. In the prior year the carrying value of
goodwill and the CRM system were combined into one key audit matter, within this report they have been separated to
two key audit matters.
Materiality
The materiality that we used for the Group financial statements was £7.4m which was determined on the basis of 6% of
profit before tax (“PBT").
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, as was Checkatrade, whilst the rest of the New Markets segment was subject to
specific audit procedures.
Significant changes in our approach
We no longer consider the Group’s acquisition of USP to be a key audit matter as the acquisition took place in the prior
year, we concluded the acquisition accounting was performed in accordance with IFRS 3 and the key assumptions used
within the fair value assessment were reasonable.
Other than the change in key risk as described above, there were no other significant changes in our approach.
122
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
Independent Auditor’s report
to the members of HomeServe plc
continued
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed 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 and Company’s ability to continue to do so over a period of at least twelve months from
the date of approval of the financial statements.
We are required to state whether we have anything material to add or draw attention to in relation to that statement
required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with our knowledge obtained in
the audit.
We confirm that we have nothing material to report, add or draw attention to in respect of these matters.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent with the knowledge
we obtained in the course of the audit, including the knowledge obtained in the evaluation of the directors’ assessment
of the Group’s and the Company’s ability to continue as a going concern, we are required to state whether we have
anything material to add or draw attention to in relation to:
• The disclosures on pages 26 to 33 that describe the principal risks and explain how they are being managed or
mitigated;
• The directors’ confirmation on page 119 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; or
• The directors’ explanation on page 51 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 are also required to report whether the directors’ statement relating to the prospects of the Group required by
Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We confirm that we have nothing material to report, add or draw attention to in respect of these matters.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
123
Carrying value of goodwill
Key audit matter description
The carrying value of goodwill is £386.6m (2017: £301.9m).
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. We focus our key audit
matter to the accuracy of the most sensitive assumption which is the weighted average cost of capital (“WACC”) used to
discount the cash flows within management’s impairment assessment.
During the year, the Group has identified four new cash generating units (“CGUs”) as a result of its acquisition activity.
Given the degree of judgement involved in determining key assumptions, we also identified that there is a potential for
fraud through possible manipulation of this balance.
Further detail on the key judgements involved is set out within the Audit and Risk Committee report on page 79,
significant accounting policies in note 2, the other areas of focus in note 3 and note 13 to the financial statements.
How the scope of our audit responded to the key audit matter
We assessed the design and implementation of controls that the Group has in place to assess the carrying value of
goodwill, specifically the management review process to assess the accuracy and completeness of key assumptions
within the impairment assessment.
We challenged management’s WACC using our internal valuations experts to independently recalculate the WACC rate
for each CGU.
We challenged management’s key assumptions relating to the estimated future cash flows and 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 experts.
We challenged management’s assessment of the CGUs identified in the current year by considering whether they are
separately identifiable, the interdependency between the cash inflows, the management team and whether goodwill
can be reasonably allocated to each of the CGUs.
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.
Key observations
We concluded that the key assumptions used within management’s goodwill impairment assessment and WACC
calculation 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 concluded that the CGUs identified in the current year are appropriate.
124
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
Independent Auditor’s report
to the members of HomeServe plc
continued
Carrying value of the new CRM system
Key audit matter description
The carrying value of the new CRM system is £72.3m (2017: £60.8m).
In order to support the carrying value of the CRM system, management has performed an impairment assessment,
which compares the expected value in use of the asset once operational to the current carrying value plus expected
costs to complete.
The key judgement in relation to the new CRM system is the expected future cash flows associated with the benefits
case, which will begin to be realised once UK customers are transitioned onto the CRM system which is planned to be
in FY19.
There is a risk that the management information used to make these judgements are either incomplete or inaccurate.
Given the degree of judgement involved in determining key assumptions, we also identified that there is a potential for
fraud through possible manipulation of this balance.
Further detail on the key judgements involved is set out within the Audit and Risk Committee report on page 79,
significant accounting policies in note 2 and note 14 to the financial statements.
How the scope of our audit responded to the key audit matter
We assessed the design and implementation of controls that the Group has in place to assess the carrying value of
the new CRM system, specifically the management review process to assess the accuracy and completeness of key
assumptions used to determine the expected future cash flows.
We have assessed these key assumptions including the expected retention rates underpinning the benefits case and
alongside our IT specialists assessed the progress of the CRM project through review of Board minutes, Steering Group
minutes and by holding discussions with management.
Additionally we have analysed budgeted costs to complete to identify whether any impairment is likely in the future.
Key observations
We concluded that the key assumptions used within management’s carrying value assessment were reasonable and
therefore no impairment was required.
Cancellation provision and revenue deferrals
Key audit matter 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 2018 in respect of the Group’s future claim handing obligations is
£86.3m (2017: £76.7m) and the amount of revenue provided in respect of future cancellations is £23.8m (2017: £18.0m).
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 the mid-term
cancellation percentages, based on historical experience, and average revenue per policy.
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
125
Given the degree of judgement involved in determining key assumptions, we also identified that there is a potential for
fraud through possible manipulation of this balance.
Further detail on the Group’s revenue recognition policy is set out within the Audit and Risk Committee report on
page 79, 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 key audit matter
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.
As part of our risk assessment, 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 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.
126
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
Independent Auditor’s report
to the members of HomeServe plc
continued
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 financial statements
Company financial statements
Materiality
£7.4m (2017: £7.2m)
£5.5m (2017: £5.4m)
Basis for
determining
materiality
Rationale for
the benchmark
applied
6% (2017: 7.5%) of profit before tax. We have
changed the measure from 7.5% in the prior
year audit to 6%. The reduced measure was
driven by the continued growth and increasing
complexity of the Group’s operations.
The basis of materiality is the investment
in subsidiaries balance, taking into account
the Group materiality, the materiality is
approximately 2.8% of the investment in
subsidiaries.
We determined materiality using profit
before tax as we considered this to be the
most appropriate measure to assess the
performance of the Group. This is because
profit based measures are the financial
measures most relevant to users of the
financial statements.
We determined materiality using the
investment in subsidiaries balance, as the
Company is not a trading entity we considered
this to be the most appropriate measure for the
Company.
Group PBT
£123.3m
Group PBT
Group materiality
Group materiality
£7.4m
Company materiality
£5.5m
Component materiality
range £3.7m to £4.8m
Audit Committee
reporting threshold
£0.4m
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
127
We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess
of £370,000 (2017: £360,000) for the Group, as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
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 (excluding Checkatrade which was subject to a
full audit) 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 UK, North America, France and Spain components account for 97.9% (2017: 97.9%) of the Group’s revenue and
100% (2017: 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, with the exception of Checkatrade). 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 £3.7m to £4.8m (2017:
£3.1m to £4.7m).
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 at least
one senior member of the Group audit team visits the UK, North America, France and Spain at least twice a year. This
included a planning visit where we provided input into the component’s planned audit strategy and risk assessment,
and a fieldwork visit where we participated in the component’s audit close meetings and reviewed documentation of
the findings from their work.
128
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
Independent Auditor’s report
to the members of HomeServe plc
continued
Other information
The directors are responsible for the other information. The other information comprises the information included in
the annual report other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
there is a material misstatement in the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we
are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements of the
other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group’s position and performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting – the section describing the work of the audit committee does not appropriately address
matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’ statement
required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision of the UK Corporate Governance Code.
We have nothing to report in respect of these matters.
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
129
Responsibilities of directors
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, and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability
to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
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.
130
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
Independent Auditor’s report
to the members of HomeServe plc
continued
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• 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 Group and the Company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or 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 Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• The 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 in respect of these matters.
HomeServe plc Annual Report & Accounts 2018
Independent Auditor’s report
131
Other matters
Auditor tenure
Following the recommendation of the Audit & Risk Committee, we were appointed by the Board of Directors on 1
August 2002 to audit the financial statements for the year ending 31 March 2003 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 16 years,
covering the years ending 31 March 2003 to 31 March 2018.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in
accordance with ISAs (UK).
Matthew Perkins (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, UK
22 May 2018
132
HomeServe plc Annual Report & Accounts 2018
El deseo de
cumpleaños
Cómo HomeServe ayudó a salvar
la celebración de cumpleaños.
“Tenía un problema con el lavavajillas que no funcionaba y
justo ese día venía a comer toda la familia por el cumpleaños
de mi mujer. Se nos avecinaba un gran problema: pensar en
tantos comensales en casa y con el lavavajillas estropeado…
Pero llamé a HomeServe, me atendió una chica en la primera
llamada, diciéndome que se pondría en contacto conmigo
un profesional ese mismo día. Me llamaron por la tarde
ofreciéndome varios horarios y fueron muy puntuales.
Eran dos profesionales con su furgoneta y cuando subieron a
casa ya llevaban todas las herramientas. A partir de ahí, ¡todo
sobre la marcha!
Los pasos se ejecutaron perfectamente: desarmaron la
parte de atrás del lavavajillas, cambiaron la bomba -que era
donde estaba el problema- y tras una hora o un poco más,
lo arreglaron todo perfectamente. Limpiaron sin yo decirles
nada y luego probaron que funcionase correctamente. Me
dijeron que les llamase si había cualquier problema. Y la
verdad es que todo perfecto. ¡Mi mujer sopló las velas la mar
de contenta!”
Francisco Javier Pérez.
Málaga (Spain)
Discover how life keeps moving for our Customers at homeserve.com/customerstories
HomeServe plc Annual Report & Accounts 2018
133
The birthday wish
How HomeServe helped save the birthday party.
“I had a problem with my dishwasher, which broke down on the day of my wife’s
birthday. Just imagine: a house full of guests and no dishwasher... I called HomeServe.
A lady answered on the first ring and told me she could get an engineer out to me the
same day. The engineer offered me a choice of appointment times. They arrived on
time with all the tools they needed.
They did a great job. They disconnected the dishwasher and changed the pump. After
an hour it was working perfectly. And they told me to call back if i had any further
problems. I didnt. My wife blew out the candles with a big smile on her face.”
Contents
Financial Statements
134 Group fi nancial statements
188 Company fi nancial statements
209 Glossary
134
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Group income statement
Year ended 31 March 2018
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
Dividends per share, paid and proposed
Earnings per share
Basic
Diluted
Notes
4
6
18
8
9
6
10
11
12
12
2018
£m
899.7
(765.7)
1.0
135.0
0.1
(11.8)
141.7
(18.4)
123.3
(27.4)
95.9
96.3
(0.4)
95.9
19.1p
30.2p
29.7p
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
15.3p
24.0p
23.6p
HomeServe plc Annual Report & Accounts 2018
Group financial statements
135
Group statement of comprehensive income
Year ended 31 March 2018
Profit for the year
Items that will not be reclassified subsequently to profit and loss:
Actuarial gain/(loss) on defined benefit pension scheme
Deferred tax (charge)/credit relating to actuarial re-measurements
Items that may be reclassified subsequently to profit and loss:
Exchange movements on translation of foreign operations
Fair value losses on cash flow hedges
Notes
30
10
26
Total other comprehensive (expense)/income
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
2018
£m
95.9
2.1
(0.4)
1.7
(10.2)
(0.5)
(10.7)
(9.0)
86.9
87.3
(0.4)
86.9
2017
£m
74.4
(3.4)
0.6
(2.8)
20.8
—
20.8
18.0
92.4
92.4
—
92.4
136
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Group balance sheet
31 March 2018
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Interests in associates
Other 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
Share incentive reserve
Currency translation reserve
Available for sale reserve
Other reserves
Retained earnings
Attributable to equity holders of the parent
Non-controlling interests
Total equity
Notes
13
14
15
18
17
10
30
19
20
20
21
23
23
23
22
10
23
25
26
26
26
26
26
27
2018
£m
386.6
384.8
39.9
5.5
8.7
6.8
4.7
837.0
4.3
515.7
57.8
577.8
1,414.8
(508.5)
(10.4)
(0.5)
(38.0)
(557.4)
20.4
(256.7)
(23.4)
(25.5)
(0.4)
(306.0)
(863.4)
551.4
8.9
171.8
22.1
16.1
1.8
82.2
248.1
551.0
0.4
551.4
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
18.3
26.3
1.8
72.2
196.5
369.2
0.8
370.0
The financial statements were approved by the Board of Directors and authorised for issue on 22 May 2018. They were
signed on its behalf by:
David Bower
Chief Financial Officer
22 May 2018
HomeServe plc Annual Report & Accounts 2018
Group financial statements
137
Group statement of changes in equity
Year ended 31 March 2018
Balance at 1 April 2017
Profit for the year
Other comprehensive
(expense)/income for the year
Total comprehensive
income
Dividends paid (note 11)
Share-based payments
Share options exercised
Basis adjustments on
hedged items
Tax on exercised share
options (note 10)
Deferred tax on share
options (note 10)
Balance at 31 March 2018
Year ended 31 March 2017
Share
Capital
£m
8.4
—
Share
premium
account
£m
45.7
—
Share
incentive
reserve
£m
18.3
—
Currency
translation
reserve
£m
26.3
—
Available
for sale
reserve
£m
1.8
—
Other
reserves
£m
Retained
earnings
£m
72.2 196.5
96.3
—
Attributable
to equity
holders of
the parent
£m
369.2
96.3
Non-
controlling
interest
£m
0.8
(0.4)
Total
equity
£m
370.0
95.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.1
(4.3)
—
—
(10.2)
(10.2)
—
—
—
—
—
—
—
—
—
—
—
—
(0.5)
1.7
(9.0)
—
(9.0)
(0.5)
98.0
—
(50.4)
87.3
(50.4)
10.0
—
136.6
—
—
—
1.0
8.1
(3.3)
(0.4)
86.9
— (50.4)
— 136.6
—
8.1
—
(3.3)
—
0.5
—
0.5
—
0.5
—
—
2.8
2.8
—
2.8
—
8.9
—
171.8
—
22.1
—
16.1
—
1.8
—
0.2
82.2 248.1
0.2
551.0
—
0.4
0.2
551.4
Issue of share capital
0.5
126.1
Balance at 1 April 2016
Profit for the year
Other comprehensive
income/(expense) for the year
Total comprehensive
income
Dividends paid (note 11)
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 (note 10)
Deferred tax on share
options (note 10)
Balance at 31 March 2017
Share
Capital
£m
Share
premium
account
£m
8.3 41.1
—
—
Share
incentive
reserve
£m
16.0
—
Currency
translation
reserve
£m
5.5
—
Available
for sale
reserve
£m
1.8
—
Other
reserves
£m
72.1
—
Retained
earnings
£m
171.8
74.4
Attributable
to equity
holders of
the parent
£m
316.6
74.4
Non-
controlling
interest
£m
—
—
Total
equity
£m
316.6
74.4
—
—
—
0.1
—
—
—
—
—
—
—
—
—
4.6
—
—
—
—
—
—
—
20.8
—
—
—
—
6.6
(4.3)
—
—
—
20.8
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.1
—
—
(2.8)
18.0
—
18.0
71.6
(40.3)
—
(0.1)
—
92.4
(40.3)
4.7
—
6.6
— 92.4
— (40.3)
—
4.7
—
—
—
6.6
0.4
(3.9)
—
(3.9)
—
—
—
0.8
0.8
—
—
(9.3)
(9.3)
—
(9.3)
2.0
2.0
—
2.0
—
8.4
—
45.7
—
18.3
—
26.3
—
1.8
—
0.4
72.2 196.5
0.4
369.2
—
0.8
0.4
370.0
Other reserves comprise of the Merger, Own shares, Capital redemption and Hedging reserves. Full details of these
reserves are included in Note 26.
