2019
ANNUAL REPORT & ACCOUNTS
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Highlights
Customers
8.4m
(FY18: 8.4m)
Retention rate
82%
(FY18: 82%)
Revenue
12%
£1,003.6m
(FY18: £899.7m)
Statutory operating profit
13%
£152.6m
(FY18: £135.0m)
Basic earnings per share
8%
32.7p
(FY18: 30.2p)
Ordinary dividend per share
12%
21.4p
(FY18: 19.1p)
The home is at the centre of our customers’ lives and HomeServe’s purpose is to
make home repairs and improvements easy. Easy for homeowners and easy for trades.
Over 8m Membership customers around the world already place their trust in HomeServe and
our growing Home Experts, HVAC and Smart Home businesses are providing customers with more
choice to buy with confidence when it comes to fixing, maintaining and improving their home.
Our vision is to be the world’s most trusted provider
of home repairs and improvements.
CONTENTS
Strategic report
Chief Executive’s review
Chairman’s statement
At a glance
Strategic priorities
2
4
8
10 Market overview
12 Our business model
14
16 Our KPIs
20
25
33 Operating review
44
48
Viability statement
Financial review
Principal risks and uncertainties
Resources, relationships and responsibilities
Governance
50 Corporate governance statement
79 Directors’ remuneration report
103 Directors’ report
108
Independent Auditor’s report
Financial Statements
118 Group financial statements
173 Company financial statements
193 Glossary
To view this report online, go to
homeserveplc.com
HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. These are used in headline financial results
and throughout the Strategic report. APMs are non-GAAP measures which address profitability, leverage and liquidity and together with operational KPIs give an indication of the current
health and future prospects of the Group. Definitions of APMs and the rationale for their usage are included in the Glossary at the end of this report with reconciliations, where applicable,
back to the equivalent statutory measure.
HomeServe plc Annual Report & Accounts 2019 | 1
At a glance
HomeServe is
developing four global
business lines...
Membership
Subscription-based home assistance for
homeowners covering plumbing, heating, electrical,
locks, glazing, pest control and technology.
HVAC
A complete solution for the installation, repair,
maintenance and replacement of heating,
ventilation and air conditioning.
Home Experts
On demand, online marketplace to find checked,
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.
Membership is the Group’s main near term growth
driver. It is the largest and most well established
business line and today generates the majority of the
Group’s profits. We are investing in our exciting growth
plans for HVAC, Home Experts and Smart Home and
expect them to support Membership in delivering
growth in the medium to long-term.
Achievements
Strong profit growth across the Group with North America now HomeServe’s largest business
Membership businesses performing strongly – profits increased in all of UK, North America,
France and Spain
Very good progress in Checkatrade and extra investment to drive the Home Experts opportunity
Established a presence in Japan via a joint venture with Mitsubishi Corporation.
2 | HomeServe plc Annual Report & Accounts 2019
Our primary reporting segmentation
is by geography
In FY19 we have broken out Home Experts as its own segment, reflecting the size of the
opportunity and the way we allocate resources and review performance.
Most countries are developing two or more of our global business lines with only our
newest country, Japan, focused solely on Membership.
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UNITED KINGDOM page 34
SPAIN page 40
Well established Membership business in our most mature
market. We see growth by deepening our customer relationships
and fulfilling our efficiency plans. There are also some interesting
new partner options in the retail energy sector.
Spain’s leading claims business working with a number of B2B
bancassurer partners and a Membership business with a current
focus on establishing new partnerships.
NORTH AMERICA page 36
HOME EXPERTS page 42
Our fast growing Membership business in North America is
driving the Group’s near term growth and we have further
ambitious growth plans for the future. North America also
has the Group’s most established HVAC business and in 2019
acquired three businesses to support our buy and build strategy.
A significant medium to long-term opportunity – developing our
preferred model with Checkatrade in the UK. Recently launched
in France and Habitissimo is the market leader in Spain. Guided
annual investment of c.£8m to £12m.
FRANCE page 38
NEW MARKETS page 43
A well established business with the highest retention rates and
margins in the Group. We continue to explore growth options
from new partner signings and recent HVAC acquisitions.
New business development and innovation activities including
our Italian associate with Edison Energia and our most recent
joint venture, with Mitsubishi Corporation in Japan.
HomeServe plc Annual Report & Accounts 2019 | 3
Chairman’s statement
Chairman’s
statement
HomeServe celebrated its 25th anniversary
during this financial year, and I would like
to begin my report by congratulating our
founder Richard Harpin, and everyone at
HomeServe, for being as focused as ever
on delivering our vision of being the world’s
most trusted provider of home repairs and
improvements. From taking the worry out of
home repairs to making home repairs and
improvements easy, our reason for being
in business has expanded, but remained
essentially the same.
HomeServe delivered yet another strong
year, with revenue passing £1bn for the
first time and statutory profit before tax
up 13% to £139.5m. North America is now
the Group’s largest operating unit, with
growth there in partnerships, customers and
profitability continuing to be the key driver of
HomeServe’s progress.
Our core Membership business delivered
strong results across the globe, with an
aggregate 17% growth in operating profit.
After the creation of our four global business
lines last year, Tom Rusin’s influence at
Board level as Global CEO, Membership,
has precipitated greater collaboration
and sharing of best practice. This global
approach has proved particularly beneficial
as we start to grow our Heating, Ventilation
and Air Conditioning (HVAC) installations
business, where we have made acquisitions
in each of our main territories this year to
realise our buy and build HVAC strategy.
The Board agenda focused heavily this
year on Home Experts, our most exciting
longer term opportunity, which expands
HomeServe’s reach beyond its traditional
Membership market into online, on demand
home repairs and improvements. The
Board is encouraged by the experience
and diversity of the management team we
now have in place at Checkatrade, under
the leadership of Mike Fairman, who joined
HomeServe after building challenger
mobile phone brand giffgaff from inside
Telefonica. With a strong management team,
differentiated product and strong business
model, we have all the key building blocks
in place to build a market leading Home
Experts proposition.
HomeServe’s business model is based on
five key sources of value – partnerships,
marketing expertise, customer service,
local networks and financial resources. A
key part of the Board’s role is to ensure that
we deploy these areas of expertise across
the Group to maximise value creation. In
the course of this year, we have focused
on developing partnerships to support
our Smart Home business and to further
our international expansion ambitions. I
was delighted to visit Japan in February
2019 to sign a joint venture with Mitsubishi
Corporation.
People
There have been significant changes in
personnel across the group in the past year,
which have been overseen carefully by the
Board. Martin Bennett, CEO, HomeServe UK,
and Johnathan Ford, COO, both departed
in the course of the year with our best
wishes. The composition of the Executive
Committee has now changed to introduce
greater diversity and stronger representation
from operational management.
There were also changes amongst our
Non-Executive Directors. We said goodbye
to Chris Havemann, who departs with our
thanks, and welcomed Olivier Grémillon,
who brings extensive experience of growing
digital platform businesses which is directly
relevant to our plans for Home Experts.
HomeServe has a vibrant corporate culture
based on four global values, which I see
being put into action at every Board meeting
and every time I visit a HomeServe office.
• 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.
By living these values, we have built our
business on strong foundations. What unites
us as we grow is a strong sense of purpose
– to make home repairs and improvements
easy, for our trades and for our customers.
I want to thank everyone at HomeServe
for their continuing commitment to our
success, and to all of our stakeholders for
their continuing support.
4 | HomeServe plc Annual Report & Accounts 2019
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“What unites us as we
grow is a strong sense of
purpose – to make home
repairs and improvements
easy, for our trades and for
our customers.”
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 16.2p per share, bringing the
total ordinary dividend for the year to 21.4p
per share, an increase of 12%. The proposed
dividend is 1.75x covered by adjusted
earnings per share. The Board operates a
progressive dividend policy, and targets
dividend cover in the range of 1.75x-2x over
the medium term.
Différenciez-vous de la concurrence
en complétant votre profil sur
www.homeserve.fr/travaux
Quelques clics suffisent !
JM Barry Gibson
Chairman
21 May 2019
Une question ?
Nous sommes à votre écoute
au 04 81 91 67 37
Du lundi au vendredi de 8h à 18h
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HomeServe Home Experts – SAS au capital de 10 000 euros - Siège social : 9, rue Anna Marly
69007 Lyon - Immatriculée sous le n° 848 943 072 R.C.S. Lyon
Imprimerie Bradford & Condrieu - Parc du Moulin A - 80 av. Clément Ader CS 60081 59874 Wambrechies Cedex
Chairman Barry Gibson and Chairman of HomeServe Japan, Jonathan King signing our joint
venture agreement with Mitsubishi Corporation.
Vous êtes ici !
L’annuaire en ligne de tous les artisans de France
www.homeserve.fr/travaux
A focus of the Board’s agenda this year was Home Experts and in March 2019 we launched our
France initiative in Lyon.
HomeServe plc Annual Report & Accounts 2019 | 5
Membership
Subscription-based home
assistance for homeowners
covering plumbing, heating,
electrical, locks, glazing, pest
control and technology.
6 | HomeServe plc Annual Report & Accounts 2019
6 | HomeServe plc Annual Report & Accounts 2019
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Strategic report
Chief Executive’s review
Strategic priorities
8
10 Market overview
12 Our business model
14
16 Our KPIs
20
25
33 Operating review
44
48
Financial review
Viability statement
Principal risks and uncertainties
Resources, relationships and responsibilities
HomeServe plc Annual Report & Accounts 2019 | 7
HomeServe plc Annual Report & Accounts 2019 | 7
STRATEGIC REPORT
Chief Executive’s review
Chief Executive’s
review
HomeServe made very good progress
in FY19 on a number of fronts as we
continued to advance our strategic
growth initiatives and focused on our
purpose of making home repairs and
improvements easy.
Our Membership business line remains
the core of our business today and it was
great to see North America continue its
strong growth trajectory as it became our
largest business as well as to see good
performances in our other Membership
businesses with increased profits across
the board.
With our buy and build strategy in HVAC (our
installations, repairs and service business
for heating, ventilation and air conditioning)
also taking shape and contributing to the
Group’s performance, it was the combined
team effort of all business lines that gave
me confidence to increase our annual New
Markets investment. The potential of Home
Experts is significant and we have the right
team in place at Checkatrade to deliver our
ambitions.
With all Membership businesses now under
Tom Rusin’s leadership we are seeing greater
collaboration and sharing of best practice
and we are becoming more sophisticated in
how we test and learn from new initiatives,
as well as how we deploy our investments
across our businesses for the best returns.
North America continues to be our principal
near-term source of growth, but all of our
Membership businesses have opportunities
to expand. New partners, products and
channels drive top line growth and the
increasing use of data and technology
transforms our customer service and delivers
greater operational scale and efficiency.
I was pleased to see our Membership
businesses strengthening and expanding
their utility partnerships. France extended
the Group’s single largest partnership, with
Veolia, until 2026, and began a partnership
with Saur, France’s third largest water utility.
In the UK we signed four new energy
partners and Spain followed the UK lead and
is now witnessing the early signs of success
with a small challenger energy partner. With
retention also increasing and the Claims
side of the business in good health, our
Spanish business is well placed as it seeks
to bring on board new affinity partners in
place of Endesa. Finally, in North America
we have further accelerated our business
development activity and are now signing
new partners at the rate of three a week.
As well as initiatives to grow our revenue,
we are equally focused on transforming
our service for ever evolving customer
demands and needs. Better use of
technology can offer HomeServe a real
competitive advantage and increased scale
and efficiencies. By freeing our people from
simpler tasks such as routine claims handling
and appointment scheduling we can retain
them for more interesting and challenging
calls. This not only improves job satisfaction
and engagement but also ensures our best
people are available to provide the best
service when our customers need their
direct intervention the most.
Adding to our Membership highlights this
year was our joint venture with Mitsubishi
Corporation. The Japanese market meets
all of the search criteria we apply to new
markets, notably a strong economy, a large
and high quality housing stock and the
potential to form strong utility partnerships.
Mitsubishi is not itself a utility but has
unrivalled market knowledge and is well
placed to introduce the new JV to potential
utility partners.
8 | HomeServe plc Annual Report & Accounts 2019
FY19 was our first year of full ownership
of Checkatrade, our UK Home Experts
business, and we have used this to start
accelerating some fundamental changes.
Over the last 12 months the number of trade
members has grown by 23% to 36k and
consumer web visits are up by 11% to 18m a
year. This demonstrates strong progress, but
we have plans to step change this growth. To
support this, the business has moved to new
offices at Lakeside, Portsmouth Harbour and
it was great that so many of Checkatrade’s
experienced people who have been with
the company for many years chose to move
with the business. They join us on the next
phase of Checkatrade’s journey as we look
to transform under the leadership of a new
senior management team with experience in
fast growing digital businesses.
I firmly believe that an online directory of
trusted and vetted trades is the winning
solution for our trade members and for
consumers who use the site. Checkatrade’s
vetting process is unique and highly valued
by consumers and has helped make it the UK
market leader today. We do, however, need
new functionality and new products in order
to improve the experience for consumers
and trades alike. We are developing on
new initiatives such as “Search For Me” for
consumers who simply want us to select a
trade on their behalf and Checkatrade Now,
a solution for obtaining an emergency repair.
We are pursuing our plans to accelerate
trade numbers and to increase web visitors
so that ultimately we ‘make the phone ring’
even more for our members and help them
improve and grow their own businesses.
Habitissimo had a good year but it is clear
from our experiences with Checkatrade
and our Home Experts market research
that an online directory combined with a
“Search For Me” facility is the best model.
We intend to introduce our preferred model
into Habitissimo’s markets over the course of
the next year.
On Smart Home we have a leak detection
device that works well, is easy to install and
we have the plumbing network to detect
and fix the identified leaks. With the WIFI
version of LeakBot now proven, we are
targeting 3.6m homes in the UK where we
know we have an attractive model for both
the home insurer and HomeServe. These are
larger homes where the savings the home
insurer makes from preventing sizeable
water damage claims will cover the rental
and service charges the home insurer pays
to HomeServe for the LeakBot units and the
leak finding and fixing service.
People and leadership
HomeServe has a strong history of growth in
all of its businesses and we have ambitious
plans in place for the future. Having the right
people is key to achieving our goals and
HomeServe’s success owes much to the
dedication of our people around the world.
I am proud and thankful for the service they
provide to our customers every day.
I believe that HomeServe is a great place to
develop a rewarding and fulfilling career and
look forward to seeing our people share in
HomeServe’s success.
There have been significant changes in
personnel across the group in the past year,
which have been overseen carefully by the
Board. Martin Bennett, CEO, HomeServe UK,
and Johnathan Ford, COO, both departed
with our good wishes and I also recently
made changes to HomeServe’s Executive
Committee, introducing greater diversity and
stronger representation from operational
management.
Deb Dulsky (Global CEO of HVAC), Fernando
Prieto (CEO, Spain), Greg Reed (CEO, UK),
John Kitzie (CEO, North America) and Mike
Fairman (CEO, Checkatrade) joined my
HomeServe plc Executive Committee with
effect from 1 April 2019. They join existing
members David Bower (Chief Financial
Officer), Guillaume Huser (CEO, France),
H Stephen Phillips (CEO, Global Partnerships)
and Tom Rusin (Global CEO, Membership).
The change will bring fresh perspectives to
the Executive Committee and also serves to
demonstrate the depth of management we
now have in the business.
Outlook
HomeServe expects to deliver further
strong growth in FY20, with increased P&L
investment in Home Experts expected
to be offset by strong performance in
Membership, particularly North America.
HomeServe increased its P&L investment in
Home Experts and New Markets to £9.8m in
FY19 (FY18: £4.4m), and expects to increase it
to between £12m to £15m across these two
areas in FY20.
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HomeServe plc Annual Report & Accounts 2019 | 9
Market overview
Market overview
Home Assistance
DIYers
Find a trade
• Tend to be an older demographic
• Have the knowledge, skills and
• Find a trade when needed – by
• Often insurance minded
• Often on fixed incomes
• Like to budget carefully and avoid
unexpected repair bills.
motivation to carry out repair work
themselves
word of mouth, paper directories
and increasingly online
• Most of the time we can’t help these
homeowners but they may call
on us for jobs requiring specialist
skills or qualifications e.g. in the
UK, needing a qualified Gas Safe
Registered engineer for a boiler
installation, or installing a LeakBot
from their home insurance provider.
• Often less concerned about
financial loss and more concerned
about hassle and loss of time
• Don’t have DIY skills and don’t have
existing contacts to use
• Younger demographic more digitally
minded and looking online.
Home
Assistance
30%
DIY 20%
Find a trade
50%
Home
Assistance
30%
DIY 20%
Find a trade
50%
Home
Assistance
30%
DIY 20%
Find a trade
50%
HomeServe’s solution
HomeServe’s solution
HomeServe’s solution
Membership
HVAC
Smart Home
Home Experts
The statistic that 30% of homeowners purchase home assistance products is borne out in the UK, our most mature market. Between
HomeServe, direct competitors, utilities and boiler manufacturers running their own policy books and home insurance add-ons, we estimate
there are around 8m homeowners holding some type of assistance cover out of a total of around 28m households.
Contrast this with North America where there are somewhere in the region of 135m homes but only an estimated 12m customers with some
sort of cover and it’s easy to see why HomeServe is so excited about the opportunity there. We see no reason why the North American market
would behave any differently to the UK – if anything the American consumer, who is used to budgeting for so many other items on a monthly
basis (healthcare, pension etc.), is possibly even more minded to buy this type of cover.
10 | HomeServe plc Annual Report & Accounts 2019
In our established geographies 1
Home repairs and
improvements
£450bn
Home
Assistance
£14bn
Current Markets
Home repairs and
improvements
£450bn
Home
Assistance
£14bn
Membership
This is HomeServe’s traditional market which began a little over 25 years ago in
the UK.
We have since taken this model successfully to France, Spain and North America
and we have recently commenced a joint venture in Japan.
As listed in our sources of value on page 13 we gain market share by partnering
with utilities to market our products to homeowners.
North America is by far HomeServe’s largest Membership opportunity.
The size of the North American market is vast, with 135m households and over
50,000 utility providers.
Assuming the same 30% penetration rate as the UK, we can estimate that around
40m out of the 135m homes might purchase our products.
Today we estimate there are only around 12m homes in North America with
these types of products. HomeServe is the market leader today with 4m but the
potential to grow this even further is a significant current and future opportunity.
Read more about our North America business on page 36.
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Home Experts
Home Experts is HomeServe’s largest opportunity in the medium to long-term.
Not only are there more consumers who prefer this type of product, the market
itself is much larger, covering home improvements as well as repairs. With
Membership cover you might get a dripping tap fixed. With Home Experts you
could get a tap fixed, a tap replaced, a whole sink replaced or even a whole new
bathroom designed and installed. Our customers in Home Experts are trades
and not the end consumer so HomeServe won’t be capturing the full revenue
from the sale of a new bathroom, but by charging our growing number of
trades a monthly subscription for the leads and work generated by being on our
platforms we can capture a percentage of every repair and improvement sale.
Current Markets
Read more about our Home Experts on page 42.
UK
France
Spain
Total trades
HomeServe trades
600k
600k
400k
36k
—
28k
HVAC
HVAC is a subset of home repairs and improvements and is highly complementary to our Membership business.
In the US alone the HVAC opportunity is estimated at $29bn.
The HVAC market is highly fragmented in all of our geographies with installations completed by some larger players and by many, many
smaller, independent businesses and sole traders.
HomeServe’s buy-and-build strategy aims to capture a share of this market by acquiring well-run profitable HVAC businesses and integrating
them to generate benefits with the Membership business.
Our key sources of advantage as set out in our Business model overleaf will be instrumental in our efforts to grow our market share. For
example, and as indicated above, our partnerships with utilities in North America combined with our marketing expertise are the main ways we
will access homeowners and attempt to grow our share of an underpenetrated market more quickly than competitors.
1 Sources:
Home Assistance: UK ONS 2017, France 2017 Rapport de la Commission des comptes du logement (State sources).
Home Repairs & Improvements: $400bn for North America (various competitor sources), UK ONS 2017.
Other markets: HomeServe estimate scaled for number of households.
Trades: HomeServe estimate.
HomeServe plc Annual Report & Accounts 2019 | 11
Our business model
Business model
OUR STAKEHOLDERS... CUSTOMERS... PARTNERS... TRADES...
What we do
HomeServe’s purpose is to make home repairs and improvements easy, and we
aspire to be the world’s most trusted provider of home repairs and improvements.
We achieve this principally in two ways. To insurance-minded homeowners we sell
cover for a range of home emergencies via subscription-based Membership services.
For people who prefer to deal with issues as they arise (‘Find a trade’ homeowners), or
who like to plan ahead for repairs, maintenance and improvements we have an online,
on-demand Home Experts platforms that presents a choice of checked, vetted and
reviewed local trades.
In Membership our established route to market is via partnerships with utility
companies, for whom we are an important source of added value. Our data-rich
marketing approach and careful product design help us to grow our customer base.
Our customers stay with us because of the excellence of our customer service and the
dedication of our people. Our local networks of employed and subcontracted trades
ensure consistently high service standards whenever we visit a customer’s home.
In Home Experts, trades are our customers, and our job is to match them with
consumers in their local area, who need their services. This provides our trades with
an income stream and we also provide systems and processes to help them run their
businesses more efficiently.
Our distinct source of advantage comes from the many partnerships we have created
with utilities and trades and our long-term relationships with underwriters in each of
our markets. Combined with an increasingly powerful brand, our years of marketing
and product expertise, customer service excellence and strong financial resources, we
deliver value to all of our stakeholders, which has the potential to compound as we
expand our business and they grow with us.
HomeServe’s business is predictable, sustainable and cash generative, with significant
opportunities to grow.
... SUPPLIERS... EMPLOYEES... COMMUNITIES... INVESTORS...
12 | HomeServe plc Annual Report & Accounts 2019
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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 most relevant risks that could affect these values:
1
Partnerships
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 c.700 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, 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, where we have long-term relationships and
work together closely in all of our Membership businesses.
Principal risks:
1 Market disruption
2 Partnerships
3 International development
7 Underwriting capacity
& concentration
2
Marketing
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.
Principal risks:
1 Market disruption
10 Investment in technology
11 Digital & innovation
3
Customer service
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.
Principal risks:
1 Market disruption
8 Regulation & customer focus
10 Investment in technology
11 Digital & innovation
4
Local networks
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.
Principal risks:
1 Market disruption
9 People
10 Investment in technology
5
Financial resources and expertise
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.
Principal risks:
9 People
12 Financial risks
Our principal risks, and in particular our Group Enterprise risks, each impact on the specific elements of our business model, and thereby on
our growth and future profitability. The impact of some but not all risks could lead to upside potential as well as present downside threat. For
example, market disruption in the digital world may also accelerate customer take-up; or, in respect of partnership we may conceivably sign
more partners that we expect in North America.
See page 16 for our KPIs and page 20 for our Principal risks and uncertainties.
HomeServe plc Annual Report & Accounts 2019 | 13
Strategic priorities
Strategy Every job. Every home.
HomeServe’s vision is to become the world’s most trusted provider of home repairs and improvements. We will achieve this by making home
repairs and improvements easy. Easy for homeowners and easy for trades. We have established four global business lines to cater for the
needs and preferences of different consumers, ensuring every homeowner can easily find the tradesperson they need for any job around the
home. Below, we describe the key initiatives for each business line and show how they make use of the key sources of value set out in our
business model.
STRATEGY
1
Sustain and grow our
Membership businesses
Overview and ambition
2
Develop an HVAC
installations business
Our Membership business appeals to insurance-minded
homeowners, and currently delivers the majority of our profits.
We have established Membership businesses in the UK, France
and Spain and a high growth business in North America.
Developing the capability to install and replace heating, ventilation
and air conditioning (HVAC) units completes the circle of service
we can provide for our Membership customers. It also gives us new
opportunities to sell Membership policies.
We drive growth in our Membership businesses by developing
new partnerships to give us access to more households; marketing
effectively to turn households into customers; adding value to our
products to increase net income per customer and providing excellent
customer service to encourage our customers to stay with us. We
have significant opportunities to deploy new technology, systems and
processes to provide state of the art customer service and increase the
efficiency of our operations.
Our strategy is to acquire and integrate high quality, local businesses,
work with their management teams and apply our marketing
expertise to help them grow.
HVAC acquisitions could also provide a profitable route into new
markets.
FY19 Progress
In the fragmented utility market of North America, we increased
our run rate of new partners signings to three a week, and successfully
integrated the customers we acquired in the Dominion Products
and Services policy book. We embedded our new customer service
centre in Chattanooga and introduced new technology such as voice
recognition.
In FY19 we continued our HVAC buy and build strategy with six
acquisitions; three in North America, the group’s most established
existing HVAC business; two in France and our first acquisition in
Spain. In the UK we continued our focus on integrating Help-Link,
the HVAC business we acquired in July 2017, more closely with the
Membership business.
In the UK, we focused on building net income per customer and on
optimising customer acquisition.
In France, we renewed our partnership with our largest affinity partner,
Veolia, and signed a new partnership with Saur, France’s third largest
water utility.
We have an active business development pipeline in Spain as we look
to form new partnerships following the end of our Endesa partnership
in May 2018.
KPIs
1 Affinity partner households
2 Customers
3 Policies
4 Retention rate
5 Income per customer
How this helps achieve our vision
We track a range of metrics to assess the performance of
our HVAC businesses, including the number of completed
installations. As this business line matures and the number of
HVAC acquisitions increase we will report installations as a KPI in
each of our segments.
Total installations across the Group in FY19 were 18k (FY18: 14k).
Membership is at the core of our business, brand and reputation. We
will continue to develop and innovate in the heart of our business.
At some stage almost every home will need an HVAC unit
replaced, so HVAC installation is a core capability for our business.
Applicable segment(s)
UK, North America, France, Spain, New Markets.
UK, North America, France, Spain. We are assessing HVAC as a
potential profitable route into new countries.
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Build an online, on demand
Home Experts platform
Overview and ambition
Home Experts enables HomeServe to serve ‘Find a trade’
homeowners, who go online to find a local tradesperson to help
them with home repairs and improvements (see p11). We took full
control of Checkatrade, the UK’s leading online directory of checked
and vetted traders in December 2017 and now have an attractive,
innovative platform which delivers value to both traders and
consumers. We also own 70% of Habitissimo, which gives us a Home
Experts presence in Spain, Italy and South America.
We have a multi-year investment project under way to build out our
network of Trades, and generate consumer demand through effective
marketing, to help Trades grow and manage their businesses. Home
Experts represents the most significant source of medium-term
growth for HomeServe.
FY19 Progress
Our key areas of focus at Checkatrade in FY19 were to:
• Strengthen the management team under the leadership of new
CEO Mike Fairman;
• Move to new offices in Lakeside, Portsmouth, to create space for
expansion;
• Continue to add value to our Trades offer and scale up Trades
recruitment;
• Continue to improve our consumer offer e.g. Checkatrade Now.
We began a test of the Checkatrade model outside the UK, in Lyon
in France.
Habitissimo continued to develop its lead generation model and to
grow the number of web visits on its platform.
KPIs
6 Trades
7 Web visits
4
Participate in
the Smart Home
revolution
Within HomeServe, innovation
teams have invented Smart
Home devices adjacent to
our core business, notably
LeakBot, which detects and
reports water leaks.
5
Expand into new
geographies
There is potential to expand our
business into well developed
new territories with a stable
economy and good quality
housing stock, providing that
we can find a committed utility
partner. We have identified
15 countries where we see
expansion potential.
We focused on developing a
viable commercial model for
LeakBot, seeking partnerships
with home insurance
companies.
In February 2019 we formed
a joint venture with Mitsubishi
Corporation in Japan, who will
help us develop appropriate
utility partnerships for the
Japanese market.
We track metrics including
number of LeakBot units sold and
number of LeakBots activated. As
the business line grows to become
more material we will report these
as a KPI in each relevant segment.
Over time as new markets are
developed we will introduce our
relevant KPIs i.e. affinity partner
households, customers, etc.
How this helps achieve our vision
Home Experts expands our market to cover home improvements
as well as repairs, and enables us to reach a new generation of
homeowners and renters.
Our innovation activities keep
us at the forefront of our
industry, and contribute to the
sustainability of our business.
Our innovation activities keep
us at the forefront of our
industry, and contribution to the
sustainability of our business.
Applicable segment(s)
Home Experts
UK
New Markets
HomeServe plc Annual Report & Accounts 2019 | 15
Our KPIs
Our KPIs
KPIs
1
Affinity Partner
Households (m)
105m 4%
Definition
2
Customers (m)
3
Policies (m)
4
Retention Rate (%)
8.4m
0%
15.9m 1%
82%
0%
Tracks the growth in Membership’s
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
services.
Illustrates our ability to grow
our product line through
customer focus and innovation
and to market those policies to
customers.
The percentage of policies which
are renewed after 12 months for
a further term. This reflects our
ability to deliver fit for purpose
products and great service to our
customers.
Strategy
1 Sustain and grow our
Membership businesses
1 Sustain and grow our
Membership businesses
1 Sustain and grow our
Membership businesses
1 Sustain and grow our
Membership businesses
Performance
Driven by 3 new partners a week
in North America and a new
partnership with Saur, in France,
offset by the removal of Endesa
in Spain.
Continued good growth in North
America with customers up from
3.6m to 4.0m offset by Spain
where the Endesa book is in run-
off and a reduction in the UK.
Existing customers are continuing
to choose more products and
benefit from increased cover.
19% increase in North America
offset by Spain where the Endesa
book is in run-off and a reduction
in the UK.
Retention rate stable year on year
with France continuing to be the
highest performer at 89%.
Households
Customers
Policies
Retention Rate
2019
2018
2017
2016
2015
105m
2019
8.4m
2019
15.7m
2019
109m
102m
92m
89m
2018
2017
2016
2015
8.4m
2018
7.8m
7.0m
6.3m
2017
2016
2015
15.7m
14.3m
12.8m
11.9m
2018
2017
2016
2015
82%
82%
82%
83%
83%
See page 14 for our Strategic priorities.
16 | HomeServe plc Annual Report & Accounts 2019
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5
Income per
Customer
6
Trades (k)
7
Web visits (m)
64k 8%
101.1m 4%
8
Adjusted Profit
Before Tax (£)
£161.7m 14%
Our revenue paying customers in
our Home Experts business. Tracks
our progress in building the largest
online community of trades.
Total web visits to our Home
Experts platforms Checkatrade &
Habitissimo. Tracks our success
in driving consumer awareness of
our online community of trades.
Our key profit measure by which
we monitor business growth,
efficiency and sustainability.
Definition
Measures our ability to design
and market increasingly valuable
products, and sell them efficiently.
Due to currency difference, we
track this measure at a geographic
level.
Strategy
1 Sustain and grow our
Membership businesses
3 Build an online, on demand
Home Experts platform
3 Build an online, on demand
Home Experts platform
1 _
5 All aspects of
our strategy
Performance
All businesses increased income
per customer with a focus on
providing deeper coverage.
New initiatives to drive trades
recruitment saw a strong increase
at Checkatrade as total trades
grew 23% to 36k with trades
broadly flat in Habitissimo at 28k.
Existing customers are continuing
to choose more products and
benefit from increased cover.
Retention rate stable year on year
with France continuing to be the
best performer at 89%.
UK
North America
France
Spain
£122
1%
$96
5%
€109
3%
€57
19%
Trades
2019
2018
2017
2016
n/a
2015
n/a
Web visits
Adj PBT
64k
58k
47k
2019
2018
2017
101.1m
97.4m
71.4m
2019
2018
2017
£161.5m
£141.7m
£112.4m
2016
n/a
2015
n/a
2016
£93.0m
2015
£85.4m
HomeServe plc Annual Report & Accounts 2019 | 17
HVAC
A complete solution to the
installation, repair, maintenance
and replacement of heating,
ventilation and air conditioning.
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HomeServe plc Annual Report & Accounts 2019 | 19
STRATEGIC REPORT
Principal risks and uncertainties
Risk framework
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, ensuring a structured response at all levels throughout the Group and
across all businesses and geographies, to capture monitor and mitigate risk.
RISK FRAMEWORK
The Board retains responsibility for the overall evaluation of the Group’s risk management process
Group Risk Management Team
• Proposes the risk framework
across the Group
• Supports implementation
• Monitors risk management.
Audit & Risk Committee
• Advises the Board on risk appetite and risk strategy, ensures the quality and effectiveness
of risk management processes and receives regular updates from the Group Risk
Management team
• Composed and chaired by independent Non-Executive Directors
•
Internal and external auditors, CFO, CEO and Chairman are invited, but not entitled,
to attend all meetings
• Other Executive Directors attend where appropriate.
Executive Committee – Risk discussion three times per year
• Risk discussion chaired by the CFO
• Composed of Executive Directors and representatives from each Group business
• Discussions are reported on at the Audit & Risk Committee.
Local risk registers
• Maintained and reviewed by all businesses.
Experts, there have been movements in
certain risks.
The principal risks and uncertainties should
be read in conjunction with the rest of
this Strategic report. 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.
Risk Appetite
In accordance with the Group’s Risk
Management policy, the Group Risk
Appetite is subject to an annual review of
its the definition, content and criteria for
assessment scores.
The Board’s assessment of risk appetite is
guided by our vision to become the world’s
most trusted provider of home repairs
and improvements and by our purpose
to make home repairs and improvements
easy. HomeServe’s values reflect our
commitment to our customers, our people,
to innovation and integrity and being the best
at what we do. HomeServe’s risk appetite
is comparatively low recognising; firstly
our status as a plc which requires strong
governance and reputation, together with
delivering returns for our shareholders and;
secondly our regulated status which requires
compliance with local laws, rules and
guidance.
Changes in FY19
In FY19 HomeServe formalised the process
by which it groups local risks and thereby
identifies Group Enterprise Risks. Group
Enterprise Risks are considered to represent
the most significant threats to HomeServe’s
ongoing strategy and operations. Risk
registers continue to be maintained at a
local level in every business and are formally
reviewed by the Audit & Risk Committee at
each of its meetings together with Group
Enterprise Risks.
The following table 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 could potentially impact the
Group’s performance and direction but the
table also references the key elements of the
strategy (as detailed on p14) which could be
directly impacted by an adverse movement
in the associated risk. 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.
Membership continues to be the largest
business line in each geographic segment
and as such continues to dominate the
Principal Risks. However with the growth
in other business lines, in particular Home
20 | HomeServe plc Annual Report & Accounts 2019
Risks are assessed at a local level on a gross
basis using a matrix approach, to score
likelihood and impact, and on a net basis after
considering any mitigations which have been
applied.
Brexit
Brexit is not one of HomeServe’s enterprise
risks but does continue to be monitored at a
local and a Group level. Brexit is potentially
one of the most significant economic events
for the UK and at the date of this statement,
the full range, scale and timing of potential
outcomes and impacts are uncertain.
However, HomeServe continues to believe
the impact of the UK’s decision to leave the
EU and the current delay in implementing this
decision on the underlying performance of
the Group will be limited.
The HomeServe business model is resilient
and in previous periods of consumer
uncertainty and economic downturn, for
example during the financial crisis in c.2007
to 2009, no negative impact on business
performance was observed.
In addition, all of HomeServe’s businesses
trade exclusively within their own borders
and HomeServe is not exposed to any cross
border transactional currency risk. The Group
has a strong balance sheet and retains a
range of financing facilities with medium to
long-term maturities, which provide access
to additional resources across a range of
currencies. The Group remains subject to
translation risk on the presentation of results
in Sterling however this is within the ordinary
course of business.
STRATEGIC
1
Market disruption
2
Partnerships
Overview
Competition exists in all business lines but is
strongest in Home Experts as competitors seek
to gain a share of a market as it undergoes a
meaningful shift online.
Competitive threats include, but are not limited to;
• utilities running Membership programmes
in-house
• adjacent products e.g. Whole Home Warranty
• existing competitors moving into other
geographies
• new entrants e.g. Amazon or Google investing
heavily to enter the home services space with
new products or technologies which erode
HomeServe’s market share
incumbent competitors to Home Experts in the
UK e.g. Rated People, MyBuilder.
•
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. Growth plans,
particularly in North America, focus on signing
new partners to extend reach and provide new
marketing opportunities to grow the business.
HomeServe has benefited from government
policy changes in certain regions to form new
partnerships e.g. liberalisation of energy markets
in Spain. Any reversal e.g. to renationalise utilities
could have an adverse impact albeit HomeServe
does have strong experience working with public
sector municipals in North America.
3
International
development
HomeServe has enjoyed success with its
Membership model in markets outside of the UK
and intends to expand to other regions.
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Impact(s)
Over time there could be a negative impact on
KPIs such as customers and retention rate, in
Membership and trade and website visitor numbers
in Home Experts as well as on financial metrics
such as adjusted operating profit and adjusted
operating margin as customers are lost or we are
forced to compete more on price.
With c.700 partners across the Group it is inevitable
that a few partners each year may choose not
to renew a contract as priorities or commercial
pressures change. In the UK and North America
where the partner bases are more diversified the
impact is considered small. In France the loss of e.g.
Veolia would have a bigger impact similar to that of
Endesa in Spain where the back book is now in run-
off. Any partner loss or failure to sign new partners
could impact households, customers and also
retention rates, without use of the partner brand.
HomeServe has enjoyed success in France, Spain
and North America but has been unsuccessful
in past attempts to enter Australia, Belgium and
Germany.
Failure to succeed could divert investment and
management time incurring not only losses in
the new country but also reduced performance
(including, for example, loss of customers, lower
profitability) in the core markets.
Mitigation(s)
• We demonstrate to utilities that they can benefit
more by partnering with HomeServe due to our
long-term investment horizon
• Regular market reviews in each business identify
new entrants and increases in competitor
activity e.g. aggressive pricing initiatives
• Agile product development responds to
changing consumer needs
• Shared learning between our markets.
• A portfolio of partners in each business
diversifies risk
• Partners signed on long-term contracts with
beneficial financial terms for each party
• HomeServe seeks to renew contracts early,
ahead of any expiration date
• Regular dialogue with all partners, particularly
in markets with more concentrated partner
relationships e.g. France.
• Strict criteria to identify attractive markets
• Joint venture structure diversifies risk and
minimises investment
• JV partner brings local market knowledge and
contacts
• HomeServe brings membership model
systems and process expertise.
Update
We continue to develop our Home Experts
proposition which diversifies our product offering
and ensures we appeal to a broader range of home
owners. We have continued to invest; evolving
our products in all businesses, acquiring further
HVAC businesses and investing revenue growth
in Checkatrade back into marketing to ensure we
maintain the leading UK brand in this space.
In Membership there has been more focus on
competing / adjacent products following a recent
stock market listing of a Whole Home Warranty
Provider in the US.
Strategy
We are signing partners at a rate of almost three a
week in North America, we have renewed Veolia
until 2026 and signed Saur in France and in the
UK we have signed a number of new retail energy
challengers. In May 2018 the long-term partnership
with Endesa was not renewed as Endesa sought
to provide home assistance services in-house.
We are actively engaged in finding new partners
in Spain and we have also commenced a new JV
partnership with Mitsubishi Corporation in Japan.
In February 2019 HomeServe announced it had
agreed a joint venture with Mitsubishi Corporation
to form a Membership business in Japan. As
the world’s third largest economy, Japan is an
attractive market. Mitsubishi and HomeServe will
each provide staff to the local management team
and have shared the initial investment with each
agreeing to contribute £2m into the new JV.
HomeServe continues to prospect other potential
markets.
1 Sustain and grow our Membership
1 Sustain and grow our Membership
businesses
businesses
5 Expand into new geographies
2 Develop an HVAC installations business
3 Build an online, on demand Home
Experts platform
Business model
1 _
4
1 Partnerships
1 Partnerships
See page 14 for our Strategic priorities and page 12 for our business model.
HomeServe plc Annual Report & Accounts 2019 | 21
Principal risks and uncertainties
STRATEGIC
OPERATIONAL
4
M&A Strategy
5
HVAC Integration
6
Cyber Security
Overview
M&A is focussed on two primary areas; the
acquisition of Membership policy books in all
markets and a buy-and-build strategy to grow the
HVAC business line. Policy book M&A is considered
a proven, low-risk method to accelerate growth
and HomeServe has a strong track record of
buying these books, especially in North America as
demonstrated most recently with Dominion.
HVAC buy-and-build typically requires lower
investment as the strategy focuses on acquiring
smaller, well-run HVAC businesses with strong
local reputations.
Impact(s)
HomeServe could overpay for transactions or
underestimate 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.
Mitigation(s)
• Strict criteria when building a prospects
•
pipeline
Independent advisers engaged in due diligence
processes
• Local management expertise with oversight
from central plc function
Investment hurdles
•
• All investments require local and, where
applicable, plc Board approval
• Post-investment reviews conducted at local
levels with findings communicated to plc Board
and used to inform future acquisitions and
integration processes.
Update
In FY19 HomeServe made six HVAC acquisitions
and successfully completed the second tranche of
the Dominion Products and Services policy book.
The higher volume of HVAC acquisitions requires
disciplined and often standardised processes to
ensure successful integration into HomeServe,
creating strong links to the Membership business
and achieving synergies with e.g. Marketing, back-
office functions etc.
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.
Failure to integrate acquisitions quickly and
effectively could fail to deliver synergies, and
increase costs, resulting in failure to achieve
predicted revenues and potentially lead to
impairment.
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.
•
Integration plans form part of all business case
approvals
• Post-investment reviews feed learning back for
future acquisitions
• Dedicated teams and resources and retention
of key management personnel in the acquiree.
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.
Of the six acquisitions in FY19, four have been
successfully integrated, with the remaining two
having taken place just before the year end. Key
management has been retained and the acquired
businesses continue to perform HVAC installations
as well as marketing HomeServe’s products.
Managing this risk continues to be a key area of focus
for the Group. Attention on continuous improvement,
delivering our strategic objectives and monitoring
evolving threats has meant that the Group has
continued to invest in developing and improving
countermeasures and controls to mitigate the risk.
In addition, frameworks have been put in place to
continue to increase the maturity with which we
manage our controls and monitor their effectiveness.
A comprehensive suite of Policies and Standards
remain in force with cyber audits completed in FY19
as part of the annual assurance plan.
Strategy
1 Sustain and grow our Membership
1 Sustain and grow our Membership
1 Sustain and grow our Membership
businesses
businesses
businesses
2 Develop an HVAC installations business
2 Develop an HVAC installations business
Business model
3 Customer service
3 Customer service
3 Customer service
22 | HomeServe plc Annual Report & Accounts 2019
7
Underwriting capacity
and concentration
8
Regulation & customer
focus
9
People
Overview
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.
HomeServe is subject to regulatory requirements
relating to e.g. product design, marketing materials,
sales processes and data protection.
HomeServe believes that regulation has a positive
impact and encourages a culture that promotes
customers’ interests and will improve HomeServe’s
prospects over both the short and long-term.
HomeServe’s ability to meet growth expectations
and compete effectively is, in part, dependent
on the skills, experience and performance of its
personnel.
Retention of People in established businesses is
key as is recruitment of talented People in growth
businesses e.g. Home Experts.
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Like many companies HomeServe is also
subject to wider regulation concerning 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
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 customers 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.
• Compliance with local regulation as a
minimum to ensure products 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
• Best practice shared across the Group
• Regulatory specialists, compliance teams and
Non-Executive Directors in each business
• HomeServe maintains regular dialogue with
the FCA in the UK. In North America, there is
regular contact with the Attorneys General.
There is increased scrutiny across multiple
industries in the UK (Telecoms, TV, General
Insurance) following a Competitions and Markets
Authority complaint to the FCA regarding pricing
practices for loyal customers. HomeServe
continues to exceed pricing disclosure
requirements and policies are priced equally,
regardless of customer vintage once customers
move off an introductory price.
The inability to attract, motivate or retain key talent
could impact overall business performance.
The Home Experts businesses have ambitious
growth plans and require different skills to the
Membership business.
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 used to understand and respond to
employee views and needs.
Processes exist to identify high performing
individuals and ensure that they have fulfilling
careers, and HomeServe is managing succession
planning effectively.
A new employee engagement survey was
implemented to provide consistent, comparable
results across businesses. Results will be available
in early June 2019.
A new management team with experience in
growing fast-paced digital businesses is now in
place at Checkatrade.
Impact(s)
If current underwriters were unable or unwilling
to underwrite the current book and if 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.
Mitigation(s)
• With the exception of the UK, at least two
underwriters share the policy books in each
country
•
In the UK, HomeServe maintains relationships
with a number of other underwriters who are
willing and able to underwrite the business
• Regular (at least 6 months) reviews with all
underwriters to ensure that current product
performance and trends are understood.
Update
There have been no new underwriters this year
and existing relationships remain strong.
In the UK, HomeServe and Aviva have commenced
discussions regarding contract renewal prior to the
expiry of the current contract in 18 months time
and HomeServe continues to assess the possibility
to add a second underwriter.
Strategy
1 Sustain and grow our Membership
1 Sustain and grow our Membership
1 Sustain and grow our Membership
businesses
businesses
businesses
Business model
1 Partnerships
3 Customer service
4 Local networks
5 Financial resources and expertise
HomeServe plc Annual Report & Accounts 2019 | 23
Principal risks and uncertainties
OPERATIONAL
10
Investment in
technology
Overview
The Group relies on several key systems to manage
its Membership 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.
Home Experts, particularly Checkatrade, is
embarking on a programme of transformation to
ready the business for its ambitious growth plans.
Impact(s)
Failure to invest appropriately to manage customer
interactions and provide high quality service may
result in lower retention and higher customer
losses.
Failure in back office systems 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.
Mitigation(s)
All 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.
Update
The UK’s new core customer management
system is in the final stages of user testing. 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.
Strategy
FINANCIAL
11
Digital & Innovation
12
Financial risks
Consumers 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.
Technology is also crucial for the networks
with Home Experts developing a trades app
and Membership sharing technology with its
own subcontract network. Both are intended to
improve the efficiencies and customer service
of both HomeServe and the businesses it
partners with.
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.
If software solutions shared with partners are
not delivered or do not generate the intended
efficiencies, costs may increase, partners may
leave and customer service standards may fall.
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.
Recruitment is increased in areas short on the
required expertise.
A new CTO has been appointed at Checkatrade
to lead the digital transformation required for
consumers and trades.
Key financial risks include 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.
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.
On 25 October 2018, HomeServe arranged an
additional £174.2m of funding via a US Private
Placement. This expands the Group’s existing
facilities, locks in a proportion of its interest charge
at fixed rates and creates a balanced maturity profile.
HomeServe is implementing a treasury
management system to improve global cash
visibility, bank connectivity and process efficiency.
The system is expected to launch in FY20.
1 _
5 All aspects of our strategy
1 Sustain and grow our Membership
1 Sustain and grow our Membership
businesses
businesses
3 Build an online, on demand
Home Experts platform
3 Build an online, on demand
Home Experts platform
4 Participate in the Smart Home
4 Participate in the Smart Home
revolution
revolution
Business model
2 _
5
2 Marketing
3 Customer service
3 Customer service
24 | HomeServe plc Annual Report & Accounts 2019
Key:
No change Risk increased Risk decreased
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Our People
HomeServe hopes to build lasting
relationships with its People. This starts by
getting the basics right; clear guidelines
and policies, help and support, appropriate
pay and benefits for all and a safe, inclusive
working environment.
HomeServe is committed to developing
great people and providing a great place
to work in which to develop a rewarding
and fulfilling career. The Group has a strong
history of growth in all of its businesses and
we have ambitious plans in place for the
future.
HomeServe employs almost 6,000 talented
people globally and by working together we
strive to make HomeServe a fantastic place
to work where everyone has the opportunity
to be their best and make a difference.
Just some of our current initiatives to
develop and engage our people are: A Great
Place to Work, The HomeServe Way, Talent
and Diversity and Inclusion.
A Great Place to Work
Our ambition is to become recognised
as a world’s best employer through Great
Place to WorkTM, and we have started this
journey by aiming for our key markets to gain
national ‘Best Place to Work’ accreditation
in 2020.
We invite feedback from our people through
an annual all-employee survey, enabling us
to respond to employees at both a market
and global level. Our last survey returned an
overall global engagement score of 71%. This
is a strong result and above national averages
in the majority of our markets. But... we want
to do better.
The focus on our people has never been
greater at HomeServe, and we regard our
people, and the way we organise, engage
and motivate them, as a critical competitive
advantage.
Employee engagement is an internal KPI
and an engagement target has been added
to our management bonus scheme to
provide focus and drive improvements in
all of our businesses. Last year Great Place
Critical to achieving HomeServe’s vision to
become the world’s most trusted provider
of home repairs and improvements is the
considerate management of resources and
relationships and a strong recognition of a
need to be a responsible corporate citizen.
A home is the most significant investment
most of us will ever make and we all feel
passionately about our own. To build trust
HomeServe needs to not only provide
excellent customer service but also be aware
of its wider responsibilities and impacts.
HomeServe’s business model and its key
sources of value all rely on maintaining and
developing certain crucial relationships and
resources;
Resources: strong and disciplined
management of financial and non financial
resources. In this year’s report we focus on
our most critical resource; our People.
Relationships: strong bonds with
stakeholders including utilities, suppliers,
subcontractors, shareholders etc. and
crucially, as detailed here, our Customers.
Responsibility: responsible and considerate
actions apply to all aspects of HomeServe’s
activities. HomeServe is cognizant of its
immediate responsibilities to the other
parties in its relationships and maintains
robust governance and policies to
uphold these. It is also aware of its wider
responsibilities to its communities and its
environment.
See page 12 for more information on our key
stakeholders
HomeServe plc Annual Report & Accounts 2019 | 25
Resources, relationships and responsibilities
Resources
to WorkTM was appointed as HomeServe’s
global engagement partner, to help us drive
sustainable levels of employee engagement
across the business. We know that how
our people feel and how they are engaged
ultimately drives business performance.
The HomeServe Way
Launched this year, The ‘HomeServe Way’
lays out the essential Behaviours, Skills
and Knowledge that are necessary to be
effective as a senior leader at HomeServe.
The HomeServe Way is currently focused
on senior leadership but over time will
be expanded as a way of working for all
employees.
Talent
We have a Group Talent Strategy that has
been built to enable the attraction, growth
and retention of talented employees with
the right capabilities to deliver our growth
strategy.
Global talent development programmes are
now well embedded into the organisation
and are designed to support our explicit
commitment to developing and promoting
internal talent. We aim for 70% of new
Senior Leader roles to come from internal
promotions.
At other levels in the organisation we put
a clear focus on developing emerging
leaders who may be ready to take on their
first role as a line manager. In the UK we run
our ‘One For The Future’ Programme and
in HomeServe North America we have an
online ‘HomeServe University’ that offers
a range of modules, including ‘Manager
Essentials’ to develop the capability and
effectiveness of new managers.
It is especially important to us that we have
the right level of diversity of talent at the
senior levels that are responsible for our
strategic thinking and decision making. We
are focused on achieving an ongoing annual
increase in female representation across
our most senior and executive populations.
As at March 2019, women made up 34% of
our senior leadership roles globally, whilst
representing 47% of our global workforce.
Subsequent to the year end, Deb Dulsky
was appointed to the HomeServe Executive
Committee in her role as Global Managing
Director of HVAC. At 1 April 2019 female
representation on our Executive Committee
stood at 10%.
Whilst 10% representation amongst the
Executive Committee and 34% overall
female representation within our senior
leadership is good, HomeServe recognises
that there is more to do to improve. Our
‘CEO Forum’ talent initiative has identified
several talented females as potential
medium term successors to Executive
Committee roles.
Critical talent imperatives for the business,
including leadership succession planning,
continue to be reviewed at least twice a year
by the HomeServe Executive Committee
and the People Committee.
Acquiring the skills we need to operate
the business both now in the future, also
requires a particular focus on building our
supply of talented front-line employees.
Within our UK business we currently have
110 people completing apprenticeships as
plumbers or gas engineers.
Diversity and Inclusion
Releasing the talent of every employee is
the ultimate aim of our approach to diversity
and inclusion, ensuring we gather different
perspectives that can influence our key
decisions.
Integral to bringing Diversity and Inclusion
to life in our UK business has been the
establishment of Employee Networks –
Gender, BAME, LGBT+ and Disability. The
role of the networks is to improve the
diversity and inclusiveness of HomeServe
from the perspective of the interest group,
and each has a remit to drive action and
create sustainable change.
All employee gender splits
Population
Total Employees at 31 March 2019
Total Employees at 31 March 2018
FY19
FY18
Male
3,311
3,134
53%
54%
Female
2,990
2,712
47%
46%
Total
6,301
5,846
External
Benchmark*
24.9%
16.3%
24.9%
N/A
Population
Male
Female
% Female
Plc Board (Executive & Non
Executive Directors)
Executive Committee
Executive Committee & their direct
reports
Global Senior Leaders
* Hampton Alexander report November 2018, FTSE 250.
7
5
20
108
2
0
9
56
22%
0%
31%
34%
26 | HomeServe plc Annual Report & Accounts 2019
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How is pay distributed?
This data shows the % split between men
and women across four equally sized
quartiles throughout HomeServe
in the UK.
Pay quartiles
45.4%
54.6%
50.0%
50.0%
Lower
Lower middle
17.5%
22.4%
82.5%
77.6%
Upper middle
Upper
Gender Pay
HomeServe UK has published its second
gender pay report for data as at 31 March
2019. HomeServe continues to have equal
pay for equal roles in all of its businesses,
however, our gender pay gap results are
broadly unchanged from last year, showing
that we still have progress to make. 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. Initiatives the
People Committee is overseeing and further
detail on our gender pay gap can be found
on our website https://www.homeserveplc.
com/~/media/Files/H/Homeserve-PLC-V2/
documents/annual-report-2018/gender-
pay-2018.pdf
What’s our pay and bonus gap?
The difference between the average hourly
rate of pay and difference between the
average bonus rate of pay of men and
women.
Hourly rates of pay
Bonus pay
The % of men and
women who
received a bonus
Mean
Median
20.8%
72.3%
28.6%
45.2%
Men
Women
83.6%
86.1%
These figures show the mean and median
difference in hourly rates and bonus pay
between men and women, as well as the
proportion of colleagues who received a
bonus.
HomeServe plc Annual Report & Accounts 2019 | 27
Resources, relationships and responsibilities
Relationships
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
Customers
HomeServe tries to create enduring
relationships with all of the stakeholders
shown on p12. Chief amongst these are
8.4m the customers who rely on us to
deliver great service at times when they need
us most. Our UK Customer Story (page 32)
illustrates this perfectly; it is not simply the
policyholder that matters, it is creating and
maintaining a relationships with everybody in
the home that truly makes a difference.
Our Customer Promises demonstrate
our commitment to our customers. The
promises exist in all of our Membership
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 have a strong reputation and
we continue to win awards for high levels of
customer service in all of our businesses.
In our Home Experts businesses, trades are
the customers who generate our revenue.
HomeServe is committed to building the
leading marketplace to match trades with
consumers for the mutual benefit of all.
682
customer reviews
AS OF 13/May/2019
28 | HomeServe plc Annual Report & Accounts 2019
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Policies
HomeServe’s robust corporate governance
drives the approach to key aspects of
corporate responsibility. All businesses were
deemed compliant with the policies listed
below throughout FY19. Recent acquisitions,
notably HVAC businesses in North America
and France, were subject to due diligence
procedures which did not highlight any
areas of concern and these businesses
are expected to adopt and comply with
HomeServe’s policies in FY20.
Anti-Fraud and Bribery
HomeServe conducts its business with
honesty and integrity and as a result
promotes an organisational culture from
the top down that does not tolerate any
act of fraud or bribery in any area of our
business, with customers, partners, suppliers
or any other party. Our full Anti-Bribery
and Corruption Policy can be found on
our website. https://www.homeserveplc.
com/~/media/Files/H/Homeserve-PLC-V2/
documents/content/anti-fraud-and-bribery-
policy.pdf
Human Rights
HomeServe does not have a standalone
human rights policy, but all businesses
operate under a framework of approved
policies which address such topics as
employment rights, equal opportunities,
data protection, and dignity at work.
We are equally as strict with regards to the
partners and third parties in our supply chain.
Our Modern Slavery Statement can be found
on our website https://www.homeserveplc.
com/~/media/Files/H/Homeserve-PLC-V2/
documents/content/homeserves-anti-
slavery-statement-v1.pdf
Our Code of Business Conduct can also
be found on our website https://www.
homeserveplc.com/~/media/Files/H/
Homeserve-PLC-V2/documents/content/
code-of-business-conduct.pdf
Whistleblowing
HomeServe is committed to the highest
standards of quality, honesty, openness
and accountability and employees have
an important part to play in ensuring we
deliver on this commitment. Employees
are often the first to notice when someone
in a company is doing something illegal or
improper but they may feel worried about
voicing their concerns. Our whistleblowing
policy makes it clear that anybody can raise
any concerns about illegal or improper
behaviour without fear of victimisation,
discrimination or disadvantage.
Health & Safety
With over 6,000 employees globally, the
health, safety and well being of HomeServe’s
people is central to what we do and we strive
to provide safe working environments and
support for all employees whether they are
routinely office-based or completing work in
our customers’ homes. HomeServe targets
zero work-related injuries and illnesses.
Our full whistleblowing policy can be found
on our website. https://www.homeserveplc.
com/~/media/Files/H/Homeserve-PLC-V2/
documents/content/whistle-blowing-policy.
pdf
People
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.
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.
David Bower, Chief Financial Officer, is
the director responsible for environment,
health and safety matters. Local HR
directors lead Health and Safety matters
in each business and are responsible for
executing Environmental and Health and
Safety policies, except in the UK where
responsibility rests with the Chief Risk Officer.
Any new businesses acquired are expected
to apply the same focus to comply with the
Group’s policies.
Inter-company safety benchmarking is
used to compare and monitor the safety
culture and levels of engagement across the
businesses.
A new Health, Safety and Environment
policy was launched during FY19 and was
applicable to all of our businesses including
our Home Experts businesses, Checkatrade
and Habitissimo.
During FY19 HomeServe saw an increase
in both the accident frequency rates and
lost time injury rates across our businesses.
HomeServe has not uncovered any
underlying driver for the increase, with
higher rates due to the growth of our HVAC
business line and an increasing number of
gas jobs in our UK Membership business.
The new policy and increased focus on
this area is also believed to have improved
the awareness and reporting of relevant
incidents. Each business will continue to
monitor rates with the expectation that
they will stabilise, before identifying further
actions to improve and reduce them
throughout FY20.
PwC was engaged to conduct Health and
Safety audits and Health and Safety remains
as an annual item on the Internal Audit
agenda.
HomeServe plc Annual Report & Accounts 2019 | 29
Resources, relationships and responsibilities
Responsibilities continued
In the UK, employee campaigns and training
are being used to raise awareness and
improve controls, risk assessments and safe
work processes. Near miss reporting has
contributed to improved awareness and
has resulted in the implementation of new
preventative controls.
France has continued to see low accident
rates in comparison to the national average
with employee awareness and mandatory
training around health and safety the key
driver. The implementation of a new Work,
Life Committee will promote improvements
to the wider working environment by taking
into account both work and personal
circumstances.
The US has conducted awareness sessions
to support with engagement and promote
an understanding of each employee’s
role in creating a safe environment. The
implementation of a new Environment,
Health and Safety enterprise system will
further improve the control, oversight
and management of safety incidents and
activities more efficiently through FY20.
Spain’s total accident rates continue to
be low in comparison with their market.
Health and Safety is a key component of
any new employee’s induction and new
online training has been made available to
all employees concerning mental health and
wellbeing.
Carbon emissions continue to be measured
across all Group companies and there has
been no prosecution or other enforcement
actions taken in respect of our business by
any of the health, safety or environmental
regulators.
Communities
HomeServe is committed to using its
unique skills and resources to aid causes
that our employees feel passionately about
and which make a positive impact on local
communities. Our business model and our
sources of value – in particular our people
and our trades networks – place us at an
advantage to help communities with issues
around the home and helping those who
are less privileged with housing and home
emergencies.
Spain continued its charity repairs scheme
in six cities with 184 volunteers helping to
benefit more than 1,500 people across
Valencia, Oviedo, Barcelona, Madrid, Seville
and Bilbao.
In France colleagues continued to build
the charitable partnership with “Habitat &
Humanisme” which began in 2014, this year
raising c. €5,000 from cycling and running
events and contributing c. €5,000 from free
repairs to those in social housing with the
help of our contractor network.
In early 2018, HomeServe France launched
the “BOOST!” programme, with the purpose
of giving financial support to its employees’
personal projects: entrepreneurship, special
support/involvement in an association or
sports event.
This programme was renewed in January
2019 and eight projects will be chosen in
May, with financial grants for all winners and
the in runners-up.
In 2019 HomeServe North America
launched its HomeServe Care’s foundation
with the mission of “Spreading Hope and
Supporting Communities One Home at a
Time”. The launch has brought together
existing initiatives and many new ones
to make a greater impact through one
coordinated approach. The foundation has
four pillars;
30 | HomeServe plc Annual Report & Accounts 2019
Caring For People;
completing home repairs for
eligible homeowners who
are not customers but find
themselves facing a home
emergency they cannot
handle financially
Caring For Community;
grants for municipalities and
non-profit organisations
to fund community based
projects
Caring For Vets; a newly
launched hiring initiative
to connect current and
transitioning military men
and women with the
HomeServe contractor
network with the objective
or placing veterans into paid
apprenticeships in the trades
Caring For Good; an
employee-directed
corporate charitable
matching programme
making it easier for
HomeServe employees
to participate in volunteer
efforts.
A number of “Caring For People” initiatives
took place during the year. 32 disadvantaged
homeowners received over $73,000 in
urgent repairs as a result of the programme.
These include jobs located in partner
territories such as Washington Suburban
(WSSC) in Maryland and in prospect cities
where we can demonstrate our community
engagement.
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HomeServe does not have an approved
policy on the environment, however all
individual businesses are encouraged to
take steps to consider and improve their
environmental impact and we recognise
that much of HomeServe’s core business
will lessen the environmental impact of our
customers e.g. the installation of new, more
efficient HVAC units to replace older models,
technology such as smart thermostats
to monitor and improved heating usage
around the home, LeakBot devices for the
early identification of leaks and subsequent
reduction of water loss, repairs of leaking
pipework / taps etc.
At a local level our UK business has
installed energy efficient LED lighting, car
charging points have been have installed
at the main site in Walsall, all sites have
recycling facilities, and there are bus pass
initiatives and a cycle to work scheme to
encourage employees to use other modes
of transport to reach their workplace. The
recent introduction of the Google software
platform to all support staff has also enabled
greater use of video conferencing to reduce
travel between sites.
With almost 1,000 engineer vans on the road
the UK fleet has a significant impact but we
already optimise routes to make engineers
more efficient and increase their jobs per
day, which has the added benefit of reducing
miles spent on the road. New claims and
network management software that is
already live and shared with our contractor
network in North America will also be
launched in the UK in FY20.
TeamServe
BUILDServe
COMMUNITYServe
iServe
HomeServe UK’s Community ambition is
to “Keep Life Moving for 25,000 members
of our local communities.” This is delivered
under the four main strategic pillars of its
CSR programme;
•
iServe encouraging volunteering with
matched donations and paid leave
• TeamServe for team-based chosen
charities with fundraising matched by
HomeServe
• CommunityServe supporting skills and
education through school governors and
school visits
• BuildServe undertaking refurbishment of
community facilities.
HomeServe UK has partnered with the
Midland Langar Seva Society for four years.
The society supports vulnerable families,
rough-sleepers and disadvantaged children.
This year the society was awarded the
Queen’s Golden Jubilee Award for voluntary
service – the highest award a voluntary
group can receive in the UK.
We continued our commitment to this
partnership, working on the refurbishment
of a mobile shower unit for use by rough-
sleepers, making up Christmas gift bags for
distribution to local children, and ongoing
donation of food, clothes and time which
have enabled food to be served seven days
a week in Walsall and one evening a week in
Birmingham.
In France colleagues have been doing their
bit to reverse a decline in the bee population.
Bees and other pollinating insects play an
essential role in ecosystems and through
the introduction of local hives the team has
seen their bees produce more than 60kg of
honey. The initiative has also played a role in
engagement with employees all receiving a
jar of HomeServe honey following the first
harvest this year!
In Spain our offices have a goal to reduce
office paper consumption with a colour limit
of 50%. The teams achieved a total of 40
sheets per employee per month, a reduction
of 36% compared to last year. The colour
target was not achieved but a figure of 52%
was a good reduction on the 57% in 2018.
On recycling our Spanish offices recycle
plastic caps and mobile phones to collect
funds for research into unusual diseases by
collaborating with two NGOs.
HomeServe plc Annual Report & Accounts 2019 | 31
Little
Plumber girl
“The man helped me
fix the bathroom”
We had a new baby on the way and four year old
Sophia was excited. But she still found time to get her
toolbox out and help Chris the HomeServe engineer.
He gave Sophia his torch, went through it all and
explained what he needed to do to fix the problem.
No wonder he fixed our leak so quickly and we could
get back to decorating the nursery.
#MyHappyHome
HomeServe.com/CustomerStories
32 | HomeServe plc Annual Report & Accounts 2019
32 | HomeServe plc Annual Report & Accounts 2019
3232 | HomeServe plc Annual Report & Accounts 2019
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In the UK an improved, coordinated approach
to pricing ‘returning customers’ contributed
to the reduction in customer numbers but
drove a further strong increase in income per
customer as the business prioritised delivering
additional products to existing customers,
rather than recruiting marginal customers
who frequently ‘dip in’ and ‘drop out’, and
only ever on highly discounted offers.
North America, France and Spain all made
progress implementing HomeServe’s
buy-and-build HVAC strategy, acquiring
well-run, local HVAC businesses, which
provide stand alone installation capability and
complement the Membership business with
the opportunity to provide annual services
and assistance cover. Total consideration in
respect of HVAC acquisitions was c. £35m.
Meanwhile the UK continued to integrate the
Help-Link business acquired in FY18 and to
develop channels to service the Membership
customer base.
HomeServe now reports Home Experts as a
separate segment, reflecting the size of the
opportunity and how management operates
and reviews the business. The segment
contains the results of Checkatrade in the UK,
Habitissimo in Spain and our newly launched
Home Experts France. New Markets contains
HomeServe’s international development
initiatives, including its Italian associate and its
Japanese joint venture.
Operating review
HomeServe had another very good year,
and continues to serve over 8m customers
around the world as the Group delivered
14% growth in adjusted profit before tax to
£161.7m (FY18: £141.7m). North America, in
particular, enjoyed another very successful
12 months and is now the Group’s largest
business.
Total customers at the year end were 8.4m
(FY18: 8.4m) as strong growth in North
America was offset by expected declines
in Spain following the end of the Endesa
partnership in May 2018 and in the UK in the
absence of a policy book acquisition this year.
France grew slightly with 1.1m customers
(FY18: 1.1m). The Group retention rate
remained strong at 82% (FY18: 82%).
In Membership ,the Group continues
to achieve its best returns on marketing
investment in North America. In order to
benefit from this, HomeServe is increasingly
more sophisticated in how it makes its
investments, prioritising them for the best
returns. In North America, HomeServe will
continue to drive customer acquisition and
grow HomeServe’s customer base. Similarly
in France, the extended partnership with
Veolia until 2026 and the new partnership
with Saur, France’s third largest water utility,
both present an opportunity to invest for
further customer growth. In Spain the focus
remains on establishing new partnerships for
the Membership business whilst the Claims
business continues to grow the total number
of jobs completed for its bancassurer partners.
Financial performance for the year ended 31 March
£million
UK
North America
France
Spain
Home Experts
New Markets
Inter-segment 1
Group
Revenue
Statutory operating
profit/(loss)
Adjusted operating
profit/(loss)
2019
391.7
333.4
104.6
140.8
40.4
—
(7.3)
2018
365.6
282.1
100.0
141.3
18.6
—
(7.9)
2019
68.4
54.7
26.8
17.5
(12.4)
(2.4)
—
2018
59.3
40.5
25.1
16.5
(4.8)
(1.6)
—
2019
66.0
67.6
33.3
17.7
(7.4)
(2.4)
—
2018
61.1
48.6
31.5
16.6
(2.8)
(1.6)
—
1,003.6
899.7
152.6
135.0
174.8
153.4
1 Inter-segment revenues include transactions with other Group companies removed on consolidation and principally comprise royalty and other similar charges.
Membership performance metrics for the year ended 31 March
UK
North America
France
Spain
New Markets
Group
Customer
numbers (m)
Income per
customer
Policy retention
rate
2019
2.0
4.0
1.1
1.1
0.2
8.4
2018
2.2
3.6
1.1
1.3
0.2
8.4
2019
£122
$96
€109
€57
—
n/a
2018
£106
$91
€106
€47
—
n/a
2019
79%
83%
89%
80%
—
82%
2018
79%
83%
88%
78%
—
82%
HomeServe plc Annual Report & Accounts 2019 | 33
Operating review
Operating review
United Kingdom
Affinity Partner
Households (m)
Policy retention
rate (%)
Income per
customer (£)
Policies (m)
Customers (m)
79%
2018: 79%
£122 15%
5.4m 8%
2.0m 10%
2018: £106
2018: 5.9m
2018: 2.2m
26m
2018: 26m
£million
Revenue
Net policy income
Repair network
Membership
HVAC
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
Financial performance
Net policy income increased by 10% as
reduced customer numbers were more
than offset by a 15% increase in income
per customer as the depth of cover of the
average policy holding of UK customers
continued to increase.
Repair network income was up 2% as
HomeServe completed 1.2m jobs (FY18:
1.2m) for its customers with a greater
proportion of higher value jobs completed
this year.
HVAC revenue rose by 21% to £25.5m
reflecting a full year’s ownership of Help-
Link, a HVAC installation business acquired in
August 2017.
Other revenue of £13.3m (FY18: £16.6m)
included transactions with other Group
companies and revenue from LeakBot sales
to home insurers.
Adjusted operating profit increased 8% to
£66.0m due to the higher revenue and the
full year impact of cost reductions made in
the prior year. The adjusted operating margin
was maintained at 17%.
The UK incurred two items recorded as
exceptional in the year due to their size and
incidence; an exceptional gain of £10.1m and
an exceptional cost of £5.5m, both of which
are excluded from adjusted performance
measures in the table above. A reconciliation
between the £66.0m adjusted operating
profit and £68.4m statutory operating profit
is provided within the glossary on page 193.
34 | HomeServe plc Annual Report & Accounts 2019
2019
2018
Change
244.0
108.9
352.9
25.5
13.3
391.7
(325.7)
66.0
17%
221.6
106.3
327.9
21.1
16.6
365.6
(304.5)
61.1
17%
10%
2%
8%
21%
(20%)
7%
7%
8%
—
The exceptional gain related to contingent
payments due to the past-owners of Help-
Link, which had been payable upon hitting
certain volumes of boiler installations. The
business has now been fully integrated with
the UK Membership business and although
the volume of installs continues to increase,
HomeServe does not expect to achieve
the stretch targets required to trigger the
contingent payments that would be due
to the previous owners. As such, and in
accordance with IFRS, the fair value of the
associated liability has been reduced to nil
and taken to the income statement as an
exceptional gain for the year.
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drive efficiencies in the field with both
HomeServe’s directly employed and
subcontracted engineers. While these
systems will give rise to a higher ongoing
amortisation charge, this charge is expected
to be offset by operational benefits and
efficiencies.
The UK network of 989 directly employed
engineers and 315 subcontractors
completed 1.2m jobs (FY18: 1.2m). The
directly employed network continues to fulfil
almost 90% of water jobs and 60% of heating
jobs with the remainder of work completed
by the subcontract network. In the HVAC
business line, Help-Link completed 11.1k
boiler installations (FY18: 9.5k).
Customer satisfaction remains high with
Trustpilot and Reevoo scores of 8.6 and 96%
(FY18: 8.2 and 95%).
The focus for LeakBot has been on turning
test relationships with insurers into larger
volume deals. The device itself is proven
and the wifi model delivers the potential
to scale the opportunity. HomeServe now
has an approach which is attractive for both
HomeServe and home insurers based upon
a rental model for the LeakBot devices plus
insurers paying HomeServe for a leak finding
and fixing service.
Looking forward the UK business will lead
certain global Membership initiatives aimed
at reinventing customer service and product
offers. Already live is a test for HomeServe
Now, a technology-led claims process
utilising Smart IVR and routing customer
calls directly to available engineers in a local
radius with engineers accepting the job on a
‘fastest finger first’ basis and attending within
an hour. This is a quick and easy experience
and one that can improve efficiency for
HomeServe and the claims experience for
the customer.
The exceptional cost mostly related
to redundancies and other associated
charges incurred in respect of changes
to the organisational design of the UK
business. Marketing and other support
headcount decreased, as the business
reduces its reliance on direct mail activity
and prepares for the launch of new
system implementations and operational
improvements.
Operational performance
UK customers were 2.0m (FY18: 2.2m)
and retention remained strong at 79%
(FY18: 79%) with the lower customer count
principally reflecting the absence of policy
book acquisitions in the year and a focus
on ‘returning customers’. Policy book
opportunities continue to be appraised but
no acquisitions were completed in FY19 as
there had been in previous years.