138
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Group cash flow statement
Year ended 31 March 2018
Net cash inflow from operating activities
Investing activities
Interest received
Proceeds on disposal of fixed assets
Disposal of subsidiary
Purchases of intangible assets
Purchases of property, plant and equipment
Acquisition of investment in associate
Dividend received from associate
Net cash outflow on acquisition of subsidiaries
Net cash used in investing activities
Financing activities
Dividends paid
Repayment of finance leases
Deferred and contingent consideration paid on acquisition
of subsidiaries
Issue of shares from the employee benefit trust
Proceeds on issue of share capital
Costs associated with issue of share capital
New bank and other loans raised
Costs associated with new bank and other loans raised
Decrease in bank and other loans
Net cash generated by financing activities
Net increase/(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
28
18
18
16
11
25
2018
£m
129.5
0.1
0.6
—
(114.3)
(11.0)
—
0.4
(50.3)
(174.5)
(50.4)
(0.6)
(3.9)
—
124.1
(0.8)
221.0
(3.1)
(226.5)
59.8
14.8
46.2
(3.2)
57.8
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
HomeServe plc Annual Report & Accounts 2018
Group financial statements
139
Notes to financial statements
Year ended 31 March 2018
1. General information
HomeServe plc (the ‘Company’) is a public company, limited by shares and 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. Foreign operations are consolidated in accordance with
the policies set out in note 2.
There have been no post balance sheet events identified since the year end.
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 24.
Adoption of new or revised standards and accounting policies
The following amendments to accounting standards have been adopted in the year:
Amendments to IAS 7
Amendments to IAS 12
Disclosure Initiative
Recognition of Deferred Tax Assets for Unrealised Losses
None of the amendments 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):
IFRS 9
IFRS 15
IFRS 16
IFRS 17
IFRIC 22
IFRIC 23
Amendments to IFRS 2
Amendments to IFRS 4
Amendments to IFRS 9
Amendments to IFRS 10 and IAS 28
Amendments to IAS 19
Amendments to IAS 40
Annual Improvements to IFRSs
Annual Improvements to IFRSs
Annual Improvements to IFRSs
Clarifications to IFRS 15
Conceptual Framework
Financial Instruments
Revenue from Contracts with Customers
Leases
Insurance Contracts
Foreign Currency Transactions and Advance Consideration
Uncertainty over Income Tax Treatments
Classification and Measurement of Share-based Payment Transactions
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
Prepayment Features with Negative Compensation
Sale or Contribution of Assets between an Investor and its Associate
or Joint Venture
Plan Amendment, Curtailment or Settlement
Transfers of Investment Property
2014-2016 Cycle – IFRS 1 and IAS 28 Amendments
2014-2016 Cycle – IFRS 12 Amendments
2015-2017 Cycle
Revenue from Contracts with Customers
Amendments to References to the Conceptual Framework in IFRS Standards
140
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
2. Significant accounting policies (continued)
Standards in issue but not yet effective (continued)
At 31 March 2018 the status of the Group’s analysis as to the impact that IFRSs 9, 15 and 16 will have on the financial
statements for the years ended 31 March 2019 (IFRSs 9 and 15) and 31 March 2020 (IFRS 16) has concluded the
following:
•
•
•
IFRS 9 will not have a material effect on the financial statements, with only limited amendments expected to the
classification of financial assets, the timing of credit loss recognition under the expected credit loss model for
impairment, and disclosures. This is due to the nature of the business model where the majority of customers pay in
advance.
The Group intends to adopt this standard for the year ended 31 March 2019, in line with its mandatory effective date.
IFRS 15 will not have a material effect on the financial statements. The Group’s assessment indicates that, while
changes to revenue disclosures will be required, together with the re-categorisation of certain existing intangible
assets that represent contract costs under IFRS 15, the impact on existing revenue recognition patterns will be
immaterial.
The Group intends to adopt this standard for the year ended 31 March 2019, in line with its mandatory effective date.
IFRS 16 will have a significant impact on the Group Balance Sheet through the recognition of ‘Right of Use’ (RoU)
assets and liabilities for lease payments in respect of arrangements previously classified as operating leases under
IAS 17. Additional disclosures will also be required. Although the standard is not expected to have a material impact
on profit after tax, Group EBITDA will increase due to a reduction in operating rental costs, replaced by higher
interest and depreciation charges. Further, while total cash flows will remain consistent, rental outflows will now be
presented under financing activities, where they were previously recorded as operational outflows, increasing the
Group’s cash conversion percentage.
The Group’s operating lease commitments as at 31 March 2018 (see note 31) of £37.8m are the best indicator of
the estimated size of the RoU assets and lease liabilities likely to be recognised on balance sheet at transition. The
transition values are subject to change due to:
– Judgements inherent in calculating lease liabilities (e.g. determining the lease term, the discount rate and
assessing variable lease payments)
– The impact of the Group’s operational activities on its lease obligations between 31 March 2018 and the date of
transition to IFRS 16
The Group intends to adopt this standard for the year ended 31 March 2020, in line with its mandatory effective date.
The Group will continue to progress its impact assessment regarding IFRS 16 during the first half of FY19 and will
provide a further update in the interim report for the period ending 30 September 2018.
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.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
141
The Directors have reviewed the Group’s budget, forecast and cash flows for 2019 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.
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. If the Group’s share of losses of the profit or loss exceeds the Group’s interest
in that associate, the Group discontinues recognising its share of further losses. Additional losses are recognised only to
the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the
net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included in the
carrying amount of the investment. When necessary, the entire carrying amount of the investment (including goodwill)
is tested for impairment in accordance with IAS36 Impairment of Assets as a single asset by comparing its recoverable
amount with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment.
The Group discontinues the use of the equity method of accounting if the investment in an associate increases to
becomes a subsidiary. Upon becoming a subsidiary, the Group accounts for the entity in accordance with the Business
combinations policy below. Any fair value gain or loss on re-measurement of an associate on acquisition of control is
taken to the profit and loss account at the date of acquisition.
142
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
2. Significant accounting policies (continued)
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 consolidated income
statement, as incurred, in operating costs.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent or
deferred consideration arrangement, measured at its acquisition-date fair value. Subsequent changes in such fair values
that qualify as measurement period adjustments are adjusted against the cost of acquisition. 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 and recognised immediately in the consolidated income statement. Changes in the fair value of
contingent consideration classified as equity are not recognised. Deferred consideration is subsequently measured at
amortised cost.
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 and is subject to a maximum of one year.
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 (CGUs) expected
to benefit from the synergies of the combination. If the recoverable amount of the CGU 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 CGU 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.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
143
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.
Net policy income
Revenue recorded by the Group includes commissions receivable in the Group’s role as an intermediary for the
householder in the policy sale, but as principal in the policy administration process. The Group contracts separately
with the policy holder to provide these services. 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 for the principal, 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. Revenue deferred for the
performance of claims handling services is released over the expected profile of anticipated claims.
To the extent that policies are expected to cancel mid-term, and hence all of the economic benefits associated with
those policies are not expected to flow to the Group, a provision is made to ensure that the related revenue is not
recognised at the point that the policy incepts.
Repair services revenue
Repair revenue relates to repairs undertaken on behalf of underwriters subject to separate contractual arrangements.
Such revenue is recognised on completion of the repair.
Other revenue
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.
Revenue generated in HomeServe’s ‘Home Experts’ businesses is derived from three principal streams:
• Website subscriptions: recognised evenly over the period of the contract, which is typically 12 months;
• Directory advertising fees: recognised at the point the obligation to the customer is fulfilled; and
• Lead generation revenue (representing commissions received from trades people): recognised at the point of
purchase.
144
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
2. Significant accounting policies (continued)
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 a 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.
Foreign currencies
Transactions in currencies other than functional currency 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 retranslated 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 retranslated.
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 to presentational currency
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.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
145
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 in the income statement
in the period of scheme amendment. Net interest is calculated by applying a discount rate to the net defined benefit
liability or asset.
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 along with a small number of provisions in relation to open tax positions. 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.
146
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
2. Significant accounting policies (continued)
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.
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 a business combination; or where the former owners previously operated a business and the Group
has purchased specific access rights from the former owners. 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; or where the former
owners previously operated a business and the Group has purchased specific customer databases from the former
owners. 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 lives.
Acquired customer databases are amortised on a straight-line basis over their estimated useful lives, which are in the
range of 3 - 15 years.
Acquired brands are recorded at fair value using the relief from royalty valuation method. The Group’s brand asset is
amortised over its useful economic life (8 years) on a straight-line basis. This period represents the period over which
the acquired brand is reasonably expected to transfer economic benefits to the Group.
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
HomeServe plc Annual Report & Accounts 2018
Group financial statements
147
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
estimated 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 CGU to which the asset belongs.
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 CGU is estimated to be less than its carrying amount, the carrying amount of
the asset or CGU 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 CGU 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 CGU 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 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.
148
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
2. Significant accounting policies (continued)
Financial instruments (continued)
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, 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.
Borrowings
Interest-bearing loans and overdrafts are stated at amortised cost and are recorded at the notional amount of the
proceeds received, net of direct issue costs. Interest-bearing loans are subsequently measured at amortised cost using
the effective interest method, with interest expense recognised on an effective yield basis.
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 notional amount of 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 the option expires unexercised, the liability will be
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
income statement.
Forward contracts and hedge accounting
The Group enters into derivative transactions with a view to managing currency risks associated with financing acquisitive
activities. Forward contracts used by the Group are stated at fair value on initial recognition and at subsequent balance
sheet dates. The fair values of forward contracts are calculated by discounting all future cash flows by the applicable
market yield curves at the balance sheet date. Cash flow hedges mitigate exposure to variability in cash flows that are either
attributable to a particular risk associated with a recognised asset or liability or a forecast transaction. Hedge accounting is
only used where, at the inception of the hedge, there is formal designation and documentation of the hedging relationship,
it meets the Group’s risk management objective strategy for undertaking the hedge and it is expected to be highly
effective. The portion of any gains or losses on cash flow hedges which meet the conditions for hedge accounting and
are determined to be effective, are recognised directly in the statement of comprehensive income. The gains or losses
relating to the ineffective portion are recognised immediately in the income statement. When a firm commitment or highly
probable future transaction that is hedged becomes an asset or a liability recognised on the balance sheet, then, at the time
the asset or liability is recognised, the associated gains or losses that had previously been recognised in equity are included
in the initial measurement of the acquisition cost or other carrying amount of the asset or liability.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
149
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer
qualifies for hedge accounting. At that point in time, for cash flow hedges, any cumulative gain or loss on the hedging
instrument recognised in equity is kept in equity until the forecast transaction occurs. If a hedged transaction is no
longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement.
Gains or losses arising from changes in the fair value of forward contracts that do not qualify for hedge accounting, are
recognised immediately in the income statement.
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 provided 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.
3. 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.
Critical accounting judgements
There are no critical accounting judgements.
Key sources of estimation uncertainty
Claims handling obligations
Regarding revenue recognition, a proportion of revenue is deferred 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 2018 in respect of the Group’s future claim handing obligations is £86.3m (FY17: £76.7m).
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 £8.6m.
Valuation of acquisition intangible assets
Acquired access rights and acquired customer databases are 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 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.
150
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
3. Accounting judgements and key sources of estimation uncertainty (continued)
Valuation of acquisition intangible assets (continued)
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
2018 is £112.9m (FY17: £90.0m). If the retention rate or income per customer was individually higher or lower by 10%
the impact to profit in the year would be £11.3m.
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 2018 is £60.3m (FY17: £24.0m), 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 £6.0m.
Other areas of focus
Whilst not considered to be critical accounting judgements or key sources of estimation uncertainty, the following are
areas of focus for management.
Policy Cancellations
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, a provision is made to ensure that the related revenue is not
recognised at the point that the policy incepts.
The sources 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 deferred at 31 March 2018 in respect of potential future cancellations is £23.8m (FY17: £18.0m)
and is recognised as a reduction in the value of trade receivables. The most significant 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 £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 the CGU to which goodwill and acquisition intangibles have been allocated. CGUs
are aligned to the lines of business within each geographic territory in which the Group operates. 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 £386.6m (FY17: £301.9m). The carrying value of acquisition
intangibles is £186.5m (FY17: £114.0m). 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
(FY17: £nil).