A small proportion of customers each year
take advantage of HomeServe’s introductory
low pricing, but then go on to claim at higher
than average frequencies for what are often
pre-existing problems. These are generally
customers who have already benefited
from an introductory offer in prior years.
With improved insight from new systems,
HomeServe is better able to identify these
customers and tailor its offers to them. In
particular, while such returning customers
are welcome to rejoin, introductory rates are
removed to prevent ‘dipping in and dropping
out’ and, importantly, to reduce the burden
the associated higher costs place on its loyal
customer base. This change in strategy,
together with the termination of certain low
priced stand-alone products, has resulted in
a reduction in customers this year, but has
removed a largely unprofitable element of
the customer base and has contributed to
the 15% increase in income per customer.
During the year, the UK signed four new
partners in the retail energy sector: Co-Op
Energy, Green Star Energy, SO Energy and
Tonik. There are an estimated 0.5m energy
switchers in the UK each month and the new
partnerships present an exciting opportunity
for HomeServe to introduce its products
within the switching process.
Two new systems will go fully live in
the UK in FY20: the core customer
management system and the claims /
network management system. As previously
reported, the customer management
system will provide a single, holistic view
of our customers, which in turn will drive
better conversations between agents
and customers and offer improved cross
sell and retention tools as well as driving
down average call times. The network
management system will improve claims
handling and job deployment and will
HomeServe plc Annual Report & Accounts 2019 | 35
Operating review
Operating review
North America
Affinity Partner
Households (m)
Policy retention
rate (%)
Income per
customer ($)
Policies (m)
Customers (m)
60m 11%
83%
2018: 55m
2018: 83%
$96 5%
2018: $91
6.7m 19%
4.0m 13%
2018: 5.6m
2018: 3.6m
$million
Revenue
Net policy income
Repair network
Membership
HVAC
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
£million
Revenue
Net policy income
Repair network
Membership
HVAC
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
36 | HomeServe plc Annual Report & Accounts 2019
2019
2018
Change
396.8
20.5
417.3
17.6
1.3
436.2
(348.1)
88.1
20%
349.1
12.0
361.1
14.1
—
375.2
(310.8)
64.4
17%
14%
69%
16%
27%
100%
16%
12%
37%
3ppts
2019
2018
Change
303.3
15.7
319.0
13.4
1.0
333.4
(265.8)
67.6
20%
262.4
9.6
272.0
10.1
—
282.1
(233.5)
48.6
17%
16%
64%
17%
28%
100%
18%
14%
39%
3ppts
Financial performance
Total revenue increased by 16% to $436.2m
driven by another strong Membership
performance. Net policy income increased
by 14% to $396.8m due principally to higher
customer numbers year on year as a result of
continued strong growth and the successful
completion of the second tranche of the
Dominion Products and Services (DPS)
policy book in October 2018.
Repair network revenue comprises jobs
completed by the directly employed network
and reflects the growing volume of claims
from the larger customer base.
Total HVAC revenue grew 27% to $17.6m
due principally to a 20% increase in total
installations to c. 5k and a rise in the average
revenue per install driven by an increased
proportion of higher value jobs.
With the DPS policy book now fully
integrated and an increase in the number
of policies held per customer, income per
customer rose 5% to $96.
Adjusted operating costs rose 12% to
$348.1m due to continued business growth,
but at a lower rate than revenue, reflecting
the increasing scale and operational
leverage of the North American business.
This resulted in an adjusted operating margin
of 20%, up by three percentage points
compared to the prior year.
With the continued success of the North
American business its stated target of $160m
of adjusted operating profit is within sight
and with good progress in already achieving
a 20% margin and income per customer
getting close to $100, it is clear that $160m
will be a milestone and not the end point for
the North American business.
Operational performance
North America is now HomeServe’s largest
business in terms of both customer numbers
and adjusted operating profit, overtaking the
UK. Customer numbers increased by 13% to
4.0m including 0.2m added following the
successful integration of the second tranche
of Dominion. US homeowners continue to
be highly receptive to HomeServe’s products
and 1.2m gross new customers were added
in the year through annual marketing
campaigns.
The policy retention rate remained high
at 83% (FY18: 83%), and allied to a Better
Business Bureau rating maintained at A+, is a
good indicator of high customer satisfaction.
The business was also honoured with
33 Stevie Awards for Sales & Customer
Service and received a Grand Stevie Award,
recognising HomeServe as the third most
honoured organisation in the competition.
Utilities value the ongoing commission
streams generated by partnering with
HomeServe but they also value the high
levels of service HomeServe provides to their
customer base. This forms a key part of the
proposal to win new partnerships. Successful
business development led to an average
of three new partners being signed every
week and HomeServe North America now
works with almost 700 partners with access
to 60m households under a utility brand.
The National League of Cities endorsement
was renewed in the year and HomeServe
also works with 16 individual State Leagues,
bringing further endorsement at a more
localised, State level.
North America continues to lead on the
Group’s HVAC strategy and acquired three
new HVAC businesses in the year, of which
Cropp Metcalfe in March 2019 was the
largest. The acquisition nearly doubles
HomeServe’s employed HVAC workforce
and is the next step in building a share of the
estimated $29bn annual HVAC market in
the US. Cropp Metcalfe meets HomeServe’s
criteria of a well-run, owner-managed
business with a strong local reputation and
will continue to provide its services to its
existing customer base as well as now also
providing installation services and repairs in
an area (Washington D.C.) of existing high
policy density.
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HomeServe’s network of c.5k contractors
and 453 directly employed engineers (FY18:
c.4k contractors and 170 directly employed
engineers) completed 0.5m jobs in FY19, up
21% on the prior year. HomeServe provides
a steady stream of work for its contractors
and shares technology (job scheduling,
job routing software) that improves their
efficiency and service. Consequently there
is high demand to join the network, but
of all contractors applying only c.10% are
approved; this means that HomeServe works
with only the very best contractors who
provide the excellent levels of service that
HomeServe and its customers demand. The
number of directly employed engineers
increased as a result of the HVAC acquisitions
in the year.
In January 2019 HomeServe made
a strategic investment in consumer
technology company Centriq, purchasing
a 20% stake for $5m. Centriq’s app makes
it easy for users to capture the details of
items in their home, e.g. electronics and
appliances simply by taking a photo of the
product label. Having captured details, the
app then provides users with resources
to troubleshoot problems themselves,
or with the details to obtain repair help
and access to technicians when service
is needed. A HomeServe branded version
of the app will prove valuable in further
engaging the existing 4.0m customer base
and is a potential way to help acquire new
customers.
Centriq is one of several initiatives to engage
more customers digitally and to take
advantage of technology that could improve
the customer journey or increase operating
efficiency. A smart IVR was launched during
the year to enable customers to book
tune-ups over the phone without agent
intervention. This has proven to be a slick
process for the customer and frees up
agents to dedicate their time to providing
high levels of customer service on more
complicated calls. After its successful roll
out in North America, the technology is
now being introduced into the UK, France
and Spain.
HomeServe plc Annual Report & Accounts 2019 | 37
Operating review
Operating review
France
Affinity Partner
Households (m)
Policy retention
rate (%)
Income per
customer (€)
Policies (m)
Customers (m)
18m 20%
89% 1ppt €109 3%
2018: 15m
2018: 88%
2018: €106
2.3m
2018: 2.3m
1.1m 2%
2018: 1.1m
€million
Revenue
Net policy income
Repair network
Membership
HVAC
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
£million
Revenue
Net policy income
Repair network
Membership
HVAC
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
38 | HomeServe plc Annual Report & Accounts 2019
2019
2018
Change
115.6
0.5
116.1
1.7
0.9
118.7
(80.9)
37.8
32%
111.7
0.5
112.2
1.0
—
113.2
(77.5)
35.7
32%
3%
(2%)
3%
67%
100%
5%
4%
6%
—
2019
2018
Change
101.9
0.4
102.3
1.5
0.8
104.6
(71.3)
33.3
32%
98.6
0.4
99.0
1.0
—
100.0
(68.5)
31.5
32%
3%
(3%)
3%
50%
100%
5%
4%
6%
—
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Approximately 10m French households
receive their water supply from small to
mid-sized municipals and the French team
has now commenced attempts to access
this channel by learning from the successful
programme in North America where
HomeServe already works with a large
number of municipals.
Deregulation in the Energy sector in France
is accelerating with more than 40 energy
retailers taking market share from the
larger incumbents and the French business
has started to build a strong business
development pipeline to partner with the
new challengers.
Following the acquisition of Electrogaz,
an HVAC business in the south of France,
last financial year, the French business
made two further HVAC acquisitions in
FY19, Société V.B. Gaz and Etablissements
Descamps. Descamps adds to HomeServe’s
HVAC presence in the South of France
and complements last year’s acquisition
of Electrogaz whilst V.B. Gaz is based just
outside Paris. Annual domestic boiler
services are mandatory in France, so the
HVAC market is a particularly attractive
opportunity and the two acquisitions
represent a further step in HomeServe’s
buy-and-build strategy to capture more of
the revenue generated in the HVAC lifecycle
from installation to annual service contract
and one-off repairs.
Financial performance
Total revenue increased by 5% to €118.7m
(FY18: €113.2m) primarily due to the higher
customer count and an increase in HVAC
revenue as a result of a full year’s income
from Electrogaz, a business acquired part
way through the prior year.
Adjusted operating costs rose slightly, by
4%, to €80.9m largely linked to the HVAC
growth. Adjusted operating margin was
32%, in line with the prior year, as adjusted
operating profit grew 6% to €37.8m. The
future adjusted operating margin is expected
to be around 30% as the business invests
in its business development opportunities,
notably HVAC and customer acquisition with
new partners.
Operational performance
France had a strong year as it once again
returned the highest retention rate in the
Group, up one percentage point to 89%
(FY18: 88%), and total customers increased
by 2% to 1.1m. For the third year running,
France’s focus on maintaining high customer
service standards was reflected in the award
of Élu Service Client de l’Année.
A key component of HomeServe’s success in
France has been its partnership with Veolia.
The partnership began as a joint venture
when HomeServe first entered France
in 2001, continued as a 10 year affinity
marketing agreement after HomeServe
bought Veolia’s share in 2011 and has now
been extended early until 2026. The deal
secures ongoing support for direct mail
and renewal activities and also introduces
new channels and opportunities to drive
further growth through Veolia’s HomeFriend
initiative. As well as new telephony and digital
channels, Veolia, through HomeFriend, will
sell HomeServe’s products directly in its
own call centre, giving rise to similar partner
payments within capital expenditure as seen
with Suez (also in France) and previously
Endesa in Spain.
The French business now works with the
top three French water utilities having signed
a new partnership with the third largest
provider, Saur, in December 2018. The Saur
relationship will enable marketing campaigns
under a fresh brand to c.4.0m households.
Having signed the partnership in December,
test campaigns were quickly launched in the
final quarter of FY19 with encouraging early
results.
HomeServe plc Annual Report & Accounts 2019 | 39
Operating review
Operating review
Spain
Affinity Partner
Households (m)
Policy retention
rate (%)
Income per
customer (€)
Policies (m)
Customers (m)
– 100%
2018: 12m
80% 2ppts €57 19%
1.3m 15%
1.1m 16%
2018: 78%
2018: €47
2018: 1.5m
2018: 1.3m
€million
Revenue
Net policy income
Repair network
Membership
HVAC
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
£million
Revenue
Net policy income
Repair network
Membership
HVAC
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
40 | HomeServe plc Annual Report & Accounts 2019
2019
2018
Change
62.7
92.0
154.7
5.0
159.7
(139.9)
19.8
12%
63.0
97.1
160.1
—
160.1
(141.2)
18.9
12%
(1%)
(5%)
(3%)
100%
—
(1%)
5%
—
2019
2018
Change
55.3
81.1
136.4
4.4
140.8
(123.1)
17.7
13%
55.6
85.7
141.3
—
141.3
(124.7)
16.6
12%
(1%)
(5%)
(3%)
100%
—
(1%)
5%
1ppt
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The Spain team is also exploring
opportunities in the water sector as it
looks to agree new partnerships with
water municipals.
The Claims business (“Repair network”)
continued working with a number of Spain’s
largest bancassurers, managing a large
volume of claims across multiple trades
and is exploring business development
opportunities to expand its partnerships
further. Jobs continue to be completed by a
network of over 1,907 sub contractors and
190 franchisees (FY18: 1,838 subcontractors
and 192 franchisees).
The strong retention rate in the Membership
business and the continued strength of the
Claims business means that HomeServe
expects no significant impact on adjusted
operating profit through FY21 as it continues
to seek new partnerships.
Financial performance
Total revenue was broadly flat at €159.7m as
lower repair network revenue was offset by
new HVAC revenue generated by Oscagas, a
company acquired in July 2018.
Repair network revenue was down 5%
principally due to the mix of completed work
as the Claims business closed 0.8m jobs
(FY18: 0.8m).
Net policy income fell by 1% to €62.7m as the
effect of the lower customer count following
the end of the Endesa partnership was
offset by a maturing policy book and a 19%
increase in income per customer to €57.
Adjusted operating costs fell 1% to
€139.9m due to the mix of work in the
Claims business and lower marketing and
commission spend following the end of the
Endesa partnership in May 2018, offset by
costs incurred in the new HVAC business.
Operational performance
As announced last year end, the Endesa
partnership in Spain came to an end in May
2018. Acquisition marketing ceased from
this date and Endesa was removed from the
Spanish household count. As expected total
customers therefore reduced in Spain and at
the year end were down by 16% to 1.1m.
With a maturing book and fewer Year 1
customers, the retention rate rose by 2
percentage points to 80%, and income per
customer increased by 19% to €57: a strong
result which underpins the Membership
revenue in the short-term as the business
continues to explore new partnership
opportunities.
As well as attempting to unlock another
sizeable partnership, the Spanish business is
also pursuing opportunities with retail energy
providers, water municipals and telcos. The
retail energy opportunity looks to exploit
the nascent switching market in Spain and
although only small volumes so far, the take
up rates with a new partner, PODO, have
been very encouraging.
HomeServe plc Annual Report & Accounts 2019 | 41
Operating review
Operating review
Home Experts
£million
Revenue
Checkatrade
Habitissimo
Total revenue
Adjusted operating costs
Adjusted operating loss
Performance metrics
Checkatrade trades (k)
Habitissimo trades (k)
Checkatrade website hits (m)
Habitissimo website hits (m)
2019
2018
Change
29.8
10.6
40.4
(47.8)
(7.4)
2019
36
28
17.9
83.2
8.3
10.3
18.6
(21.4)
(2.8)
2018
29
29
16.1
81.3
258%
2%
116%
123%
164%
Change
23%
(2%)
11%
2%
Financial performance
FY19 was the first year of full ownership of
Checkatrade. On a pro forma 12 month
basis, revenue increased strongly by 33%
from £22.4m to £29.8m driven by pricing
initiatives implemented in the year and a
23% growth in the number of trades. The
increased revenue has been reinvested to
drive future growth.
Habitissimo revenue was broadly flat year
on year as HomeServe focused on proving
out the preferred subscription model with
Checkatrade. This model will be introduced
to Habitissimo’s core market in Spain over
the course of the next 12 months.
The increased adjusted operating loss of
£7.4m (FY18: £2.8m) was principally due to
a full year’s ownership of Checkatrade and
increased investment in initiatives to drive
trades and consumer growth as well as the
launch of Home Experts in France.
Operating performance
In FY19 Checkatrade made significant
progress as it began to position itself for
future growth. Central to this has been the
recruitment of a new senior management
team with experience in fast growing digital
businesses, under the leadership of new
CEO Mike Fairman, formerly CEO of giffgaff.
trades to grow their business. Trades value
the benefits their membership brings; the
endorsement of being extensively checked
and approved, procurement discounts,
a webpage and online presence, but
more than any other factor, trades join
Checkatrade to obtain a consistent flow of
consumer enquiries and jobs.
The Checkatrade model of a free to access
directory of trusted, local trades is the one
preferred by consumers. In order to achieve
HomeServe’s ambitious plans to expand
and grow this model, the new Checkatrade
team is progressing a number of initiatives to
increase trades supply, increase consumer
demand and transform its operations into a
fully digital business.
The balance of supply and demand is
fundamental to recruiting and retaining a
satisfied trades base and Checkatrade is
dedicated to generating work and helping
There are an estimated 600,000 trades
in the UK, all of whom could benefit from
Checkatrade membership and Checkatrade
has an ambition to recruit 200,000 of these.
Owning the supply of trades will create a
virtuous circle where consumers come
to Checkatrade because it has the most
trusted, local trades and in turn trades join
and remain on Checkatrade because it is the
site consumers use.
Trades recruitment becomes much easier
when trades can be shown the consumer
demand in their area that will generate work
42 | HomeServe plc Annual Report & Accounts 2019
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for them and more than justify their monthly
membership fee. FY19 saw an 11% increase
in website visits and a 23% increase in the
number of trades to 36k. Checkatrade has
the largest number of active, paying trades
of any platform in the UK today. As the
business grows consumer demand, and with
outbound telemarketing to trades now live,
the aim remains to step change the number
of trades on the platform towards the target
of 200,000.
Checkatrade has built a market leading
position from its reputation for extensive
background checks and vetting and by
building its brand through TV and radio
advertising and sponsorship of sporting
events, e.g. the Checkatrade Trophy. Under
the guidance of the new management
team, the business is becoming more
sophisticated in how it appraises marketing
spend and more selective as to where it
allocates its investments. TV and radio
advertising will continue to build the brand
and drive consumers directly to the website
but it is now accompanied by targeted
online marketing, e.g. purchase of search
terms, and affiliate referral arrangements to
drive a greater proportion of existing online
searches for repairs and improvements to
Checkatrade.com.
Complementing extensive vetting and
checks is the ongoing independent feedback
provided by consumers. There are now over
4.4m reviews on Checkatrade.com with over
50k new reviews added every month.
An element lacking in the consumer offer
today is trade availability. Trades are often
booked up far in advance and consumers
may need to contact several trades before
finding one with availability. Checkatrade
Now connects consumers with an available
trade for an urgent job request. Next to be
developed is a“Search For Me” function for
consumers who simply want an available
trade and do not want to search the
directory themselves.
Shortly after the year end HomeServe
launched Home Experts in France, initially in
Lyon. The Lyon test area will prove out the
Checkatrade model in a ‘greenfield’ market,
growing supply and demand in the Lyon area
before expanding to other regions.
As well as helping to launch Home Experts
in France, Habitissimo continued to deploy
its lead generation model in Spain and in its
other markets in Europe and LATAM. Trade
and website visitor numbers remained flat for
FY19 but the focus will be on growing these
in FY20 as Habitissimo also starts to adopt
the preferred user experience.
Operating review
New Markets
£million
Adjusted operating loss
2019
(2.4)
2018
(1.6)
Change
150%
Mitsubishi Corporation is not itself a utility
but it does have wide ranging relationships
with private and public utilities throughout
Japan, which should enable HomeServe
Japan to agree utility partnerships and build
a business to provide home emergency and
repair services in electrics, plumbing, gas,
heating, ventilation and air conditioning. The
business will be based on a Membership
model, and will also offer on-demand
services to residential customers.
HomeServe and Mitsubishi Corporation have
each agreed an initial cash investment of
£2 million into the joint venture with the
ongoing annual investment by HomeServe
to be covered within the overall New Markets
spend.
HomeServe’s New Markets segment now
contains the results of its international
development operations including its
Italian associate, Japanese joint venture and
business development initiatives in other
new geographies.
Total investment in New Markets was £2.4m
(FY18: £1.6m) with the increase principally
driven by a larger international development
team and activities to agree the joint venture
with Mitsubishi Corporation in Japan.
HomeServe expects an ongoing annual
investment of between £2m to £3m in
this area.
The Italian associate, in partnership with
Edison Energia, had 0.2m customers in line
with the prior year.
On 14 February 2019, HomeServe entered
into an agreement with Mitsubishi
Corporation to establish a joint venture in
Japan. Japan is the world’s third largest
economy with 53 million residential
households and recent liberalisation of
the gas and electricity markets, together
with access to the water market for private
concessions, has created a positive
environment for HomeServe’s utility branded
home assistance model.
HomeServe plc Annual Report & Accounts 2019 | 43
Financial review
Financial
review
These financial results have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted for use by the European Union.
Group statutory results
The headline statutory financial results for the Group are presented below.
£million
Total revenue
Operating profit
Net finance costs
Adjusted profit before tax
Amortisation of acquisition intangibles
Exceptional items
Restructuring costs
Fair value movement on contingent
consideration liabilities
Statutory profit before tax
Tax
Profit for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
2019
1,003.6
152.6
(13.1)
161.7
(26.8)
(5.5)
10.1
139.5
(31.2)
108.3
108.5
(0.2)
108.3
2018
899.7
135.0
(11.7)
141.7
(18.4)
—
—
123.3
(27.4)
95.9
96.3
(0.4)
95.9
44 | HomeServe plc Annual Report & Accounts 2019
Profit before tax
The Group delivered 13% growth in profit
before tax to £139.5m driven principally by
further strong growth in North America.
The performance of HomeServe’s individual
businesses is considered in the Operating
review.
Net finance costs
Net finance costs rose to £13.1m (FY18:
£11.7m) due to the unwinding of interest
on deferred consideration in relation to
previous M&A activity, the higher average
net debt balance year on year and the fixing
of a portion of interest as a result of the new
private placement.
Exceptional items
The Group incurred two exceptional items in
the year (FY18: nil).
An exceptional cost of £5.5m, mostly related
to redundancies and other associated
charges incurred in respect of changes
to the organisational design of the UK
business. Marketing and other support
headcount decreased, as the business
reduces its reliance on direct mail activity
and prepares for the launch of new
system implementations and operational
improvements.
Offsetting the charge was an exceptional
gain of £10.1m relating to a fair value
movement on contingent consideration
payable to the previous owners of Help-Link
upon hitting certain stretch target volumes
of boiler installations. At 31 March 2019 the
Group determined that the likelihood of
hitting these targets was now remote and
that the fair value of the outstanding liabilities
was £nil.
Amortisation of acquisition intangibles
Statutory profit before tax is reported after
the amortisation of acquisition intangibles
and the exceptional items noted above.
Such amortisation relates to customer and
other contracts held by businesses, which
were acquired by HomeServe as part of
business combinations and asset purchases.
The amortisation of acquisition intangibles of
£26.8m (FY18: £18.4m) increased principally
due to annual charges relating to the
acquisition of tranche 1 of the policy book of
Dominion Products and Service Inc. (DPS) in
North America and Checkatrade in the UK,
which were acquired part way through the
prior year together with the completion of
tranche 2 of DPS on 26 October 2018.
A reconciliation between adjusted and
statutory amounts is included with the
Glossary at the end of this announcement
along with commentary on HomeServe’s
use of adjusted items as an Alternative
Performance measure.
Tax strategy
The Group has continued to operate within
the tax strategy approved by the Board
in May 2018 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. The UK elements of the tax
strategy document are publicly available on
the HomeServe plc website as required by
UK legislation.
The Group tax strategy covers how
HomeServe:
1. Applies tax governance on an ongoing
basis and maintains strong internal
controls in order to substantially reduce
tax risk;
2. Will not engage in artificial transactions
the sole purpose of which is to reduce
tax;
3. Holds a strategic aim to retain its low tax
risk rating as determined by the UK Tax
Authority’s Business Risk Review process;
and
4. 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 £31.2m (FY18: £27.4m), representing
an effective tax rate of 22% (FY18: 22%). 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% (FY18: 19%), which
results in a Group effective rate higher than
the headline UK rate. As the proportion
of the Group’s profits earned overseas
continues to grow, the effective tax rate is
expected to increase slightly.
Cash flow and financing
HomeServe’s business model continues
to be highly cash generative with cash
generated by operations in FY19 of £202.2m
(FY18: £164.2m), representing a cash
conversion ratio against adjusted operating
profit of 116% (FY18: 107%). The cash
conversion ratio is expected to remain in
excess of 100%.
Working capital
Working capital increased by £30.4m in FY19
reflecting continued growth in all businesses,
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Group cash flow
£million
Adjusted operating profit
Exceptional items
Amortisation of acquisition intangibles
Operating profit
Impact of exceptional items
Depreciation and amortisation
Non-cash items
Increase in working capital
Cash generated by operations
Net interest and associated borrowing costs
Taxation
Capital expenditure
Repayment of finance leases
Free cash flow
Acquisitions of investments
Acquisitions of subsidiaries
Acquisitions of policy books
Dividend from associate
Equity dividends paid
Issue of shares (net of associated issue costs)
Net movement in cash and bank borrowings
Impact of foreign exchange and other
non-cash items
Net debt acquired
Finance leases
Opening net debt
Closing net debt
2019
174.8
4.6
(26.8)
152.6
(4.6)
73.9
10.7
(30.4)
202.2
(9.9)
(31.7)
(66.9)
(0.6)
93.1
(5.4)
(37.5)
(48.8)
—
(65.0)
2.2
(61.4)
(5.2)
(0.1)
(0.2)
(237.8)
(304.7)
2018
153.4
—
(18.4)
135.0
—
62.6
9.0
(42.4)
164.2
(10.5)
(27.2)
(71.1)
(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)
in particular in North America following
tranche 2 of Dominion and in Home Experts
due to the changes being implemented at
Checkatrade, offset by the timing of certain
supplier and underwriter payments.
Capital expenditure
Capital expenditure included £51.9m in
relation to ordinary and transformational
capital expenditure, the largest elements of
which related to customer facing systems
throughout the Group including the core
customer management system and claims
handling and job deployment systems in the
UK. These systems are in the final stages of
user testing before being rolled out during
the coming year. This will give rise to an
increased annual software amortisation
charge, which is expected to be offset
by increased agent efficiency through
shorter call handling times, higher engineer
utilisation rates and more targeted cross sell
and retention marketing opportunities.
Total partner payments and contract costs
amounted to £15.0m an expected reduction
on the prior year (FY18: £16.5m), due to the
end of the Endesa contract in Spain.
Capital expenditure in FY20 is expected to
be in line with FY19. Membership capex is
expected to reduce, in line with previous
guidance and HomeServe now expects to
invest more in Home Experts to support its
growth plans as it seeks to transform the
digital experience at Checkatrade and to
scale the business efficiently.
HomeServe plc Annual Report & Accounts 2019 | 45
Financial review
Financial review
continued
Acquisitions
The £5.4m acquisition of investments
related to a 20% investment in consumer
technology company Centriq, amounting
to $5.0m, and an initial £1.5m cash outflow
in relation to the £2m of investment that
HomeServe has committed to its joint
venture with Mitsubishi Corporation in
Japan.
The Group incurred a net cash outflow in
respect of business combinations of £37.5m
in the year (FY18: £54.2m), principally in
respect of £27.1m from the acquisition of
HVAC businesses to advance the Group’s
buy and build initiative, including Cropp
Metcalfe, Gregg Mechanical and Geisel in
North America, Oscagas in Spain and VB Gaz
in France.
In addition, there was a further outflow of
£10.4m relating to deferred consideration
in respect of business combinations in prior
periods, principally Checkatrade and Help-
Link in the UK.
A cash outflow of £48.8m was incurred in
relation to policy book acquisitions in North
America and the UK. Tranche 2 of the policy
book of DPS in North America completed
on 26 October 2018 at a cost of £41.6m.
The balance related to deferred payments
from the prior year acquisitions of tranche 1
of DPS and also the policy book acquisition
from the AA in the UK.
HomeServe continues to identify and assess
M&A opportunities in all of its businesses,
including further HVAC investment as it
expands its buy and build initiative. Policy
book M&A remains a low risk approach
to accelerating growth and HomeServe
continues to attempt to unlock opportunities
in all countries but especially in North
America.
Earnings per share
Basic earnings per share for the year
increased from 30.2p to 32.7p, an increase
of 8%. On an adjusted basis, earnings per
share increased 12% from 33.6p to 37.5p.
The weighted average number of shares
increased from 318.9m to 331.7m principally
due to the equity placing which occurred
part way through the prior year on 19
October 2017 and new shares issued in
fulfilment of a number of share schemes that
vested 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 16.2p per share (FY18:
14.4p) to be paid on 2 August 2019 to
shareholders on the register on 5 July 2019.
Together with the interim dividend declared
in November 2018 of 5.2p (November 2017:
4.7p), this represents a 12% increase in the
total ordinary dividend payment for the
year of 21.4p (FY18: 19.1p), which is 1.75x
covered by the FY19 adjusted earnings per
share (FY18: 1.76x). As previously indicated,
the Board continues to adopt a progressive
dividend policy.
Financing
In FY19 the Group continued to target
net debt in the range of 1.0-2.0x adjusted
EBITDA, measured at 31 March each year.
With net debt of £304.7m and adjusted
EBITDA of £221.9m the Group was inside this
range at 1.4x and well within its total facilities
of c.£700m at the year end.
Given its strong financial position, the
Group is prepared to see leverage outside
this range for reasonable periods of time if
circumstances warrant, and the range itself
remains subject to periodic review. Due to
the ordinary seasonality of the business,
net debt is expected to increase at the next
half year.
On 25 October 2018 HomeServe arranged
£174.2m funding via a US Private Placement,
with a number of notes totalling $125.0m
and £80.0m and with maturity dates in the
range of 7 to 12 years.
Net interest and borrowing costs paid
reduced slightly to £9.9m (FY18: £10.5m) as
the prior year included higher one-off costs
associated with the renewal of the Group’s
bank debt facilities.
Foreign exchange impact
The impact of changes in the Euro and
USD exchange rates between FY18 and
FY19 resulted in a £5.3m increase in the
reported revenue and a £1.5m increase in
adjusted operating profit of the international
businesses as summarised in the table
above largely as a result of a beneficial
movement in the US dollar. 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 FY19 average USD rate of
1.31 and the Euro rate of 1.13 would have had
approximately a £5.2m and £4.5m impact
respectively on full year adjusted operating
profit. The impact of future movements in
the Yen in FY20 following HomeServe’s
new joint venture in Japan is not expected
to be material.
46 | HomeServe plc Annual Report & Accounts 2019
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North America
France
Spain
Home Experts 1
Total International
$
€
€
€
Average exchange rate
Revenue Adj. operating profit
Effect on (£m)
2019
1.31
1.13
1.13
1.13
2018
1.33
1.13
1.13
1.13
Change
2%
—
—
—
2019
5.5
(0.2)
—
—
5.3
2019
1.6
(0.1)
–
–
1.5
¹ Home Experts is reported in GBP due to the different currencies used by the operating businesses within the segment. This table shows the impact of foreign exchange movements in the
Euro for the results of Habitissimo.
Accounting standards
FY19 is the first year the Group has prepared
results under IFRS 9 Financial Instruments
and IFRS 15 Revenue from Contracts with
Customers. IFRS 15 has not had a material
impact on the timing of the Group’s revenue
recognition, with the principal effects being
limited to material reclassifications to the
presentation of certain contract, receivable
and payables balances in the Group Balance
Sheet. None of these amendments had any
impact on income, net assets or working
capital. IFRS 9 had no significant impact on
the financial statements. Further details are
included in note 2.
IFRS 16 Leases is effective for the Group from
1 April 2019. IFRS 16 will cause a material
decrease in operating costs largely offset
by a material increase in the combined
depreciation and interest expenses, resulting
in an increase to adjusted EBITDA but a net
immaterial impact on profit before tax. The
operating lease charge recorded in operating
costs in FY19 was £12.9m (FY18: £12.7m).
Non-current assets and gross liabilities
are both expected to increase by between
£45.0m to £60.0m with net assets remaining
unchanged.
Customers
IFRS15 defines a customer as ‘a party that has
contracted with an entity to obtain goods
or services’. In the Membership businesses
where the Group acts as an intermediary
selling contracts and insurance policies to
end consumers, the ‘IFRS 15 customer’ is
considered to be the underwriter with which
the Group has contracted to sell policies.
This is different, however, from how the
Group markets and communicates the
value of its products and services to end
consumers. Here, the businesses strategy
and communications (both internally and
externally) refer to the end consumer as
the customer. As a result, for the purposes
of describing the strategy and operational
performance of the business, the Strategic
Report and the Group’s KPIs refer to the end
consumer as the customer of the Group,
rather than the underwriter. However, for
the purposes of preparing the financial
statements, the accounting transactions are
recorded in accordance with IFRS 15 where
the customer is the underwriter.
For all other sources of revenue, it is the
party that has contracted with the Group to
obtain goods and services that is classified
as the customer. The following table
summarises this position:
Revenue Stream
IFRS 15 ‘contracted’ customer
Customer as referred to in the
Strategic report
Policy Income – insurance intermediary commissions
Underwriter
End user of the service
Policy Income – repairs
Policy Income – Home assistance
Home Experts
HVAC
Other
Underwriters or other B2B contracted parties
End user of the service
HomeServe plc Annual Report & Accounts 2019 | 47
Viability statement
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
2022. 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 requirements and cash
flows. These plans provide information to
the Directors on a regular and timely basis
and 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 2019 were reviewed
by the Executive Committee in February
2019 and subsequently approved by the
Board in March 2019.
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 (see
page 20) which addresses its risk appetite
and risk policy. In the financial year ended
31 March 2019 HomeServe formalised the
process by which it collates risks identified
in local businesses into Group Enterprise
Risks. 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 partnership
•
the impact of reduced customer focus
• market disruption from a new competitor,
with particular reference to North
America, the Group’s largest current
opportunity
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, given
the nature and relative diversification of the
business in terms of both geography and the
Group’s global business lines, it is considered
unlikely that such a scenario would occur
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
• choosing to move where it allocates its
resources
• choosing to reduce its investment of
resources considered more discretionary
in nature e.g. scaling back marketing
investment to offset any reductions in
income
• choosing to reduce the size and scale
of back office functions to match any
reductions in income.
The Directors’ assessment has been made
with reference to a number of factors which
both individually and collectively can help
mitigate or reduce any threat to its ongoing
viability. These include, for example
•
the geographical spread of HomeServe’s
operations
• a large and diverse portfolio of
commercial partnerships
• high customer retention
• a strong financial position with recently
agreed funding facilities
• an increasing contribution from other
business lines with Home Experts and
HVAC each growing revenues this
financial year.
The business is geographically spread across
the UK, Continental Europe, North America
and now with an early stage presence
in Japan. In each established territory,
the business has long-term contractual
relationships with utility businesses providing
access to 105m households under Utility
Partner brands. Retention rates are high
across all established businesses, resulting in
stable and recurring cash flows from a large,
diverse base of 8.4m customers.
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 2022.
Going concern
The Group’s business activities, together
with the factors likely to affect its future
development, including the potential impact
of Brexit, performance and position are set
out in the Strategic Report.
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.
David Bower
Chief Financial Officer
21 May 2019
48 | HomeServe plc Annual Report & Accounts 2019
Non financial information statement
T
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Requirement
Our policies
Where you can find out more
Anti-bribery and corruption
• Anti-Fraud and Bribery
Human rights
Modern Slavery Statement
Business model
Employees
Environment
Non financial KPIs
Principal risks
Social activities
• Whistleblowing
N/A
Resources, relationships and responsibilities
page 29
Strategic report page 12
Code of Business Conduct
People page 29
HomeServe does not have a Group wide policy on the environment. Our individual businesses
engage in different activities for the benefit of their local environments – more detail on these
can be found in the Resources, relationships and responsibilities report on page 31
N/A
N/A
Resources, relationships and responsibilities
page 29
Operational measures can be found within
Our KPIs on page 16
Strategic report on page 20
HomeServe does not have a Group wide policy for Social Matters. Our individual businesses
engage in different activities and support charitable initiatives for the benefit of their local
communities – more detail on these can be found in the Resources, relationships and
responsibilities report on page 25
Strategic Report 2019
For and on behalf of the Board
Richard Harpin
Founder and Chief Executive
21 May 2019
HomeServe plc Annual Report & Accounts 2019 | 49
Home Experts
On demand, online marketplace
to find checked, vetted and
reviewed local tradespeople for a
broad range of home repairs and
improvements.
50 | HomeServe plc Annual Report & Accounts 2019
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GOVERNANCE
50 Corporate governance statement
52 Chairman’s overview
54 Compliance and other statements
55 Application of principles
57 Relations with shareholders
58
61 Board of Directors and Executive team
64 Effectiveness
66 Nomination Committee report
68 People Committee report
70 Accountability
72 Audit & Risk Committee report
Leadership
79
Directors’ remuneration report
79 Annual statement
80 Remuneration at a glance
81 Directors’ remuneration policy
89 Annual report on remuneration
103 Directors’ report
106 Statements of responsibilities
108
Independent Auditor’s report
HomeServe plc Annual Report & Accounts 2019 | 51
GOVERNANCE Corporate Governance statement
Chairman’s
Overview
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 provide an
understanding of our corporate governance arrangements and how they operated in FY19.
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, HomeServe’s business model is based on five key sources of value –
partnerships, marketing expertise, customer service, local networks and financials. The Board discusses all of these on a regular basis but the
focus changes depending on current business priorities.
During the year, partnerships were a key focus due to our ambitions to further our international expansion. International development plans
featured regularly on the agenda and the Board received detailed insight into the Japanese market with members of the Board able to bring their
experience of working in that territory to the discussions. Given the potential in the Japanese market we were very pleased to be able to launch a
joint venture with Mitsubishi Corporation.
The Board agenda also focused on our newer business lines, Home Experts and Heating, Ventilation and Air Conditioning (HVAC). On Home
Experts, the Board received regular updates on activity to develop the model and has challenged the detail and timescale of the plans to
prove out the model. On HVAC, the Board has been keen to ensure that the criteria for acquisitions has been completely clear and that the
management teams can prove they can add real value to acquired businesses.
People resource is an ongoing challenge in a growing business and the Board has encouraged management to ensure that we have the right
resource to support our stretching plans for growth. The People Committee is playing a key role in ensuring we have the right focus on talent.
52 | HomeServe plc Annual Report & Accounts 2019
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Board changes
During the year, as a result of our reorganisation to create four global business lines, both Martin Bennett and Johnathan Ford left the Board to
pursue other opportunities. We also said farewell to Chris Havemann who retired as a Non-Executive Director. Further details on these changes
are set out on page 64. I would like to extend my thanks to all of them for their contribution and support during their time on the Board.
In March 2019, we appointed Olivier Grémillon, a French national, as an independent Non-Executive Director. Olivier brings extensive experience
of growing digital platform businesses, which is directly relevant as HomeServe grows its Checkatrade and Habitissimo online platform
businesses and digitises its membership businesses. I am delighted to welcome him to the Board.
Culture and diversity
We continue to take diversity seriously and are focused on achieving an inclusive and diverse culture. We believe this improves effectiveness,
encourages constructive debate and delivers strong performance.
During the year, we approved a Diversity Policy for the Board and having fulfilled our desire to find an international Non-Executive Director will
use our best endeavours to increase the number of women on the Board.
Our People Committee has now been operating for over a year and I am pleased that we have a report from that Committee on pages 68 to 69
Board effectiveness
During the year, a review of the Board and its committees was facilitated by Lintstock Limited. Further detail on the review is provided on page 64.
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
21 May 2019
HomeServe plc Annual Report & Accounts 2019 | 53
Corporate Governance statement
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 FY19, 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 48.
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 20. Further details on the principal risks and uncertainties can be
found on pages 20 to 24.
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 70.
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 75.
54 | HomeServe plc Annual Report & Accounts 2019
Application of principles
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The section below sets out how the Company has continued to apply the main Principles of the Code during the year.
Leadership
A.1 Role of the Board
The Board is responsible for providing effective leadership. It met formally seven 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.
Effectiveness
B.1 Composition of the Board
At the year end, the Board comprised six Non-Executive Directors (including the Chairman) and three 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 66 to 67.
B.3 Commitment
The commitment required of Directors is discussed prior to appointment.
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 considers the training and development needs of individual Directors and has provided
mentoring to the Chief Executive.
HomeServe plc Annual Report & Accounts 2019 | 55
Corporate Governance statement
Application of principles
continued
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 64.
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.
Accountability
C.1 Financial and business reporting
The Strategic report is set out on pages 2 to 49 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
70 to 71.
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 72 to 78.
Remuneration
D.1 Level and components of remuneration
The Remuneration Committee is responsible for setting a remuneration policy that will promote the long-term success of the Company,
attract, retain and motivate Executives and align their interests to those of shareholders.
D.2 Procedure
Details of the work of the Remuneration Committee are provided on pages 79 to 102.
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 investor relations team 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.
56 | HomeServe plc Annual Report & Accounts 2019
Relations with shareholders
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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.
We ensure that all Directors are fully aware of the views of major shareholders and analysts. 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.
A shareholder consultation was undertaken during the year in respect of our intended succession planning approach for the Chairman
and Non-Executive Directors. This consultation led to a number of calls between shareholders, the Company Secretary and the Senior
Independent Director and the feedback provided by shareholders has directly informed the Board’s thinking on the succession process. Further
details of our plans are set out on page 65.
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.
HomeServe plc Annual Report & Accounts 2019 | 57
Corporate Governance statement
Leadership
Governance Framework
SHAREHOLDERS
Chairman
Responsible for the effective running of the Board and guardian of the Board’s decision making process.
The Board
Responsible for providing leadership to the Group.
The Board sets strategic priorities and oversees delivery in a way that supports sustainable long-term growth, takes stakeholders
into account and maintains a balanced approach to risk within a framework of effective controls.
Board Committees
The terms of reference for each Committee are agreed by the Board. They are available in the Corporate Governance section
of the website: http://www.homeserveplc.com/about-us/corporate-governance/committees
Nomination Committee
• Makes recommendations
to the Board on the
appointment of Directors
People Committee
• Determines, agrees and
oversees the people
strategy for the Group
• Reviews the size, structure
and composition of the
Board
• Considers succession
planning arrangements for
Directors and other senior
managers.
Committee report on pages
66 to 67.
• Reviews the ongoing
appropriateness and
relevance of the people
strategy
• Reviews and makes
recommendations in
respect of the resourcing of
the people strategy.
Committee report on pages
68 to 69.
Audit & Risk Committee
• Monitors, on behalf of the
Board, compliance with
and the effectiveness of,
the Group’s accounting and
internal control systems
• Reviews the independence
and effectiveness of the
internal and external
auditors.
Committee report on pages
72 to 78.
Remuneration Committee
• Determines the Group’s
overall remuneration
strategy
• Determines the
remuneration packages of
the Executive Directors and
other senior management
• Approves the grant and
exercise of executive
long-term incentive
arrangements and oversees
the operation of other
share-based plans across
the Group.
Directors’ remuneration
report on pages 79 to 102.
The element on the activities
of the Remuneration
Committee on pages 89 to
102 are incorporated into this
statement by reference.
Chief Executive
Responsible for the day to day running of the Group’s business and performance and the development and implementation of strategy.
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 resource
•
•
• overseeing Group wide initiatives and investments.
58 | HomeServe plc Annual Report & Accounts 2019
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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 our website
http://www.homeserveplc.com/about-us/corporate-governance/committees
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 management
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 Company’s operating sites other than Walsall, in order to afford the Board, particularly the Non-Executive
Directors, the opportunity to meet with local management.
During FY19, the Board held its annual strategy meeting to coincide with the Group wide management conference marking HomeServe’s 25th
anniversary. The Board was able to participate in the conference and meet people from across the Group.
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 Committee did not meet formally during the year.
The activities of the Nomination Committee are described on pages 66 to 67.
Board
Audit & Risk Committee
Remuneration Committee
R Harpin
M Bennett 1
D Bower
J Ford 2
T Rusin
J M B Gibson
K Cliffe
S David
E Fitzmaurice
O Grémillon 3
C Havemann 4
R McMillan
7/7
2/2
7/7
4/4
7/7
7/7
7/7
7/7
7/7
1/1
4/4
7/7
3/3
1/1
2/2
3/3
4/5
5/5
5/5
2/2
5/5
1 Martin Bennett left the Board on 20 July 2018.
2 Johnathan Ford left the Board on 31 December 2018.
3 Olivier Grémillon joined the Board on 29 March 2019.
4 Chris Havemann left the Board on 1 December 2018.
HomeServe plc Annual Report & Accounts 2019 | 59
Corporate Governance statement
Leadership
continued
Executive Committee
Members
Richard Harpin (Chairman)
David Bower
Deb Dulsky (appointed 1 April 2019)
Mike Fairman (appointed 1 April 2019)
Guillaume Huser
John Kitzie (appointed 1 April 2019)
H Stephen Phillips
Fernando Prieto (appointed 1 April 2019)
Greg Reed (appointed 1 April 2019)
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
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
Short biographies of the members of the Executive Committee who are not on the Board, are set out on pages 62 to 63.
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 People Committee and 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 their reviews.
60 | HomeServe plc Annual Report & Accounts 2019
Board of Directors and Executive team
BOARD OF DIRECTORS
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JM Barry Gibson (67)
Chairman
Richard Harpin (54)
Chief Executive
David Bower (47)
Chief Financial Officer
Appointed to the Board: April 2004
Appointed to the Board: May 2001
Appointed to the Board: February 2017
Appointed as Chairman: April 2010
Committee memberships: Executive, People
Committee memberships: Executive, People
Committee memberships: Nomination (Chair),
Remuneration, People
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.
Key areas of prior experience: Retailing, travel,
leisure
Principal current external appointments:
Chairman of Sports Information Services
(Holdings) Limited
Richard is the Founder and Chief Executive
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.
Key areas of prior experience: Consumer
marketing, management consultancy,
entrepreneurship
Principal current external appointments:
Founder and Director of Growth Partner LLP
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.
Key areas of prior experience: Accountancy,
audit, investor relations, mergers and
acquisitions
Principal current external appointments:
None
Tom Rusin (50)
Global CEO, Membership
Stella David (56)
Senior Independent Director (Independent)
Ron McMillan (66)
Non-Executive Director (Independent)
Appointed to the Board: May 2017
Appointed to the Board: November 2010
Appointed to the Board: October 2017
Committee memberships: Executive, People
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.
Key areas of prior experience: Affinity
marketing
Principal current external appointments:
None
Committee memberships: People (Chair),
Remuneration, Nomination
Committee memberships: Audit & Risk (Chair),
Remuneration, Nomination
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.
Key areas of prior experience: Marketing,
drinks industry, international
Principal current external appointments:
Chairman of C&J Clark Ltd, Non-Executive
Director of Bacardi Ltd and Norwegian Cruise
Line Holdings
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.
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 B&M European Value Retail SA
HomeServe plc Annual Report & Accounts 2019 | 61
Corporate Governance statement
Board of Directors and Executive team
BOARD OF DIRECTORS
Edward Fitzmaurice (56)
Non-Executive Director (Independent)
Katrina Cliffe (52)
Non-Executive Director (Independent)
Olivier Grémillon (39)
Non-Executive Director (Independent)
Appointed to the Board: May 2017
Appointed to the Board: May 2017
Appointed to the Board: March 2019
Committee memberships: Audit & Risk,
Nomination
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..
Key areas of prior experience: Retailing,
insurance
Principal current external appointments:
None
Committee memberships: Remuneration
(Chair), Audit & Risk, Nomination, People
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.
Key areas of prior experience: Financial
services
Principal current external appointments:
Non-Executive Director of Cembra Money
Bank AG, London and Country Mortgages
Limited, Majestic Wine plc and Shop Direct
Finance Company Limited where she chairs the
Risk Committee
Committee memberships: None
Olivier is currently Vice President, Global
Segments, at Booking.com. He was previously
the Managing Director for Europe, the Middle
East and Africa at Airbnb, having joined them
as the Country Manager for France. He started
his career in strategy consulting and worked for
both Deloitte and McKinsey & Company.
Key areas of prior experience: Marketing,
international development, product
development, strategy, platform businesses
Principal current external appointments: Vice
President, Global Segments, Booking.com
EXECUTIVE TEAM
Anna Maughan (49)
Company Secretary
H Stephen Phillips (52)
CEO, Global Partnerships
Guillaume Huser (52)
CEO, HomeServe France
Appointed as Secretary: July 2008
Committee memberships: Executive
Committee memberships: Executive
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.
Key areas of prior experience: Company
secretarial, pensions
Principal current external appointments:
Trustee of, and Secretary to, the industry wide
Water Companies Pension Scheme
Stephen was appointed as CEO, Global
Partnerships in January 2018 having led
HomeServe Spain since 2005. He is a licensed
insurance broker. 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
Key areas of prior experience: Business
development, marketing, international
Principal current external appointments:
Non-Executive Director of Assured Enterprises
Inc
Guillaume was appointed as Chief Executive
Officer, HomeServe France in April 2015.
Previously at Affinion Group where he
undertook a number of roles culminating in
four years as President of Affinion Group’s
International Division. Before joining Affinion in
December 2002, he spent 13 years at American
Express firstly in finance, sales and business
development roles and later in the Corporate
Services Division where he was VP Commercial
Card, Western Europe.
Key areas of prior experience: Financial
services, business development, affinity
marketing, international
Principal current external appointments:
None
62 | HomeServe plc Annual Report & Accounts 2019
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Greg Reed (49)
CEO, HomeServe UK
John Kitzie (65)
CEO, HomeServe North America
Committee memberships: Executive
Committee memberships: Executive
Greg was appointed as Chief Executive Officer,
HomeServe UK, in June 2017 after joining as
UK Chief Marketing Officer in 2012. Prior to
HomeServe, Greg was Head of Credit Cards &
Overdrafts at RBS Group and before that, spent
13 years at MBNA/Bank of America where,
after leadership roles in finance and marketing,
he became President of UK Card Services.
Previously, Greg was a board member of both
West Cheshire & North Wales Chamber of
Commerce and Chester Renaissance.
Key areas of prior experience: Consumer &
affinity marketing, finance, banking
Principal current external appointments:
Non-Executive Director of Clarion Housing
Group
John was appointed as Chief Executive Officer,
HomeServe North America in April 2018
having served as Chief Operating Officer since
October 2012. Prior to joining HomeServe, he
served as Executive Vice President of Global
Operations for Affinion Group where he was
responsible for contact centres, fulfilment,
merchandising, supply chain, procurement and
telecommunications. Before joining Affinion
Group, he served as President of Savemart and
Senior Vice President of Vcommerce.
Key areas of prior experience: Retail,
merchandise, service delivery, partner
management
Principal current external appointments:
None
Deb Dulsky (49)
Global CEO, HVAC
Committee memberships: Executive
Deb was appointed as Global CEO, HVAC
in November 2018 following nearly 8 years
in leadership positions at HomeServe USA,
most recently as Chief Strategy Officer. Prior
to joining HomeServe, Deb led the Marketing
Solutions division in the Americas of Williams
Lea and served in a number of roles at Affinion
Group. She was previously a Non-Executive
Director of The Ambassadors Group.
Key areas of prior experience: Business
development, mergers and acquisitions,
marketing, international
Principal current external appointments:
None
Mike Fairman (52)
CEO, Checkatrade
Committee memberships: Executive
Mike was appointed as Chief Executive Officer,
Checkatrade in October 2018. Before joining
HomeServe he was CEO of mobile phone
network giffgaff noted for its pioneering online,
community powered business model. Prior to
giffgaff, Mike undertook a number of roles in
O2 including starting and running O2’s home
broadband business. His early career was
focused on marketing in the soft drinks and pet
food sectors.
Key areas of prior experience: Marketing,
digital transformation, entrepreneurial start-ups
Principal current external appointments:
None
Fernando Prieto (53)
CEO, HomeServe Spain
Committee memberships: Executive
Fernando was appointed as Chief Executive
Officer, HomeServe Spain in February 2018
having joined the Spanish claims business in
2008, undertaking a number of senior roles
including Managing Director. Before joining
HomeServe he undertook a number of roles
in the insurance sector for CASER and MAPFRE
including Chief Actuary, Business Development
Director and Chief Marketing Officer.
Key areas of prior experience: Insurance,
marketing, business development
Principal current external appointments:
Trustee of Fundación Area XXI
HomeServe plc Annual Report & Accounts 2019 | 63
Corporate Governance statement
Effectiveness
Board composition
As at 31 March 2019, the Board comprised six Non-Executive Directors (including the Chairman) and three 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 20 July 2018, Martin Bennett stepped down as an Executive Director
• On 1 December 2018, Chris Havemann retired as a Non-Executive Director
• On 31 December 2018, Johnathan Ford stepped down as an Executive Director
• On 29 March 2019, Olivier Grémillon was appointed as an independent Non-Executive Director.
Short biographies of each of the Directors, including their membership of Committees, are set out on pages 61 to 62.
Board development
New members of the Board receive a tailored induction organised by the Company Secretary which includes visits to the different territories
and operations. Where required, training on legal and regulatory responsibilities is also provided.
On an ongoing basis, Directors are encouraged to highlight specific areas where they feel their skills or knowledge would benefit from further
development. As an example of this, when Katrina Cliffe became Chairman of the Remuneration Committee, a briefing was arranged for her
with the advisers to the Committee, the Company Secretary and the Group Legal, Customer Culture & Reward Director to ensure that she had a
full understanding of the remuneration policy and the wider remuneration environment.
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. Richard Harpin is the founder and Director of Growth Partner LLP which invests in
entrepreneurs and nurtures promising businesses. The business is run on a day to day basis by a Managing Partner.
Board evaluation
The Board has implemented a formal process for reviewing its own effectiveness, that of its Committees and its individual members. In
addition, we 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. Lintstock Limited has no other connections with the Company.
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.
Interviews were last conducted in FY18. The questionnaires cover topics such as board composition and dynamics, strategic and operational
oversight, risk management and internal control, succession planning and human resources as well as priorities for change.
Directors completed online evaluation questionnaires in February 2019 and Lintstock compiled a formal written report summarising the
Directors’ views. This report was discussed by the Board in March 2019.
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.
The feedback identified the need to increase the international diversity on the Board and also to add digital and platform expertise. This has
been addressed with the appointment of Olivier Grémillon, a French national, who is currently Vice President, Global Segments, at Booking.
com having previously spent six years in management positions at Airbnb.
64 | HomeServe plc Annual Report & Accounts 2019
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As a result of the review, a number of items have been added to the Board’s forward agenda including a deep dive into the use of technology
across the Group and spotlights on key markets and the competitive environment. It was recognised that through the People Committee, a
lot of work had been done to increase the focus on people, particularly in respect of diversity and inclusion and talent management but it was
agreed that it was important for the Board as a whole to review the people strategy in some detail at least once a year.
Feedback from the FY18 review suggested that the Board could do more to review and learn from acquisitions and investments. As a direct
result of this, a post investment review process has been implemented, led by the CFO, with formal reports being considered by the Audit & Risk
Committee.
Non-Executive Succession planning
The new UK Corporate Governance Code (the “Code”) has greater focus on the tenure of the Chairman and the independence (including
tenure) of directors. This is relevant to us in two areas.
Chairman
Barry Gibson was appointed to the Board in 2004 and became Chairman in 2010. At the point he became Chairman, he was independent (as
required by the Code). In 2017 the Board agreed that Barry should be retained for a further three year term (from April 2019 to April 2022). This
was based on Barry’s performance and ongoing contribution to the Group.
Since the Board discussion in 2017, the new UK Corporate Governance Code has been finalised and it is now suggested that a chair should not
remain in post beyond nine years from their initial appointment to the board. Having considered this new requirement, the Board agreed that it
remained appropriate to renew Barry’s appointment for one further term of three years but we will be commencing the succession process to
replace him so that a full handover will be achieved by April 2022 at the latest. We plan to retain advisers and commence a search in FY20.
Barry encourages open and candid discussion in the board room and has an excellent relationship with Richard Harpin, our CEO, which
enables him to constructively challenge Richard’s thinking. The business has been through considerable change over the time Barry has been
on the Board and has faced some challenges. Barry’s leadership has been key and we feel that his experience means that he brings very helpful
perspective to our strategic discussions. In addition, the Board itself has undergone change in the last 12 months and there is a clear advantage
to retaining Barry whilst the new Board members establish themselves.
Stella David
Stella David was appointed to the Board in November 2010 and became our Senior Independent Director in February 2018. Prior to this, she
served as Chairman of the Remuneration Committee. Her third term of office expires in November 2019.
During 2017, the Board recognised that we had more to do on the people agenda and we established a People Committee of the Board
to move us forward in respect of talent and diversity throughout the Group. Stella has been instrumental in the establishment of the new
Committee and took on the role of Chairman of the Committee in 2018. Given that the work of this Committee is in its infancy, we would very
much like to retain Stella’s input and leadership for our people agenda and are proposing that we renew her appointment for one, final, three
year term to assist us in achieving some of our people related goals.
In addition to our desire to retain Stella to help us further our people agenda, we also consider that it is important to retain appropriate
experience on our Board. Excluding the Chairman, three of our other Non-Executive Directors were appointed in 2017 and one was appointed
in 2019. They are therefore all relatively new to the business. There have also been some recent changes to the Executive Directors. Overall
therefore, we strongly believe that retaining Stella would be extremely beneficial. She will step down as Senior Independent Director when her
current term ends.
Re-election of Directors
All of the Directors will offer themselves for election or re-election at the AGM. The Board is content that each of the Non-Executive Directors
continues to perform their role effectively, makes a valuable contribution to the Board’s deliberations and that each of them continues to
demonstrate commitment to the role. Each Non-Executive Director is considered by the Board to be independent for the purposes of the UK
Corporate Governance Code.
HomeServe plc Annual Report & Accounts 2019 | 65
Corporate Governance statement
Nomination
Committee report
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.
Members
J M Barry Gibson (Chairman)
Katrina Cliffe
Stella David
Edward Fitzmaurice
Chris Havemann (retired 1 December 2018)
Ron McMillan
Responsibilities
The primary responsibilities of the Committee are to:
• make recommendations to the Board on the appointment of Directors
•
• consider succession planning arrangements for Directors and other senior managers.
review the size, structure and composition of the Board
The Committee has adopted formal terms of reference which are available on our website
http://www.homeserveplc.com/about-us/corporate-governance/committees
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. The People Committee report is set out on page 68 to 69.
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 are fully aligned.
A specific sub-committee was appointed during the year to undertake a search for a new Non-Executive Director. The Board had identified that
it needed more international diversity and needed expertise in respect of digital and platform businesses. We therefore appointed The Up Group,
a leading digital executive search and networking firm to act as search consultants. The Group had previously used The Up Group in respect of a
number of executive searches; it has no other connection with the Company.
The sub-committee considered a list of potential candidates provided by The Up Group taking into account the desire to add international diversity
and digital expertise. Katrina Cliffe and I conducted the initial interviews and recommended a short list of candidates for interview by the wider
Board. The short listed candidates were interviewed by all of the Non-Executive Directors and Richard Harpin. Following this, a recommendation
was made to the Board that Olivier Grémillon be appointed as a Non-Executive Director with effect from 29 March 2019.
Olivier is currently Vice President, Global Segments, at Booking.com. His executive responsibilities were discussed in some detail as part of the
appointment process and the Board is satisfied that he has sufficient time to devote to his role at HomeServe.
66 | HomeServe plc Annual Report & Accounts 2019
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 the local and Group
People functions and with input from the Group Chief Executive. The
Executive Committee regularly discusses the plans 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
and during the year, we adopted a Board diversity policy (shown
opposite). We do not publish specific Board diversity targets but 22%
of the Board is currently female and as stated in our policy, we intend
to use our best endeavours to increase this number over time. More
information on talent and diversity is provided in the Resources,
relationships and responsibilities report on pages 25 to 31.
JM Barry Gibson
Chairman
21 May 2019
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BOARD DIVERSITY POLICY
This policy sets out the HomeServe plc Board’s
approach to diversity and provides a high level
indication of the approach to diversity across senior
leadership and the wider Group.
As a Board we believe that diversity, both at Board
level and throughout the Group, drives innovation,
growth and success.
We are committed to ensuring that the membership
of our Board reflects diversity in its broadest sense.
A combination of demographics, skills, experience,
race, age, gender, educational and professional
background and other relevant personal attributes
will ensure our Board is effective. We believe that
a diversity of experience and personal strengths is
as important as diversity of gender and social and
ethnic backgrounds.
All relevant factors are taken into consideration
when evaluating the skills, knowledge and
experience needed to fill each Board vacancy. When
recruiting, we require diversity on our long and
short lists and in particular, ensure that appropriately
qualified women are included on all short lists.
We recognise the target for FTSE companies to
move towards 33% female representation and will
use our best endeavours to increase the number of
female Board members over time.
HomeServe plc Annual Report & Accounts 2019 | 67
Corporate Governance statement
People Committee
report
Dear Shareholder
I am delighted to present the first formal report of the People Committee. As a Board, we have recognised that we have more to do on our people
agenda and during 2017 we established a People Committee to move us forward in respect of talent and diversity throughout the Group.
Members
Stella David (Chairman)
Katrina Cliffe
J M Barry Gibson
Chris Havemann (retired 1 December 2018)
David Bower
Richard Harpin
Tom Rusin
Responsibilities
The primary responsibilities of the Committee are to:
• determine, agree and oversee the people strategy for the Group
•
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•
review the ongoing appropriateness and relevance of the people strategy
review and make recommendations in respect of the resourcing of the people strategy
review and oversee the employee engagement strategy.
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 People Committee met three times during the year. In addition to the members of the Committee, the Group Legal, Customer Culture &
Reward Director, the Group Talent & Engagement Director and the Company Secretary attend all Committee meetings.
Discussions during the year have been focused on talent and diversity. The global talent strategy aims to drive the attraction, growth and retention
of talented employees with the right capabilities to deliver our growth strategy. We are particularly focused on developing internal talent and are
committed to achieving a target of 70% internal hires for senior leadership roles.
During the year, the Committee was consulted on the ‘HomeServe Way’ which was launched at HomeServe’s 25th anniversary management
conference. The HomeServe Way sets out the knowledge, skills and behaviours of successful HomeServe leaders and provides a clear and
consistent framework for hiring, developing and promoting the right people.
Two talent development programmes are now in place, both of which are designed to develop readiness to step up to a more senior role and the
Committee has encouraged the Executives to ensure that each group invited to participate on the programmes is appropriately diverse.
Ensuring that our future senior leadership team better reflects the diversity of the markets we serve and the people we employ is a key objective
of our global talent strategy. In common with many organisations, we are starting this journey by focusing on a plan to drive gender diversity
within our current senior leadership team and in the succession pipeline. We recognise that diversity is much broader than gender but believe that
achieving sustainable traction in this critical area of talent will help us develop strategies that can be applied more widely.
68 | HomeServe plc Annual Report & Accounts 2019
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We are now monitoring gender diversity more closely and are starting to see some progress. I was delighted to see Deb Dulsky, our Global CEO of
HVAC, promoted to the Executive Committee on 1 April 2019.
As a growing business which is expanding internationally, we believe it will be advantageous to have more people who are geographically mobile
so that in new territories in particular, we can leverage HomeServe knowledge to establish new businesses more effectively. To this end, we have
approved a Global Mobility Policy and are ensuring that senior vacancies are advertised Group wide. This has resulted in a small team of existing
senior HomeServe people being mobilised to go to Japan.
Looking ahead
Over the coming year, the People Committee will continue to oversee and contribute to plans to develop talent and diversity and will also be
reviewing the results of the global engagement survey. I am positive about the changes that have been made to date and while I recognise that
there is still a lot to achieve, expect that we will continue to strengthen our position over the coming year.
We have agreed that I will be the nominated Non-Executive Director in respect of workforce engagement and the People Committee will have a
key role to play in ensuring we turn this into a real opportunity.
Stella David
Chairman
21 May 2019
HomeServe plc Annual Report & Accounts 2019 | 69
Corporate Governance statement
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 72 to 78.
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 Financial Reporting Council (‘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 robust and 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 48 and 54. The principal risks and uncertainties are set out on pages 20
to 24.
System of risk management and control
The system of internal control is designed to manage and mitigate rather than eliminate the risk of failure to achieve business objectives,
and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has delegated the day-to-day
management of the Group to the Group Chief Executive and the other Executive Directors.
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 Executive 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 & safety
and information security. The 2nd line provides advice to the Board and the Audit & Risk Committee on risk appetites, independent review of
risk ratings and action plans and reports on risk management.
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.
70 | HomeServe plc Annual Report & Accounts 2019
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 strategy.
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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 Executive 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, 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 meeting.
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 prepared and verified by the Group finance team and reviewed by the Executive Directors. 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 FRC. During the year, the Board has not been advised by the Audit & Risk Committee on, or 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 set out on page 48.
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. The policy is available on our website
http://www.homeserveplc.com/about-us/corporate-governance/policies
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.
HomeServe plc Annual Report & Accounts 2019 | 71
Corporate Governance statement
Audit & Risk
Committee report
Dear Shareholder
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.
Members
Ron McMillan (Chairman)
Katrina Cliffe
Edward Fitzmaurice (appointed 1 February 2019)
Chris Havemann (retired 1 December 2018)
All members of the Committee are independent Non-Executive Directors and the Committee as a whole has competence relevant to our
sector. 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 and
B&M European Value Retail SA.
All members of the Committee 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 and chairs the
Risk Committee and is a member of the Audit Committee of Shop Direct Finance Company Limited. Chris Havemann, who retired from the
Board and the Committee during the year, was from an entrepreneurial background and brought a wealth of experience in respect of digital.
Edward Fitzmaurice replaced Chris Havemann on the Committee. He has extensive experience of retail and insurance having served as Chief
Executive Officer of Hastings Insurance Group.
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 to the Board after each Committee meeting and the minutes of meetings are circulated to the whole Board.
Committee Effectiveness
The effectiveness of the Committee is reviewed as part of the annual Board review process facilitated by Lintstock. The FY19 review concluded
that the Committee was operating effectively and benefited from a high quality cycle of work.
72 | HomeServe plc Annual Report & Accounts 2019
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
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
•
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• 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
•
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• monitor, on behalf of the Board, current risk exposures
•
review the annual and interim financial statements before they are presented to the Board
review the Group’s overall risk appetite, tolerance and strategy
receive reports from compliance functions and review and approve the means by which the Group seeks to comply with its regulatory
obligations
review the adequacy and security of the Group’s arrangements for its employees to raise concerns, in confidence, about possible wrong-
doing in financial reporting or other matters.
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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 FY19. Details of meeting attendance are set out on page 59. 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 auditor on a number of occasions to receive updates on activity.
Items discussed
Financial reporting
Full year results
Interim results
Consideration of new accounting standards (IFRS 9, IFRS 15 and IFRS 16)
Internal audit
Internal audit plan
Internal audit reports
Whistle blowing reports
Internal audit effectiveness and independence
External audit
External audit plan
External audit reports
External audit effectiveness and independence
Risk
Risk appetite
Risk registers
Other matters
Regulatory compliance activity including the General Data Protection Regulation
IT security
Post investment reviews of acquisitions
May 2018
November 2018
February 2019
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Significant issues related to the financial statements
The Committee oversaw the process used by the Board to assess the going concern and viability of the Group, the stress testing of key trading
assumptions and the preparation of the viability statement which is set out on page 48.
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 2019 | 73
Corporate Governance statement
Audit & Risk Committee report
continued
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.
Some elements of revenue are deferred to cover future costs and
also to provide for policies which may cancel mid-term.
Carrying value of goodwill
The total goodwill balance at 31 March 2019 of £408m 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 cash flows
attributable to the CGUs.
The Committee reviewed the existing revenue recognition
policies in light of the adoption of IFRS 15 with particular focus
on the identification of contractual performance obligations, the
allocation of revenue to individual performance obligations and
the recognition of financial instruments associated with amounts
due from policyholders payable to underwriters. The Committee
satisfied itself that the accounting policies for revenue are
compliant with IFRS 15.
Certain CGUs have been integrated during the year, the
Committee satisfied itself the action taken was appropriate. The
Committee also 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.
Help-Link contingent consideration
HomeServe acquired 100% of the share capital of Help-Link UK
Limited in August 2017. The consideration payable was £5m on
completion with up to £15.5m being payable through an earn-out
based on the volume of installations. It is not expected that this
volume will be achieved and the present value of the remaining
loan notes (£10.1m) has been released to the income statement.
The Committee reviewed the budget assumptions along with
the legal advice taken on the original loan note instrument and
concluded that it was reasonable to release the contingent
consideration.
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 in early FY20.
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.
Brexit impact
All of the HomeServe businesses trade exclusively within their
own borders and the Group is not exposed to any cross border
transactional currency risk.
The Committee considered the potential impact of the UK’s
decision to leave the EU and the ongoing implementation delay
and concluded that the impact on the underlying performance of
the Group will be limited.
74 | HomeServe plc Annual Report & Accounts 2019
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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 made on page 48.
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 given on page 48.
Fair, balanced and understandable
The Committee considered whether the Annual Report was fair, balanced and understandable and whether it provided the necessary
information for shareholders to assess the Group’s performance, business model and strategy. The Committee considered management’s
assessment of items included in the financial statements and the prominence given to them.
Having reviewed the Annual Report and taking into account the verification exercise completed in respect of the content, the Committee
and subsequently, the Board were satisfied that taken as a whole, the Annual Report was fair, balanced and understandable and provided the
necessary information for shareholders.
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 FY19, 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
Financial Reporting Council (‘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 70 to 71. Details in respect of the principal risks and
uncertainties are set out on pages 20 to 24.
HomeServe plc Annual Report & Accounts 2019 | 75
Corporate Governance statement
Audit & Risk Committee report
continued
Regulation and compliance
The Group operates in a regulated marketplace and is challenged by regulatory requirements across its different territories. This creates risk for the
business as non compliance can lead to customer detriment, 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.
Interaction with regulators
The FRC undertook a Corporate Reporting Review of the FY18 Annual Report and although such reviews are inherently limited, no questions
or queries were raised as a result. They did note a limited number of matters where they believed that users of the accounts would benefit from
improvements to existing disclosures and these have been considered during the drafting of the FY19 Annual Report.
During the year, the FRC’s Audit Quality Review team selected Deloitte’s audit of the FY18 Annual Report as part of their annual review of audit
firms. The Committee reviewed the FRC’s report, discussed it with Deloitte and agreed their plan for addressing the limited findings presented
by the FRC. The Committee noted that there was nothing in the FRC’s report which might have a bearing on the auditor’s appointment.
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 2002, although the lead audit partner rotates every five years. The current lead audit partner,
Matthew Perkins, was appointed in 2014 and he will step down following the completion of the FY19 audit. Peter Birch has been identified as
the new lead partner.
The Committee reviewed the reports prepared by Deloitte on key audit findings and any significant deficiencies in the control environment, as
well as the recommendations made to improve processes and controls together with management’s responses to those recommendations.
Deloitte did not highlight any material internal control weaknesses and management has committed to making appropriate changes to controls
where these have been highlighted.
The Committee also discussed with Deloitte, the results of the FRC’s firm wide review of audit quality for the period from March 2017 to
February 2018 and the proposed improvement plans arising from the report. The Committee will also monitor progress against these plans.
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 finance directors 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 FRC. In addition, I meet regularly with the external auditor outside of formal Committee meetings to ensure
that there is an ongoing dialogue.
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.
76 | HomeServe plc Annual Report & Accounts 2019
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The Committee has noted the 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.
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.
Non-audit services
The Committee has approved a policy in respect of non-audit services which reflects the Ethical Standards. The policy sets out a 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 £1,002,000 and there were no fees incurred for
non-audit related work (excluding audit-related assurance services). Further detail on the fees paid is provided in Note 5.
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. The
internal audit team undertakes an initial review of the strategic risks and drafts a plan which addresses those risks while taking into account the
need to review key control processes on a cyclical basis. The draft plan is then discussed with senior management in each business or territory
before being presented to the Committee.
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 Executive Committee. A report on completed internal
audits is presented to each meeting of 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 that 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 61 reports in respect of the following areas:
Finance
Operations
IT controls
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.
Information Security Developments in information and cyber security including penetration testing, firewalls, server security and crisis
management.
HomeServe plc Annual Report & Accounts 2019 | 77
Corporate Governance statement
Audit & Risk Committee report
continued
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. Management’s approach to internal audit is generally positive and there is a real desire to work collaboratively to
continually improve the control environment. Action trackers are reported on at each Committee meeting.
The internal audit function continues to benefit from a co-sourced arrangement with PwC which is used to augment the internal skills and
experience available and ensure that the Group can access appropriate technical and specialised resource on a global and flexible basis.
Conclusion and looking ahead
The Committee considers that it has acted in accordance with its terms of reference and that it has ensured the independence, objectivity and
effectiveness of the external and internal auditors.
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 am available to speak with shareholders at any time and will be available at the AGM to answer any questions. I would like to thank my
colleagues on the Committee for their help and support during the year.
Ron McMillan
Chairman of the Audit & Risk Committee
21 May 2019
78 | HomeServe plc Annual Report & Accounts 2019
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Directors’ Remuneration
report
Dear Shareholder
I am pleased to present the Remuneration report for the year ended 31 March 2019 having taken over as Chairman of the Committee in July 2018.
Performance and reward
HomeServe has had another very good year, delivering double digit growth in adjusted profit before tax. There was strong performance in
respect of the core Membership business with particular success once again in North America. Good progress has been made implementing
our buy-and-build HVAC strategy and Checkatrade is now well positioned for future growth. More detail on performance during the year is set
out in the Strategic report on pages 2 to 49.