4. Revenue
An analysis of the Group’s revenue is as follows:
Net policy income
Repair services
Other
2018
£m
638.2
202.0
59.5
899.7
2017
£m
565.3
188.7
31.0
785.0
HomeServe plc Annual Report & Accounts 2018
Group financial statements
151
5. Business and geographical segments
Segment revenues and results
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group
that are regularly reviewed by the chief operating decision maker, who is considered to be the Chief Executive, to
allocate resources to the segments and to assess their performance. The operating segments are consistent with those
set out in the Strategic Report.
Segment operating profit/(loss) represents the result of each segment including allocating costs associated with head
office and shared functions, but without allocating investment income, finance costs, and tax. This is the measure
reported to the Chief Executive for the purposes of resource allocation and assessment of segment performance.
The accounting policies of the operating segments are the same as those described in note 2. Group cost allocations
are deducted in arriving at segmental operating profit. Inter-segment revenue is charged at prevailing market prices.
2018
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
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
UK
£m
365.6
(7.9)
357.7
North
America
£m
282.1
—
282.1
France
£m
Spain
£m
New Markets
£m
Total
£m
100.0
—
100.0
141.3
—
141.3
18.6
—
18.6
907.6
(7.9)
899.7
61.1
48.6
31.5
16.6
(4.4)
153.4
(1.8)
59.3
(8.1)
40.5
(6.4)
25.1
(0.1)
16.5
(2.0)
(6.4)
UK
£m
326.5
(7.2)
319.3
63.2
(1.2)
62.0
North
America
£m
227.8
—
227.8
21.2
(6.5)
14.7
France
£m
91.1
—
91.1
27.1
(6.0)
21.1
Spain
£m
New Markets
£m
16.6
—
16.6
130.2
—
130.2
13.3
(0.3)
13.0
(18.4)
135.0
0.1
(11.8)
123.3
(27.4)
95.9
Total
£m
792.2
(7.2)
785.0
(6.0)
118.8
(0.1)
(6.1)
(14.1)
104.7
0.3
(6.7)
98.3
(23.9)
74.4
152
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
5. Business and geographical segments (continued)
Segment information
Assets
Liabilities
Capital additions
Depreciation, amortisation
and impairment
UK
North America
France
Spain
New Markets
2018
£m
897.7
352.6
219.9
140.0
99.8
2017
£m
817.8
279.8
208.8
137.0
15.6
2018
£m
472.6
361.5
155.0
104.1
65.4
Inter-segment
(295.2)
(278.6)
(295.2)
Total
1,414.8
1,180.4
863.4
2017
£m
472.5
317.2
153.4
108.2
37.7
(278.6)
810.4
2018
£m
43.0
73.2
3.5
18.2
1.6
—
2017
£m
36.1
11.7
3.9
17.5
0.2
2018
£m
17.3
16.7
8.9
17.0
2.7
—
—
139.5
69.4
62.6
2017
£m
16.1
13.1
7.8
12.3
0.2
—
49.5
All assets and liabilities including inter-segment loans and trading balances are allocated to reportable segments.
Revenue from major products and services
The Group’s revenue from major products and services is disclosed in note 4.
Geographical information
The Group operates in three principal geographical areas: UK, Continental Europe and North America.
The Group’s revenue from external customers (by customer domicile) 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
Latin America
Revenue from external
customers
Non-current assets
2018
£m
365.9
282.1
248.4
3.3
899.7
2017
£m
319.3
227.8
237.9
—
785.0
2018
£m
453.4
153.3
218.8
—
825.5
2017
£m
341.0
113.6
213.5
—
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 (FY17: nil).
HomeServe plc Annual Report & Accounts 2018
Group financial statements
153
6. Profit for the year
Profit for the year has been arrived at after (crediting)/charging:
Included in operating costs:
Staff remuneration
Cost of inventories recognised as an expense
Operating lease payments
Depreciation of property, plant and equipment
Amortisation of acquisition intangible assets
Amortisation of other intangible assets
Loss on disposal of property, plant and equipment and software
Gain on re-measurement on disposal of associate
Profit on disposal of subsidiary
Bargain purchase on acquisition
Amounts (recovered)/written off 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
Other assurance services
Tax compliance services
Tax advisory services
Total non-audit fees
Total auditor’s remuneration
2018
£m
2017
£m
267.5
237.5
25.3
12.7
8.0
18.4
36.2
2.1
(0.9)
—
—
(0.2)
2018
£000
71
785
856
45
9
—
—
54
17.2
11.2
6.9
14.1
28.5
0.4
—
(0.1)
(0.7)
0.5
2017
£000
69
587
656
48
—
243
123
414
910
1,070
Fees payable to Deloitte LLP and their member firms 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 and Risk 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 £45,000 (FY17: £48,000). Other
assurance services relate to sundry services provided directly as a result of being the auditor to the Group.
154
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
Staff remuneration
7.
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 30)
8.
Investment income
Interest on bank deposits
9.
Finance costs
Interest on bank and other loans
Unwinding of discount on deferred and contingent consideration
Unwinding of discount on obligation under put option
Exchange movements
10. Taxation
Current tax
Current year charge
Adjustments in respect of prior years
Total current tax charge
Deferred tax credit
Total tax charge
2018
number
3,489
1,472
894
5,855
2018
£m
230.2
32.4
4.9
267.5
2018
£m
0.1
2018
£m
9.7
0.8
0.9
0.4
11.8
2018
£m
30.9
(0.1)
30.8
(3.4)
27.4
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
2017
£m
23.6
1.3
24.9
(1.0)
23.9
UK corporation tax is calculated at 19% (FY17: 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 a blended (Federal/State)
rate of 38% in the US (FY17: 40%) as a result of the US enacting new tax legislation in December 2017 effective from 1
January 2018, 33% in France (FY17: 33%) and 25% in Spain (FY17: 25%), which explains the ‘Overseas tax rate differences’
overleaf.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
155
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 19% (FY17: 20%)
Tax effect of items that are not taxable in determining taxable profit
Adjustments in respect of prior years – current tax
Overseas tax rate differences
Movement in deferred tax liabilities
Tax expense for the year
2018
£m
123.3
23.4
(0.5)
(0.1)
4.6
—
27.4
2017
£m
98.3
19.7
(0.2)
1.3
2.7
0.4
23.9
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.
As the proportion of the Group’s profits earned overseas continues to grow, the effective tax rate of 22% (FY17: 24%) is
expected to increase slightly in future years.
A retirement benefit tax charge amounting to £0.4m (FY17: £0.6m credit) 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
2018
£m
2.8
0.2
3.0
2017
£m
2.0
0.4
2.4
156
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
10. Taxation (continued)
Deferred tax
The following are the major deferred tax assets/(liabilities) recognised by the Group and the movements during the
current and prior year:
Timing
differences
£m
Elected
goodwill
deductions
£m
Retirement
benefit
obligations
£m
Share
schemes
£m
Acquired
intangible
assets
£m
Unutilised
losses
£m
Available
sale reserve
£m
Acquired
property
£m
Total
£m
4.4
(0.2)
(20.3)
0.1
(0.7)
(0.5)
(13.7)
Asset/(liability)
At 1 April 2016
(Charge)/credit to Income
(2.6)
Credit to equity
Credit to Comprehensive
Income
Acquisition of subsidiaries
Exchange movements
At 1 April 2017
—
—
—
0.8
2.6
(Charge)/credit to Income
(3.3)
Credit to equity
Charge to Comprehensive
Income
Acquisition of subsidiaries
Exchange movements
At 31 March 2018
—
—
(0.1)
(0.4)
(1.2)
0.1
—
—
—
—
(0.1)
—
—
—
—
—
(0.4)
(0.4)
—
0.6
—
—
(0.2)
(0.3)
—
(0.4)
—
—
3.9
0.2
0.4
—
—
0.2
4.7
0.6
0.2
—
—
(0.1)
3.2
—
—
—
—
—
(15.6)
12.7
(2.3)
0.5
—
—
—
—
—
(35.0)
13.3
(0.7)
10.8
(4.4)
—
—
(5.6)
0.9
—
—
—
(1.2)
—
—
—
—
—
0.5
—
—
—
—
—
—
—
—
—
—
—
1.0
0.4
0.6
(2.9)
(0.8)
(15.4)
3.4
0.2
(0.4)
(5.7)
(0.8)
(18.7)
(0.1)
(0.9)
5.4
(28.9)
7.7
(0.7)
The majority of unutilised losses are expected to be utilised within five years.
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
—
(12.8)
(12.8)
France
£m
—
(12.7)
(12.7)
Spain
£m
3.6
—
3.6
North America
£m
3.2
—
3.2
2018
£m
6.8
(25.5)
(18.7)
2017
£m
7.6
(23.0)
(15.4)
At the balance sheet date, the Group made appropriate (charges)/credits to timing differences, share schemes, acquired
intangible assets and unutilised losses to recognise the enacted tax reductions in the USA and France, whereby the
blended (Federal/State) tax rate in the USA has reduced to 38% in FY18 (FY17: 40%) and will go down to 27% in FY19
onwards, and in France the current rate of 33% (FY17: 33%) is set to reduce to 25% as of FY23. The overall deferred tax
effect as a result of recognising the reducing tax rates in the USA and France is a credit of £1.7m (FY17: £nil). Deferred
tax has not been recognised on £0.9m (FY17: £1.1m) of unused losses due to the uncertainty over the timing of future
recovery. There were no expiry dates in respect of the unrecognised tax losses in either year.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
157
11. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 March 2017 of 11.2p (2016: 8.9p) per share
Interim dividend for the year ended 31 March 2018 of 4.7p (2017: 4.1p) per share
2018
£m
35.0
15.4
50.4
2017
£m
27.6
12.7
40.3
The proposed final dividend for the year ended 31 March 2018 is 14.4p per share amounting to £47.5m (FY17: 11.2p per
share amounting to £35.0m). 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
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 attributable to equity holders of the parent
Amortisation of acquisition intangibles
Tax impact arising on amortisation of acquisition intangibles
One-off impacts to tax arising on amortisation of acquisition intangibles due to
tax reforms – USA and France
Adjusted profit for the year attributable to equity holders of the parent
2018
pence
30.2
29.7
33.6
33.1
2018
m
318.9
5.0
323.9
2018
£m
96.3
18.4
(5.7)
(1.7)
107.3
2017
pence
24.0
23.6
27.0
26.5
2017
m
309.9
5.4
315.3
2017
£m
74.4
14.1
(4.9)
—
83.6
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 attributable to the equity holders of
the parent by the weighted average number of ordinary shares in issue during the year. Adjusted earnings per share
is calculated excluding amortisation of acquisition intangibles and the associated tax impact. In FY18 adjustment has
also been made for the one-off impact of tax reforms in the USA and France (see note 10). 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
(FY18: £18.4m, FY17: £14.1m) and the associated tax effects (FY18: (£7.4m), FY17: (£4.9m)). 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.
158
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
13. Goodwill
Cost
At 1 April 2016
Recognised on acquisition of subsidiaries
Exchange movements
At 1 April 2017
Recognised on acquisition of subsidiaries
Exchange movements
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
£m
247.7
44.1
10.1
301.9
87.3
(2.6)
386.6
386.6
301.9
In addition to the amount held at 31 March 2017 stated above, there was goodwill of £25.7m included in interests in
associates in relation to the Group’s investment in Sherrington Mews Limited, the holding company of the Checkatrade
Group (Checkatrade). On 17 November 2017 HomeServe Assistance Limited increased, a Group company, its
investment in Checkatrade, by 60%, taking its total holding up to 100% resulting in the disposal of the Group’s previous
associate interest in Checkatrade and the acquisition of Checkatrade as a 100% owned subsidiary (see notes 16 and 18).
Goodwill acquired in a business combination is allocated, at acquisition, to the CGUs that are expected to benefit from
that business combination. The Group’s CGUs are defined as the lines of business within each geographic territory in
which the Group operates, 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 growth rates, discount rates and expected
changes to selling prices and direct costs during the period. 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 flows using estimated, long-term growth rates. The growth rates are based on detailed business plans
and although long-term growth rate forecasts may be higher in certain territories, the lowest rate across the Group
has been applied to ensure value in use calculations are prudent. The long-term growth rate utilised is 2% (FY17: 2%).
Changes in selling prices and direct costs are based on expectations of future changes in the market.
Management estimates the discount rates using pre-tax rates that reflect current market assessments of the time value
of money. The pre-tax cost of capital rates used to discount the forecast pre-tax cash flows are different for each CGU
and are detailed overleaf:
HomeServe plc Annual Report & Accounts 2018
Group financial statements
159
Segment
UK
North America
France
Spain
New Markets
New Markets
CGUs
Membership, HVAC (Heating,
Ventilation and Air Conditioning)
North America
Membership, HVAC
Spain
Checkatrade
Habitissimo
2018
8.5%
9.9%
9.3%
9.9%
8.5%
9.9%
2017
8.7%
12.2%
10.4%
10.0%
—
—
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 IAS36.
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. 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, by CGU, as follows:
UK – Membership
UK – HVAC
North America
France – Membership
France – HVAC
Spain
New Markets – Checkatrade
New Markets – Habitissimo
2018
£m
160.7
23.4
36.2
79.0
3.7
13.8
58.6
11.2
386.6
2017
£m
159.3
—
40.8
77.3
—
13.6
—
10.9
301.9
In the FY17 Annual Report, the ‘Spain’ CGU included £10.9m of goodwill associated with Habitissimo. This has been
reclassified into the New Markets – Habitissimo CGU in FY18.
The Group’s CGUs do not contain any intangible assets with indefinite useful economic lives.
160
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
14. Other intangible assets
Acquisition intangibles include acquired access rights, acquired customer databases and acquired brands. Other
intangibles include trademarks, access rights, customer databases and software.