The stretching financial targets for the Group have been met but there was only partial achievement in respect of the non financial targets. The
continued focus on delivering great customer service meant that the customer dissatisfaction target was met in full. Despite strong customer
growth in North America there was a decline in Spain following the end of the Endesa partnership and in the UK in the absence of a policy
book acquisition. The Group customer target was therefore not met.
In respect of longer-term performance, the standard LTIP awards granted in 2016 will vest in full in July 2019 and 96.38% of the additional
awards granted in the same year will also vest. The standard awards over 150% of salary were based 25% on TSR performance and 75% on
adjusted earnings per share (EPS) performance and there was a stretch EPS target applied to additional awards over 50% of salary. HomeServe’s
TSR performance to 31 March 2019 was 151.84% (compared to the FTSE 250 Index TSR of 24.65%) and EPS growth of 19.82% per annum
was achieved, representing significant growth for shareholders. The vested shares, net of tax, are subject to a two year post-vesting holding
requirement.
Following Johnathan Ford’s departure and the removal of the COO role, David Bower’s responsibilities as CFO were expanded to include M&A,
legal, talent and human resources and health & safety. Taking into account this larger role along with David’s personal performance and growth
since he was initially appointed as CFO, his basic salary was increased by 22.5% from £306,000 to £375,000 with effect from 1 December 2018.
The Committee is satisfied that the remuneration paid to the Executive Directors in the year fairly reflects both corporate and individual
performance.
The Committee’s activities during the year are described in more detail later in this report.
Remuneration policy FY20
The remuneration policy was approved by shareholders at the 2017 AGM and the LTIP was renewed at the 2018 AGM. No changes are
proposed for FY20 although the Committee has approved a formal policy on the share holding requirement.
Salaries for Executive Directors will increase by 2% with effect from 1 July 2019 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.
The Committee has reviewed the remuneration related requirements of the new UK Corporate Governance Code and is pleased to note that
many of them are already reflected in our current policy. Our policy will be reviewed over the coming year and submitted to shareholders for
approval at the 2020 AGM as required under the triennial review process.
Katrina Cliffe
Chairman of the Remuneration Committee
21 May 2019
HomeServe plc Annual Report & Accounts 2019 | 79
Directors’ remuneration report
Remuneration at a glance
Single Total Remuneration Figure (£000)
A significant proportion of remuneration is delivered through share-based, long-term variable pay.
Richard Harpin
David Bower
Tom Rusin
974
4,749
3,507
0
1,000
2,000
3,000
4,000
5,000
£000's
Key
Salary
Benefits
Pensions
Annual Bonus
LTIP
Annual Bonus Outcome
The information below is based on Group performance, a proportion of Tom Rusin’s bonus is based on Membership
performance as set out on page 91.
Weighting
Target/Stretch
Actual
% Payable
Financial measures
Group profit before tax
Group net debt
Non financial measures Customer growth
25%
5%
25%
Customer dissatisfaction
25%
Personal targets
20%
£161.7m
£161.7m
100%
£341.2m
£304.7m
100%
8.4m
5.00
8.2m
4.51
0%
100%
90-100%
FY19
74%
average
payout
LTIP Outcome
Adjusted earnings per share
Relative TSR
25%
20%
15%
10%
5%
0%
15%
19.82%
6%
Threshold
Stretch
HomeServe
160%
120%
80%
40%
0%
151.84%
76.74%
24.65%
Threshold
Stretch
HomeServe
100%
vesting for
standard
awards
96%
vesting for
additional
awards
80 | HomeServe plc Annual Report & Accounts 2019
Directors’ remuneration policy
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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 FY20 and we have added additional commentary, where relevant, to explain how the policy will be
operated in FY20.
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 Director of Assurance & Risk 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.
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
To reflect the particular
skills and experience of an
individual and to provide
a competitive base salary
compared with similar
roles in similar companies.
Usually reviewed
annually, with
any changes
normally taking
effect from 1 July
each year.
Individual pay is determined by the Committee taking into account the
role, responsibilities, performance and experience of the individual and
market data on comparable roles.
The Committee has not set a cap on the maximum salary level
that may be offered. However, any salary increases will normally
be no higher than the typical level of increase awarded to other UK
employees.
Increases above this level may be offered in certain circumstances such
as where an Executive Director has been promoted, has had a change
in responsibility, to reflect increased experience in the role, or where
there has been a significant change in the size and/or scope of the
business.
When reviewing salary increases, the Committee also takes into
account the impact of any increase to base salaries on the total
remuneration package.
Details of the current salaries of the Executive Directors are set out in
the Annual Report on Remuneration.
HomeServe plc Annual Report & Accounts 2019 | 81
Directors’ Remuneration report
Directors’ remuneration policy
continued
Element
Purpose and link to strategy
Performance period
Operation (including performance measures and maximum limits)
Performance
related bonus
Long-term
incentives
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.
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.
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 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 invested by the
executive into shares under the matching element of the LTIP.
Three years
Awards of performance and matching shares are granted under the
Long Term Incentive Plan (which was approved by shareholders in
2008 and renewed at the 2018 AGM).
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.
Retirement benefits under the scheme are restricted by a notional
earnings cap (£147,795 for FY20). An unapproved pension contribution
equal to 20% of the amount by which basic salary exceeds the notional
cap is provided.
Pension
To provide benefits
comparable with similar
roles in similar companies.
N/A
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Element
Purpose and link to strategy
Performance period
Operation (including performance measures and maximum limits)
Other benefits
To provide a competitive
package of benefits to
assist with recruitment
and retention of staff.
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.
All Employee
Share Plans
To encourage employee
share ownership.
N/A
Chairman and
Non-Executive
Directors’ fees
To attract and retain Non-
Executive Directors of the
right calibre.
N/A
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. 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.
HomeServe plc Annual Report & Accounts 2019 | 83
Directors’ Remuneration report
Directors’ remuneration policy
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 very 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 2018 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)
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.
Total Shareholder Return (TSR)
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.
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.
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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. The Committee’s power was strengthened in 2018 as part of the LTIP review process.
Pensions
Richard Harpin participated 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. He opted out of the scheme on 1 May 2018 and subsequently transferred
out. He now receives a cash allowance in lieu along with a cash contribution in respect of basic salary above the cap.
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 three 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 FY20
A formal policy in respect of the shareholding requirement has been adopted. This confirms that for new Directors, the requirement is expected
to be met within five years of appointment (within five years of the adoption of the new policy for existing Directors). It also reflects the post
vesting shareholding requirement in respect of the Long-Term Incentive Plan whereby the net of tax value of shares that vest must be retained
for a period of two years.
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 2019 | 85
Directors’ Remuneration report
Directors’ remuneration policy
continued
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.
£4,500
£4,000
£3,500
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£0
'
)
s
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
R
£3,892
67%
£3,027
57%
£2,220
47%
£721
21%
19%
15%
£1,970
57%
£1,445
47%
£3,236
£2,533
£2,493
£1,799
69%
67%
60%
50%
22%
20%
15%
£470
21%
19%
15%
£511
100%
32%
24%
18%
100%
32%
24%
18%
100%
28%
20%
16%
Minimum
Target
Maximum
Minimum
Target
Maximum
Maximum
+ 50%
share price
growth
Maximum
+ 50%
share price
growth
Minimum
Target
Maximum
Maximum
+ 50%
share price
growth
R Harpin
D Bower
T Rusin
Key
Total fixed pay
Annual bonus
Long-term incentives
Assumptions
Fixed
On target
Maximum
Maximum plus share price growth
fixed pay only (salary plus benefits plus pension).
target annual bonus of 80% of salary plus target LTIP awards in FY20 of 90% of salary plus matching awards of 90% of salary.
maximum annual bonus of 100% of salary plus maximum LTIP awards in FY20 of 150% of salary plus matching awards of 150% of salary.
the maximum scenario above but illustrating the impact of a 50% increase in the share price on the LTIP awards.
Salary levels (on which other elements of the packages are calculated) are based on salaries as at 31 March 2019.
The value of taxable benefits is based on the actual values paid in FY19.
The 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 on target and maximum scenarios exclude the impact of share price growth except as otherwise noted.
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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
D Bower
3 February 2017
T Rusin
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.
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).
HomeServe plc Annual Report & Accounts 2019 | 87
Directors’ Remuneration report
Directors’ remuneration policy
continued
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.
Non-Executive Directors’ letters of appointment
Non-Executive Directors serve under letters of appointment for periods of three years. The Non-Executive Directors (including the Chairman)
have a notice period of three months but no liquidated damages are payable.
Fees are determined by the Executive Directors within the limits set by the Articles of Association, and are based on information on fees paid in
similar companies and the skills and the expected time commitment of the individual concerned.
Details of their current three year appointments are as follows:
Name
Date of contract
J M B Gibson
1 April 2019
K Cliffe
S David
23 May 2017
23 November 2016
E Fitzmaurice
23 May 2017
O Grémillon
29 March 2019
R McMillan
27 October 2017
Outside Appointments
Executive Directors may hold one outside appointment and can retain any fees received.
88 | HomeServe plc Annual Report & Accounts 2019
Annual Report on Remuneration
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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 2019 Annual General Meeting.
Remuneration Committee Members
Katrina Cliffe (Chairman with effect from 20 July 2018)
JM Barry Gibson
Stella David (Chairman until 20 July 2018)
Ron McMillan
Chris Havemann (retired 1 December 2018)
All of the members are independent Non-Executive Directors. Stella David became Senior Independent Director and Chairman of the newly
formed People Committee during 2018. Given these additional responsibilities, it was agreed that she should be replaced as Chairman of the
Remuneration Committee by Katrina Cliffe. Stella remains a member of the Committee.
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
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 (PLSA). The Committee operates
under the delegated authority of the Board.
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 as part of the annual effectiveness
review of the Board.
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 new
UK Corporate Governance Code. The Committee will be reviewing its terms of reference and policy to ensure that they remain appropriate.
Advisers
During the year, independent advice was received by the Committee from the Executive Compensation practice of Aon plc. The Committee
selects its own advisers. Aon also provided technical implementation and accounting advice in relation to the administration of the Company’s
share schemes. Aon is a member of the Remuneration Consultants Group and is a signatory to its Code of Conduct. During the year, insurance
broking services were also provided to the Group by other subsidiaries of Aon plc, which the Committee considers in no way prejudices Aon’s
position as the Committee’s independent advisers. Fees charged by Aon for advice provided to the Committee for the year ended 31 March
2019 amounted to £73,000 (excluding VAT).
The Committee has also received assistance from Richard Harpin, Group Chief Executive, Emma Thomas, Group Legal, Customer Culture and
Reward 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 2019 | 89
Directors’ Remuneration report
Annual Report on Remuneration
continued
Remuneration for the year under review (Audited)
Executives
R Harpin
M Bennett 1
D Bower
J Ford 2
T Rusin 3
Non-Executives
J M B Gibson
K Cliffe 4
S David
E Fitzmaurice 5
O Grémillon 6
C Havemann 7
R McMillan 8
B Mingay 9
M Morris 10
Total FY19
Total FY18
Salary
and fees
£000
Taxable
benefits 11
£000
Pensions 12
£000
Bonus
£000
LTIP 13
£000
574
563
129
418
328
300
309
405
494
399
250
250
62
47
78
65
55
47
—
—
41
55
65
25
—
55
—
66
29
26
6
21
20
19
15
17
10
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
110
147
26
84
66
60
62
81
9
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
430
541
98
—
246
300
219
380
361
372
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,606
7,889
—
5,778
314
745
—
4,632
2,633
3,901
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Year
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
FY19
FY18
Total
FY19
£000
4,749
259
974
605
3,507
250
62
78
55
—
41
65
—
—
Total
FY18
£000
9,166
6,301
1,424
5,515
4,684
250
47
65
47
—
55
25
55
66
2,385
2,695
80
89
273
378
1,354
1,593
6,553
22,945
10,645
27,700
¹ Martin Bennett left the Board on 20 July 2018. Further details on his termination arrangements are shown on page 100.
2 Johnathan Ford left the Board on 31 December 2018. Further details on his termination arrangements are shown on page 100.
3 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 FY19.
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 Olivier Grémillon was appointed to the Board on 29 March 2019.
7 Chris Havemann retired from the Board on 1 December 2018.
8 Ron McMillan was appointed on to the Board 27 October 2017.
9 Ben Mingay retired from the Board on 26 March 2018.
10 Mark Morris retired from the Board on 27 February 2018.
11 Benefits comprise company car, fuel allowance and medical insurance.
12 Details of pension benefits and contributions can be found later in the report.
13 The FY18 figure includes the vesting of awards granted in 2014 and 2015. These awards were granted approximately a year apart in accordance with our LTIP grant policy. However, as the
performance period for both awards ended during the same financial year (albeit nine months apart), we were obliged to include both awards in the 2018 remuneration table. The figures
for FY18 have been updated to reflect the actual share price on vesting for the 2015 award. The figures for FY19 are based on the average share price over the last three months of the
financial year as the awards have not yet vested. The value shown for each LTIP award includes an amount in respect of dividend equivalents.
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Details of variable pay earned in the year (Audited)
Annual Bonus
For FY19, the annual bonus was based on the following stretching targets::
Financial and non financial bonus targets for Richard Harpin, David Bower, Martin Bennett and Johnathan Ford
Weighting
% Payable at
Threshold
Threshold
Target/Stretch
Actual
% Payable
25%
£153.6m
£161.7m
£161.7m
£341.2m
£304.7m
8.4m
8.2m
100%
100%
0%
Financial
measures
Non financial
measures
Group profit before tax
Group net debt
Customer growth 1
Customer dissatisfaction
(measured as a weighted
average level of customer
dissatisfaction across the
UK, US, France and Spain)
25%
5%
25%
25%
Financial and non financial bonus targets for Tom Rusin
—
—
—
—
—
—
Financial
measures
Non financial
measures
1 Excludes Italy.
Group profit before tax
Membership adjusted
profit before tax
Membership net debt
Customer growth 1
Customer dissatisfaction
(measured as a weighted
average level of customer
dissatisfaction across the
UK, US, France and Spain)
Weighting
% Payable at
Threshold
10%
15%
5%
25%
25%
25%
—
—
25%
—
—
—
—
5.00
4.51
100%
Threshold
Target/Stretch
Actual
% Payable
£153.6m
£161.7m
£161.7m
100%
£171.3m
£180.3m
£184.6m
£364.0m
£341.3m
8.4m
8.2m
100%
100%
0%
5.00
4.51
100%
HomeServe plc Annual Report & Accounts 2019 | 91
Directors’ Remuneration report
Annual Report on Remuneration
continued
Personal bonus targets
R Harpin
D Bower
T Rusin
J Ford
Objectives
Weighting Outcome
• Prove out new Checkatrade model
• Prove out a further innovation in
•
Home Experts
Implement three people related
initiatives
• Open one new country
• Attract two long-term US shareholders.
20%
Key achievements included:
• New pricing model implemented at Checkatrade
• Emergency service (Checkatrade Now) proved out at
Checkatrade and platform in use for Membership
• Senior teams in HVAC and Checkatrade strengthened and
CEO Forum launched for senior leaders
• Joint venture with Mitsubishi in Japan
• Three new US shareholders have bought shares.
%
Payable
100%
• Develop and implement a consistent
framework for financing solutions
across the Group
Increase range of high quality analyst
research
Implement a new treasury
management system
•
•
20%
Key achievements included:
• Arranged medium to long-term funding through a US
100%
private placement and solutions for other finance products
across the Group
• Additional research coverage secured from three analysts
• New treasury management system implemented at plc
level and will be rolled out across the Group
• Develop and implement a framework
• Underwriting terms and conditions have been reviewed
for managing and reporting
underwriting relationships and ensure
resilience in all markets
• Support the talent and leadership
agenda.
• Launch the target operating model for
HVAC and accelerate HVAC acquisitions
• Prove out the On Demand model for
membership
• Fully test new membership propositions
• Automate claims via intelligent IVR.
• Launch the target operating model for
HVAC and accelerate HVAC acquisitions
• Automate claims via intelligent IVR
• Complete the implementation of the
new CRM system in the UK
• Lead the People agenda including
launching the HomeServe Way and
development programmes for senior
leaders.
and a new dashboard developed. Additional underwriters
being introduced
• Having taken responsibility for the Group People function
part way through the year, was actively involved in the
launch of the HomeServe Way and provided support for
the CEO Forum.
20%
Key achievements included:
• HVAC acquisitions completed in the US, France and Spain
90%
and target operating model implemented
• On Demand model launched with encouraging early
results
• A number of new membership propositions have been
tested including Boiler for Life and HomeServe Now
• Smart IVR was launched in the UK and US.
20%
Key achievements included:
• HVAC acquisitions completed in the US, France and Spain
and target operating model implemented
• Smart IVR was launched in the UK and US
• HomeServe Way launched during the year along with the
CEO Forum for senior leaders.
80%
It was agreed with Martin Bennett that his bonus for FY19 would only be based on Group performance with no element based on personal
performance.
In addition to the above minimum financial (PBT) performance levels had to be achieved before any bonuses could be paid.
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The stretching financial targets have been met but there was only partial achievement in respect of the non financial targets. The continued
focus on delivering great customer service meant that the customer dissatisfaction target was met in full. Despite strong customer growth
in North America there was a decline in Spain following the end of the Endesa partnership and in the UK in the absence of a policy book
acquisition and as a result, the Group customer target was not met. Having reviewed performance, the following bonuses were payable:
Name
R Harpin
M Bennett 1
D Bower
J Ford 2
T Rusin
Bonus £
% of salary
430,280
292,591
245,625
292,584
361,194
75
69
75
71
74
¹ Martin Bennett left the Board on 20 July 2018. The bonus figure above is the total bonus payable. A pro rated amount has been shown on the remuneration table on page 90.
2 Johnathan Ford left the Board on 31 December 2018. The bonus figure above is the total bonus payable. A pro rated amount has been shown on the remuneration table on page 90.
Annual bonuses are paid in cash but serving 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.
Long-Term Incentive Plan
The 2016 LTIP performance and matching awards were granted on 1 July 2016. The performance awards were granted in two parts with
different performance conditions applying to each part.
The performance conditions for the performance awards up to 150% of salary and the matching awards were as follows:
Percentage of
award to which the
condition applies
25%
Condition
TSR (underpinned
by underlying
financial
performance)
Performance period
Threshold target
Stretch target
Actual performance
Vesting
3 years to
31 March 2019
TSR equal to the
FTSE 250 index
TSR exceeds
the index by an
average of 15%
p.a.
Compound
annual growth
of 15%
151.84%
100%
19.82%
100%
EPS
75%
3 years to
31 March 2019
Compound
annual growth
of 6%
The performance conditions for the performance awards above 150% of salary were as follows:
Condition
EPS
Percentage of
award to which the
condition applies
100%
Performance period
Threshold target
Stretch target
Actual performance
Vesting
3 years to
31 March 2019
Compound
annual growth
of 15%
Compound
annual growth of
20%
19.82%
96.38%
Performance for both the total shareholder return and earnings per share condition was based on performance over the three financial years
ended 31 March 2019. Based on the strong performance of HomeServe over this period the stretch performance targets were exceeded in
respect of the standard awards and partially met for the additional awards. Awards will vest on 1 July 2019. A two year post-vesting holding
requirement applies to the awards.
The 2016 awards have been valued for the purpose of the remuneration table on page 90 using the average share price over the last three
months of the financial year.
HomeServe plc Annual Report & Accounts 2019 | 93
Directors’ Remuneration report
Annual Report on Remuneration
continued
Summary of outstanding awards (Audited)
LTIP
Details of the maximum number of shares receivable from awards made under the LTIP are as follows:
31 March 2019
Awarded during
year
Lapsed during year
Vested during year
31 March 2018
Date granted
Type of award
R Harpin
D Bower
T Rusin
M Bennett 1
J Ford 2
—
—
211,338
155,521
111,632
107,547
87,133
84,691
—
31,779
—
59,250
46,247
45,117
—
—
155,624
112,223
93,920
83,823
74,699
67,192
—
—
156,774
115,366
82,810
79,781
—
—
144,094
106,034
80,184
76,279
62,587
—
—
—
—
—
—
87,133
84,691
—
—
—
—
46,247
45,117
—
—
—
—
—
—
74,699
67,192
—
—
—
—
—
—
—
—
—
—
—
—
62,587
¹ Martin Bennett left the Board on 20 July 2018.
2 Johnathan Ford left the Board on 31 December 2018.
94 | HomeServe plc Annual Report & Accounts 2019
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
251,774
188,135
—
—
—
—
—
—
37,766
—
18,975
—
—
—
154,740
81,557
—
—
—
—
—
—
186,770
136,825
—
—
—
—
171,664
111,171
—
—
—
—
—
251,774
188,135
211,338
155,521
111,632
107,547
—
—
37,766
31,779
18,975
59,250
—
—
154,740
81,557
155,624
112,223
93,920
83,823
—
—
186,770
136,825
156,774
115,366
82,810
79,781
171,664
111,171
144,094
106,034
80,184
76,279
25.6.15 Performance
25.6.15 Matching
1.7.16 Performance
1.7.16 Matching
27.6.17 Performance
27.6.17 Matching
24.7.18 Performance
24.7.18 Matching
25.6.15 Performance
1.7.16 Performance
1.7.16 Restricted
27.6.17 Performance
24.7.18 Performance
24.7.18 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
24.7.18 Performance
24.7.18 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
25.6.15 Performance
25.6.15 Matching
1.7.16 Performance
1.7.16 Matching
27.6.17 Performance
27.6.17 Matching
—
24.7.18 Performance
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The performance conditions are as follows:
• 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 and 2018 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 one outstanding restricted share award which pre dated his appointment as CFO and which has now vested. This award was
not subject to performance conditions.
Further details on LTIP awards granted in the year
On 24 July 2018, the following performance and matching share awards were granted to the Executive Directors under the LTIP:
Performance share awards
R Harpin
D Bower
J Ford 1
T Rusin
Date of grant
Number of shares
Share price used to
determine awards
Award size
(% salary)
Face value at
grant £
% that vests at
threshold
24.7.18
24.7.18
24.7.18
24.7.18
87,133
46,247
62,587
74,699
£9.925
£9.925
£9.925
£9.925
150%
150%
150%
150%
864,795
459,001
621,176
741,388
25%
25%
25%
25%
1 Johnathan Ford left the Board on 31 December 2018.
Matching share awards
R Harpin
D Bower
T Rusin
Date of grant
24.7.18
24.7.18
24.7.18
Number of
investment shares
purchased
22,443
11,956
17,806
Number of shares
subject to matching
award
Share price used to
determine awards
84,691
45,117
67,192
£9.925
£9.925
£9.925
Award size
2:1 match
2:1 match
2:1 match
Face value £
840,558
447,786
666,881
% that vests at
threshold
25%
25%
25%
The performance awards and the matching awards are subject to two performance conditions. 25% of the awards are subject to a relative total
shareholder return performance condition that requires HomeServe’s TSR to match that of the FTSE 250 Index over a three year performance
period for threshold vesting, increasing on a straight-line basis to Index + 15% per annum for full vesting. The other 75% of the awards are
subject to an earnings per share condition that requires compound annual EPS growth of 9% to 15% per annum. 9% 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.
HomeServe plc Annual Report & Accounts 2019 | 95
Directors’ Remuneration report
Annual Report on Remuneration
continued
Further details on awards vested in the year
Performance and matching awards granted on 25 June 2015 vested in full during the year. In addition, a restricted award granted to David
Bower before he was appointed as CFO also vested.
R Harpin
M Bennett 1
D Bower
J Ford 2
T Rusin
Date of grant
Type of Award
Date of exercise
No of Shares
Share price at
exercise
Face value
at exercise £
Dividend equivalents
paid in cash £
25.6.15
Performance
25.6.15
Matching
25.6.15
Performance
25.6.15
Matching
25.6.15
Performance
1.7.16
Restricted
25.6.15
Performance
25.6.15
Matching
25.6.15
Performance
25.6.15
Matching
27.6.18
27.6.18
27.6.18
27.6.18
27.6.18
2.7.18
27.6.18
27.6.18
27.6.18
27.6.18
251,774
188,135
186,770
136,825
37,766
18,975
171,664
111,171
154,740
81,557
£8.96
£8.96
£8.96
£8.96
£8.96
£8.92
£8.96
£8.96
£8.96
£8.96
2,255,895
1,685,690
1,673,459
1,225,952
338,383
169,257
1,538,109
996,092
1,386,470
730,751
102,145
76,326
75,773
55,510
15,322
5,484
69,644
45,102
62,778
33,088
¹ Martin Bennett left the Board on 20 July 2018.
2 Johnathan Ford left the Board on 31 December 2018.
One Plan Matching Shares (Share Incentive Plan)
R Harpin
D Bower
T Rusin 1
M Bennett 2
J Ford 3
31 March 2019
Acquired during
year
31 March 2018
Aggregate face value
of shares awarded
during the year £ 4
304
304
331
242
256
97
97
105
35
74
207
207
226
207
182
895
895
967
301
672
1 Tom Rusin was appointed on 23 May 2017.
2 Martin Bennett left the Board on 20 July 2018.
3 Johnathan Ford left the Board on 31 December 2018.
4 Based on the acquisition price of the associated Partnership Shares. The highest share price was £10.39 and the lowest share price was £7.32.
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.
96 | HomeServe plc Annual Report & Accounts 2019
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Shareholding Guidelines (Audited)
It is the Board’s policy that Executive Directors build up and retain a minimum shareholding in the Company. Each Director is encouraged to
hold shares of at least equal value to 300% of their annual basic salary or fee.
Under the Long-Term Incentive Plan, the net of tax value of shares that vest must be retained for a period of two years.
The beneficial interests of Directors who served at the end of the year, together with those of their families, in the shares of the Company are as
follows:
Outstanding LTIP
awards
Total
31 March 2019
Value of shares
counting towards
guideline holding (as a
% of salary or fee) ¹
Guideline met?
R Harpin ²
M Bennett 3
D Bower
J Ford 4
T Rusin
J M B Gibson
K Cliffe
S David
E Fitzmaurice
O Grémillon 5
C Havemann 6
R McMillan
21 May 2019
31 March 2019
31 March 2018
40,146,814
40,146,773
39,684,114
—
113,627
—
522,464
150,070
12,076
68,945
786,265
—
223,396
113,586
198,533
522,421
150,070
12,076
68,945
786,265
—
555,258
81,370
191,730
477,879
150,070
12,076
68,945
786,265
—
20,000
20,000
20,000
—
—
—
757,862
434,731
182,393
469,178
587,481
—
—
—
—
—
—
—
40,904,635
71,376%
658,127
295,979
667,711
1,109,902
150,070
12,076
68,945
786,265
—
20,000
—
n/a
310%
n/a
1,082%
615%
190%
975%
14,653%
—
n/a
—
¹ Calculated using the shareholding and share price on 29 March 2019 of £10.25 divided by the Executive’s salary or Non-Executive’s fee on that date.
² Includes an indirect interest of 28,500.
3 Martin Bennett left the Board on 20 July 2018.
4 Johnathan Ford left the Board on 31 December 2018.
5 Chris Havemann left the Board on 1 December 2018.
6 Olivier Grémillon joined the Board on 29 March 2019.
Directors’ pensions (Audited)
Members of the Water Companies Pension Scheme
Richard Harpin opted out of the Scheme on 1 May 2018 and subsequently transferred out. At the end of the year, he therefore retained no
prospective rights to any defined benefits from the Scheme.
Details of the calculation of the single figures relating to his individual pension entitlements in the HomeServe plc Section of the Water
Companies Pension Scheme, as required under Schedule 8 of the Large Companies Regulations and the Listing Rules, are shown below:
Accrued pension per annum at end of period 1
Accrued lump sum at end of period 1
Director’s contributions in the period
Single figure of pension remuneration attributable to the Scheme 2
Unapproved pension contributions paid as cash
2019
£000
—
—
—
—
110
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.
HomeServe plc Annual Report & Accounts 2019 | 97
Yes
n/a
Yes
n/a
Yes
Yes
No
Yes
Yes
No
n/a
No
2018
£000
61
184
—
62
85
Directors’ Remuneration report
Annual Report on Remuneration
continued
Other Directors
David Bower, Martin Bennett and Johnathan Ford received the following cash payments in lieu of pension contributions:
D Bower
M Bennett ¹
J Ford 2
¹ Martin Bennett left the Board on 20 July 2018.
2 Johnathan Ford left the Board on 31 December 2018.
2019
£000
66
26
61
2018
£000
60
84
81
Tom Rusin participates in a US 401k pension plan (a defined contribution scheme) to which the Company contributed £8,783 ($11,538) in FY19.
(FY18: £5,806).
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 ten years ended 31 March 2019. 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)
600
550
500
450
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
31 March 19
This graph shows the value, by 31 March 2019, of £100 invested in HomeServe plc on 31 March 2009 compared with that of £100 invested in the FTSE-250 Index. The other
points plotted are the values at intervening financial year-ends.
FTSE-250 index
HomeServe plc
98 | HomeServe plc Annual Report & Accounts 2019
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Chief Executive’s remuneration
The total remuneration figures for the Chief Executive during each of the last ten 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
LTIP awards vesting
2010
1,030
100%
21%1
2011
953
87%
51%2
2012
559
0%
60%
2013
953
75%
0%
2014
1,212
100%
0%
2015
1,200
96%
0%
2016
3,355
98%
100%
2017
4,256
100%
100%
2018
8,5633
96%
100%
2019
4,749
75%
100%4
Notes:
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 vested a year apart.
4 Standard LTIPs vested at 100%. Additional LTIPs vested at 96.38%
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 FY18 and FY19 compared to the average for all employees of HomeServe plc.
Chief Executive Officer
Average of other HomeServe plc employees
% Change from FY18 to FY19
Salary
2.0%
3.6%
Benefits
11.3%
26.0%
Annual Bonus
(20.4%)
10.2%
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:
Pay
Dividends
Tax
Retained profits
FY18
£m
267.5
50.4
27.4
96.3
FY19
£m
306.9
65.0
31.2
108.5
% change
15%
29%
14%
13%
£9.3m 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 2019 | 99
Directors’ Remuneration report
Annual Report on Remuneration
continued
Termination Arrangements and Loss of Office Payments (Audited)
Martin Bennett
On 22 May 2018 the Company announced that Martin Bennett would step down from the Board on 20 July 2018. Martin continued to serve as
CEO of the UK business until 30 September 2018, following which he was given notice that his employment was being terminated by reason of
redundancy. Martin was required to assist with an orderly transition of certain functions as part of restructuring of the global business lines.
Salary and Benefits
In accordance with his contract of employment he will continue to be paid his salary, pension and benefits by monthly instalments until the
end of his employment. Martin will also receive an enhanced redundancy payment equal to 18 weeks salary.
Martin received a capped contribution towards his reasonable legal fees incurred in connection with his departure, up to a maximum of £3,500
plus VAT. The Company will also contribute reasonable outplacement support in accordance with the Remuneration Policy.
Incentives
Martin was eligible to receive an annual bonus for FY19, in accordance with the Company’s Remuneration Policy, as he continued to work for
the Company during the FY19 bonus year. This bonus was determined based on performance achieved.
Awards granted to Martin under the Long Term Incentive Plan were treated as follows:
• The awards granted in 2016 will vest on the normal vesting date to the extent the performance conditions are met and will not be pro-rated
as Martin will be employed on the relevant vesting date.
• The award granted in 2017 will vest on the normal vesting date, to the extent the performance conditions are met, and will be pro-rated to
reflect the proportion of the performance period in which Martin was employed.
These awards will continue to be subject to a post-vesting holding period.
Johnathan Ford
On 20 November 2018 the Company announced that Johnathan Ford would step down from the Board on 31 December 2018. Johnathan
was given notice that his employment was being terminated by reason of redundancy on 31 December 2018. He was required to assist with an
orderly transition of his COO responsibilities.
Salary and Benefits
In accordance with his contract of employment he will continue to be paid his salary and benefits by monthly instalments until July 2019 at
which time he will receive a payment equivalent to six months’ salary and benefits as compensation for the remainder of his notice period.
Johnathan will also receive an enhanced redundancy payment equal to nine weeks’ salary.
Johnathan received a capped contribution towards his reasonable legal fees incurred in connection with his departure, up to a maximum of
£5,000 plus VAT. The Company will also contribute reasonable outplacement support in accordance with the Remuneration Policy.
Incentives
Johnathan was eligible to receive an annual bonus for FY19, in accordance with the Company’s Remuneration Policy, as he continued to work
for the Company during the FY19 bonus year. This bonus was determined based on performance achieved.
Awards granted to Johnathan under the Long Term Incentive Plan were treated as follows:
• The awards granted in 2016 will vest on the normal vesting date to the extent the performance conditions are met and will not be pro-rated
as he will be employed on the relevant vesting date.
• The awards granted in 2017 and 2018 will vest on the normal vesting dates, to the extent the performance conditions are met, and will be
pro-rated to reflect the proportion of the performance period in which Johnathan was employed.
These awards will continue to be subject to a post-vesting holding period.
100 | HomeServe plc Annual Report & Accounts 2019
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Application of the remuneration policy for FY20
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). Salaries for 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 2019 will therefore be as follows:
Name of Director
R Harpin
D Bower
T Rusin
Salary as at
1 July 2018
£576,533
£306,000
$650,000
Salary as at
1 July 2019
£588,064
£375,000
$663,000
Increase
2.0%
22.5%
2.0%
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, Audit & Risk or People Committee
£250,000
£7,500
£55,000
£10,000
Annual bonus performance targets
The annual bonus plan for FY20 will operate on a similar basis to FY19 and is consistent with the policy detailed earlier in this report.
The bonus measures will be as follows:
Financial measures
(30% of bonus)
• Profit before tax (20%)
• Net debt (10%)
Non financial measures
(50% of bonus)
Personal objectives
(20% of bonus)
• Customer growth (25%)
• Reduction in Customer dissatisfaction (20%)
•
Improvement in Employee Engagement (5%)
• Up to five stretching personal objectives
The Committee considers the forward looking performance targets to be commercially sensitive but more detailed disclosure will be provided
in next year’s remuneration report.
The Committee has discretion to scale back any bonus payments if it is deemed appropriate.
Long-term incentives
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 FY20 Performance Share award for Executive Directors will be at
150% of salary.
HomeServe plc Annual Report & Accounts 2019 | 101
Directors’ Remuneration report
Annual Report on Remuneration
continued
Performance criteria
For Performance Share awards and Matching Share awards, the performance targets for FY20 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
No change
No change
When setting the EPS target range for the FY20 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 is three times annual basic salary. Shareholding guidelines at three times their
fee also applies to Non-Executive Directors.
Shareholder voting at the 2018 Annual General Meeting
At last year’s Annual General Meeting held on 20 July 2018, the following votes from shareholders were received:
For
Against
Total votes cast (for and against excluding withheld votes)
Votes withheld
Total votes (including withheld votes)
Remuneration report
Total number of votes
% of votes cast
264,213,548
10,210,253
274,423,801
196,171
274,619,972
96%
4%
100%
The current remuneration policy was approved by shareholders at the 2017 AGM. 99% of the votes cast were in favour of the policy.
General
The market price of the Company’s shares at 29 March 2019 was £10.25 (2018: £7.38). During the year the price ranged from £7.19 to £10.41.
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 2019 amounted to 10,609 ordinary shares.
By Order of the Board
Katrina Cliffe
Chairman of the Remuneration Committee
21 May 2019
102 | HomeServe plc Annual Report & Accounts 2019
Directors’ report
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The Directors have pleasure in presenting their Annual Report and audited financial statements for the year ended 31 March 2019.
Management report
The Directors’ report, together with the Strategic report set out on pages 2 to 49 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
Pages 2 to 49
Employees (employment of disabled persons, employee engagement and policies)
Pages 25 to 29
Corporate Governance Statement
Directors’ details (including changes made during the year)
Related party transactions
Diversity
Share Capital
Going Concern and Viability Statement
Pages 52 to 78
Pages 61, 62 and 64
Note 48 on page 187
Page 26
Note 27 on page 165
Page 48
Employee share schemes (including long-term incentive schemes)
Note 31 on pages 167 to 168
Financial instruments: Information on the Group’s financial instruments and risk
management objectives and policies, including our policy for hedging
Notes 26 and 44 on pages 162 to 164 and
181 to 183
Disclosure of information to auditor
Page 106
Results and Dividends
The Directors are recommending the payment on 2 August 2019 of a final dividend of 16.2p per ordinary share to shareholders on the register
at the close of business on 5 July 2019 which, together with the net interim dividend of 5.2p per ordinary share paid on 7 January 2019, results
in a total net dividend for the year of 21.4p per share (FY18: 19.1p).