Acquired
access rights
£m
Acquired
customer
databases
£m
Acquired
brands
£m
Total
acquisition
intangibles
£m
Trademarks &
access rights
£m
Customer
databases
£m
Software
£m
Total
intangibles
£
Cost
At 1 April 2016
Additions
27.2
118.8
—
—
Acquisition of subsidiaries
16.3
28.0
—
—
—
—
—
—
—
146.0
—
44.3
—
16.3
31.6
0.3
—
—
1.3
206.6
33.2
65.2
30.9
—
(9.6)
3.0
—
(0.9)
(1.2)
55.0
125.7
358.3
16.7
44.4
61.4
45.6
(0.2)
25.7
1.3
(0.2)
3.2
174.4
490.8
44.3
128.5
0.9
(4.4)
(3.5)
31.8
(5.3)
(12.8)
—
—
4.9
76.6
16.0
—
—
1.5
—
—
4.0
12.3
47.5
159.1
45.1
20.1
—
—
(4.9)
17.0
13.9
—
(4.7)
—
—
At 31 March 2018
87.7
191.5
13.9
293.1
34.1
94.1
211.7
633.0
18.6
52.1
2.8
—
2.1
11.3
—
5.7
23.5
69.1
—
—
—
—
—
13.0
0.6
4.8
—
(0.9)
27.4
—
(3.5)
78.6
—
—
70.7
14.1
—
7.8
92.6
18.4
—
(4.4)
19.5
4.5
—
0.6
24.6
3.5
(0.3)
(0.8)
18.3
11.6
—
1.9
31.8
16.8
—
0.5
39.8
148.3
12.4
(0.2)
1.2
42.6
(0.2)
11.5
53.2
202.2
15.9
54.6
(2.5)
(1.1)
(2.8)
(5.8)
0.6
106.6
27.0
49.1
65.5
248.2
60.3
112.9
13.3
186.5
24.0
90.0
—
114.0
7.1
8.6
45.0
146.2
384.8
44.8
121.2
288.6
Software includes £72.3m (FY17: £60.8m) in respect of the new Customer Relationship Management (CRM) system
which will be rolled out in the UK business during FY19. The asset will be amortised over 10 years on a straight-line basis
from the point at which it is available for use.
Disposals
Exchange movements
At 1 April 2017
Additions
Acquisition of subsidiaries
Disposals
Exchange movements
Accumulated amortisation
At 1 April 2016
Charge for the year
Disposals
Exchange movements
At 1 April 2017
Charge for the year
Disposals
Exchange movements
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
HomeServe plc Annual Report & Accounts 2018
Group financial statements
161
On 18 December 2017 HomeServe US Repair Management Corporation acquired certain intangible assets of the home
assistance policy business of Dominion Products and Services, Inc. (“DPS”), a wholly owned subsidiary of Dominion
Energy, Inc. At 31 March 2018 acquired access rights included £35.4m and acquired customer databases included
£19.7m in respect of the marketing agreement and policy book acquired as part of this transaction. These assets will be
amortised over 13 and 9 years respectively, on a straight-line basis.
At the balance sheet date, there are no contractual commitments for the purchase of intangible assets (FY17: £nil).
15. Property, plant and equipment
Land & buildings
£m
Furniture, fixtures
& equipment
£m
Computer
equipment
£m
Motor vehicles
£m
Cost
At 1 April 2016
Additions
Disposals
Acquisition of subsidiaries
Disposal of a subsidiary
Exchange movements
At 1 April 2017
Additions
Disposals
Acquisition of subsidiaries
Exchange movements
At 31 March 2018
Accumulated depreciation
At 1 April 2016
Charge for the year
Disposals
Disposal of a subsidiary
Exchange movements
At 1 April 2017
Charge for the year
Disposals
Exchange movements
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
31.5
1.4
(0.6)
—
—
0.6
32.9
2.7
(0.3)
0.2
(0.1)
35.4
10.9
1.5
(0.6)
—
0.3
12.1
1.7
—
(0.1)
13.7
21.7
20.8
8.3
1.1
—
0.3
(0.1)
0.2
9.8
2.2
(0.2)
0.5
(0.2)
12.1
4.7
1.4
—
—
0.2
6.3
1.7
(0.2)
—
7.8
4.3
3.5
16.3
5.2
(0.3)
0.1
(0.2)
0.9
22.0
5.7
(0.2)
0.1
(0.8)
26.8
8.4
3.1
—
(0.2)
0.5
11.8
3.7
(0.3)
(0.5)
14.7
12.1
10.2
4.8
0.3
(0.1)
—
—
0.7
5.7
0.4
—
—
(0.6)
5.5
2.0
0.9
—
—
0.3
3.2
0.9
—
(0.4)
3.7
1.8
2.5
Total
£m
60.9
8.0
(1.0)
0.4
(0.3)
2.4
70.4
11.0
(0.7)
0.8
(1.7)
79.8
26.0
6.9
(0.6)
(0.2)
1.3
33.4
8.0
(0.5)
(1.0)
39.9
39.9
37.0
162
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
15. Property, plant and equipment (continued)
The carrying amount of the Group’s property, plant and equipment includes an amount of £1.8m (FY17: £2.3m) 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
(FY17: £nil).
16. Business combinations
The Group has incurred a net cash outflow in respect of business combinations of £54.2m in the year (FY17: £74.2m).
There were two material acquisitions in the year ended 31 March 2018.
On 2 August 2017 HomeServe Assistance Limited, acquired 100% of the issued share capital and obtained control
of Help-Link UK Limited (Help-Link). The acquisition of Help-Link enhances the scale and scope of the UK business’
heating installation capability and increases the opportunity for future growth related to new heating system
installations.
On 17 November 2017 HomeServe Assistance Limited, increased its investment in Sherrington Mews Limited, the
holding company of the Checkatrade Group (Checkatrade), by 60%, taking its total holding up to 100% and thereby
obtaining control of Checkatrade and allowing the Group to progress its growth strategy in the Home Experts market.
The initial investment made on 13 December 2016 included an option for HomeServe to purchase a further 35% in mid
2019 and this agreement superseded that option as well as securing the remaining equity of the business.
Additionally there were two immaterial acquisitions in the year ended 31 March 2018.
On 30 November 2017 HomeServe Membership Limited, a Group company, acquired 100% of the issued share
capital of Energy Insurance Services Limited (EISL) for a total cash consideration of £1.7m. EISL provides boiler, central
heating and control system insurance policies to approximately 19,000 domestic customers. EISL has developed
significant knowledge, experience and systems related to the self-fix of boilers, which will bring customer experience
improvements and synergies to HomeServe’s growing UK heating business.
On 29 December 2017 HomeServe France Holdings SAS, a Group company, acquired 100% of PXB Invest SAS, the
holding company of the Electrogaz Group for a total cash consideration of €5.6m (£5.0m). Electrogaz provides
customers end-to-end home heating services, combining the provision of boiler installations, servicing and repair,
complimenting HomeServe’s strategic objective to grow and develop the Group’s heating capabilities internationally.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
163
The provisional fair values of identifiable assets acquired and liabilities assumed are set out in the table below:
At fair value
Property, plant and equipment
Intangible assets
Cash and cash equivalents
Inventories
Trade and other receivables
Trade and other payables
Bank and other loans
Deferred income
Intangible assets identified
on acquisition
Deferred tax on acquisition intangibles
Net assets/(liabilities) acquired
Goodwill
Total
Satisfied by:
Cash
Contingent consideration at fair value
Ordinary shares in HomeServe plc
Fair value of associate interest
previously owned (note 18)
Net cash outflow arising on
acquisition
Cash consideration
Cash and cash equivalent
balances acquired
Checkatrade
£m
Help-Link
£m
0.4
0.8
1.8
—
9.2
(3.3)
—
(10.5)
28.0
(4.9)
21.5
58.6
80.1
40.2
—
10.0
29.9
80.1
40.2
(1.8)
38.4
0.3
—
(1.7)
0.1
1.4
(5.8)
—
—
1.5
(0.3)
(4.5)
23.6
19.1
5.0
14.1
—
—
19.1
5.0
1.7
6.7
Other
£m
0.1
0.1
1.5
0.3
0.9
(1.2)
(0.1)
(1.0)
1.4
(0.4)
1.6
5.1
6.7
6.7
—
—
—
6.7
6.7
(1.5)
5.2
Total
£m
0.8
0.9
1.6
0.4
11.5
(10.3)
(0.1)
(11.5)
30.9
(5.6)
18.6
87.3
105.9
51.9
14.1
10.0
29.9
105.9
51.9
(1.6)
50.3
The goodwill arising on the excess of consideration over the fair value of the assets and liabilities acquired represents
the expectation of synergy benefits 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.
164
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
16. Business combinations (continued)
The provisional fair values for Help-Link disclosed as part of the Group’s interim results as at 30 September 2017 have
been updated, resulting in an increase to goodwill of £0.2m at 31 March 2018. The undiscounted range of outcomes
associated with the contingent consideration payments, conditional on the number of boiler installations Help-Link
complete during the period of contingency, remains from £nil to £15.5m.
The post-acquisition revenue, operating profit and acquisition-related costs (included in operating costs) from these
acquisitions in the year ended 31 March 2018 were as follows:
Revenue
Operating (loss)/profit
Acquisition-related costs
Checkatrade
£m
Help-Link
£m
8.2
(0.1)
0.3
22.4
(0.4)
0.5
Other
£m
1.2
—
0.3
Total
£m
31.8
(0.5)
1.1
If all of the acquisitions had been completed on the first day of the financial year, Group revenues for the period would
have been £925.2m and Group profit before taxation would have been £124.1m.
In addition to the net cash outflow on the acquisitions above of £50.3m, deferred and contingent consideration was
paid relating to previous business combinations of £3.9m (FY17: £3.1m).
17. Other investments
Available for sale investments carried at fair value
At 1 April 2016
Exchange movements
At 1 April 2017
Exchange movements
At 31 March 2018
£m
7.8
0.7
8.5
0.2
8.7
On 4 July 2014, HomeServe entered into an agreement with a manufacturer of smart thermostat connected home
technology. The fair value of this equity investment has been assessed at 31 March 2018 by analysing the future outlook
for the business as well as reviewing valuations associated with recent comparable market transactions.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
165
18. Interests in associates
A list of the investments in associates, including the name, address, country of incorporation, and proportion of
ownership is given in note 46 to the Company’s separate financial statements. 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 interests in associates
Summary Statement of Comprehensive Income
Revenue
Profit after tax
Total comprehensive income
Amounts recognisable
2018
Assistenza
Casa Srl
£m
Sherrington
Mews
Limited
£m
Total
£m
2017
Assistenza
Casa Srl
£m
19.8
19.8
5.0
5.0
9.4
2.2
21.4
4.2
Total
£m
30.8
6.4
(12.6)
(12.6)
(13.6)
(15.4)
(29.0)
(1.1)
11.1
(5.6)
5.5
(1.1)
11.1
(5.6)
5.5
(0.7)
(2.7)
1.6
(1.1)
£m
£m
15.2
15.2
£m
4.7
2.1
2.1
1.0
2.1
2.1
1.0
—
—
—
—
10.2
(5.5)
4.7
£m
1.2
0.4
0.4
0.2
(0.7)
7.5
(3.9)
3.6
£m
5.9
0.4
0.4
0.2
On 28 March 2018 HomeServe International Limited received a €0.5m (£0.4m) dividend payment from its associate,
Assistenza Casa Srl (FY17 €/£nil). The receipt has been accounted for as a reduction in the carrying value of the Group’s
investment in Assistenza Casa Srl.
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 interests in associates
Intangible asset
Deferred tax
Goodwill
Carrying amount of the Group’s interests in associates
2018
Assistenza
Casa Srl
£m
5.5
—
—
—
5.5
Sherrington
Mews
Limited
£m
2017
Assistenza
Casa Srl
£m
(1.1)
3.4
(0.6)
25.7
27.4
4.7
—
—
—
4.7
Total
£m
5.5
—
—
—
5.5
Total
£m
3.6
3.4
(0.6)
25.7
32.1
On 17 November 2017 HomeServe Assistance Limited increased its investment in its associate, Sherrington Mews
Limited, the holding company of the Checkatrade Group, by 60%, taking its total holding up to 100% and thereby
obtaining control of Checkatrade.
166
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
18. Interests in associates (continued)
The initial investment made on 13 December 2016 included a call option for HomeServe to purchase a further 35% in
mid 2019 and a put option for Sherrington Mews Limited to require the Group to acquire a further 35% shareholding.
The subsequent agreement to acquire the additional 60% of Checkatrade’s ordinary share capital superseded these
options, which were consequently extinguished and had no material fair value at 17 November 2017.
Upon obtaining control of Checkatrade, the Group assessed the fair value of the associate interest disposed of as part
of the total consideration for the business combination (see note 16). Based on a total business valuation of 100% of
the share capital of Sherrington Mews Limited, the fair value of the Group’s existing 40% interest was assessed to be
£29.9m.
The gain on re-measurement of the existing associate interest on obtaining control was therefore calculated as follows:
Fair value of associate interest previously owned
Carrying value of associate interest held by the Group at 17 November 2017
Acceleration of discount unwind on contingent consideration payment
associated with purchase of initial 40% shareholding
Acquisition related costs
Gain on re-measurement of associate on acquisition of control
19. Inventories
Consumables
20. Other financial assets
Trade and other receivables
Amounts receivable for the provision of services
Other receivables
Accrued income
Prepayments
Total
£m
29.9
(27.3)
(1.3)
(0.4)
0.9
2017
£m
2.7
2017
£m
292.3
143.0
9.2
10.6
455.1
2018
£m
4.3
2018
£m
354.6
143.5
9.6
8.0
515.7
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 receivables balance are debtors with a carrying amount of £14.5m (FY17: £12.1m) which
HomeServe plc Annual Report & Accounts 2018
Group financial statements
167
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 24 days (FY17: 21 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
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 subsidiaries
Exchange movements
Balance at 31 March
2018
£m
9.8
2.7
1.2
0.8
14.5
340.1
354.6
2018
£m
1.9
0.4
(0.4)
(0.6)
0.3
(0.1)
1.5
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
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
2018
£m
—
—
0.2
0.4
0.9
1.5
2017
£m
—
—
0.2
1.3
0.4
1.9
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
168
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
20. Other financial assets (continued)
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 and cash equivalents
Cash and cash equivalents of £57.8m (FY17: £46.2m) 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. Current liabilities
Trade creditors and accruals
Contingent consideration
Deferred consideration
Deferred income
Taxes and social security, excluding current tax
Other creditors
2018
£m
114.6
15.9
5.2
86.3
13.2
273.3
508.5
2017
£m
118.9
—
2.6
76.7
12.0
246.0
456.2
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The
average credit period taken for trade purchases is 60 days (FY17: 70 days).
Contingent and deferred consideration relates to future amounts payable on business combinations and asset
purchases.
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 creditors, accruals, deferred consideration and other creditors
meeting the definition of financial instruments approximates to their fair values. Contingent consideration is held at fair
value.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
169
22. Other financial liabilities
Contingent consideration
Deferred consideration
Obligation under put option
Trade and other creditors
2018
£m
4.7
4.9
10.3
3.5
23.4
2017
£m
4.7
0.4
9.3
—
14.4
Contingent and deferred consideration relates to future amounts payable on business combinations and asset
purchases.
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 subsidiary companies has
been accounted for as a financial liability. This was initially recognised at the present value of the gross obligation of
£9.3m with the corresponding charge being recognised in retained earnings. The option is 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 Directors consider that the carrying amount of deferred consideration, the obligation under put option and other
creditors meeting the definition of financial instruments approximates to their fair values. Contingent consideration is
held at fair value.
23. Borrowings
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
2018
£m
26.7
11.3
38.0
48.7
21.8
186.2
256.7
294.7
2017
£m
25.0
10.9
35.9
59.0
32.1
179.0
270.1
306.0
170
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
23. Borrowings (continued)
Bank and other loans (continued)
The US Dollar and Euro denominated borrowings are used to provide debt funding to the North America and
Continental Europe operations 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.
The weighted average interest rates paid on bank and other loans were as follows:
Fixed
Floating
2018
€
%
£
%
$
%
2.9
— —
1.4 0.9 2.4
2017
€
%
$
%
— —
0.9
1.8
£
%
3.4
1.4
All of 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 £400m revolving credit facility with eight banks. This facility was taken out on 1 August 2017 and
has an initial term of five years with the option to extend the term twice, by one year, up to maximum of seven years.
The new facility replaces the £300m facility (the ‘FY17 RCF’) taken out with five banks on 31 July 2014. The financial
covenants associated with the new facility are ‘net debt to EBITDA of less than 3.0 times’ (FY17 RCF: 3.0 times) and
‘interest cover greater than 4.0 times EBITDA’ (FY17 RCF: 4.0 times). Interest is charged at floating rates at margins of
between 1.15% and 1.25% (FY17 RCF: 1.05% and 1.25%) above the relevant reference rate, thus exposing the Group to
cash flow and interest rate risk. At 31 March 2018, the Group had available £273.6m (FY17 RCF: £174.0m) of undrawn
committed borrowing facilities in respect of which all conditions precedent had been met.
• The Group has £110m of US Private Placements (FY17: £110m) consisting of a £60m placement taken out on 6 March
2017 at a fixed interest rate of 2.59% and a £50m placement taken out on 7 October 2015 at a fixed interest rate of
3.44%. Both facilities have a term of seven years and the financial covenants associated with both are the same as
the £400m revolving credit facility.
• The Group maintains additional funding through a €37.5m 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 £400m 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 31 January 2018 which has a term of six months. The financial
covenants associated with this facility are the same as the £400m 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/£1.6m (FY17: $2.3m/£1.9m) was drawn at 31 March 2018.
The weighted average interest rate was 1.5% (FY17: 2.0%).
The Group has complied with all covenant requirements in the current and prior year. Information about liquidity risk is
presented in note 24.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
171
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 12 months
In the second to fifth years inclusive
Present value of lease obligations
2018
£m
0.5
0.4
0.9
0.5
0.4
0.9
2017
£m
0.6
1.0
1.6
0.6
1.0
1.6
Certain motor vehicles are held under finance leases. The average lease term is 6 years (FY17: 5 years). For the year ended
31 March 2018, the average effective borrowing rate was 2.5% (FY17: 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.
Reconciliation of movements in liabilities arising from financing
Current liabilities
Non-current liabilities
Deferred and
Contingent
consideration
£m
Finance leases
£m
Bank and other
loans
£m
Deferred and
Contingent
consideration
£m
Finance leases
£m
Bank and other
loans
£m
Total
£m
At 1 April 2017
2.6
0.6
35.9
5.1
1.0
270.1
315.3
Proceeds from new loans and
borrowings
Repayment of borrowings
Payments associated with
acquisitions
Payment of finance leases
Interest paid
Capitalised borrowing costs
—
—
(3.9)
—
—
—
—
—
—
(10.7)
—
(0.6)
—
—
—
—
(0.2)
(0.1)
Total changes from cash flows
(3.9)
(0.6)
(11.0)
Other changes
Foreign exchange
Interest expense
Additions
Exstinguishment
Transfers to/(from)
At 31 March 2018
(0.1)
0.7
13.6
—
2.1
15.0
—
—
—
—
0.5
0.5
0.4
2.0
—
—
10.7
38.0
—
—
—
—
—
—
—
(0.1)
0.1
9.3
(2.7)
(2.1)
9.6
—
—
—
—
—
—
—
(0.1)
—
—
—
(0.5)
0.4
221.0
221.0
(215.8)
(226.5)
—
—
(7.3)
(3.0)
(5.1)
(5.3)
7.7
—
—
(10.7)
(3.9)
(0.6)
(7.5)
(3.1)
(20.6)
(5.2)
10.5
22.9
(2.7)
—
256.7
320.2
172
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
23. Borrowings (continued)
Reconciliation of movements in liabilities arising from financing (continued)
Deferred and contingent consideration balances in the balance sheet also include a total of £6.1m (FY17: £nil) in relation
to the purchase of the AA’s Home emergency services policy book. Cash flows associated with these balances will be
classified as investing when they are incurred because they do not include a significant financing component due to
the anticipated timing of the payment.
24. Financial instruments
The tables below set out the classification of financial instruments in the statement of financial position:
Financial assets
Loans and receivables
Available for sale investments
Financial liabilities
Fair value through profit and loss
Other financial liabilities at amortised cost
2018
£m
555.9
8.7
2018
£m
20.6
706.5
2017
£m
481.5
8.5
2017
£m
4.7
683.2
Principal financial instruments
The principal financial instruments used by the Group from which 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
• other investments
All principal financial instruments are stated at amortised cost, with the exception of contingent consideration which is
held at fair value and other investments which are held as available for sale.
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 equal to quoted and unadjusted market 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.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
173
The Group has no financial instruments with fair values that are determined by reference to Level 1 and there were no
transfers of assets or liabilities between levels during the period. There are no non-recurring fair value measurements.
The Group held the following Level 2 and 3 financial instruments at fair value:
Level 2
Assets classified as available for sale
Other investments (note 17)
Level 3
Contingent consideration at fair value through profit and loss
Current liabilities
Non-current liabilities
2018
£m
2017
£m
8.7
8.5
(15.9)
(4.7)
—
(4.7)
The movement in other investments versus the prior year relates to the foreign exchange movement as a result of the
weakening of Sterling versus the Euro.
Contingent consideration liabilities are calculated using forecasts of future performance of acquisitions discounted
to present value. Forecasts and discount rates are reviewed at least annually by the Directors as part of the valuation
process. If discount rates were higher/lower than the Group’s historical experience by 10%, the carrying amount would
decrease/increase by £0.1m. Contingent consideration relating to business combinations and asset purchases are the
only financial liabilities subsequently measured at fair value using Level 3 valuation techniques. No gain or loss for the
year relating to this contingent consideration has been recognised in the income statement (FY17: £nil). Additional
contingent consideration incurred during the year totalled £19.7m (FY17: £2.7m), extinguishment of contingent
consideration relating to associates totalled £2.7m (FY17: £nil), payments during the year amounted to £1.9m (FY17:
£0.2m) and unwind of interest amounted to £0.7m (FY17: £0.2m).
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 23, cash and cash equivalents in note 20
and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as
disclosed in notes 25, 26 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
Cash and cash equivalents
Bank and other loans
2018
£m
551.0
57.8
294.7
2017
£m
369.2
46.2
306.0
The amount disclosed for bank and other loans in the above table has been updated to include balances due within
one year, as the Directors believe that this presentation best reflects the Group’s approach to capital management.
174
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
24. Financial instruments (continued)
Capital risk management (continued)
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.
Financial risk management objectives
The Group principally utilises cash and cash equivalents and bank and other loans for the purpose of raising finance
for its 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
The Group’s financial assets and liabilities are disclosed in notes 20 to 23. The main risks arising from the Group’s
financial instruments are interest rate risk, credit risk and liquidity risk. Foreign currency risk is minimised by the treasury
borrowing approach set out in note 23.
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 rate risk 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 increase of 10% 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)
2018
10%
0.3
2017
10%
0.1
HomeServe plc Annual Report & Accounts 2018
Group financial statements
175
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 cash and cash equivalents, the Group’s exposure arises from the probability of
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.
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 23 are details of the undrawn facilities that are available to the Group to
reduce liquidity risk further, along with the weighted average interest rates paid on bank and other loans.
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.
176
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
24. Financial instruments (continued)
Liquidity risk (continued)
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. All cash flows are presented on an undiscounted basis.
2018
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
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
Bank and other
loans
£m
Trade payables
£m
Other creditors
£m
Deferred and
contingent
consideration
£m
Obligation
under put
option
£m
2.1
37.4
3.4
17.4
17.3
6.3
181.0
62.9
327.8
73.3
27.2
14.1
1.5
—
—
—
—
96.3
93.3
83.7
1.9
0.1
—
—
—
4.2
8.1
9.4
5.8
0.8
0.8
0.8
3.9
—
—
—
—
12.3
—
—
—
116.1
275.3
33.8
12.3
Bank and other
loans
£m
Trade payables
£m
Other creditors
£m
Deferred and
contingent
consideration
£m
Obligation
under put
option
£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
—
—
—
—
68.8
77.4
98.2
1.6
—
—
—
—
118.9
246.0
—
0.3
2.3
2.4
4.1
—
—
—
9.1
—
—
—
—
—
12.1
—
—
12.1
Total
£m
175.9
166.0
110.6
26.6
30.5
7.1
181.8
66.8
765.3
Total
£m
155.0
135.7
116.1
21.9
145.0
26.3
3.5
116.7
720.2
The revolving credit facility is drawn down and associated interest is settled on a monthly basis. The principal is
included in the above maturity profile tables when the facility is due to expire.
Forward contracts
On 21 November 2017 the Company entered into two forward contracts to purchase a combined total of US$73m on
11 December 2017. This transaction was executed to mitigate a specific US dollar currency translation risk identified by
the Board in relation to the acquisition of tranche one of the DPS policy book (see note 14).
HomeServe plc Annual Report & Accounts 2018
Group financial statements
177
Upon purchase, the forward contracts were placed in a cash flow hedge relationship to hedge a highly probable
future outflow of US dollars. Upon maturity, at 11 December 2017, the effective portion of fair value movement on the
derivative (a debit of £0.5m) was reclassified from the hedging reserve against the hedged item at its initial recognition
on 18 December 2017. Ineffectiveness recorded within finance costs in the income statement was £nil (FY17: £nil).
25. Share capital
Issued and fully paid 329,776,766 ordinary shares of 2 9/13p each (FY17: 310,689,548)
2018
£m
8.9
2017
£m
8.4
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, or
amounts, based on fair value of the consideration for acquired entities. The nominal value was 2 9/13p per share on all
issued and fully paid shares.
On 19 October 2017, the Company placed 15,243,903 new ordinary shares at a price of 820 pence per share, raising
gross proceeds of approximately £125.0m. The Placing Shares issued represented, in aggregate, approximately 4.9 per
cent of HomeServe’s issued ordinary share capital prior to the Placing. Transaction costs associated with the Placing of
£3.4m were accounted for as a deduction from equity (FY17: £nil).
During the period from 1 April 2017 to 31 March 2018 the Company issued a further 3,843,315 shares with a nominal
value of 2 9/13p creating share capital of £103,474 and share premium of £4,907,972. Of this total, 1,193,317 shares,
issued at 838 pence per share represented £10.0m of the fair value of the consideration for the acquisition of
Sherrington Mews Limited on 17 November 2017 (see note 16).
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.
26. Reserves
Share premium
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
(FY17: 2 9/13p).
Share incentive reserve
The share incentive reserve represents the cumulative charges to income under IFRS2 ‘Share-based payments’ on all
share options and schemes granted, net of share option exercises.
Currency translation reserve
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.
Available for sale reserve
The available for sale reserve represents the gain on revaluation of the Group’s available for sale investments as
disclosed in note 17.
178
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
26. Reserves (continued)
Other reserves
The movement on other reserves during the current and preceding years is set out in the table below:
Capital redemption
reserve
£m
Merger reserve
£m
Own shares reserve
£m
Hedging reserve
£m
Total other reserves
£m
At 1 April 2016
Issue of trust shares
At 1 April 2017
Increase in merger reserve
Other comprehensive income – fair
value loss on cash flow hedges
Basis adjustments on hedged items
At 31 March 2018
1.2
—
1.2
—
—
—
1.2
71.0
—
71.0
10.0
—
—
81.0
(0.1)
0.1
—
—
—
—
—
—
—
—
—
(0.5)
0.5
—
72.1
0.1
72.2
10.0
(0.5)
0.5
82.2
The capital redemption reserve arose on the redemption of 1.2m £1 redeemable preference shares on 1 July 2002.
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; and
• the issue on 17 November 2017 of 1.2m new shares relating to the acquisition of Checkatrade. The reserve reflects
the difference between the nominal value of shares at the date of issue of 2 9/13p and the share price immediately
preceding the issue of 838p per share.
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.
The hedging reserve records movements for effective cash flow hedges measured at fair value.