Greenhouse Gas Emissions Reporting
Combustion of fuel and operation of facilities
Electricity, heat, steam and cooling purchased for own use
Total
Tonnes of CO2e per thousand customers
Global tonnes of CO2e
FY19
Global tonnes of CO2e
FY18
12,899
1,697
14,596
1.74
11,366
2,423
13,789
1.65
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.
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Directors’ report
Directors’ report
continued
Rules on appointment and replacement of Directors
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.
Capital Structure
Details of the issued share capital, together with details of shares issued during the year, are set out in note 27. 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 31. 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 2018 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 2019 AGM.
Authority to purchase shares
The Company was authorised at the 2018 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 2019 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 2019 Annual General Meeting of the Company will be held on 19 July 2019.
Fixed Assets
Capital expenditure on tangible fixed assets amounted to £9.8m (FY18: £11.0m) during the year.
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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 21 May 2019 are set out in the
Remuneration report on page 97. 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 21
May 2019, except for the following:
Name
R Harpin 1
Invesco Limited
Baillie Gifford & Co
1 Includes an indirect interest of 28,500 shares.
As at 31 March 2019
ordinary shares
%
As at 21 May 2019
ordinary shares
40,146,773
33,050,338
17,124,224
12.07
40,146,814
9.94
5.15
33,050,338
17,124,224
%
12.07
9.94
5.15
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
21 May 2019
HomeServe plc Annual Report & Accounts 2019 | 105
Directors’ report
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.
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 (at 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.
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Directors’ responsibility statement
We confirm to the best of our knowledge:
•
the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the
consolidation taken as a whole;
the Management Report includes a fair review of the development and performance of the business and the position of the company and
the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they
face; and
the Annual Report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary
for shareholders to assess the company’s position and performance, business model and strategy.
•
•
By Order of the Board
Richard Harpin
Chief Executive Officer
21 May 2019
David Bower
Chief Financial Officer
21 May 2019
HomeServe plc Annual Report & Accounts 2019 | 107
Independent Auditor’s report
Independent Auditor’s report
to the members of HomeServe plc
Opinion
In our opinion:
•
the financial statements of HomeServe plc (‘the parent company’) and its subsidiaries (‘the Group’) give a true and fair view of the state of the
Group’s and of the parent company’s affairs as at 31 March 2019 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as
applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
•
•
•
We have audited the financial statements which comprise:
•
•
•
•
•
•
the Group income statement;
the Group and parent company statements of comprehensive income;
the Group and parent company balance sheets;
the Group and parent company statements of changes in equity;
the Group and parent company cash flow statements; and
the related notes 1 to 48.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and,
as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
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 parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (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 parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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
•
revenue deferrals.
Within this report, the key audit matters identified are the same as the prior year with the exception of revenue deferrals. The refund liability
contains less manual input and management judgement in the current year and is therefore no longer considered a part of the revenue
deferrals key audit matter.
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Materiality
The materiality that we used for the Group financial statements was £6.5m which was determined on the basis of 5% of profit before tax. Our
determination excludes the £10.1m fair value gain on the Help-Link contingent consideration because it is an exceptional gain not related to the
overall trading performance of the Group.
Scoping
Consistent with the prior year, we focused our Group audit scope primarily on the following operating segments:
• United Kingdom;
• North America;
• France; and
• Spain.
All of the material entities within these segments were subject to a full audit. The New Markets and Home Experts segments were subject to
specific audit procedures, with the exception of Checkatrade which was subject to a full audit.
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 considered as part of our risk assessment the nature of the Group, its business model and related risks including where relevant the impact
of Brexit, the requirements of the applicable financial reporting framework and the system of internal control. We evaluated the directors’
assessment of the Group’s ability to continue as a going concern, including challenging the underlying data and key assumptions used to make
the assessment, and evaluated the directors’ plans for future actions in relation to their going concern assessment.
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 20 to 24 that describe the principal risks and explain how they are being managed or mitigated;
the directors’ confirmation on page 107 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 48 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.
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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.
Carrying value of goodwill
Key audit matter description
The carrying value of goodwill is £407.9m (FY18: £386.6m).
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 identified key audit matters in the following areas:
•
the number of cash generating units (“CGUs”) has reduced to six (FY18: eight). The goodwill associated with the FY18 acquisitions of Help-
Link and Electrogaz has been reallocated from the ‘UK – HVAC’ and ‘France – HVAC’ CGUs which are no longer identified in the current year,
to the ‘UK’ and ‘France’ CGUs respectively;
the accuracy of the most sensitive assumption, which is the weighted average cost of capital (“WACC”) used to discount the cash flows
within the Group’s impairment assessment.
•
Further detail on the key judgements involved is set out within the Audit and Risk Committee report on page 74, 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 first understood the Group’s process and key controls around the carrying value of goodwill by undertaking a walk-through. We assessed
the design and implementation of controls that the Group has in place to assess the carrying value of goodwill, specifically the Group review
process to assess the accuracy and completeness of key assumptions within the impairment assessment.
As part of our risk assessment, sensitivity analysis was also performed in relation to the key assumptions.
We challenged the Group’s assessment of the CGUs identified in the current year and for the revised CGUs, whether the interdependency
between the cash inflows, management structure and decision making process supported the reallocation of goodwill.
We assessed the Group’s WACC using our internal valuations specialists. Our specialists benchmarked assumptions to external macro-
economic and market data and independently recalculated the WACC rate for each CGU.
We challenged the Group’s key assumptions relating to the estimated future cash flows applied to each CGU. Our procedures included:
• challenging the appropriateness of using cash flow forecasts based on Board approved plans for the next four years for Checkatrade, and
three years for the rest of the Group;
• assessing the Group’s ability to accurately forecast business performance with reference to historical trading performance;
• consideration of the future prospects of the business;
•
reviewing the Group’s assessment of the potential impacts that the uncertainty around Brexit could have on future cash flows.
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.
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Key observations
We concluded that the CGUs identified in the current year are appropriate.
We concluded that the key assumptions used within the Group’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.
Carrying value of the new CRM system
Key audit matter description
The Group is continuing to progress its development of the CRM system. The carrying value of the new CRM system is £81.8m (FY18: £72.3m).
In order to support the carrying value of the CRM system, the Group 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 in the next financial year.
Further detail on the key judgements involved is set out within the Audit and Risk Committee report on page 74, 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 first understood management’s process and key controls around the carrying value of the new CRM system by undertaking a walk-through.
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 Group review process to assess the accuracy and completeness of key assumptions used to determine the expected future cash
flows.
We have assessed the key assumptions including the expected retention rates underpinning the benefits case. We also reviewed the Group’s
assessment of the potential impacts that the uncertainty around Brexit could have on future cash flows.
In conjunction with our IT specialists we 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 in order to assess whether the impact of future costs indicates a risk of an
impairment trigger.
Key observations
We concluded that the key assumptions used within the Group’s carrying value assessment were reasonable and therefore no impairment was
required.
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Revenue deferrals
Key audit matter description
The recognition of revenue requires significant judgement by the Group 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 non-recoverable costs incurred by HomeServe’s
directly employed operations. The refund liability contains less manual input and management judgement in the current year and is therefore
no longer considered a part of the revenue deferrals key audit matter.
The total amount of revenue deferred at 31 March 2019 in respect of the Group’s future claim handling obligations is £19.4m (FY18: £19.6m).
The total amount of revenue deferred at 31 March 2019 in respect of the Group’s directly employed operations is £20.7m (FY18:£19.1m).
As part of our risk assessment, sensitivity analysis was also performed in relation to the key assumptions.
The key assumptions used by the Group for claims handling and directly employed operations include the claims profiles and the average cost
per claim.
Further detail on the Group’s revenue recognition policy is set out within the Audit and Risk Committee report on page 74, 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 the Group’s process and key controls around the 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 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.
Additionally we have assessed if the Group is consistent in implementing the calculations 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 the Group to determine the revenue deferrals to be working as intended and the underlying assumptions were
reasonable.
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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
Parent company financial statements
Materiality
£6.5m (FY18: £7.4m)
£4.9m (FY18: £5.5m)
Basis for
determining
materiality
5% (FY18: 6%) of profit before tax. We have changed
the measure from 6% in the prior year audit to 5%. The
reduced measure was driven by the continued growth
and increasing complexity of the Group’s operations.
Our determination excludes the £10.1m fair value gain
on the Help-Link contingent consideration because it
is an exceptional gain not related to the overall trading
performance of the Group.
Parent company materiality equates to 1.2% of total equity
and is capped at 75% of Group materiality. The prior year
materiality was capped at 75% of Group materiality on
the basis of the investment in subsidiaries balance. In the
current year we determined total equity to be a more
appropriate basis.
Rationale for
the benchmark
applied
We determined materiality using profit before tax as we
considered this to be the most appropriate measure to
assess the performance of the Group. This is because
profit based measures are the financial measures most
relevant to users of the financial statements.
We determined materiality using the equity balance, as the
Company is the parent company and is not a trading entity
we considered this to be the most appropriate measure for
the Company.
PBT
£129.4m
Group materiality £6.5m
Parent Company materiality £4.9m
Component materiality range
£2.9m to £4.5m
Audit and Risk Committee
reporting threshold £0.3m
PBT excluding fair value gain
Group materiality
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £323,500 (FY18:
£370,000) 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 and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial
statements.
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continued
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing
the risks of material misstatement at the Group level. Based on that assessment, as in the prior year, we focused our Group audit scope primarily
on the following operating segments:
• UK;
• North America;
• France; and
• Spain.
All of the material entities within these segments were subject to a full audit. The New Markets and Home Experts segments were subject to
specific audit procedures, with the exception of Checkatrade which was subject to a full audit.
The UK, North America, France and Spain segments and the Checkatrade legal entity account for 98.9% (FY18: 98.5%) of the Group’s revenue
and 100% (FY18: 100%) of the Group’s profit before tax from profit-making segments (there was a loss for the year in the New Markets and
Home Experts segments). 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 segments was executed at levels of materiality ranging from £2.9m to £4.5m (FY18:
£3.7m to £4.8m).
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 segments 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 two senior members 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 segment’s planned audit strategy and risk assessment, and a fieldwork visit where we participated in the segment’s audit close meetings
and assessed documentation of the findings from their work. We issue referral instructions to our overseas component audit teams and receive
a signed reporting package from each component prior to issuing our audit opinion.
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 and Risk Committee reporting – the section describing the work of the Audit and Risk Committee does not appropriately address
matters communicated by us to the Audit and Risk 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.
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Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities, 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 parent 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 parent 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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and
perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for
our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, our procedures included the following:
• enquiring of management, internal audit and the Audit and Risk Committee, including obtaining and reviewing supporting documentation,
concerning the Group’s policies and procedures relating to:
- identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
- detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
- the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
• discussing among the engagement team including significant component audit teams and involving relevant internal specialists, including
tax, valuations, pensions and IT specialists regarding how and where fraud might occur in the financial statements and any potential
indicators of fraud. As part of this discussion, we identified potential for fraud in the following areas: revenue deferrals, supportability of tax
provisions and accruals; and
• obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations
that had a direct effect on the financial statements or that had a fundamental effect on the operations of the Group. The key laws and
regulations we considered in this context included UK Companies Act, Listing Rules, pensions legislation and tax legislation. In addition,
compliance with the regulation set by the Financial Conduct Authority were fundamental to the Group’s ability to continue as a going
concern.
HomeServe plc Annual Report & Accounts 2019 | 115
Independent Auditor’s report
Independent Auditor’s report
to the members of HomeServe plc
continued
Audit response to risks identified
As a result of performing the above procedures, we identified revenue deferrals as a key audit matter. The key audit matters section of our
report explains the matters in more detail and also describes the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
•
reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws and
regulations discussed above;
• enquiring of management, the Audit and Risk Committee and in-house legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to
fraud;
• obtained an understanding of provisions and held discussions with management to understand the basis of recognition or non-recognition
•
•
of tax provisions;
reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with the
Financial Conduct Authority; and
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the
business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
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 parent 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 parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns.
•
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been
made or the part of the Directors’ remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
116 | HomeServe plc Annual Report & Accounts 2019
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Other matters
Auditor tenure
Following the recommendation of the Audit and 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 17 years, covering the years ending 31 March 2003 to 31 March 2019.
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 and Risk Committee we are required to provide in accordance with ISAs
(UK).
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.
Matthew Perkins (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, UK
21 May 2019
HomeServe plc Annual Report & Accounts 2019 | 117
118 | HomeServe plc Annual Report & Accounts 2019
Smart Home
Development and distribution
of technology to enable
home automation, including
LeakBot, smart thermostats and
connected boilers.
S
S
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N
N
E
E
M
M
E
E
T
T
A
A
T
T
S
S
L
L
A
A
C
C
N
N
A
A
N
N
I
I
F
F
I
I
FINANCIAL STATEMENTS
118 Group financial statements
173 Company financial statements
193 Glossary
HomeServe plc Annual Report & Accounts 2019 | 119
Group financial statements
Group income statement
Year ended 31 March 2019
Continuing operations
Revenue
Operating costs
Share of results of equity accounted investments
Operating profit
Investment income
Finance costs
Adjusted profit before tax
Amortisation of acquisition intangibles
Exceptional items
Restructuring costs
Fair value movement on contingent consideration liabilities
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
5
18
8
9
5
7
7
10
11
12
12
2019
£m
1,003.6
(850.7)
(0.3)
152.6
0.2
(13.3)
161.7
(26.8)
(5.5)
10.1
139.5
(31.2)
108.3
108.5
(0.2)
108.3
21.4p
32.7p
32.3p
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
* The Group’s results are being reported under IFRS 9 and IFRS 15 for the first time in 2019 following the mandatory adoption of the standards from 1 April 2018. In accordance with the
transitional provisions of these standards, comparatives have not been restated. See note 2.
120 | HomeServe plc Annual Report & Accounts 2019
Group statement of comprehensive income
Year ended 31 March 2019
Profit for the year
Items that will not be reclassified subsequently to profit and loss:
Actuarial (loss)/gain on defined benefit pension scheme
Deferred tax credit/(charge) relating to actuarial re-measurements
Fair value gain on "fair value through other comprehensive
income" (FVTOCI) investment in equity instruments
Deferred tax charge relating to fair value gain on FVTOCI investment
in equity instruments
Items that may be reclassified subsequently to profit and loss:
Exchange movements on translation of foreign operations
Fair value losses on cash flow hedges
Total other comprehensive income/(expense)
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Notes
32
10
17
10
28
2019
£m
108.3
(0.4)
0.1
0.7
(0.2)
0.2
6.8
—
6.8
7.0
115.3
115.5
(0.2)
115.3
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M
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T
A
T
S
L
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N
A
N
I
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I
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
HomeServe plc Annual Report & Accounts 2019 | 121
Group financial statements
Group balance sheet
31 March 2019
Non-current assets
Goodwill
Other intangible assets
Contract costs
Property, plant and equipment
Equity accounted investments
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
Bank and other loans
Current tax liabilities
Provisions
Obligations under finance leases
Net current assets
Non-current liabilities
Bank and other loans
Deferred tax liabilities
Other financial liabilities
Obligations under finance leases
Total liabilities
Net assets
Equity
Share capital
Share premium account
Share incentive reserve
Currency translation reserve
Investment revaluation reserve
Other reserves
Retained earnings
Attributable to equity holders of the parent
Non-controlling interests
Total equity
Notes
13
14
4
15
18
17
10
32
19
20
21
22
25
24
25
25
10
23
25
27
28
28
28
28
28
29
2019
£m
407.9
418.6
27.5
42.8
10.6
9.2
7.4
6.4
930.4
7.0
424.6
72.6
504.2
1,434.6
(382.3)
(39.7)
(6.0)
(5.7)
(0.5)
(434.2)
70.0
(336.4)
(26.4)
(23.3)
(0.7)
(386.8)
(821.0)
613.6
9.0
180.7
23.3
22.9
2.3
82.2
293.0
613.4
0.2
613.6
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)
(38.0)
(10.4)
—
(0.5)
(557.4)
20.4
(256.7)
(25.5)
(23.4)
(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
The financial statements were approved by the Board of Directors and authorised for issue on 21 May 2019. They were signed on its behalf by:
David Bower
Chief Financial Officer
21 May 2019
122 | HomeServe plc Annual Report & Accounts 2019
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Group statement of changes in equity
Year ended 31 March 2019
Share
capital
£m
Share
premium
account
£m
Share
incentive
reserve
£m
Currency
translation
reserve
£m
Investment
revaluation
reserve1
£m
Other
reserves2
£m
Retained
earnings
£m
Attributable
to equity
holders of
the parent
£m
Non-
controlling
interest
£m
Total
equity
£m
Balance at 1 April 2018
8.9
171.8
22.1
16.1
1.8
82.2
248.1
551.0
0.4
551.4
Opening adjustment for the impact of
of IFRS 15 (note 2)
—
—
—
—
—
—
(2.1)
(2.1)
—
(2.1)
Opening balance under IFRS 15
8.9
171.8
22.1
16.1
1.8
82.2
246.0
548.9
0.4
549.3
Profit for the year
Other comprehensive income
for the year
Total comprehensive income
Dividends paid (note 11)
Issue of share capital
Share-based payments
Share options exercised
Tax on exercised share options (note 10)
Deferred tax on share options (note 10)
—
—
—
—
0.1
—
—
—
—
—
—
—
—
8.9
—
—
—
—
—
—
—
—
108.5
108.5
(0.2)
108.3
—
—
6.8
6.8
0.5
0.5
—
—
(0.3)
7.0
—
7.0
108.2
115.5
(0.2)
115.3
—
—
8.8
(7.6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(65.0)
(65.0)
—
—
—
—
—
—
—
0.8
2.7
0.3
9.0
8.8
(6.8)
2.7
0.3
—
—
—
—
—
—
(65.0)
9.0
8.8
(6.8)
2.7
0.3
Balance at 31 March 2019
9.0
180.7
23.3
22.9
2.3
82.2
293.0
613.4
0.2
613.6
Year ended 31 March 2018
Balance at 1 April 2017
Profit for the year
Other comprehensive expense
for the year
Total comprehensive income
Dividends paid (note 11)
Issue of share capital
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)
—
—
—
—
—
—
—
—
0.5
126.1
—
—
—
—
—
—
—
—
—
—
Share
capital
£m
Share
premium
account
£m
Share
incentive
reserve
£m
Currency
translation
reserve
£m
Available
for sale
reserve
£m
Other
reserves2
£m
Retained
earnings
£m
Attributable
to equity
holders of
the parent
£m
Non-
controlling
interest
£m
Total
equity
£m
8.4
45.7
18.3
26.3
1.8
72.2
196.5
369.2
0.8
370.0
—
—
—
—
96.3
96.3
(0.4)
95.9
—
—
—
—
8.1
(4.3)
—
—
—
(10.2)
(10.2)
—
—
—
—
—
—
—
—
—
—
(0.5)
(0.5)
1.7
(9.0)
—
(9.0)
98.0
87.3
(0.4)
86.9
—
(50.4)
(50.4)
—
10.0
—
—
—
—
—
0.5
—
—
—
—
—
—
1.0
—
2.8
0.2
136.6
8.1
(3.3)
0.5
2.8
0.2
—
—
—
—
—
—
—
(50.4)
136.6
8.1
(3.3)
0.5
2.8
0.2
Balance at 31 March 2018
8.9
171.8
22.1
16.1
1.8
82.2
248.1
551.0
0.4
551.4
1 The available for sale reserve was renamed the investment revaluation reserve upon adoption of IFRS 9 on 1 April 2018.
2 Other reserves comprise the Merger, Own shares, Capital redemption and Hedging reserves. Full details of these reserves are included in note 28.
HomeServe plc Annual Report & Accounts 2019 | 123
Group financial statements
Group cash flow statement
Year ended 31 March 2019
Net cash inflow from operating activities
Investing activities
Interest received
Proceeds on disposal of fixed assets
Purchases of intangible assets
Contract costs
Purchases of property, plant and equipment
Dividend received from associate
Acquisition of equity accounted investments
Acquisition of subsidiaries
Net cash used in investing activities
Financing activities
Dividends paid
Repayment of finance leases
Acquisition of subsidiaries
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
Movement in bank and other loans
Net cash generated by financing activities
Net increase 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
30
18
18
16
11
2019
£m
162.0
0.2
0.3
(99.1)
(7.9)
(9.0)
—
(5.4)
(37.5)
(158.4)
(65.0)
(0.6)
—
2.2
—
174.2
(1.6)
(98.9)
10.3
13.9
57.8
0.9
72.6
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
124 | HomeServe plc Annual Report & Accounts 2019
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Notes to financial statements
Year ended 31 March 2019
1. General information
HomeServe plc (the ‘Company’) is a public company, limited by shares and incorporated in England and Wales 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 26.
Adoption of new or revised standards
The following accounting standards, interpretations and amendments have been adopted in the year:
IFRIC 22
Amendments to IFRS 2
Amendments to IFRS 4
Amendments to IAS 12
Amendments to IAS 40
Annual Improvements to IFRSs
Annual Improvements to IFRSs
Foreign Currency Transactions and Advance Consideration
Classification and Measurement of Share-based Payment Transactions
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
Recognition of Deferred Tax Assets for Unrealised Losses
Transfers of Investment Property
2014-2016 Cycle – IFRS 1 and IAS 28 Amendments
2014-2016 Cycle – IFRS 12 Amendments
None of the items listed above have had any material impact on the amounts reported in this consolidated set of financial statements. The
impact of the following standards and clarifications are discussed under ‘Changes in accounting policies’ and ‘Impact of adoption of IFRSs 9 &
15' below:
IFRS 9
IFRS 15
Clarifications to IFRS 15
Financial Instruments
Revenue from Contracts with Customers
Revenue from Contracts with Customers
Changes in accounting policies
The Group has adopted IFRS 9 and IFRS 15 (including clarifications) with effect from 1 April 2018. In accordance with the transitional provisions
of these standards, comparatives have not been restated. The impacted accounting policies for the years ended 31 March 2019 and 31 March
2018 are outlined below. All other accounting policies of the Group are set out in the ‘Other Accounting Policies’ section of this note.
Revenue recognition (applicable from 1 April 2018)
The Group records revenue in accordance with the five-step recognition model outlined in IFRS 15:
Identify the contract with the customer
Identify the performance obligations in the contract
1.
2.
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognise revenue when (or as) each performance obligation is satisfied
Revenue is recognised, net of discounts, VAT, Insurance Premium Tax and other sales related taxes, either at the point in time a performance
obligation has been satisfied or over time as control of the asset associated with the performance obligation is transferred to the customer.
For all contracts identified, the Group determines if the arrangement with the customer creates enforceable rights and obligations. For
contracts with multiple components to be delivered, such as those with underwriters to sell policies on behalf of the underwriter as well as
deliver handling and administration services, management applies judgement to consider whether those promised goods and services are:
i. distinct – to be accounted for as separate performance obligations;
ii. not distinct – to be combined with other promised goods or services until a bundle is identified that is distinct; or
iii. part of a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer.
At contract inception the total transaction price is estimated, being the amount to which the Group expects to be entitled and has present
enforceable rights to under the contract. Where applicable, this includes management’s best estimate of any variable consideration to be
included in the transaction price based on the expected value or most likely amount approach, and only to the extent that it is highly probable
that no significant revenue reversal will occur.
Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion to their relative
standalone selling prices and recognises revenue when (or as) those performance obligations are satisfied.
HomeServe plc Annual Report & Accounts 2019 | 125
Group financial statements
Notes to financial statements
Year ended 31 March 2019
2. Significant accounting policies (continued)
Revenue recognition (applicable from 1 April 2018) (continued)
Where available, observable prices of goods or services are utilised, when that good or service is sold separately, to similar customers in
similar circumstances. Where a stand-alone selling price is not directly observable the Group applies judgement to determine an appropriate
estimated standalone selling price, typically using an expected cost plus margin, adjusted market assessment or residual approach.
Variable consideration is allocated to an entire contract or a specific part of a contract depending on:
i. whether allocating the variable amount entirely to part of the contract depicts the amount of consideration the Group expects to be
entitled in exchange for transferring the promised good or service to the customer; or
the terms of the variable payment relate specifically to the satisfaction of an individual performance obligation.
ii.
The Group’s variable consideration primarily relates to intermediary commissions received on contracts with underwriters to sell policies and
provide handling and administration services. Amounts are typically allocated to the entire contract.
Discounts are allocated proportionally across all performance obligations in the contract unless directly observable evidence exists that the
discount relates to one or more, but not all, performance obligations.
For each performance obligation, the Group determines if revenue will be recognised over time or at a point in time. For each performance
obligation to be recognised over time, the Group applies a revenue recognition method that faithfully depicts the Group’s performance in
transferring control of the goods or services to the customer. This decision requires assessment of the nature of the goods or services that
the Group has promised to transfer to the customer. The Group applies the relevant output or input method, typically based on the expected
profile of the deferral event (for example claims handling cost through the policy term or time elapsed).
126 | HomeServe plc Annual Report & Accounts 2019
Revenue by category
The Group disaggregates revenue from contracts with customers between Net Policy Income, Repair Income, Home Experts, HVAC and Other
as management believe this best depicts how the nature, amount, timing and uncertainty of the Group’s revenue and cash flows are effected by
economic factors. The following table outlines the principal activities from which the Group derives revenue and how it is recognised:
Revenue stream
Nature and timing of satisfaction of performance obligations
Membership –
Net Policy Income
– Intermediary
commissions
Includes commissions received for the obligation to sell policies, handle claims and provide
administration services for underwriters. The Group satisfies its obligation to sell policies
over time, recognising revenue as each policyholder is contracted on behalf of the Group’s
customers, the underwriters.
Significant payment terms
Billed and paid over the
term of the contract
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The transaction prices of the Group’s arrangements with underwriters are entirely variable
and measured based on the commission due to the Group for the number of policies sold,
net of a refund liability. This refund liability reflects management’s best estimate of mid-
term policy cancellations ensuring that a significant reversal of revenue will not arise in the
future (see note 3).
Handling and administration service obligations are satisfied over the term of a policy,
which is typically 12 months. The portion of the total transaction price allocated to these
performance obligations is deferred, as a deferred income contract liability, and recognised
as revenue over the profile of claims throughout the policy term.
The determination of the amount of transaction price to allocate to claims handling and
administration services takes account of the expected numbers of claims and the estimated
cost of handling those claims, which are validated through historic experience of actual
costs, as well as incorporating an appropriate profit margin for the service provided to the
underwriter (see note 3).
Revenue associated with the commissions received for the obligation to sell policies is
allocated using the residual method at the point of policy inception or renewal.
Where the Group’s role on behalf of the underwriter is only as an intermediary in the
cash collection process, such amounts are not included in revenue. Consequently, net
policy income consists of only a component of the overall policy price, representing the
commission receivable for the services the Group provides to the underwriter, stated net of
sales related taxes.
Membership –
Net Policy Income
– Home assistance
Includes arrangements whereby the Group contracts directly with the end user to provide
home assistance services (such as repair network access, emergency assistance and
non-urgent engineer visits). Revenue is recognised rateably over the life of the member’s
contract.
Billed and paid over the
term of the contract
Membership –
Repair Income
Includes repair services provided to third parties, including underwriters and insurance
companies, subject to separate contractual arrangements. Revenue is recognised over time
as each repair job is completed.
Billed and paid over the
term of the contract with
the relevant third party
Home Experts –
Web and directory
Includes website subscriptions and directory advertising fees from contracted members
(trades). For website subscriptions revenue is recognised evenly over the contractual
term, for directory membership fees revenue is recognised as each directory is delivered
throughout the contractual term.
Billed and paid over the
term of the contract
Home Experts –
Lead generation
Includes commissions received for the provision of job leads to trades. Revenue is
recognised at the point in time a lead is transferred.
Billed and paid as leads
are delivered
HVAC
Other
Includes the provision of installation services at the point in time the installation or service is
complete.
Principally includes services provided to customers who do not hold policies. Revenue is
recognised at the point in time the service is complete.
Billed and paid upon
completion of the
installation
Billed and paid following
the performance of the
services provided
HomeServe plc Annual Report & Accounts 2019 | 127
Group financial statements
Notes to financial statements
Year ended 31 March 2019
2. Significant accounting policies (continued)
Contract related assets and liabilities (applicable from 1 April 2018)
As a result of the contracts which the Group enters into with its customers, the following assets and liabilities are recognised on the Group’s
balance sheet:
• Assets generated from the capitalisation of costs to obtain a contract
• Trade receivables (see financial instruments accounting policies below)
• Accrued income
• Deferred income.
Capitalisation of costs to obtain a contract
The incremental costs of obtaining a contract with the Group’s direct customers are recognised as an asset if the Group expects to recover
them. Primarily, such costs relate to fees payable to Affinity Partners or other third parties authorised to enter into new contracts on behalf of
a Group entity. Only fees which are directly related to acquiring contracts with the Group’s direct customers are capitalised as incremental
contract costs under IFRS 15.
Accrued and deferred income
Where payments made are greater than the revenue recognised at the period end date, the Group recognises a deferred income contract
liability for this difference. Where payments made are less than the revenue recognised at the period end date, the Group recognises an
accrued income contract asset for this difference.
Revenue recognition (applicable up to 31 March 2018)
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 and policy administration process. Any third-party costs incurred on behalf of the principal that are rechargeable under the contractual
arrangement, or where the Group’s role is only as an intermediary in the cash collection process 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, sale and administration 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.
128 | HomeServe plc Annual Report & Accounts 2019
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Financial instruments (applicable from 1 April 2018)
Other 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 investment revaluation 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. They are recognised when the Group’s right to consideration is only conditional on the passage of time. Allowances incorporate an
expectation of life-time credit losses from initial recognition and are determined using an expected credit loss approach.
Financial instruments (applicable up to 31 March 2018)
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.
IFRS 15 (and Clarifications to IFRS 15) Revenue from Contracts with Customers
Impact of adoption of IFRSs 9 & 15
a.
IFRS 15 replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Group has adopted IFRS 15 from 1 April 2018
utilising the cumulative effect method. The adoption of IFRS 15 has not had a material impact on the timing of revenue recognition and
comparative information has not been restated. All of the Group’s revenue is in scope of IFRS 15.
The following abridged statements summarise the impact of adopting IFRS 15 on the Group’s Consolidated Balance Sheet and its Consolidated
Cash Flow Statement at 31 March 2019. There was no material impact to the Consolidated Income Statement, year on year.
HomeServe plc Annual Report & Accounts 2019 | 129
Group financial statements
Notes to financial statements
Year ended 31 March 2019
2. Significant accounting policies (continued)
Impact of adoption of IFRSs 9 & 15 (continued)
Impact on the consolidated balance sheet
Non-current assets
Intangible assets
Contract costs
Deferred tax assets
Others
Current assets
Trade and other receivables
Others
Total assets
Current liabilities
Trade and other payables
Others
Net current assets
Non-current liabilities
Total liabilities
Net assets
Equity
Retained earnings
Others
Ref
i
i
iii
ii, iv & v
ii - v
iii
As reported
31 March 2019
£m
IFRS 15
adjustments
£m
Amounts without
adoption
£m
418.6
27.5
7.4
476.9
930.4
424.6
79.6
504.2
1,434.6
(382.3)
(51.9)
(434.2)
70.0
(386.8)
(821.0)
613.6
293.0
320.6
613.6
(27.5)
27.5
0.5
—
0.5
(165.0)
—
(165.0)
(164.5)
162.4
—
162.4
(2.6)
—
162.4
(2.1)
(2.1)
—
(2.1)
446.1
—
6.9
476.9
929.9
589.6
79.6
669.2
1,599.1
(544.7)
(51.9)
(596.6)
72.6
(386.8)
(983.4)
615.7
295.1
320.6
615.7
References
i. Historically the Group has capitalised the value attributable to the portfolios of renewable customer policies created by Affinity Partners
through their own sales and marketing activity and subsequently purchased by the Group as intangible assets. Where these capitalised
costs are incremental to the cost of obtaining the contract with HomeServe’s direct customer they are now capitalised under IFRS 15, which
provides specific guidance in this area.
ii. Under IAS 18 the Group held a cancellation provision in respect of policies that may be cancelled by the policyholder part way through the
contractual term, to ensure the appropriate amount of revenue was recognised at the point the policy incepts. This balance reduced trade
and other receivables on the balance sheet. Under IFRS 15 a refund liability is held in liabilities to ensure a significant revenue reversal does
not occur in the future due to mid-term cancellations. This reclassification increased closing trade receivables and trade and other payables
by £17.7m respectively, with no impact on net assets, cash generated by operations or working capital.
iii.
IFRS 15 is applied to the contractual period in which parties to the contract have present enforceable rights and obligations. A small
population of service agreements was identified whereby the Group’s right to a portion of the contractual revenue is not deemed
enforceable under IFRS 15 at the point the revenue was previously booked under IAS 18. At 1 April 2018 this opening adjustment resulted
in a £2.6m increase to deferred income, a £2.1m decrease to retained earnings and a £0.5m increase to deferred tax assets. There was no
material in year income statement impact.
130 | HomeServe plc Annual Report & Accounts 2019
Impact on the consolidated cash flow statement
Operating profit
Adjustments for:
Amortisation of other intangibles
Amortisation of contract costs
Others
Ref
i
i
Operating cash flows before movements in working capital
Decrease/(increase) in receivables
(Decrease)/increase in payables and provisions
ii, iv & v
ii - v
Others
Net movement in working capital
Cash generated by operations
Others
Net cash inflow from operating activities
Investing activities
Purchases of intangible assets
Contract costs
Others
Net cash used in investing activities
Net cash used in financing activities
Net movement in cash and cash equivalents
i
i
As reported
31 March 2019
£m
152.6
23.1
14.9
42.0
232.6
104.0
(133.7)
(0.7)
(30.4)
202.2
(40.2)
162.0
(99.1)
(7.9)
(51.4)
(158.4)
10.3
13.9
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adjustments
£m
Amounts without
adoption
£m
—
(14.9)
14.9
—
—
165.0
(165.0)
—
—
—
—
—
7.9
(7.9)
—
—
—
—
152.6
38.0
—
42.0
232.6
(61.0)
31.3
(0.7)
(30.4)
202.2
(40.2)
162.0
(107.0)
—
(51.4)
(158.4)
10.3
13.9
iv. The Group has revised its balance sheet presentation in relation to customer contract balances in accordance with the definitions provided
for contract assets and liabilities under IFRS 15. The Group presents these balances as accrued and deferred income respectively, as
permitted by paragraph 109 of IFRS 15. This reclassification decreased closing trade receivables and trade and other payables by £42.2m
respectively, with no impact on net assets, cash generated by operations or working capital.
v. Under IFRS 15 a receivable cannot be recorded in relation to a cancellable contract until the Group has an unconditional right to
consideration. HomeServe has historically recorded receivables in relation to the third party insurance premiums on cancellable contracts,
alongside a corresponding payable, to recognise the corresponding liability due to the relevant underwriter. As these contracts are
cancellable, receivables and payables are only recognised to the extent the policy has completed. This reclassification decreased closing
trade receivables and trade and other payables by £140.5m respectively, with no impact on net assets, cash generated by operations or
working capital.
HomeServe plc Annual Report & Accounts 2019 | 131
Group financial statements
Notes to financial statements
Year ended 31 March 2019
IFRS 9 Financial Instruments
2. Significant accounting policies (continued)
Impact of adoption of IFRSs 9 & 15 (continued)
b.
IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. The Group adopted IFRS 9 from 1 April 2018 and in accordance
with the transitional provisions in the Standard, comparatives have not been restated. Adoption of IFRS 9 had no impact on any of the financial
statements.
Classification and measurement of financial instruments
IFRS 9 requires the use of two criteria to determine the classification of financial assets: the entity’s business model for the financial assets and
the contractual cash flow characteristics of the financial assets. The Standard identifies three categories of financial assets:
• amortised cost;
•
•
fair value through profit or loss (FVTPL);
fair value through other comprehensive income (FVTOCI).
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. The adoption of IFRS 9
has not had a significant effect on the Group’s accounting policies related to financial liabilities.
A summary of all reclassifications, which have resulted in no change to the carrying value of any financial instrument, is shown below. All other
financial instruments classifications and carrying amounts remain the same.
Type of financial instrument
Non-current financial assets
Other investments
Current financial assets
Trade and other receivables
Cash and cash equivalents
IAS 39 classification
IFRS 9 classification
Available-for-sale
FVTOCI
Loans and Receivables
Loans and Receivables
Amortised cost
Amortised cost
Carrying amount
at 1 April 2018
(£m)
8.7
498.1
57.8
Impairment
IFRS 9 mandates the use of an expected credit loss model to calculate impairment losses rather than an incurred loss model, and therefore
it is not necessary for a credit event to have occurred before credit losses are recognised. The Group has elected to measure loss allowances
utilising probability-weighted estimates of credit losses for trade receivables at an amount equal to lifetime expected credit losses. As the
Group’s financial assets primarily comprise its portfolio of current trade receivables which have a consistent history of low levels of impairment,
the inclusion of specific expected credit loss considerations did not have a material impact on transition.