27. Non-controlling interests
Summarised financial information in respect of the non-controlling interest in Habitissimo S.L. is set out below. 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
2018
£m
0.8
3.5
(3.1)
—
1.2
0.4
2017
£m
1.1
3.2
(1.3)
(0.3)
2.7
0.8
HomeServe plc Annual Report & Accounts 2018
Group financial statements
179
28. 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 and plant and equipment and software
Gain on re-measurement of associate on acquisition of control
Decrease in other financial liabilities
Bargain purchase on acquisition
Profit on disposal of subsidiary
Operating cash flows before movements in working capital
(Increase)/decrease in inventories
Increase in receivables
Increase in payables
Movements in working capital
Cash generated by operations
Income taxes paid
Interest paid
Net cash inflow from operating activities
2018
£m
135.0
8.0
54.6
9.1
(1.0)
2.1
(0.9)
(0.3)
—
—
206.6
(1.4)
(60.7)
19.7
(42.4)
164.2
(27.2)
(7.5)
129.5
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
(21.1)
139.9
(20.0)
(6.7)
113.2
29. Share-based payments
During the year ended 31 March 2018, the Group had three (FY17: three) 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 2014 was dependent upon comparative Total Shareholder Return performance. For performance and
matching awards granted from 2015 onwards, 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 (FY17: nil)
as the scheme is now closed.
180
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
29. Share-based payments (continued)
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.
LTIP
SAYE
One plan
2018
Number
Outstanding at 1 April 2017
6,190,933
1,481,214
Granted
Forfeited
Exercised
Outstanding at 31 March 2018
Exercisable at 31 March 2018
Weighted average exercise price (£)
Outstanding at 1 April 2017
Granted
Forfeited
Exercised
Outstanding at 31 March 2018
Exercisable at 31 March 2018
Range of exercise price of options outstanding at 31 March 2018
£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
granted in 2018
1,600,485
(104,100)
(1,973,487)
5,713,831
19,454
—
(81,285)
(670,735)
729,194
76,220
—
—
—
—
—
—
—
—
—
2
£6.30
2.88
—
3.12
2.53
3.18
2.57
50,310
73,159
605,725
1
—
33,811
52,298
(9,544)
(1,448)
75,117
—
—
—
—
—
—
—
—
—
—
2
£7.56
HomeServe plc Annual Report & Accounts 2018
Group financial statements
181
LTIP
SAYE
One plan
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
£1.00 to £1.99
£2.00 to £2.99
£3.00 to £3.99
Weighted average remaining contractual life
6,345,953
2,100,447
2,181,315
(33,448)
(2,302,887)
—
(190,832)
(428,401)
6,190,933
1,481,214
25,026
45,676
—
—
—
—
—
—
—
—
—
2
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
Weighted average fair value of options granted in 2017
£4.81
The weighted average share price at the date of exercise for share options exercised during the year was £7.38 (FY17:
£5.28).
182
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
29. Share-based payments (continued)
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
22% – 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.
In FY18 the Group recognised an IFRS 2 charge of £9.1m (FY17: £7.4m) related to equity-settled share-based payment
transactions.
30. Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for all UK employees. The assets of the schemes
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 American employees.
The total cost charged to income of £4.7m (FY17: £3.8m) represents contributions payable to the schemes by the
Group at rates specified in the rules of the schemes. At 31 March 2018, contributions of £227,000 (FY17: £323,000) 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.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
183
The results of the actuarial valuation as at 31 March 2017 were updated to the accounting date by a qualified
independent actuary in accordance with IAS19. Remeasurements are recognised immediately through other
comprehensive income.
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
Valuation at
2018
2017
2.7%
2.4%
3.4%
2.4%
2.4%
29.5yrs
28.2yrs
2.6%
2.4%
3.4%
2.4%
2.4%
29.8yrs
27.9yrs
Pensions accounting entries are subject to judgement and volatility, as the majority of the assets are held within
instruments with quoted market prices in an active 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:
• a reasonably possible increase in the discount rate of 0.5% would lead to a reduction in the value placed on the
obligations of the Section of approximately £3.1m
• a reasonably possible increase in the inflation assumption rate of 0.5% would lead to an increase in the value placed
on the obligations of the Section of approximately £3.2m
• 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.
184
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
30. Retirement benefit schemes (continued)
Defined benefit scheme (continued)
Amounts recognised in the income statement in respect of the defined benefit scheme are as follows:
Current service cost
Interest income
Recognised in operating costs
2018
£m
0.2
—
0.2
2017
£m
0.2
(0.1)
0.1
The actual return on scheme assets was a gain of £0.3m (FY17: gain of £4.4m). 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
2018
£m
(33.3)
38.0
4.7
2017
£m
(35.2)
35.9
0.7
The net asset recognised in the balance sheet has not been limited as the Group believes that a refund of the surplus
assets would be available to it following the final payment to the last beneficiary of the pension scheme.
Movements in the present value of defined benefit obligations were as follows:
At 1 April
Employer’s part of the current service cost
Interest cost
Actuarial (gains) / losses due to:
Changes in financial assumptions
Changes in demographic assumptions
Experience adjustments on benefit obligations
Benefits paid
At 31 March
2018
£m
35.2
0.2
0.9
(1.2)
(0.9)
0.3
(1.2)
33.3
2017
£m
26.6
0.2
0.9
7.8
—
—
(0.3)
35.2
HomeServe plc Annual Report & Accounts 2018
Group financial statements
185
Movements in the fair value of scheme assets 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
2018
£m
35.9
0.9
0.3
2.1
(1.2)
38.0
2017
£m
28.7
1.0
4.4
2.1
(0.3)
35.9
The amount recognised outside the income statement in the statement of comprehensive income for FY18 is a gain
of £2.1m (FY17: loss of £3.4m). The cumulative amount recognised outside the income statement at 31 March 2018 is a
loss of £5.2m (FY17: loss of £7.3m).
The analysis of the fair value of scheme assets at the balance sheet date was as follows:
Equity instruments
Diversified growth funds
Liability driven investment funds
Other
2018
£m
14.6
3.4
15.5
4.5
38.0
2017
£m
14.0
3.3
14.4
4.2
35.9
The majority of the assets are held within instruments with quoted market prices in an active market.
The estimated amounts of contributions expected to be paid to the scheme during the forthcoming financial year is
£2.3m (FY18: actual £2.1m) plus any Pension Protection Fund levy payable.
186
HomeServe plc Annual Report & Accounts 2018
Group financial statements
Notes to financial statements
Year ended 31 March 2018
31. Operating lease commitments
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 12 months
In the second to fifth years inclusive
After five years
2018
£m
12.0
20.5
5.3
37.8
2017
£m
12.4
21.4
3.0
36.8
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.
32. Related party transactions
The Group consists of a parent Company, HomeServe plc, incorporated in the UK and a number of subsidiaries and
associates held directly and indirectly by HomeServe plc, which operate and are incorporated internationally. Note 46
to the Company’s separate financial statements lists details of the interests in subsidiaries and related undertakings.
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 46).
Transactions with associates
Sales to associates
2018
£m
0.5
2017
£m
—
Other related party transactions
Group companies purchased services of £0.3m (FY17: £0.3m) from Harpin Limited, £nil (FY17: £0.1m) from Pilot Services
(GB) Limited and £0.2m (FY17: £0.1m) from Flairjet Ltd, none of which are members of the Group. These companies
are related parties because they are controlled by or connected to Richard Harpin, Chief Executive of the Group and
Director of the parent company of the Group. Amounts outstanding to all of these companies on 31 March 2018
amounted to £0.2m (FY17: £0.1m).
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.
HomeServe plc Annual Report & Accounts 2018
Group financial statements
187
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
Except as noted above, there were no other transactions with Directors requiring disclosure.
2018
£m
6.2
0.4
7.2
13.8
2017
£m
5.9
0.3
5.6
11.8
188
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Company statement of comprehensive income
Year ended 31 March 2018
Profit for the year
Items that will not be reclassified subsequently to the profit and loss:
Actuarial gain/(loss) on defined benefit pension scheme
Deferred tax (charge)/credit relating to components of other comprehensive income
Total other comprehensive income/(expense)
Total comprehensive income for the year
Notes
30
2018
£m
2017
£m
49.1
33.4
2.1
(0.4)
1.7
(3.4)
0.6
(2.8)
50.8
30.6
HomeServe plc Annual Report & Accounts 2018
Company financial statements
189
Company balance sheet
31 March 2018
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
35
36
37
40
30
38
38
39
41
41
25
26
26
43
26
2018
£m
4.3
0.1
2017
£m
4.8
0.3
194.6
194.6
0.4
4.7
0.8
0.7
204.1
201.2
417.7
75.6
493.3
697.4
(11.6)
(4.0)
(37.6)
(53.2)
440.1
371.3
—
371.3
572.5
(12.5)
(5.4)
(40.1)
(58.0)
313.3
(255.2)
(255.2)
(308.4)
389.0
(268.2)
(268.2)
(326.2)
246.3
8.9
171.8
81.0
20.0
1.2
106.1
389.0
8.4
45.7
71.0
16.2
1.2
103.8
246.3
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 £49.1m (FY17: £33.4m).
The financial statements of HomeServe plc were approved by the Board of Directors and authorised for issue on
22 May 2018. They were signed on its behalf by:
David Bower
Chief Financial Officer
22 May 2018
Registered in England No. 2648297
190
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Company statement of changes in equity
Year ended 31 March 2018
Share
Capital
£m
Share
premium
account
£m
Merger
reserve
£m
Share
incentive
reserve
£m
Capital
redemption
eserve
£m
Retained
earning
£m
Total
equity
£m
Balance at 1 April 2017
8.4
45.7
71.0
16.2
1.2
103.8
246.3
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends paid (note 11)
—
—
—
—
—
—
—
—
—
—
—
—
Issue of share capital
0.5
126.1
10.0
Share-based payments
Share options exercised
Tax on exercised share options
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.1
(4.3)
—
—
—
—
—
—
—
—
—
49.1
1.7
50.8
49.1
1.7
50.8
(50.4)
(50.4)
—
—
1.0
0.9
136.6
8.1
(3.3)
0.9
Balance at 31 March 2018
8.9
171.8
81.0
20.0
1.2
106.1
389.0
Year ended 31 March 2017
Balance at 1 April 2016
Profit for the year
Other comprehensive income
Total comprehensive income
Dividends paid (note 11)
Share
Capital
£m
8.3
—
—
—
—
—
—
—
—
Issue of share capital
0.1
4.6
Share-based payments
Share options exercised
Tax on exercised share options
—
—
—
—
—
—
Share
premium
account
£m
Merger
reserve
£m
Share
incentive
reserve
£m
41.1
71.0
13.9
Capital
redemption
eserve
£m
1.2
Retained
earning
£m
Total
equity
£m
112.2
247.7
33.4
(2.8)
33.4
(2.8)
30.6
30.6
(40.3)
(40.3)
—
—
0.4
0.9
4.7
6.6
(3.9)
0.9
—
—
—
—
—
—
—
—
—
—
—
—
—
6.6
(4.3)
—
—
—
—
—
—
—
—
—
Balance at 31 March 2017
8.4
45.7
71.0
16.2
1.2
103.8
246.3
HomeServe plc Annual Report & Accounts 2018
Company financial statements
191
Company cash flow statement
Year ended 31 March 2018
Net cash outflow from operating activities
Investing activities
Interest received
Dividends received from subsidiary undertakings
Purchases of intangible assets
Purchases of tangible assets
Net cash from investing activities
Financing activities
Dividends paid
Proceeds on issue of share capital
Costs associated with issue of share capital
New bank and other loans raised
Costs associated with new bank and other loans raised
Reduction in bank and other loans
Net cash generated by financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign currency exchange rate changes
Notes
44
2018
£m
2017
£m
(57.5)
(145.8)
—
75.0
(2.2)
—
72.8
(50.4)
124.1
(0.8)
0.1
48.3
(3.7)
(0.2)
44.5
(40.3)
0.8
—
221.0
103.3
(3.1)
(226.1)
64.7
80.0
(4.4)
—
75.6
—
(29.8)
34.0
(67.3)
62.1
0.8
(4.4)
Cash and cash equivalents at end of year
38
‘Amounts received from subsidiary undertakings for share incentive schemes and other items’ previously disclosed in
investing activities are now disclosed in note 44.
192
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Notes to financial statements
Year ended 31 March 2018
Company only
The following notes 33 to 46 relate to the Company only position and performance for the year ended 31 March 2018.
33. 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 £49.1m (FY17: £33.4m).
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. None of the critical accounting judgements and key sources of estimation uncertainty
disclosed in note 3 apply to the Company.
34. Other information
Fees payable to the Company’s auditor for the audit of the Company’s
financial statements
Total audit fees
2018
£000
71
71
2017
£000
69
69
HomeServe plc Annual Report & Accounts 2018
Company financial statements
193
35. Other intangible assets
Cost
At 1 April 2016
Additions
At 1 April 2017
Additions
At 31 March 2018
Accumulated amortisation
At 1 April 2016
Charge for the year
At 1 April 2017
Charge for the year
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
Trademarks
& access
rights
£m
Software
£m
Total
intangibles
£m
1.8
—
1.8
—
1.8
0.6
0.1
0.7
0.1
0.8
1.0
1.1
2.3
3.1
5.4
1.9
7.3
0.2
1.5
1.7
2.3
4.0
3.3
3.7
4.1
3.1
7.2
1.9
9.1
0.8
1.6
2.4
2.4
4.8
4.3
4.8
194
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Notes to financial statements
Year ended 31 March 2018
36. Property, plant and equipment
Cost
At 1 April 2016
Additions
At 1 April 2017 and 31 March 2018
Accumulated depreciation
At 1 April 2016
Charge for the year
At 1 April 2017
Charge for the year
At 31 March 2018
Carrying amount
At 31 March 2018
At 31 March 2017
Leasehold
Improvements
£m
Computer
equipment
£m
Total
tangible
assets
£m
0.2
0.1
0.3
0.1
—
0.1
0.1
0.2
0.1
0.2
0.1
0.1
0.2
—
0.1
0.1
0.1
0.2
—
0.1
0.3
0.2
0.5
0.1
0.1
0.2
0.2
0.4
0.1
0.3
37. Subsidiaries
Details of the Company’s subsidiaries at 31 March 2018, including the name, address, country of incorporation and
proportion of ownership interest is given in note 46.
Cost and net book value
At 1 April 2016, 1 April 2017 and 31 March 2018
38. Financial assets
Trade and other receivables
Amounts receivable from Group companies
Other receivables
Prepayments and accrued income
£m
194.6
2017
£m
368.3
0.9
2.1
371.3
2018
£m
417.0
0.5
0.2
417.7
HomeServe plc Annual Report & Accounts 2018
Company financial statements
195
38. Financial assets (continued)
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
2018
£m
417.0
417.0
2017
£m
368.3
368.3
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 £75.6m (FY17: £nil) 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.
39. Financial liabilities
Trade and other payables
Trade creditors and accruals
Taxes and social security, excluding corporation tax
2018
£m
9.7
1.9
11.6
2017
£m
9.4
3.1
12.5
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The
average credit period taken for trade purchases is 11 days (FY17: 12 days).
The Directors consider that the carrying amount of trade payables approximates to their fair value.
196
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Notes to financial statements
Year ended 31 March 2018
40. Deferred tax
The following are the major deferred tax assets/(liabilities) recognised by the Company and movements thereon:
At 1 April 2016
Charge to income
Credit to comprehensive income
At 1 April 2017
(Charge)/credit to income
Charge to comprehensive income
At 31 March 2018
41. 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
Retirement benefit
obligations
£m
(0.4)
(0.4)
0.6
(0.2)
(0.3)
(0.4)
(0.9)
Share
schemes
£m
1.7
(0.2)
—
1.5
0.4
—
1.9
Timing
differences
£m
(0.2)
(0.3)
—
(0.5)
(0.1)
—
(0.6)
2018
£m
—
37.6
37.6
255.2
255.2
292.8
Total
£m
1.1
(0.9)
0.6
0.8
—
(0.4)
0.4
2017
£m
4.4
35.7
40.1
268.2
268.2
308.3
The bank overdraft of £nil (FY17: £4.4m) is part of the Group’s cash pooling arrangements. 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 £37.6m (FY17: £35.7m) include the short term loan and £10.9m of the €37.5m
amortising loan. The principal features of these loans are set out in note 23.
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 €37.5m amortising loan. The principal features of these loans are set out in note 23.
The weighted average of interest rates paid are set out in note 23.
HomeServe plc Annual Report & Accounts 2018
Company financial statements
197
Reconciliation of movements in liabilities arising from financing
At 1 April 2017
Proceeds from new loans and borrowings
Repayment of borrowings
Repayment of overdraft
Interest paid
Capitalised borrowing costs
Total changes from cash flows
Other changes
Foreign exchange
Interest expense
Transfers to/(from)
At 31 March 2018
Current liabilities
Bank and other loans
£m
Non-current liabilities
Bank and other loans
£m
40.1
—
(10.7)
(4.4)
(0.2)
(0.1)
(15.4)
0.2
2.0
10.7
37.6
268.2
221.0
(215.4)
—
(6.8)
(3.0)
(4.2)
(5.3)
7.2
(10.7)
255.2
42. Financial instruments
The tables below set out the classification of financial instruments in the statement of financial position:
Financial assets
Loans and receivables
Financial liabilities
Other financial liabilities at amortised cost
2018
£m
493.1
2018
£m
302.5
Total
£m
308.3
221.0
(226.1)
(4.4)
(7.0)
(3.1)
(19.6)
(5.1)
9.2
—
292.8
2017
£m
369.2
2017
£m
317.7
198
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Notes to financial statements
Year ended 31 March 2018
42. Financial instruments (continued)
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 41, cash and cash equivalents disclosed in note 38 and equity
comprising issued capital, reserves and retained earnings as disclosed in this note and notes 25, 26 and the Company
Statement of Changes in Equity.
The table below presents quantitative data for the components the Company manages as capital:
Shareholders’ funds
Cash and cash equivalents
Bank and other loans
2018
£m
389.0
75.6
292.8
2017
£m
246.3
—
308.3
The amount disclosed for bank and other loans in the above table has been updated to include balances due within
one year, as the Directors believe that this presentation best reflects the Company’s approach to capital management.
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.
HomeServe plc Annual Report & Accounts 2018
Company financial statements
199
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. The Company’s exposure to interest rate risk is closely aligned to that of the Group, more details
of which can be found in note 24.
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 set out in the table below. The prior year asset amounts have been restated to better reflect the foreign
assets held by the company.
Euro
US dollar
Assets
Liabilities
2018
£m
—
2017
£m
16.7
122.1
131.4
2018
£m
(33.1)
(48.4)
2017
£m
(43.0)
(57.0)
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 after tax and equity. In the
prior year the amounts disclosed were for profit before tax, however the Directors’ opinion is that profit after tax is a
better representation of the sensitivity.
Increase in £:$ exchange rate:
Effect on profit after tax (£m)
Effect on equity (£m)
Increase in £:€ exchange rate:
Effect on profit after tax (£m)
Effect on equity (£m)
2018
10%
(5.4)
(5.4)
10%
2.4
2.4
2017
10%
(5.4)
(5.4)
10%
1.9
1.9
200
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Notes to financial statements
Year ended 31 March 2018
42. Financial instruments (continued)
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 23 are details of the undrawn facilities that are available to the
Company and the Group to further reduce liquidity risk.
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. All cash flows are presented on an undiscounted basis.
2018
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
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
Bank and
other loans
£m
Trade, other and group
payables
£m
2.1
37.1
3.1
17.2
17.1
6.1
180.8
62.6
326.1
2.1
6.2
1.4
—
—
—
—
—
9.7
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
Total
£m
4.2
43.3
4.5
17.2
17.1
6.1
180.8
62.6
335.8
Total
£m
3.8
42.6
4.2
16.6
140.7
14.0
3.3
115.9
341.1
HomeServe plc Annual Report & Accounts 2018
Company financial statements
201
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)
43. Share incentive reserve
Balance at 1 April 2016
Share-based payment charges in the year
Share options exercised in year
Balance at 1 April 2017
Share-based payment charges in the year
Share options exercised in year
Balance at 31 March 2018
2018
10%
0.3
2017
10%
0.2
£m
13.9
6.6
(4.3)
16.2
8.1
(4.3)
20.0
202
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Notes to financial statements
Year ended 31 March 2018
44. Notes to the cash flow statement
Operating loss
Adjustments for:
Amortisation of intangible assets
Depreciation of property, plant and equipment
Amounts received from subsidiary undertakings for share incentive schemes
and other items
Share-based payment expense
Operating cash flows before movements in working capital
Increase in receivables
Decrease in payables
Movements in working capital
Cash used in operations
Income taxes received
Interest paid
Net cash outflow from operating activities
2018
£m
(21.5)
2.4
0.2
16.1
3.0
0.2
(53.8)
(2.1)
(55.9)
(55.7)
5.2
(7.0)
(57.5)
2017
£m
(20.2)
1.6
0.1
4.4
3.1
(11.0)
(112.6)
(17.4)
(130.0)
(141.0)
1.5
(6.3)
(145.8)
HomeServe plc Annual Report & Accounts 2018
Company financial statements
203
45. Share-based payments
During the year ended 31 March 2018, the Company had three (FY17: three) share-based payment arrangements, which
are described in note 29.
LTIP
SAYE
One Plan
2018
Number
Outstanding at 1 April 2017
2,473,627
76,368
549,657
5,846
—
—
(34,295)
(2,686)
(877,657)
(49,433)
2,117,178
24,249
5,390
—
3,461
Granted
Transfer
Forfeited
Exercised
Outstanding at 31 March 2018
Exercisable at 31 March 2018
Weighted average exercise price (£)
Outstanding at 1 April 2017
Transfer
Forfeited
Exercised
Outstanding at 31 March 2018
Exercisable at 31 March 2018
Range of exercise price of options outstanding at 31 March 2018
£2.00 to £2.99
£3.00 to £3.99
Weighted average remaining contractual life
Weighted average fair value of options granted in 2018
£6.70
—
—
—
—
—
—
—
—
2
2.82
—
3.35
2.58
3.24
2.60
3,461
20,788
1
—
2,302
3,572
170
(93)
(561)
—
—
—
—
—
—
—
—
—
2
£7.56
204
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Notes to financial statements
Year ended 31 March 2018
45. Share-based payments (continued)
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
£1.00 to £1.99
£2.00 to £2.99
£3.00 to £3.99
Weighted average remaining contractual life
LTIP
SAYE
One Plan
3,105,096
108,649
778,611
—
—
2,149
(7,471)
(1,804)
(1,402,609)
(32,626)
—
2,376
—
(74)
—
2,473,627
76,368
2,302
—
1,398
—
—
—
—
—
—
—
—
—
—
3
£5.95
—
—
—
—
—
—
—
—
—
2
2.53
3.35
2.60
1.91
2.82
1.92
1,398
51,496
23,474
2
—
Weighted average fair value of options granted in 2017
£4.83
The weighted average share price at the date of exercise for share options exercised during the year was £7.46
(FY17: £5.22).
The estimated fair values are calculated by applying a Black-Scholes option pricing model for One Plan and SAYE and
Monte Carlo simulations for the LTIP. The assumptions used in the models are set out in note 29.
In FY18 the Company recognised an IFRS 2 charge of £3.0m (FY17: £3.1m) related to equity-settled share-based
payment transactions.
HomeServe plc Annual Report & Accounts 2018
Company financial statements
205
46. Related party transactions
Group companies purchased services of £0.3m (FY17: £0.3m) from Harpin Limited, £nil (FY17:£0.1m) from Pilot Services
(GB) Limited and £0.2m (FY17:£0.1m) from Flairjet Limited, none of which are members of the Group. These companies
are related parties because they are controlled by or connected to Richard Harpin, Chief Executive of the Group and
Director of the parent company of the Group. Amounts outstanding to all of these companies on 31 March 2018
amounted to £0.2m (FY17:£0.1m).
The Company also provided goods of £nil (FY17: £nil), provided services of £5.6m (FY17: £5.5m), lent monies to of
£54.5m (FY17: £44.5m) and borrowed monies from of £nil (FY17: £10.6m) with subsidiary companies of the Group.
Amounts due to subsidiary companies total £nil (FY17: £nil). Amounts owed by subsidiary companies total £417.0m
(FY17: £368.3m). The Company provided services of £0.3m (FY17: £nil) to associates during the year. There were no
other transactions with associates or amounts outstanding in either year.
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, 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
Except as noted above there were no other transactions with Directors requiring disclosure.
2018
£m
3.7
0.3
3.7
7.7
2017
£m
3.0
0.2
3.1
6.3
206
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Notes to financial statements
Year ended 31 March 2018
46. Related party transactions (continued)
Interests held in related companies
All interests in the companies listed below are owned by HomeServe Plc and all interests held are in the ordinary share
capital. All companies operate principally in their country of incorporation.
Name of legal entity
Activity
Directly held entities of HomeServe plc:
Place of
incorporation
ownership (or
registration)
and operation
Proportion
of voting
interest
and
power %
Registered address
HomeServe Enterprises Limited
Trading
England
100
Cable Drive, Walsall, WS2 7BN
Indirectly held entities of HomeServe plc:
Holding Companies
HomeServe Assistance Limited
Trading
England
HomeServe International Limited
Trading
England
HomeServe GB Limited (No. 5536994) 1
Dormant
England
100
100
100
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
HomeServe France Holding SAS
Trading
France
100
9, rue Anna Marly, CS 80510, 69007 LYON Cedex 7
HomeServe Energy Services SAS (formerly PXB Invest
SAS) 5
Trading
France
100
9, rue Anna Marly, CS 80510, 69007 LYON Cedex 7
HomeServe USA Holdings Corp
Trading
USA
HomeServe Beteiligungs GmbH
Trading
Germany
Sherrington Mews Limited 4
Trading
England
UK & Ireland
HomeServe Membership Limited
Trading
England
HomeServe Servowarm Limited
Trading
England
HomeServe At Home Limited (No. 4186398) 1
Dormant
England
Vetted Limited 4
Trading
England
Checkatrade National Limited 4
Trading
England
Checkatrade.com Limited 4
Trading
England
Checkaprofessional.com Limited 4
Trading
England
Checkagroup Holdings Limited 4
Trading
England
Checkatrade Limited 4
Trading
England
Checkatrade Installers Limited 4
Trading
England
247999 Limited (No. 7183505) 1
Dormant
England
Home Energy Services Limited
Trading
England
HomeServe Manufacturer Warranties Limited
(No. 4079068) 1
Dormant
England
HomeServe Heating Services Limited
Trading
England
HomeServe Trustees Limited
Trading
England
HomeServe France Limited
Trading
England
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
601 Merritt 7, Norwalk, CT 06851
Rheinstr. 30-32, 65185, Wiesbaden
5-6 Sherrington Mews, Ellis Square,
Selsey, W. Sussex, PO20 0FJ
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
5-6 Sherrington Mews, Ellis Square,
Selsey, W. Sussex, PO20 0FJ
5-6 Sherrington Mews, Ellis Square,
Selsey, W. Sussex, PO20 0FJ
5-6 Sherrington Mews, Ellis Square,
Selsey, W. Sussex, PO20 0FJ
5-6 Sherrington Mews, Ellis Square,
Selsey, W. Sussex, PO20 0FJ
5-6 Sherrington Mews, Ellis Square,
Selsey, W. Sussex, PO20 0FJ
5-6 Sherrington Mews, Ellis Square,
Selsey, W. Sussex, PO20 0FJ
5-6 Sherrington Mews, Ellis Square,
Selsey, W. Sussex, PO20 0FJ
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
HomeServe plc Annual Report & Accounts 2018
Company financial statements
207
Name of legal entity
Activity
Place of
incorporation
ownership (or
registration)
and operation
Proportion
of voting
interest
and
power %
HomeServe USA Limited
Trading
England
HomeServe Europe Limited
HomeServe America Limited
Non-Trading
Non-Trading
Ireland
Ireland
HomeServe Gas Limited (No. 2248585) 1
Dormant
England
Home Service (GB) Limited (No. 3546370) 1
Dormant
England
Fastfix Plumbing and Heating Limited (No. 3120932) 1
Dormant
England
HomeServe Care Solutions Limited (No. 3228902) 1
Dormant
England
HomeServe Warranties Limited (No. 3156861) 1
Dormant
England
Multimaster Limited (No. 3670180) 1
Dormant
England
AskDad Limited
HomeServe Labs Limited
Trading
England
Trading
England
Help-Link UK Limited (No. 03527087) 5
Trading
England
Energy Insurance Services Limited (No. 04792484) 6
Trading
England
100
100
100
100
100
100
100
100
100
100
100
100
100
Registered address
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
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
3310 Century Way, Thorpe Park,
Cotton, Leeds, LS15 8ZB
Cable Drive, Walsall, WS2 7BN
Trading
France
100
9, rue Anna Marly, CS 80510, 69007 LYON Cedex 7
Continental Europe
HomeServe SAS
Deltatherm (SARL) 7
Electro Gaz Service SA 7
Electro Maintenance Chauffage (SARL) 7
Trading
Trading
Trading
France
France
France
Ad Services Gaz SAS 7
Trading
France
HomeServe Assistencia Spain SAU 2
HomeServe Spain SLU 2
Seguragua SAU 2
Habitissimo S.L. 2
Bit Advanced Marketing S.L. 2
Assistenza Casa Srl 3
North America
HomeServe USA Corp
HomeServe USA Repair Management Corp
HomeServe USA Repair Management (Florida)
Leakguard Inc
Leakguard Repair Services Inc
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Dormant
Dormant
HomeServe USA Repair Management Corp (Iowa)
Dormant
Spain
Spain
Spain
Spain
Spain
Italy
USA
USA
USA
USA
USA
USA
100
100
100
100
100
100
100
70
70
49
100
100
100
100
100
100
17, rue Bavastro, 06300, NICE
17, rue Bavastro, 06300, NICE
17, rue Bavastro, 06300, NICE
2040 Chemin de Saint-Bernard Lotissment Fogliani,
06220, VALLAURIS
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 –
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 Milan
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
208
HomeServe plc Annual Report & Accounts 2018
Company financial statements
Notes to financial statements
Year ended 31 March 2018
Name of legal entity
Activity
HomeServe USA Repair Management Corp (California)
Dormant
HomeServe USA Repair Management Corp (Virginia)
Dormant
HomeServe USA Repair Management Corp (Wisconsin)
Trading
HomeServe USA Energy Services LLC
Trading
HomeServe USA Energy Services (New England ) LLC
Trading
LI PH Enterprises LLC
NYC PH Enterprises LLC
SJESP Plumbing Services LLC
USP Holding 1 LLC
USP Holdings 2 LLC
Utility Service Partners Inc.