Hedging
The Group has no existing open hedging relationships at the transition or reporting date.
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 16
IFRS 17
IFRIC 23
Amendments to IFRS 3
Amendments to IFRS 9
Amendments to IFRS 10 and IAS 28
Amendments to IAS 1 and IAS 8
Amendments to IAS 19
Amendments to IAS 28
Annual Improvements to IFRSs
Conceptual Framework
Leases
Insurance Contracts
Uncertainty over Income Tax Treatments
Definition of a Business
Prepayment Features with Negative Compensation
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Definition of Material
Plan Amendment, Curtailment or Settlement
Long-term Interests in Associates and Joint Ventures
2015-2017 Cycle
Amendments to References to the Conceptual Framework in IFRS Standards
132 | HomeServe plc Annual Report & Accounts 2019
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IFRS 16 Leases
IFRS 16 is effective for the Group from 1 April 2019 and will change lease accounting for lessees under operating leases. Such agreements will
require recognition of an asset, representing the right to use the leased item, and a liability, representing future lease payments. Lease costs (e.g.
rent charges) will be recognised as depreciation and interest, rather than as an operating cost.
The Group plans on adopting the modified retrospective approach with the “right of use” (RoU) asset equal to the lease liability at transition date,
less any lease incentives received. Adoption of IFRS 16 will cause a material decrease to operating costs largely offset by a material increase
to the combined depreciation and interest expenses, resulting in a net immaterial impact to profit before tax. Non-current assets and gross
liabilities are both expected to increase by between £45.0m and £60.0m with net assets remaining unchanged. Although total cash outflows
will remain consistent, rental outflows will now be presented under financing activities, where they were previously recorded as operational
outflows, thereby increasing the Group’s cash conversion percentage.
The Group has elected not to recognise RoU assets and lease liabilities for short-term leases (with a term of 12 months or less) or low-value
assets (where the cost of the asset new would be approximately £3,800). The Group will continue to expense the lease payments associated
with these leases on a straight line basis over the lease term.
The Directors do not expect that the adoption of the other Standards and Interpretations listed 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, including the potential impact of Brexit,
performance and position are set out in the Strategic Report.
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.
Other accounting policies
The following accounting policies applied by the Group in these consolidated financial statements are the same as those applied by the Group
in its consolidated financial statements as at, and for the year ended, 31 March 2018:
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 equity accounted investments
The results and assets and liabilities of associates and joint ventures are incorporated into these financial statements using the equity method
of accounting. Under the equity method, investments are 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 investee. If the Group’s share of the profit or loss
exceeds the Group’s interest in the investee, 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 investee.
On acquisition of equity accounted investment interests, 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 IAS 36 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.
HomeServe plc Annual Report & Accounts 2019 | 133
Group financial statements
Notes to financial statements
Year ended 31 March 2019
2. Significant accounting policies (continued)
Interests in equity accounted investments (continued)
The Group discontinues the use of the equity method of accounting if the investment increases to become 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 equity accounted investee on acquisition of control is taken to the profit and loss account at the date of acquisition.
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.
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 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.
134 | HomeServe plc Annual Report & Accounts 2019
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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.
Operating profit
Operating profit is stated after charging all operating costs, but before investment income and finance costs.
Exceptional items
Exceptional items are those items that, in the judgement of the Directors, need to be disclosed separately by virtue of their nature, size or
incidence.
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, curtailment or when the related restructuring
costs or termination benefits are recognised, if earlier. 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 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.
HomeServe plc Annual Report & Accounts 2019 | 135
Group financial statements
Notes to financial statements
Year ended 31 March 2019
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 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 policies that have been created by our Affinity Partners
through their own sales and marketing activity and subsequently purchased by the Group. Such databases are recorded at their fair value based
on the amount paid to the Affinity Partner and 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.
136 | HomeServe plc Annual Report & Accounts 2019
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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.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that an
outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions
are discounted to 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 liability. The amortisation of the discount is recognised as a finance cost.
Onerous contracts
Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist
where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic
benefits expected to be received under it.
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.
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.
HomeServe plc Annual Report & Accounts 2019 | 137
Group financial statements
Notes to financial statements
Year ended 31 March 2019
2. Significant accounting policies (continued)
Financial instruments (continued)
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.
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.
Where sensitivity analyses have been prepared, management have determined that 10% increases/decreases to primary inputs are appropriate
thresholds to illustrate the potential impact on profit in the year.
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. The principal assumptions underlying sources of estimation uncertainty and other areas of focus remain consistent
with the prior year.
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 2019 in respect of the Group’s future claim handing
obligations is £40.1m (FY18: £38.7m). 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 £4.0m (FY18: £3.9m).
138 | HomeServe plc Annual Report & Accounts 2019
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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.
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 2019 is £126.7m (FY18: £112.9m). If the
retention rate or income per customer was individually higher or lower by 10% the impact to profit in the year would be £12.7m (FY18: £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 2019 is £90.8m (FY18: £60.3m), 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 £9.1m (FY18: £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 policyholder part way through the contractual term, which will affect the economic
benefits that flow to the Group, a liability is recognised to ensure that the related revenue is appropriately constrained at the point that the policy
incepts.
The sources of estimation uncertainty in calculating refund liabilities in respect of 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 2019 in respect of potential
future cancellations is £17.7m (FY18: £23.8m). 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 £1.8m (FY18: £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. Where significant investment is planned in a CGU during
the typical three year plan period approved by the Directors, a period of actual cash flows deviating from the standard period may be deemed
more appropriate for purposes of impairment testing. Consequently the impairment review of Checkatrade in 2019 was performed using four
years of plan cash flows approved by the Directors. The long-term growth rate applied to the Checkatrade analysis was consistent with all other
CGUs.
The carrying value of goodwill is £407.9m (FY18: £386.6m). The carrying value of acquisition intangibles is £229.1m (FY18: £186.5m). Following
the annual impairment review, no impairment charge has been recorded against goodwill or acquisition intangibles (FY18: £nil).
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.
HomeServe plc Annual Report & Accounts 2019 | 139
Group financial statements
Notes to financial statements
Year ended 31 March 2019
4. Segmental information and revenue from contracts with customers
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. During 2019 the Group’s ‘Home Experts’
businesses met the definition of an operating segment under IFRS 8 and are now presented separately from ‘New Markets’. Comparative
information in this note has been re-presented to illustrate the impact of this change. The segment contains the results of Checkatrade,
Habitissimo and Home Experts France. New Markets includes the Group’s international development initiatives, including its Italian associate
and its Japanese joint venture (see note 18).
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 relates to transactions with other Group companies, removed on consolidation, and
principally comprises royalty and other similar charges charged at prevailing market prices. Disaggregation of revenue by both line of business
and geography are disclosed below. Management believes that these are the most relevant categories that depict how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by economic factors. The line of business analysis also illustrates the Group’s
revenue by major products and services.
2019
Revenue
Net policy income
Repair income
Home Experts
HVAC
Other
Total revenue
Inter-segment
External revenue
Result
UK
£m
North
America
£m
France
£m
Spain
£m
Home
Experts
£m
New
Markets
£m
Total
£m
244.0
303.3
101.9
108.9
15.7
—
25.5
13.3
—
13.4
1.0
0.4
—
1.5
0.8
55.3
81.1
—
—
—
40.4
4.4
—
—
—
391.7
333.4
104.6
140.8
40.4
(7.3)
—
—
—
—
384.4
333.4
104.6
140.8
40.4
—
—
—
—
—
—
—
—
704.5
206.1
40.4
44.8
15.1
1,010.9
(7.3)
1,003.6
Segment adjusted operating profit/(loss)
66.0
67.6
33.3
17.7
(7.4)
(2.4)
174.8
Exceptional items
Amortisation of acquisition intangibles
Operating profit/(loss)
Investment income
Finance costs
Profit before tax
Tax
Profit for the year
4.6
(2.2)
68.4
—
(12.9)
54.7
—
(6.5)
26.8
—
(0.2)
17.5
—
(5.0)
—
—
(12.4)
(2.4)
4.6
(26.8)
152.6
0.2
(13.3)
139.5
(31.2)
108.3
140 | HomeServe plc Annual Report & Accounts 2019
UK
£m
North
America
£m
221.6
106.3
—
21.1
16.6
262.4
9.6
—
10.1
—
France
£m
98.6
0.4
—
1.0
—
Spain
£m
55.6
85.7
—
—
—
365.6
282.1
100.0
141.3
(7.9)
—
—
—
357.7
282.1
100.0
141.3
Home
Experts
£m
New
Markets
£m
—
—
18.6
—
—
18.6
—
18.6
—
—
—
—
—
—
—
—
61.1
(1.8)
59.3
48.6
(8.1)
40.5
31.5
(6.4)
25.1
16.6
(0.1)
16.5
(2.8)
(2.0)
(4.8)
(1.6)
—
(1.6)
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Total
£m
638.2
202.0
18.6
32.2
16.6
907.6
(7.9)
899.7
153.4
(18.4)
135.0
0.1
(11.8)
123.3
(27.4)
95.9
2018
Revenue
Net policy income
Repair income
Home Experts
HVAC
Other
Total revenue
Inter-segment
External revenue
Result
Segment adjusted operating profit/(loss)
Amortisation of acquisition intangibles
Operating profit/(loss)
Investment income
Finance costs
Profit before tax
Tax
Profit for the year
Segment information
UK
North America
France
Spain
Home Experts
New Markets
Inter-segment
Total
Assets
Liabilities
Capital additions
Depreciation, amortisation
and impairment
2019
£m
953.8
436.6
225.4
113.3
77.5
6.9
2018
£m
897.7
352.6
219.9
140.0
94.3
5.5
2019
£m
468.0
441.3
152.1
2018
£m
472.6
361.5
155.0
78.6
104.1
31.1
28.8
36.5
28.9
(378.9)
(295.2)
(378.9)
(295.2)
2019
£m
27.6
64.2
9.8
8.7
4.7
—
—
2018
£m
43.0
73.2
3.5
18.2
1.6
—
—
2019
£m
16.9
23.8
10.0
16.6
6.6
—
—
2018
£m
17.3
16.7
8.9
17.0
2.7
—
—
1,434.6
1,414.8
821.0
863.4
115.0
139.5
73.9
62.6
All assets and liabilities including inter-segment loans and trading balances are allocated to reportable segments.
HomeServe plc Annual Report & Accounts 2019 | 141
Group financial statements
Notes to financial statements
Year ended 31 March 2019
4. Segmental information and revenue from contracts with customers (continued)
Information about major customers
During the periods presented four underwriters were customers of the Group that individually accounted for over 10% of the Group’s revenues:
Customer 1 - UK
Customer 2 - North America
Customer 3 - North America
Customer 4 -France
Other customers individually representing below 10% of Group revenue
2019
%
32.6
16.7
13.6
9.0
28.1
2018
%
34.4
13.6
13.7
10.1
28.2
100.0
100.0
Geographical information
The Group operates in three principal geographical areas: UK, Continental Europe and North America, as well as Latin 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
2019
£m
414.2
333.4
252.4
3.6
1,003.6
2018
£m
365.9
282.1
248.4
3.3
899.7
2019
£m
461.9
232.9
221.8
—
916.6
2018
£m
453.4
153.3
218.8
—
825.5
Information relating to Continental Europe in the table above includes the Group's businesses in France and Spain.
Transaction price allocated to remaining performance obligations
The total transaction price allocated to the remaining performance obligations (unsatisfied or partially unsatisfied) on the Group's multi-
year arrangements with underwriters to sell policies, is £49.3m, related to all ancillary obligations delivered after any given policy is sold. The
obligations associated with the outstanding transaction price are expected to be fulfilled, and revenue fully recognised, within the next 12
months.
All other contracts with customers have an original expected duration of one year or less. No consideration from these contracts has been
excluded from the transaction price. Applying the practical expedient of paragraph 121 of IFRS 15 information about remaining performance
obligations on these contracts has not been disclosed.
Contract balances
An analysis of the Group’s contract balances is as follows:
Current assets
Amounts receivable for the provision of services
Accrued income
Current liabilities
Deferred income
2019
£m
369.9
15.1
49.3
All contract balances are classified as current. Accrued income contract assets primarily relate to services performed for customers in our
Home Experts businesses and customers in our Spanish home assistance membership operations in advance of payment being received,
or falling due. Accrued income contract assets are transferred to trade receivables when the right to consideration becomes unconditional.
142 | HomeServe plc Annual Report & Accounts 2019
Deferred income contract liabilities principally relate to advance consideration received from customers, for which revenue is recognised as the
associated performance obligation is satisfied. Significant deferred income contract liabilities are recorded across the Group in the Membership
and Home Experts lines of business.
Significant changes in accrued and deferred income balances during the period were as follows:
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At 31 March 2018
Opening impact of IFRS 15
At 1 April 2018
Transfers to receivables
Revenue recognised from the opening balance
Revenue deferred not yet earned
Revenue earned not yet due
Business combinations
Foreign exchange
At 31 March 2019
Accrued
Income
£m
9.6
2.3
11.9
(10.0)
—
—
13.4
—
(0.2)
15.1
Deferred
Income
£m
86.3
(37.3)
49.0
—
(50.2)
46.1
—
3.2
1.2
49.3
Revenue deferred not yet earned is presented net of amounts created and released within the same reporting period. Revenue recognised in
2019 in relation to performance obligations satisfied (or partially satisfied) in previous periods was immaterial.
Contract costs
At 1 April 2018
Transferred from intangible assets on transition to IFRS 15*
Additions
Amortisation
Foreign exchange
At 31 March 2019
£m
—
38.5
4.3
(14.9)
(0.4)
27.5
*On 1 April 2018 assets with a total net book value of £38.5m were transferred out of customer databases and reclassified as contract cost assets under IFRS 15 (see note 14).
Contract costs primarily represent the value attributable to the portfolio of renewable customers created by Affinity Partners through their
own sales and marketing activity, subsequently purchased by the Group. Where these capitalised commission costs are incremental to the
cost of obtaining the contract with the Group’s direct customer they are capitalised under IFRS 15. Management anticipate these costs to be
recoverable over the expected life of the associated customer relationship, over which they will be amortised.
Applying the practical expedient in paragraph 94 of IFRS 15, the Group recognises the incremental cost of obtaining contracts as an expense
when incurred if the amortisation period of the assets that the Group otherwise would have recognised is one year or less.
HomeServe plc Annual Report & Accounts 2019 | 143
Group financial statements
Notes to financial statements
Year ended 31 March 2019
5. 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
Amortisation of contract costs
Loss on disposal of property, plant and equipment and software
Gain on re-measurement on disposal of associate
Amounts written off/(recovered) on trade receivables and contract assets
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 (half year review)
Other assurance services
Total non-audit fees
Total auditor’s remuneration
2019
£m
2018
£m
306.9
267.5
29.8
12.9
9.1
26.8
23.1
14.9
0.6
—
1.1
2019
£000
72
878
950
52
—
52
25.3
12.7
8.0
18.4
36.2
—
2.1
(0.9)
(0.2)
2018
£000
71
785
856
45
9
54
1,002
910
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.
In FY18 other assurance services related to sundry services provided directly as a result of being the auditor to the Group.
144 | HomeServe plc Annual Report & Accounts 2019
6. Staff remuneration
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 32)
S
T
N
E
M
E
T
A
T
S
L
A
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N
A
N
I
F
I
2019
number
3,814
1,522
1,112
6,448
2018
number
3,489
1,472
894
5,855
2019
£m
2018
£m
266.0
34.1
6.8
306.9
230.2
32.4
4.9
267.5
The Company only staff numbers and remuneration amounts for HomeServe plc are disclosed in note 36 to the parent company financial
statements.
7. Exceptional items
Exceptional items, booked to operating costs, comprised the following:
Fair value movement on contingent consideration liabilities
Restructuring costs
Exceptional items included within Group operating profit before tax
Net taxation on exceptional items
Net exceptional items after tax
2019
£m
10.1
(5.5)
4.6
(0.2)
4.4
2018
£m
—
—
—
—
—
Fair value movement on contingent consideration liabilities
At 31 March 2019 the Group reassessed the fair value of outstanding consideration payments due to the previous owners of Help-Link Limited,
conditional on the number of boiler installations performed from the point of acquisition until July 2020. At this point the Group determined
that the likelihood of the conditions being met that would trigger either of the two outstanding payments (a gross undiscounted cash outflow
totalling £10.5m) was now remote and therefore the fair value of the outstanding liabilities was £nil. At the point the fair value exercise was
performed the balance held on the balance sheet of £10.1m, representing the original discounted value of the liabilities and any associated
interest accreted to 31 March 2019, was released to the income statement in accordance with IFRS 3 and treated as exceptional due to its size
and incidence.
Restructuring costs
Charges of £5.5m were incurred during FY19 to restructure the UK business along lines that strengthen it to best adapt to evolving customer
needs. Marketing and other support headcount was reduced, as the business moves away from an over reliance on direct mail activity and
prepares for the implementation of new systems. Costs related to these programmes have been treated as exceptional due to their size and
incidence.
8. Investment income
Interest on bank deposits
2019
£m
0.2
2018
£m
0.1
HomeServe plc Annual Report & Accounts 2019 | 145
Group financial statements
Notes to financial statements
Year ended 31 March 2019
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 charge/(credit)
Total tax charge
2019
£m
11.5
0.6
1.0
0.2
13.3
2019
£m
31.8
(1.9)
29.9
1.3
31.2
2018
£m
9.7
0.8
0.9
0.4
11.8
2018
£m
30.9
(0.1)
30.8
(3.4)
27.4
UK corporation tax is calculated at 19% (FY18: 19%) 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 27% in the US (FY18: 38%) as a result of the US
enacting new tax legislation in December 2017 effective from 1 January 2018, 33% in France (FY18: 33%) and 25% in Spain (FY18: 25%), which
explains the ‘Overseas tax rate differences’ below.
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax on continuing operations
Tax at the UK corporation tax rate of 19% (FY18: 19%)
Tax effect of items that are not taxable in determining taxable profit
Adjustments in respect of prior years – current tax
Overseas tax rate differences
Tax expense for the year
2019
£m
139.5
26.5
(0.6)
(1.9)
7.2
31.2
2018
£m
123.3
23.4
(0.5)
(0.1)
4.6
27.4
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% (FY18: 22%) is expected to increase slightly in future years.
In April 2019, the European Commission (the Commission) of the European Union (the EU) published its official decision in relation to certain
aspects of the UK’s Controlled Foreign Company rules. In particular, the Commission has decided that the Group Financing Exemption is in
breach of the EU’s State Aid rules. How the UK Government plans to implement this EU decision, is currently uncertain. However, it is likely that
certain of HomeServe’s financing arrangements will be impacted by this decision. We have included the calculation of the potential liability
within our analysis, and therefore believe any risk is fully provided for as part of our uncertain income tax estimation within current tax liabilities
in the Group Balance Sheet.
146 | HomeServe plc Annual Report & Accounts 2019
A retirement benefit tax credit amounting to £0.1m (FY18: £0.4m charge) has been recognised directly in other comprehensive income. In
addition to the amounts credited/(charged) to the income statement and other comprehensive income, the following amounts relating to tax
have been recognised directly in equity:
Current tax
Excess tax deductions related to share-based payments on exercised options
Deferred tax
Opening impact of IFRS 15 (see note 2)
Change in estimated excess tax deductions related to share-based payments
Total tax recognised directly in equity
2019
£m
2.7
0.5
0.3
3.5
2018
£m
2.8
—
0.2
3.0
Deferred tax
The following are the major deferred tax assets/(liabilities) recognised by the Group and the movements during the current and prior year:
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
Asset/(liability)
At 1 April 2017
(Charge)/credit to Income
Credit to equity
Charge to Comprehensive Income
Acquisition of subsidiaries
Exchange movements
At 1 April 2018
Impact of IFRS 15 (equity credit)
Credit/(charge) to Income
Credit to equity
Credit/(charge) to Comprehensive Income
Acquisition of subsidiaries
Transfers
Exchange movements
At 31 March 2019
Timing
differences
£m
2.6
(3.3)
—
—
(0.1)
(0.4)
(1.2)
0.5
(3.6)
—
—
—
0.6
0.4
(3.3)
Elected
goodwill
deductions
£m
(0.1)
—
—
—
—
—
(0.1)
—
0.1
—
—
—
—
—
—
Retirement
benefit
obligations
£m
Share
schemes
£m
Acquired
intangible
assets
£m
Unutilised
losses
£m
Investment
revaluation
reserve1
£m
(0.2)
(0.3)
—
(0.4)
—
—
(0.9)
—
(0.4)
—
0.1
—
—
—
(1.2)
4.7
0.6
0.2
—
—
(0.1)
5.4
(35.0)
10.8
—
—
(5.6)
0.9
(28.9)
13.3
(4.4)
—
—
—
(1.2)
7.7
—
—
—
0.1
0.3
—
—
—
0.2
6.0
4.0
(1.5)
—
—
(0.6)
—
—
—
—
(0.6)
(0.4)
(25.9)
0.6
6.2
Total
£m
(15.4)
3.4
0.2
(0.4)
(5.7)
(0.8)
(0.7)
—
—
—
—
—
(0.7)
(18.7)
—
—
—
(0.2)
—
—
0.1
0.5
(1.3)
0.3
(0.1)
(0.6)
—
0.9
(0.8)
(19.0)
1The available for sale reserve was renamed the investment revaluation reserve upon adoption of IFRS 9 on 1 April 2018.
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
—
(11.9)
(11.9)
France
£m
—
(14.5)
(14.5)
Spain
£m
4.3
—
4.3
North
America
£m
3.1
—
3.1
2019
£m
7.4
(26.4)
(19.0)
2018
£m
6.8
(25.5)
(18.7)
In the prior year, 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 was reduced to
27% in FY19 (FY18: 38%) and in France the current rate of 33% (FY18: 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 in the current year is a credit of £nil (FY18: £1.7m). Deferred tax has not been
recognised on £9.7m (FY18: £0.9m) of unused losses due to the uncertainty over the timing of future recovery. There are no expiry dates in
respect of the unrecognised tax losses in either year.
HomeServe plc Annual Report & Accounts 2019 | 147
Group financial statements
Notes to financial statements
Year ended 31 March 2019
11. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 March 2018 of 14.4p (2017: 11.2p) per share
Interim dividend for the year ended 31 March 2019 of 5.2p (2018: 4.7p) per share
2019
£m
47.8
17.2
65.0
2018
£m
35.0
15.4
50.4
The proposed final dividend for the year ended 31 March 2019 is 16.2p per share amounting to £53.9m (FY18: 14.4p per share amounting to
£47.8m). 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. The payment of this dividend will not have any tax consequences for the Group.
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
Exceptional items (note 7)
Tax impact arising on amortisation of acquisition intangibles and exceptional items
One-off impacts to tax arising on amortisation of acquisition intangibles due to tax reforms – USA and France
2019
pence
32.7
32.3
37.5
37.0
2018
pence
30.2
29.7
33.6
33.1
2019
m
2018
m
331.7
318.9
3.9
5.0
335.6
323.9
2019
£m
108.5
26.8
(4.6)
(6.4)
—
2018
£m
96.3
18.4
—
(5.7)
(1.7)
Adjusted profit for the year attributable to equity holders of the parent
124.3
107.3
Basic and diluted earnings per ordinary share have been calculated in accordance with IAS 33 Earnings Per Share. Basic earnings per share is
calculated by dividing the profit or loss in the financial period by the weighted average number of ordinary shares in issue during the period.
Adjusted earnings per share is calculated excluding exceptional items, the amortisation of acquisition intangibles and the associated tax
impacts. In FY18 adjustments were also made for the one-off impact of tax reforms in the USA and France.
The Group uses adjusted operating profit, adjusted operating margin, EBITDA, adjusted profit before tax and adjusted earnings per share as its
primary performance measures. These are non-IFRS measures which exclude the impact of exceptional items, the amortisation of acquisition
intangibles and the associated tax effects. For further details refer to the ‘Profitability’ section of the Glossary.
Diluted earnings per share includes the impact of dilutive share options in issue throughout the year.
148 | HomeServe plc Annual Report & Accounts 2019
13. Goodwill
Cost
At 1 April 2017
Recognised on acquisition of subsidiaries
Exchange movements
At 1 April 2018
Recognised on acquisition of subsidiaries
Adjustment related to prior year acquisition
Exchange movements
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
£m
301.9
87.3
(2.6)
386.6
21.0
(0.7)
1.0
407.9
407.9
386.6
In November 2018 the provisional fair values recorded for the FY18 acquisition of Energy Insurance Services Limited were finalised resulting in a
decrease to goodwill of £0.7m at 31 March 2019.
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 reduce the risk that value in use calculations are overstated. The long-term growth rate utilised is 2% (FY18: 2%).
Changes in selling prices and direct costs are based on expectations of future changes in the market.
Where significant investment is planned in a CGU during the three year plan period approved by the Directors, a period of actual cash flows
deviating from the standard period may be deemed more appropriate for purposes of impairment testing. Consequently the impairment review
of Checkatrade in 2019 was performed using four years of plan cash flows approved by the Directors. The long-term growth rate applied to the
analysis was consistent with all other CGUs.
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 as follows:
Segment
UK
CGUs
UK
North America
North America
France
Spain
Home Experts
Home Experts
France
Spain
Checkatrade
Habitissimo
2019
8.8%
9.7%
8.6%
9.9%
8.8%
9.9%
2018
8.5%
9.9%
9.3%
9.9%
8.5%
9.9%
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.
HomeServe plc Annual Report & Accounts 2019 | 149
Group financial statements
Notes to financial statements
Year ended 31 March 2019
13. Goodwill (continued)
The carrying amount of goodwill has been allocated, by CGU, as follows:
UK
North America
France
Spain
Home Experts – Checkatrade
Home Experts – Habitissimo
2019
£m
183.6
48.5
88.6
17.6
58.6
11.0
407.9
2018
£m
184.1
36.2
82.7
13.8
58.6
11.2
386.6
During FY19 the goodwill associated with the FY18 acquisitions of Help-Link UK Ltd (FY19 & FY18: £23.4m) and Electrogaz (FY19 & FY18: £3.7m)
were reallocated from the ‘UK – HVAC’ and ‘France – HVAC’ CGUs respectively to the ‘UK’ and ‘France’ CGUs respectively as each business
became integrated as part of the wider operations of each geographic territory and their cash flows were no longer separately identifiable from
the overall territory businesses.
The Group’s CGUs do not contain any intangible assets with indefinite useful economic lives.
150 | HomeServe plc Annual Report & Accounts 2019
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
databases1
£m
Software
£m
Total
intangibles
£m
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
Cost
At 1 April 2017
Additions
Acquisition of subsidiaries
Disposals
Exchange movements
At 1 April 2018
IFRS 15 reclassification
Additions
Acquisition of subsidiaries
Disposals
Transfers
Exchange movements
At 31 March 2019
Accumulated amortisation
At 1 April 2017
Charge for the year
Disposals
Exchange movements
At 1 April 2018
IFRS 15 reclassification
Charge for the year
Disposals
Transfers
Exchange movements
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
47.5
159.1
45.1
20.1
—
—
17.0
—
(4.9)
(4.7)
—
—
13.9
—
—
206.6
65.2
30.9
—
33.2
3.0
—
(0.9)
(9.6)
(1.2)
87.7
191.5
13.9
293.1
34.1
—
28.2
12.4
—
(6.1)
4.3
—
20.6
2.6
—
6.4
3.8
—
—
—
—
—
—
—
48.8
15.0
—
0.3
8.1
—
1.3
—
—
0.6
1.4
76.6
16.0
—
—
1.5
94.1
(85.0)
174.4
44.3
0.9
(4.4)
(3.5)
211.7
—
490.8
128.5
31.8
(5.3)
(12.8)
633.0
(85.0)
8.8
42.0
100.9
—
—
—
—
(1.1)
(0.9)
(0.3)
1.9
126.5
224.9
13.9
365.3
37.4
17.6
253.6
23.5
4.8
—
(0.9)
69.1
13.0
—
(3.5)
—
0.6
—
—
92.6
18.4
—
24.6
3.5
(0.3)
(4.4)
(0.8)
27.4
78.6
0.6
106.6
—
7.5
—
0.1
—
17.6
—
—
0.7
2.0
—
1.7
—
—
—
—
26.8
—
0.1
2.7
27.0
—
3.0
—
(0.1)
0.5
35.7
98.2
2.3
136.2
30.4
31.8
16.8
—
0.5
49.1
(46.5)
53.2
15.9
(2.5)
(1.1)
65.5
—
2.3
17.8
—
—
(0.1)
4.8
(0.1)
—
0.7
83.9
15.0
(1.1)
—
11.1
673.9
202.2
54.6
(2.8)
(5.8)
248.2
(46.5)
49.9
(0.1)
—
3.8
255.3
90.8
126.7
60.3
112.9
11.6
13.3
229.1
186.5
7.0
7.1
12.8
45.0
169.7
146.2
418.6
384.8
1 On 1 April 2018 assets with a total net book value of £38.5m were transferred out of customer databases and reclassified as contract cost assets under IFRS 15 (see note 4).
Software includes £81.8m (FY18: £72.3m) in respect of the new Customer Relationship Management (CRM) system which will be rolled out in
the UK business during FY20. The asset will be amortised over 10 years on a straight-line basis from the point at which it is available for use.
On 26 October 2018 and 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 2019
acquired access rights included £54.4m and acquired customer databases included £45.3m in respect of the marketing agreement and policy
book acquired as part of this transaction. These assets are being amortised over periods ranging from 9 to 13 years, on a straight-line basis.
At the balance sheet date, there are no contractual commitments for the purchase of intangible assets (FY18: £nil).
HomeServe plc Annual Report & Accounts 2019 | 151
Group financial statements
Notes to financial statements
Year ended 31 March 2019
15. Property, plant and equipment
Cost
At 1 April 2017
Additions
Disposals
Acquisition of subsidiaries
Exchange movements
At 1 April 2018
Additions
Disposals
Acquisition of subsidiaries
Exchange movements
At 31 March 2019
Accumulated depreciation
At 1 April 2017
Charge for the year
Disposals
Exchange movements
At 1 April 2018
Charge for the year
Disposals
Exchange movements
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
Land & buildings
£m
Furniture, fixtures
& equipment
£m
Computer
equipment
£m
Motor
vehicles
£m
32.9
2.7
(0.3)
0.2
(0.1)
35.4
2.1
(0.1)
0.3
0.1
37.8
12.1
1.7
—
(0.1)
13.7
1.7
—
0.1
15.5
22.3
21.7
9.8
2.2
(0.2)
0.5
(0.2)
12.1
1.6
(0.2)
—
0.2
13.7
6.3
1.7
(0.2)
—
7.8
1.6
(0.2)
0.1
9.3
4.4
4.3
22.0
5.7
(0.2)
0.1
(0.8)
26.8
4.9
(0.3)
—
0.6
32.0
11.8
3.7
(0.3)
(0.5)
14.7
5.0
(0.1)
0.4
20.0
12.0
12.1
5.7
0.4
—
—
(0.6)
5.5
1.2
(0.5)
1.9
0.4
8.5
3.2
0.9
—
(0.4)
3.7
0.8
(0.3)
0.2
4.4
4.1
1.8
Total
£m
70.4
11.0
(0.7)
0.8
(1.7)
79.8
9.8
(1.1)
2.2
1.3
92.0
33.4
8.0
(0.5)
(1.0)
39.9
9.1
(0.6)
0.8
49.2
42.8
39.9
The carrying amount of the Group’s property, plant and equipment includes an amount of £1.7m (FY18: £1.8m) 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 (FY18: £nil).
16. Business combinations
The Group has incurred a net cash outflow in respect of business combinations of £37.5m in the year (FY18: £54.2m).
There were two material acquisitions in the year ended 31 March 2019.
• On 7 March 2019 HomeServe HVAC LLC, a Group company, acquired 100% of the issued share capital and obtained control of Cropp-
Metcalfe Air Conditioning and Heating Company Inc. (‘Cropp’)
• On 29 March 2019 HomeServe Energy Services Holding HVAC, a Group company, acquired 100% of the issued share capital and obtained
control of Societe V.B. Gaz (‘V.B. Gaz’).
152 | HomeServe plc Annual Report & Accounts 2019
Additionally there were four immaterial acquisitions in the year ended 31 March 2019.
• On 29 June 2018, HomeServe USA Energy Services LLC, a Group company, acquired 100% of the issued share capital and obtained control
of Gregg Mechanical Corp (‘Gregg Mechanical’)
• On 26 July 2018, HomeServe Spain, S.L.U, a Group company, acquired 100% of the issued share capital and obtained control of Oscagas
Hogar, S.L.U (‘Oscagas’)
• On 1 October 2018, HomeServe Energy Services Holding HVAC, a Group company, acquired a group of assets constituting a business under
IFRS 3 from Etablissements Descamps SAS (‘Descamps’)
• On 29 November 2018, HomeServe HVAC LLC, a Group company, acquired 100% of the issued share capital and obtained control of Geisel
Heating, Air Conditioning & Plumbing, Inc. (‘Geisel’).
All acquisitions made during FY19 enhance the scale and scope of the Group’s HVAC installation capabilities and increase the opportunity for
future growth related to new HVAC system installations.
The provisional fair values of identifiable assets acquired and liabilities assumed are set out in the table below:
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
At fair value
Property, plant and equipment
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 acquired
Goodwill
Total
Satisfied by:
Cash
Contingent consideration at fair value
Deferred consideration
Net cash outflow arising on acquisition
Cash consideration
Cash and cash equivalent
balances acquired
Cropp
£m
1.6
1.8
0.9
0.6
(3.4)
—
(2.5)
11.7
—
10.7
8.8
19.5
14.7
—
4.8
19.5
14.7
(1.8)
12.9
V.B. Gaz
£m
Other
£m
0.4
0.3
0.1
0.3
(0.3)
(0.1)
(0.7)
2.3
(0.6)
1.7
6.9
8.6
8.6
—
—
8.6
8.6
(0.3)
8.3
0.2
0.4
0.9
1.4
(1.9)
—
—
1.0
—
2.0
5.3
7.3
6.3
0.1
0.9
7.3
6.3
(0.4)
5.9
Total
£m
2.2
2.5
1.9
2.3
(5.6)
(0.1)
(3.2)
15.0
(0.6)
14.4
21.0
35.4
29.6
0.1
5.7
35.4
29.6
(2.5)
27.1
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.
The provisional fair values for Oscagas and Gregg Mechanical disclosed as part of the Group’s interim results as at 30 September 2018 have
been updated, resulting in a decrease to goodwill of £0.2m at 31 March 2019.
HomeServe plc Annual Report & Accounts 2019 | 153
Group financial statements
Notes to financial statements
Year ended 31 March 2019
16. Business combinations (continued)
The post-acquisition revenue, operating profit and acquisition-related costs (included in operating costs) from these acquisitions in the year
ended 31 March 2019 were as follows:
Revenue
Operating profit/(loss)
Acquisition-related costs
Cropp
£m
2.1
—
0.6
V.B. Gaz
£m
—
—
0.1
Other
£m
8.0
(0.1)
0.2
Total
£m
10.1
(0.1)
0.9
If all of the acquisitions had been completed on the first day of the financial year, Group revenues for the period would have been £1,050.3m
and Group profit before taxation would have been £141.9m.
In addition to the net cash outflow on the acquisitions of £27.1m, deferred and contingent consideration payments related to business
combinations in year totalled £10.4m (FY18: £3.9m).
17. Other investments
Equity investments carried at fair value through other comprehensive income
At 1 April 2017
Exchange movements
At 1 April 2018*
Fair value gain on FVTOCI investment
Exchange movements
At 31 March 2019
£m
8.5
0.2
8.7
0.7
(0.2)
9.2
* Upon adoption of IFRS 9 the Group made the irrevocable election to measure its existing investment currently held in a manufacturer of smart thermostat connected home technology
as fair value through other comprehensive income as the investment is a non-trading equity instrument acquired for strategic purposes rather than capital gain. The Group’s transition to
IFRS 9 is discussed in note 2.
18. Equity accounted investments
A list of equity accounted investments, including the name, address, country of incorporation, and proportion of ownership is given in note 48
to the Company’s separate financial statements. During the year ended 31 March 2019 the Group made the following additional investments:
On 14 January 2019 HomeServe USA Corp invested £3.9m (USD $5.0m) to acquire a 20% equity stake in Centriq Technology, Inc. (‘Centriq’).