Utility Service Partners Private Label, Inc
USP Water Heater Rentals LLC
Utility Service Partners Private Label of Virginia, Inc
Columbia Service Partners Inc
Service Line Warranties of America, Inc - Delaware.
Service Line Warranties of America, Inc- California.
Service Line Warranties of Canada Holdings, Inc.
Columbia Service Partners of Pennsylvania, Inc
Columbia Service Partners of Kentucky, Inc.
Columbia Service Partners of Ohio, Inc.
Columbia Service Partners of West Virginia, Inc.
Service Line Warranties of Canada Inc.
Australia
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Place of
incorporation
ownership (or
registration)
and operation
Proportion
of voting
interest
and
power %
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
100
100
100
100
100
49
49
90
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Registered address
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
420 N. 2nd Road, Unit 1, Hammonton NJ 08037
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
Home Service Direct Pty Limited
Non-trading
Austrailia
100
50 Queen Street, Melbourne, VIC 3000
1 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.
2 These companies have a 31 December year end due to the statutory reporting requirements in Spain.
3 These companies have a 31 December year end due to the statutory reporting requirements in Italy.
4 During the year the Group increased its investment in Sherrington Mews Limited, the holding company of the ‘Checkatrade’ Group, from 40% to 100%.
5 On 2 August 2017 HomeServe Assistance Limited, a Group company, acquired 100% of the issued share capital and obtained control of Help-Link UK Limited (Help-Link).
6 On 30 November 2017 HomeServe Membership Limited, a Group company, acquired 100% of the issued share capital of Energy Insurance Services Limited (EISL)
7 On 29 December 2017 HomeServe France Holdings SAS, a Group company, acquired 100% of PXB Invest SAS, the holding company of the Electro Gaz Group
HomeServe plc Annual Report & Accounts 2018
Glossary
209
Glossary
HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and
its individual segments. APMs used in this annual report address profitability, leverage and liquidity and together with
operational KPIs give an indication of the current health and future prospects of the Group.
Definitions of APMs and the rationale for their usage are included below with a reconciliation, where applicable, back to
the equivalent statutory measure.
Profitability
The Group uses adjusted operating profit, EBITDA, adjusted profit before tax and adjusted earnings per share as its
primary profit performance measures. These are non-IFRS measures which exclude the impact of the amortisation of
acquisition intangible assets. 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.
In FY18 the adjusted earnings per share measure also removes the one-off effect of a deferred tax benefit arising as
a result of US and French tax reform. This is considered a more accurate indicator of the underlying operational and
financial performance and a better guide to future performance.
Total Group
£million
Operating profit (statutory)
Amortisation of acquisition intangibles
Adjusted operating profit
Operating profit (statutory)
Depreciation
Amortisation of other intangibles
Amortisation of acquisition intangibles
EBITDA
Profit before tax (statutory)
Amortisation of acquisition intangibles
Adjusted profit before tax
Pence per share
Earnings per share (statutory)
Amortisation of acquisition intangibles
One-off deferred tax impact of US & French tax reform
Adjusted earnings per share
2018
135.0
18.4
153.4
135.0
8.0
36.2
18.4
197.6
123.3
18.4
141.7
30.2
3.9
(0.5)
33.6
2017
104.7
14.1
118.8
104.7
6.9
28.5
14.1
154.2
98.3
14.1
112.4
24.0
3.0
—
27.0
210
HomeServe plc Annual Report & Accounts 2018
Glossary
Glossary
Segmental
2018
£million
Revenue
UK
North America
365.6
282.1
France
100.0
Spain
New Markets
141.3
18.6
Statutory operating profit/(loss)
Operating Margin %
Add back
Amortisation of Acquisition Intangibles
Effect on operating margin %
Adjusted operating profit/(loss)
Adjusted operating margin %
2017
£million
Revenue
Statutory operating profit/(loss)
Operating Margin %
Add back
Amortisation of Acquisition Intangibles
Effect on operating margin %
Adjusted operating profit/(loss)
Adjusted operating margin %
59.3
16%
1.8
1%
61.1
17%
40.5
14%
8.1
3%
48.6
17%
UK
North America
326.5
227.8
62.0
19%
1.2
—
63.2
19%
14.7
6%
6.5
3%
21.2
9%
25.1
25%
6.4
7%
31.5
32%
France
91.1
21.1
23%
6.0
7%
27.1
30%
16.5
12%
0.1
—
16.6
12%
(6.4)
—
2.0
—
(4.4)
—
Spain
New Markets
130.2
16.6
13.0
10%
0.3
—
13.3
10%
(6.1)
—
0.1
—
(6.0)
—
HomeServe plc Annual Report & Accounts 2018
Glossary
211
2018
Local currency million
Revenue
Statutory operating profit/(loss)
Operating Margin %
Add back
Amortisation of Acquisition Intangibles
Effect on operating margin %
Adjusted operating profit/(loss)
Adjusted operating margin %
2017
Local currency million
Revenue
Statutory operating profit/(loss)
Operating Margin %
Add back
Amortisation of Acquisition Intangibles
Effect on operating margin %
Adjusted operating profit/(loss)
Adjusted operating margin %
UK
£
North America
$
365.6
375.2
59.3
16%
1.8
1%
61.1
17%
53.6
14%
10.8
3%
64.4
17%
UK
£
North America
$
326.5
293.0
62.0
19%
1.2
-
63.2
19%
17.8
6%
8.4
3%
26.2
9%
France
€
113.2
28.5
25%
7.2
7%
35.7
32%
France
€
107.4
24.4
23%
7.1
7%
31.5
30%
Spain
€
160.1
18.8
12%
0.1
—
18.9
12%
Spain
€
154.3
15.4
10%
0.4
—
15.8
10%
New Markets
£
18.6
(6.4)
—
2.0
—
(4.4)
—
New Markets
£
16.6
(6.1)
—
0.1
—
(6.0)
—
212
HomeServe plc Annual Report & Accounts 2018
Glossary
Glossary
Leverage
In FY18 the Group targeted net debt in the range of 1.0 to 1.5x EBITDA measured at the year end. Following the growth
of the Group since the last review of the capital structure policy, the Board has determined that the Group can now
support a leverage policy range of 1.0 to 2.0x Net Debt: EBITDA at March year ends.
The range reflects HomeServe’s relatively low risk appetite. Due to the seasonality of the business and depending
on M&A opportunities, HomeServe is able to operate outside 1.0 to 2.0x for periods of time but with a highly cash
generative business model HomeServe will seek to return to its target range. The leverage ratio is also important as it
factors into the Group’s banking covenants and the rolling 12 month rate at the half year influences the forward interest
rates payable on the Group’s Revolving Credit Facility.
Certain of the Group’s segmental bonus measures relate to net cash. Net cash is defined and calculated in the same
way as net debt but returns a positive closing balance.
Note 23 provides a full reconciliation of the movements in liabilities arising from borrowings and finance leases. The
closing balances at 31 March were as follows:
£million
2018
2017
Current liabilities from borrowings and finance leases
Finance leases
Bank and other loans
Non-current liabilities from borrowings and finance leases
Finance leases
Bank and other loans
Total liabilities from borrowings and finance leases
Cash and cash equivalents
Net Debt
EBITDA
Leverage
0.5
38.0
38.5
0.4
256.7
257.1
295.6
(57.8)
237.8
197.6
1.2x
0.6
35.9
36.5
1.0
270.1
271.1
307.6
(46.2)
261.4
154.2
1.7x
HomeServe plc Annual Report & Accounts 2018
Glossary
213
Liquidity
Cash conversion % is defined as cash generated by operations divided by adjusted operating profit. The measure
demonstrates the cash generative nature of the ordinary trading operations of HomeServe’s business model and the
ability to produce positive cashflows that can be invested for future growth initiatives or in capital projects to maintain
customer service initiatives, digital enhancements or efficiencies that benefit the long-term health of the business.
Free cash flow is stated after capital expenditure, tax and interest obligations and is an indication of the strength of the
business to generate funds to meet its liabilities and repay borrowings. It also shows the funds that might be made
available to pursue M&A activities and to pay dividends.
£million
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 – Ordinary
Capital expenditure – Partner Payments
Repayment of finance leases
Free cash flow
£million
Adjusted operating profit
Cash generated by operations
Cash Conversion
2018
153.4
(18.4)
135.0
62.6
9.0
(42.4)
164.2
(10.5)
(27.2)
(54.6)
(16.5)
(0.6)
54.8
2018
153.4
164.2
107%
2017
118.8
(14.1)
104.7
49.5
6.8
(21.1)
139.9
(6.4)
(20.0)
(44.4)
(14.1)
(1.0)
54.0
2017
118.8
139.9
118%
214
HomeServe plc Annual Report & Accounts 2018
Glossary
Glossary
KPIs
The Group uses a number of operational key performance indicators that provide insight into past performance and are
an indicator of the future prospects of the Group as a whole and its individual segments.
Affinity partner households tracks the growth in our addressable market delivered through existing and new
partnerships with utilities and municipals.
Customers tracks our success in converting our addressable market into revenue-generating customers, by delivering
great products and service.
Retention rate reflects our ability to deliver fit-for-purpose product and great service to our customers.
Policies illustrates our ability to grow our product line through customer focus and innovation.
Income per customer measures our ability to design and market increasingly valuable products, and sell them
efficiently. Due to currency differences, we track this measure at a geographic level. Income per customer is calculated
as the last 12 months’ net policy income divided by customers.
Tradespeople are our customers in our Home Experts business. Growing our network of vetted and reviewed
tradespeople will enable us to meet customer needs and grow our business.
Adjusted profit before tax is our key profit measure, by which we monitor business growth, efficiency and
sustainability.
Net debt to EBITDA is our key cash ratio, which we use to monitor usage of our financial resources within agreed risk
parameters.
HomeServe plc Annual Report & Accounts 2018
Five year summary
215
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
2018
£m
2017
£m
2016
£m
2015
£m
2014
£m
357.7
282.1
100.0
141.3
18.6
899.7
61.1
48.6
31.5
16.6
(4.4)
153.4
(18.4)
—
135.0
(11.7)
123.3
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
286.0
152.6
77.4
97.5
19.7
279.6
125.3
74.9
90.9
13.5
283.1
110.9
77.3
82.6
14.4
633.2
584.2
568.3
58.0
12.1
23.2
9.9
(5.9)
97.3
56.4
6.4
23.4
7.5
(5.9)
87.8
(10.4)
(10.4)
—
86.9
(4.3)
82.6
1.7
79.1
(2.4)
76.7
53.4
12.9
22.3
4.0
(5.7)
86.9
(13.0)
(46.7)
27.2
(2.8)
24.4
216
HomeServe plc Annual Report & Accounts 2018
Shareholder information
Shareholder information
Financial calendar
2018
20 July
2 August
20 November
2019
January
May
June
Annual General Meeting
Final dividend for the year ended 31 March 2018
Interim results for the six months ending 30 September 2018
Interim dividend for the year ending 31 March 2019
Preliminary results for the year ending 31 March 2019
2019 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-uk.computershare.com/investor
Website
The HomeServe website at www.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.