HomeServe will work closely together with Centriq to deliver a cutting-edge digital home product and system catalogue with maintenance
and repair service solutions to customers. HomeServe will license Centriq’s existing mobile application and release a HomeServe branded
version in FY20.
On 14 February 2019 HomeServe International Limited signed an agreement with Mitsubishi Corporation (‘MC’) to establish a joint venture
entity, HomeServe Japan Corporation (‘HJC’). HJC is owned 50% by HomeServe International Limited and 50% by MC. On 22 March 2019
HomeServe International Limited made an initial capital contribution of £1.5m (¥200.0m) for 20,000 shares in HJC matching the capital
contributions made on 15 March 2019 and 22 March 2019 by MC totalling ¥200.0m for another 20,000 shares (all issued shares ranking
pari passu). HJC will build a business to provide home emergency and repair services in electrics, plumbing, gas, heating, ventilation and air
conditioning. The business will be based on a Membership model, and will also offer on-demand services to residential customers.
The following amounts relate to the combined results of the Group’s associate interests in Assistenza Casa Srl and Centriq as well as its joint
venture interest in HJC:
Summary Financial Information
(Loss)/profit after tax
Total comprehensive (expense)/income
Amounts recognisable
2019
£m
(0.9)
(0.9)
(0.3)
2018
£m
2.1
2.1
1.0
The proportion of the Group’s ownership interest in equity accounted investments is equal to their carrying amounts in the consolidated
balance sheet.
On 28 March 2018 HomeServe International Limited received a €0.5m (£0.4m) dividend payment from its associate. The receipt was accounted
for as a reduction in the carrying value of the Group’s investment in Assistenza Casa Srl.
154 | HomeServe plc Annual Report & Accounts 2019
19. Inventories
Consumables
20. Trade and other receivables
Amounts receivable for the provision of services
Other receivables
Accrued income
Prepayments
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
2018
£m
4.3
2018
£m
354.6
143.5
9.6
8.0
515.7
2019
£m
7.0
2019
£m
369.9
27.0
15.1
12.6
424.6
Credit risk
Where the Group contracts directly with the consumer of its services, the counterparty to the financial asset in question (the tradesperson
or policyholder) is the primary driver of the Group’s credit exposure. Where the Group acts as an insurance intermediary, the counterparty
to the financial asset in question (the underwriter) is not the primary driver of the Group’s credit exposure, rather the risk derives from the
creditworthiness of the underlying policyholder. In both instances the relevant credit risk pools are numerous and diverse, thereby mitigating
the significance of the Group’s exposure to any single pool of risk. Of the at risk balance at the end of the year there is no significant
concentration of credit risk within an individual pool, with risk exposure spread across a large number of policyholders and tradespersons.
There are no risk exposures that represent more than 5% of the total balance at risk. Note 3 contains further detail regarding the potential risk if
policy cancellations were to be 10% higher than expected.
Risks associated with the environments in which customers and policyholders operate may also influence the credit risk. Credit quality of
customers is assessed by taking into account the current financial position of the counterparty, past experience and forward looking factors,
including economic outlook. 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 Group’s exposures are further reduced by its ability, in the event of default,
to cease providing member services or to take policyholders “off risk”. A default on a trade receivable is when the counterparty fails to make
contractual payments within the stated payment terms. Balances are written off when there is no reasonable expectation of recovery and
carrying amounts represent the maximum potential credit exposure.
Trade receivables and accrued income are subject to impairment using the expected credit loss model. The Group applies the IFRS 9 simplified
approach to measuring expected credit losses which uses a lifetime expected credit loss allowance for all trade receivables and contract
assets. Consequently the IFRS 9 concept of a significant increase in credit risk is not applicable to the Group’s expected credit loss calculations.
To assess expected credit losses, balances are either assessed individually or grouped based on similar credit risk characteristics (e.g. type of
customer or days past due). Expected losses are then measured using a provisioning matrix approach adjusted, where applicable, to take into
account current macro-economic factors or counterparty specific considerations.
The Group trades only with creditworthy third parties and maintains a policy that, with the exception of our membership policyholders,
customers who wish to trade on credit terms are reviewed for financial stability. The Group has provided fully for those balances that it does not
expect to recover. This assessment has been undertaken by reviewing the status of all at risk balances in line with the process described above.
The Directors believe that there is no further credit provision required in excess of the expected credit loss provision.
Included in the Group’s exposure are balances with a carrying amount of £17.6m (FY18: £14.5m) which are past due at the reporting date but
for which the Group has not provided for as there has not been a significant change in credit quality and the amounts are still considered
recoverable. The Group does not hold any collateral over these balances.
HomeServe plc Annual Report & Accounts 2019 | 155
Group financial statements
Notes to financial statements
Year ended 31 March 2019
20. Trade and other receivables (continued)
Credit risk (continued)
Ageing of balances past due but not impaired:
1 - 30 days
31 - 60 days
61 - 90 days
91 days +
Balance at 31 March past due but not impaired
Current
At 31 March
Movement in expected credit losses:
At 1 April
Impairment losses recognised
Reclassification to refund liabilities
Amounts recovered during the year
Acquisition of subsidiaries
Exchange movements
At 31 March
Of the provision total £nil relates to accrued income.
Ageing of impaired balances:
1 - 30 days
31 - 60 days
61 - 90 days
91 days +
Current/not yet due
At 31 March
2019
£m
9.6
3.5
2.1
2.4
17.6
352.3
369.9
2019
£m
1.5
1.8
(1.0)
(0.7)
—
—
1.6
2019
£m
—
—
0.1
0.5
1.0
1.6
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
2018
£m
—
—
0.2
0.4
0.9
1.5
Other receivables
2019
Other receivables principally comprise deposits, tax balances due to the Group and other non-trading items. No expected credit loss allowance
was recognised at 31 March 2019 and no charge was reported in the income statement. No other receivable balances were considered past
due but not impaired.
2018
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 payables’.
156 | HomeServe plc Annual Report & Accounts 2019
21. Cash and cash equivalents
Cash and cash equivalents
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
2019
£m
72.6
2018
£m
57.8
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less.
Of the total cash and cash equivalents balance held £11.8m (FY18: £11.1m) is not available for use by the Group due to the restrictions stipulated
within the Group’s contractual relationships with underwriters. These balances principally relate to advances from underwriters received to fund
claims payments. No client monies as defined under CASS 5 of the FCA Handbook are held.
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.
22. Trade and other payables
Trade payables and accruals
Contingent consideration
Deferred consideration
Deferred income
Refund liabilities
Taxes and social security, excluding current tax
Amounts related to policyholders to be remitted to underwriters
Other payables
2019
£m
148.8
—
5.9
49.3
17.7
14.5
76.8
69.3
382.3
2018
£m
114.6
15.9
5.2
86.3
—
13.2
207.8
65.5
508.5
Trade payables, other payables and accruals principally comprise amounts outstanding for trade purchases and other ongoing costs.
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.
Refund liabilities are made in respect of those policies that may be cancelled by the policyholder part way through the contractual term, which
will affect the economic benefits that flow to the Group. The liability is made to ensure that the related revenue is not recognised at the point
that the policy incepts.
Amounts related to policyholders to be remitted to underwriters principally relate to the cost of underwriting and Insurance Premium Tax for
cash collected from policyholders and not yet transmitted.
23. Other financial liabilities
Contingent consideration
Deferred consideration
Obligation under put option
Trade and other payables
2019
£m
—
8.9
11.0
3.4
23.3
2018
£m
4.7
4.9
10.3
3.5
23.4
Contingent and deferred consideration relates to future amounts payable on business combinations and asset purchases.
HomeServe plc Annual Report & Accounts 2019 | 157
Group financial statements
Notes to financial statements
Year ended 31 March 2019
23. Other financial liabilities (continued)
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 historic price of the remaining
30% at the time of acquisition of the Group’s current investment, 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.
24. Provisions
There were no provisions recorded at 31 March 2018. Movements in provisions during the year ended 31 March 2019 are disclosed below:
At 1 April 2018
Created
Utilised
At 31 March 2019
Restructuring costs
£m
—
4.9
(1.0)
3.9
Other
£m
—
1.8
—
1.8
Total
£m
—
6.7
(1.0)
5.7
Where material, provisions are discounted based on an approximation for the time value of money. The amount and timing of the cash
outflows are subject to variation. Provisions are principally expected to be utilised over the next twelve months.
Restructuring costs
Please refer to discussion of exceptional items in note 7.
Other
Other provisions principally relate to non-exceptional redundancy costs and property reversions. Provision is made for rent and other property
related costs for the period that a sublet or assignment of the lease is not possible. It is not deemed likely that the properties in question will be
assigned or sublet such that best estimates of reverse lease premiums payable on assignment, or rental income streams on subletting would be
required.
25. Borrowings
Bank and other loans
Sterling denominated
Euro denominated
US dollar denominated
Due within one year
US dollar denominated
Euro denominated
Sterling denominated
Due after one year
Total bank and other loans
2019
£m
27.2
10.8
1.7
39.7
116.4
10.9
209.1
336.4
376.1
2018
£m
26.7
11.3
—
38.0
48.7
21.8
186.2
256.7
294.7
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.
158 | HomeServe plc Annual Report & Accounts 2019
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
The weighted average interest rates paid on bank and other loans were as follows:
Fixed
Floating
2019
2018
£
%
3.1
1.6
€
%
—
0.9
$
%
4.9
3.3
£
%
2.9
1.4
€
%
—
0.9
$
%
—
2.4
All of the Group’s borrowings are unsecured. The currencies in which the Group’s borrowings are denominated reflect the geographical
segments for which they have been used.
On 25 October 2018 the Group completed a financing transaction in the United States Private Placement market with issued notes amounting
to $125.0m and £80.0m as detailed below:
Title
7yr GBP Senior Notes
7yr USD Senior Notes
10yr GBP Senior Notes
10yr USD Senior Notes
12yr GBP Senior Notes
12yr USD Senior Notes
Principal
£33.0m
$29.0m
£23.0m
$49.0m
£24.0m
$47.0m
Maturity
13 December 2025
13 December 2025
13 December 2028
13 December 2028
13 December 2030
13 December 2030
Coupon
3.34%
4.83%
3.50%
4.92%
3.61%
5.02%
Counterparties provided funding for each Sterling and US Dollar note series on 13 December 2018. This provided the Group with £174.2m
using the exchange rate of the deal price fixing of 0.7538 GBP: 1 USD on 20 September 2018. Ongoing foreign exchange risk on the US dollar
denominated notes is naturally hedged against movements in US dollar denominated monetary assets on the balance sheet date.
The counterparties of the GBP loan notes issued in the year have taken out foreign exchange swap instruments to manage their market risk
exposure to fluctuations in GBP:USD exchange rates. In the event that the Group defaults, or chooses to repay the loan notes prior to their
maturity, it would be responsible for the gain or loss arising. Early repayment and default events are both currently considered by the Group to
be remote and consequently the fair value of the Group’s exposure is considered to be £nil.
The principal features of the Group’s other borrowings are as follows:
•
The Group has a £400m revolving credit facility with seven 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 a maximum of seven years. On 1 August 2018 the first one year option
was exercised to extend the facility to 1 August 2023. The financial covenants associated with the facility are ‘net debt to EBITDA of less
than 3.0 times’ (FY18 RCF: 3.0 times) and ‘interest cover greater than 4.0 times EBITDA’ (FY18 RCF: 4.0 times). Interest is charged at floating
rates at margins of between 1.05% and 1.15% (FY18 RCF: 1.15% and 1.25%) above the relevant reference rate, thus exposing the Group to
cash flow and interest rate risk. At 31 March 2019, the Group had available £357.8m (FY18 RCF: £273.6m) of undrawn committed borrowing
facilities in respect of which all conditions precedent had been met.
The Group has £110m of US Private Placements (FY18: £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 €25.0m/£21.5m (FY18: €37.5m/£32.8m) 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 (FY18: £25m) short-term loan on 31 January 2019 which has a term of six months. The financial covenants
associated with this facility are the same as the £400m revolving credit facility with the exception of net debt to EBITDA of less than 2.0
times (FY18: 2.0 times). Interest is charged at floating rates at margins of 0.58% 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 $1.9m/£1.5m (FY18: $2.3m/£1.6m) was drawn at 31 March 2019. The weighted average
interest rate was 1.5% (FY18: 1.5%).
•
•
•
•
The Group has complied with all covenant requirements in the current and prior year. Information about liquidity risk is presented in note 26.
HomeServe plc Annual Report & Accounts 2019 | 159
Group financial statements
Notes to financial statements
Year ended 31 March 2019
25. Borrowings (continued)
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
2019
£m
0.5
0.7
1.2
0.5
0.7
1.2
2018
£m
0.5
0.4
0.9
0.5
0.4
0.9
Certain motor vehicles are held under finance leases. The average lease term is 4.5 years (FY18: 6 years). For the year ended 31 March 2019, the
average effective borrowing rate was 3.8% (FY18: 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 Group’s obligations under finance leases are secured by the lessors’ rights over the
leased assets.
160 | HomeServe plc Annual Report & Accounts 2019
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
Reconciliation of movements in liabilities arising from financing
Current liabilities
Non-current liabilities
At 1 April 2017
Proceeds from new loans and borrowings
Repayment of borrowings
Payment of finance leases
Interest paid
Costs associated with new bank and other loans raised
Total changes from cash flows
Other changes
Foreign exchange
Interest expense
Transfers to/(from)
At 1 April 2018
Proceeds from new loans and borrowings
Repayment of borrowings
Payment of finance leases
Interest paid
Costs associated with new bank and other loans raised
Finance
leases
£m
Bank and
other loans
£m
0.6
—
—
(0.6)
—
—
(0.6)
—
—
0.5
0.5
—
—
(0.6)
—
—
35.9
—
(10.7)
—
(0.2)
(0.1)
(11.0)
0.4
2.0
10.7
38.0
—
(11.1)
—
(2.1)
—
Total changes from cash flows
(0.6)
(13.2)
Other changes
Foreign exchange
Interest expense
Additions
Transfers to/(from)
At 31 March 2019
—
—
—
0.6
0.5
(0.2)
4.3
—
10.8
39.7
Finance
leases
£m
1.0
—
—
—
—
—
—
(0.1)
—
(0.5)
0.4
—
—
—
—
—
—
0.1
—
0.8
(0.6)
0.7
Bank and
other loans
£m
270.1
221.0
Total
£m
307.6
221.0
(215.8)
(226.5)
—
(7.3)
(3.0)
(5.1)
(5.3)
7.7
(10.7)
256.7
174.2
(87.8)
—
(6.4)
(1.6)
78.4
4.8
7.2
0.1
(10.8)
336.4
(0.6)
(7.5)
(3.1)
(16.7)
(5.0)
9.7
—
295.6
174.2
(98.9)
(0.6)
(8.5)
(1.6)
64.6
4.7
11.5
0.9
—
377.3
HomeServe plc Annual Report & Accounts 2019 | 161
Group financial statements
Notes to financial statements
Year ended 31 March 2019
26. Financial instruments
Classification
Aside from the financial instruments discussed under ‘financial instruments subsequently measured at fair value’ below, all other financial assets
and liabilities to which the Group is party are held at amortised cost and their carrying values approximate their fair values.
Financial instruments subsequently measured at fair value
Financial instruments that are measured subsequent to initial recognition at fair value are grouped into levels 1 to 3 based on the degree to
which the fair value is observable:
• Level 1 fair value measurements are those 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.
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 fair value through other comprehensive income
Other investments (note 17)
Level 3
Contingent consideration at fair value through profit and loss
Current liabilities
Non-current liabilities
2019
£m
2018*
£m
9.2
8.7
—
—
(15.9)
(4.7)
* Upon adoption of IFRS 9 certain financial assets of the Group were reclassified from available for sale, under IAS 39, to fair value through other comprehensive income. The Group’s
transition to IFRS 9 is discussed in note 2.
The fair value of other investments has been determined by analysing the future outlook of the investee as well as reviewing valuations
associated with recent comparable market transactions. The fair value of contingent consideration liabilities has been determined using
forecasts of future performance of acquisitions discounted to present value. The movement in other investments versus the prior year primarily
relates to the fair value uplift recorded on the Group’s investment in a smart thermostat manufacturer (see note 17).
The table below presents a reconciliation of recurring Level 3 fair value measurements:
Opening balance
Additions
Payments
Unwinding of discount rate through the income statement
Exceptional fair value re-measurement gain (note 7)
Extinguishment
Foreign exchange
2019
£m
20.6
0.1
(10.7)
0.2
(10.1)
(0.1)
—
—
2018
£m
4.7
19.7
(1.9)
0.7
—
(2.7)
0.1
20.6
If discount rates on contingent consideration were higher/lower than the Group’s historical experience by 10%, the carrying amount would
decrease/increase by £nil (FY18: £0.1m). 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, is from £nil to £10.5m.
162 | HomeServe plc Annual Report & Accounts 2019
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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 25, cash and cash equivalents in note 21 and equity attributable to equity holders of the parent, comprising issued
capital, reserves and retained earnings as disclosed in notes 27, 28 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
2019
£m
613.4
72.6
376.1
2018
£m
551.0
57.8
294.7
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 20-23 and note 25. 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 25.
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)
2019
10%
0.1
2018
10%
0.3
Credit risk
Credit risk associated with trade receivables and accrued income contract assets is discussed in note 20. Credit risk related to cash and cash
equivalents is discussed in note 21.
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 25 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.
HomeServe plc Annual Report & Accounts 2019 | 163
Group financial statements
Notes to financial statements
Year ended 31 March 2019
26. Financial instruments (continued)
The maturity profile of the Group’s financial liabilities based on contractual maturities, with the exception of finance lease liabilities which
are disclosed in note 25, is provided in the table below. Interest is payable on all bank and other loans. All cash flows are presented on an
undiscounted basis.
2019
Under 2 months
Between 2 and 12 months
Between 1 and 2 years
Between 2 and 5 years
After 5 years
Total
2018
Under 2 months
Between 2 and 12 months
Between 1 and 2 years
Between 2 and 5 years
After 5 years
Total
Bank and other
loans
£m
Trade payables
£m
Other payables
£m
Deferred
consideration
£m
2.1
46.2
23.0
126.2
276.2
473.7
81.0
67.8
1.6
—
0.8
42.1
93.4
1.0
—
—
5.0
1.7
1.6
4.5
6.0
151.2
136.5
18.8
Obligation
under put
option
£m
—
—
12.1
—
—
12.1
Bank and other
loans
£m
Trade payables
£m
Other payables
£m
Deferred and
contingent
consideration
£m
Obligation
under put
option
£m
2.1
40.8
17.4
204.6
62.9
327.8
73.3
41.3
1.5
—
—
116.1
96.3
177.0
1.9
0.1
—
275.3
4.2
17.5
5.8
2.4
3.9
33.8
—
—
—
12.3
—
12.3
Total
£m
130.2
209.1
39.3
130.7
283.0
792.3
Total
£m
175.9
276.6
26.6
219.4
66.8
765.3
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 FY18 acquisition of
tranche one of the DPS policy book.
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
FY18 income statement was £nil.
164 | HomeServe plc Annual Report & Accounts 2019
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27. Share capital
Issued and fully paid 332,490,377 ordinary shares of 2 9/13p each (FY18: 329,776,766)
2019
£m
9.0
2018
£m
8.9
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.
During the period from 1 April 2018 to 31 March 2019 the Company issued 2,713,611 shares with a nominal value of 2 9/13p creating share
capital of £0.1m and share premium of £8.9m.
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.
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 £0.1m and share premium of £4.9m. 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.
28. 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 (FY18: 2 9/13p).
Share incentive reserve
The share incentive reserve represents the cumulative charges to income under IFRS 2 ‘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.
Investment revaluation reserve
The investment revaluation reserve represents the gain on revaluation of the Group’s fair value through other comprehensive income
investment disclosed in note 17.
Other reserves
The movement on other reserves during the current and preceding years is set out in the table below:
At 1 April 2017
Increase in merger reserve
Other comprehensive income – fair value loss on cash flow hedge
Basis adjustments on hedged items
At 1 April 2018 and 31 March 2019
Capital redemption
reserve
£m
1.2
—
—
—
1.2
Merger
reserve
£m
71.0
10.0
—
—
81.0
Hedging
reserve
£m
Total other
reserves
£m
—
—
(0.5)
0.5
—
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
shares issued formed part of the consideration for the acquisition of the remaining 60% of the equity of Checkatrade (taking the Group’s
overall holding to 100%) and therefore qualify for merger relief.
The hedging reserve records movements for effective cash flow hedges measured at fair value.
HomeServe plc Annual Report & Accounts 2019 | 165
Group financial statements
Notes to financial statements
Year ended 31 March 2019
29. 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
30. Notes to the cash flow statement
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of acquisition intangible assets
Amortisation of other intangible assets
Amortisation of contract costs
Share-based payments expense
Share of results of equity accounted investees
Loss on disposal of property, plant and equipment and software
Gain on re-measurement of associate on acquisition of control
Impact of exceptional items
Decrease in other financial liabilities
2019
£m
1.4
4.8
(5.7)
—
0.5
0.2
2019
£m
152.6
9.1
26.8
23.1
14.9
9.8
0.3
0.6
—
(4.6)
—
2018
£m
0.8
3.5
(3.1)
—
1.2
0.4
2018
£m
135.0
8.0
18.4
36.2
—
9.1
(1.0)
2.1
(0.9)
—
(0.3)
Operating cash flows before movements in working capital
232.6
206.6
Increase in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables and provisions
Net movement in working capital
Cash generated by operations
Income taxes paid
Interest paid
Net cash inflow from operating activities
(0.7)
104.0
(133.7)
(30.4)
202.2
(31.7)
(8.5)
162.0
(1.4)
(60.7)
19.7
(42.4)
164.2
(27.2)
(7.5)
129.5
166 | HomeServe plc Annual Report & Accounts 2019
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31. Share-based payments
During the year ended 31 March 2019, the Group had three (FY18: 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. 75% of each performance and matching award is subject to an Earnings Per Share performance
condition and the remaining 25% is subject to comparative Total Shareholder Return performance. In 2016, certain 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 scheme 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 (FY18: nil) as the scheme is now closed.
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.
2019
Number
Outstanding at 1 April 2018
Granted
Forfeited
Exercised
Outstanding at 31 March 2019
Exercisable at 31 March 2019
Weighted average exercise price (£)
Outstanding at 1 April 2018
Granted
Forfeited
Exercised
Outstanding at 31 March 2019
Exercisable at 31 March 2019
Range of exercise price of options outstanding at 31 March 2019
£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 2019
LTIP
SAYE
One Plan
5,713,831
1,215,709
(87,557)
(2,019,255)
4,822,728
4,995
—
—
—
—
—
—
—
—
—
2
£9.12
729,194
—
(30,659)
(671,197)
27,338
27,338
3.18
—
3.27
3.17
3.35
3.35
—
—
27,338
1
—
75,117
45,487
(10,800)
(4,048)
105,756
—
—
—
—
—
—
—
—
—
—
2
£9.24
HomeServe plc Annual Report & Accounts 2019 | 167
Group financial statements
Notes to financial statements
Year ended 31 March 2019
31. Share-based payments (continued)
2018
Number
Outstanding at 1 April 2017
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
LTIP
SAYE
One Plan
6,190,933
1,600,485
(104,100)
(1,973,487)
5,713,831
19,454
—
—
—
—
—
—
—
—
—
2
£6.30
1,481,214
—
(81,285)
(670,735)
729,194
76,220
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
The weighted average share price at the date of exercise for share options exercised during the year was £9.13 (FY18: £7.38).
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
22.3% - 27.2%
Per scheme rules
Based on historic dividend yield
0.1% - 1.0%
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 FY19 the Group recognised an IFRS 2 charge of £9.8m (FY18: £9.1m) related to equity-settled share-based payment transactions.
168 | HomeServe plc Annual Report & Accounts 2019
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32.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. 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 £6.7m (FY18: £4.7m) represents contributions payable to the schemes by the Group at rates specified in the
rules of the schemes. At 31 March 2019, contributions of £0.8m (FY18: £0.2m) 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.
GMP equalisation
On 26 October 2018 a High Court case in the UK confirmed that Guaranteed Minimum Pensions (GMP) need to be equalised between male
and female pension scheme members. The Court did not specify the method to use to equalise GMP but did set out a number of possible
approaches. Prior to this date the Group had excluded GMP equalisation from the valuation of scheme liabilities, but in the year an allowance
has been made resulting in a past service cost of £0.1m.
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 IAS 19. 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
2019
2.4%
2.5%
3.5%
2.5%
2.5%
28.9yrs
27.5yrs
Valuation at
2018
2.7%
2.4%
3.4%
2.4%
2.4%
29.5yrs
28.2yrs
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 £2.7m
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 £2.9m
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
£1.0m.
•
•
HomeServe plc Annual Report & Accounts 2019 | 169
Group financial statements
Notes to financial statements
Year ended 31 March 2019
32.Retirement benefit schemes (continued)
Amounts recognised in the income statement in respect of the defined benefit scheme are as follows:
Current service cost
Past service cost
Interest income
Recognised in operating costs
2019
£m
0.2
0.1
(0.2)
0.1
2018
£m
0.2
—
—
0.2
The actual return on scheme assets was a gain of £0.8m (FY18: gain of £0.3m). 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
2019
£m
(31.1)
37.5
6.4
2018
£m
(33.3)
38.0
4.7
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
Past service cost
At 31 March
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
2019
£m
33.3
0.2
0.8
2.2
(0.8)
(0.2)
(4.5)
0.1
31.1
2019
£m
38.0
1.0
0.8
2.2
(4.5)
37.5
2018
£m
35.2
0.2
0.9
(1.2)
(0.9)
0.3
(1.2)
—
33.3
2018
£m
35.9
0.9
0.3
2.1
(1.2)
38.0
The amount recognised outside the income statement in the statement of comprehensive income for FY19 is a loss of £0.4m (FY18: gain of
£2.1m). The cumulative amount recognised outside the income statement at 31 March 2019 is a loss of £5.6m (FY18: loss of £5.2m).
170 | HomeServe plc Annual Report & Accounts 2019
The analysis of the fair value of scheme assets at the balance sheet date was as follows:
Equity instruments
Diversified growth fund
Liability driven investment funds
Other
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2019
£m
15.2
4.4
17.7
0.2
37.5
2018
£m
14.6
3.4
15.5
4.5
38.0
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 £2.2m (FY19: actual £2.2m)
plus any Pension Protection Fund levy payable.
33. 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
2019
£m
12.6
33.4
10.0
56.0
2018
£m
12.0
20.5
5.3
37.8
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.
HomeServe plc Annual Report & Accounts 2019 | 171
Group financial statements
Notes to financial statements
Year ended 31 March 2019
34. Related party transactions
The Group consists of a parent Company, HomeServe plc, incorporated in England and Wales, and a number of subsidiaries and associates
held directly and indirectly by HomeServe plc, which operate and are incorporated internationally. There is no ultimate controlling party of
HomeServe plc. Note 48 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 48).
Transactions with equity accounted investees
Sales to associates
2019
£m
0.3
2018
£m
0.5
Aside from the capital contribution discussed in note 18 there have been no significant transactions with the Group's equity accounted joint
venture entity, HomeServe Japan Corporation .
Other related party transactions
Group companies purchased services of £0.2m (FY18: £0.3m) from Harpin Limited, £0.1m (FY18: £nil) from Pilot Services (GB) Limited and
£0.2m (FY18: £0.2m) from Sirio Limited (formerly 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 2019 amounted to £0.1m (FY18: £0.2m).
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 expected credit losses in
respect of the amounts owed by related parties.
Remuneration of key management personnel
The remuneration of the Directors and members of the Executive Committee, who are the key management personnel of the Group, is set
out below in aggregate for each of the categories specified in IAS24 Related Party Disclosures. Further information about the remuneration of
individual Directors is provided in the audited part of the Remuneration report.
Short-term employee benefits
Post-employment benefits
Share-based payments expense
Termination benefits
2019
£m
5.2
0.3
6.6
0.2
12.3
2018
£m
6.2
0.4
7.2
—
13.8
Except as noted above, there were no other transactions with Directors requiring disclosure. Termination benefits are expected to be paid
in FY20.
172 | HomeServe plc Annual Report & Accounts 2019
Company statement of comprehensive income
Year ended 31 March 2019
Profit for the year
Items that will not be reclassified subsequently to profit and loss:
Actuarial (loss)/gain on defined benefit pension scheme
Deferred tax credit/(charge) relating to actuarial re-measurements
Total other comprehensive (expense)/income
Total comprehensive income for the year
Notes
32
42
2019
£m
76.0
(0.4)
0.1
(0.3)
75.7
2018
£m
49.1
2.1
(0.4)
1.7
50.8
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HomeServe plc Annual Report & Accounts 2019 | 173
Company financial statements
Company balance sheet
31 March 2019
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
37
38
39
42
32
40
40
41
43
43
27
28
28
45
28
2019
£m
3.6
0.2
194.6
1.0
6.4
205.8
480.3
117.4
597.7
803.5
(12.9)
(4.3)
(39.7)
(56.9)
540.8
(334.9)
(334.9)
(391.8)
411.7
9.0
180.7
81.0
21.2
1.2
118.6
411.7
2018
£m
4.3
0.1
194.6
0.4
4.7
204.1
417.7
75.6
493.3
697.4
(11.6)
(4.0)
(37.6)
(53.2)
440.1
(255.2)
(255.2)
(308.4)
389.0
8.9
171.8
81.0
20.0
1.2
106.1
389.0
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 £76.0m (FY18: £49.1m).
The financial statements of HomeServe plc were approved by the Board of Directors and authorised for issue on 21 May 2019. They were
signed on its behalf by:
David Bower
Chief Financial Officer
21 May 2019
Registered in England No. 2648297
174 | HomeServe plc Annual Report & Accounts 2019
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
Company statement of changes in equity
Year ended 31 March 2019
Balance at 1 April 2018
Profit for the year
Other comprehensive expense
Total comprehensive income
Dividends paid (note 11)
Issue of share capital
Share-based payments
Share options exercised
Tax on exercised share options
Deferred tax on share options
Balance at 31 March 2019
Year ended 31 March 2018
Balance at 1 April 2017
Profit for the year
Other comprehensive expense
Total comprehensive income
Dividends paid (note 11)
Issue of share capital
Share-based payments
Share options exercised
Tax on exercised share options
Balance at 31 March 2018
Share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Share
incentive
reserve
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
Total
equity
£m
8.9
171.8
81.0
20.0
1.2
106.1
389.0
—
—
—
—
—
—
—
—
0.1
8.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.8
(7.6)
—
—
—
—
—
—
—
—
—
—
—
76.0
(0.3)
75.7
76.0
(0.3)
75.7
(65.0)
(65.0)
—
—
0.8
0.9
0.1
9.0
8.8
(6.8)
0.9
0.1
9.0
180.7
81.0
21.2
1.2
118.6
411.7
Share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Share
incentive
reserve
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
Total
equity
£m
8.4
45.7
71.0
16.2
1.2
103.8
246.3
—
—
—
—
—
—
—
—
—
—
—
—
0.5
126.1
10.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.1
(4.3)
—
—
—
—
—
—
—
—
—
49.1
1.7
50.8
(50.4)
—
—
1.0
0.9
49.1
1.7
50.8
(50.4)
136.6
8.1
(3.3)
0.9
8.9
171.8
81.0
20.0
1.2
106.1
389.0
HomeServe plc Annual Report & Accounts 2019 | 175
Company financial statements
Company cash flow statement
Year ended 31 March 2019
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
Cash and cash equivalents at end of year
Notes
46
40
2019
£m
(55.9)
1.9
85.0
(0.1)
(0.2)
86.6
(65.0)
2.2
—
174.2
(1.6)
(98.6)
11.2
41.9
75.6
(0.1)
117.4
2018
£m
(57.5)
—
75.0
(2.2)
—
72.8
(50.4)
124.1
(0.8)
221.0
(3.1)
(226.1)
64.7
80.0
(4.4)
—
75.6
176 | HomeServe plc Annual Report & Accounts 2019
Notes to financial statements
Year ended 31 March 2019
Company only
The following notes 35 to 48 relate to the Company only position and performance for the year ended 31 March 2019.
35. 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 £76.0m (FY18: £49.1m).
The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate
financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European
Union.
The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set
out in note 2 to the consolidated financial statements except that investments in subsidiaries are stated at cost less impairment. None of the
critical accounting judgements and key sources of estimation uncertainty disclosed in note 3 apply to the Company.
There are no critical accounting judgements or key sources of estimation uncertainty.
36. Other information
Staff remuneration
The average monthly number of employees (including Executive Directors) was:
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
UK (all administrative roles)
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs (note 32)
Audit fees
Fees payable to the Company’s auditor for the audit of the Company’s financial statements
Total audit fees
2019
number
75
2019
£m
11.0
1.3
0.2
12.5
2019
£000
72
72
2018
number
87
2018
£m
10.6
1.4
0.4
12.4
2018
£000
71
71
HomeServe plc Annual Report & Accounts 2019 | 177
Company financial statements
Notes to financial statements
Year ended 31 March 2019
37. Other intangible assets
Cost
At 1 April 2017
Additions
At 1 April 2018
Additions
Transfer
At 31 March 2019
Accumulated amortisation
At 1 April 2017
Charge for the year
At 1 April 2018
Charge for the year
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
38. Property, plant and equipment
Cost
At 1 April 2017 and 1 April 2018
Additions
At 31 March 2019
Accumulated depreciation
At 1 April 2017
Charge for the year
At 1 April 2018
Charge for the year
At 31 March 2019
Carrying amount
At 31 March 2019
At 31 March 2018
178 | HomeServe plc Annual Report & Accounts 2019
Trademarks &
access rights
£m
Software
£m
Total
intangibles
£m
1.8
—
1.8
—
0.7
2.5
0.7
0.1
0.8
—
0.8
1.7
1.0
5.4
1.9
7.3
0.1
(0.7)
6.7
1.7
2.3
4.0
0.8
4.8
1.9
3.3
7.2
1.9
9.1
0.1
—
9.2
2.4
2.4
4.8
0.8
5.6
3.6
4.3
Leasehold
improvements
£m
Computer
equipment
£m
Total
tangible assets
£m
0.3
—
0.3
0.1
0.1
0.2
—
0.2
0.1
0.1
0.2
0.2
0.4
0.1
0.1
0.2
0.1
0.3
0.1
—
0.5
0.2
0.7
0.2
0.2
0.4
0.1
0.5
0.2
0.1
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
39. Subsidiaries
Details of the Company’s subsidiaries at 31 March 2019, including the name, address, country of incorporation and proportion of ownership
interest is given in note 48.
Cost and net book value
At 1 April 2017, 1 April 2018 and 31 March 2019
40. Financial assets
Trade and other receivables
Amounts receivable from Group companies (note 48)
Other receivables
Prepayments and accrued income
2019
£m
479.1
0.9
0.3
480.3
Trade receivables
The Company has a policy for providing fully for those receivable balances that it does not expect to recover. This assessment has been
undertaken in accordance with the IFRS 9 expected credit loss model as explained more fully in note 20.
Ageing of past due but not impaired receivables:
Current
At 31 March
2019
£m
479.1
479.1
£m
194.6
2018
£m
417.0
0.5
0.2
417.7
2018
£m
417.0
417.0
In determining the recoverability of a trade receivable, the Company considers any change in the credit quality of the trade receivable from the
date credit was initially granted up to the reporting date. The concentration of credit risk is mitigated through the close management and regular
review of performance of the subsidiary companies.
No allowance for doubtful debts is considered necessary based on prior experience and the Directors’ assessment of the current economic
environment.
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Cash balances and cash equivalents
Cash balances and cash equivalents of £117.4m (FY18: £75.6m) 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.
41. Financial liabilities
Trade and other payables
Trade payables and accruals
Amounts payable to Group companies
Taxes and social security, excluding corporation tax
2019
£m
10.9
0.1
1.9
12.9
2018
£m
9.7
—
1.9
11.6
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken
for trade purchases is 17 days (FY18: 11 days).
The Directors consider that the carrying amount of trade payables approximates to their fair value.
HomeServe plc Annual Report & Accounts 2019 | 179
Company financial statements
Notes to financial statements
Year ended 31 March 2019
42. Deferred tax
The following are the major deferred tax assets / (liabilities) recognised by the Company and movements thereon:
Retirement benefit
obligations
£m
Share
schemes
£m
Timing
differences
£m
At 1 April 2017
(Charge)/credit to income
Charge to comprehensive income
At 1 April 2018
(Charge)/credit to income
Credit to equity
Credit to comprehensive income
At 31 March 2019
43. 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
(0.2)
(0.3)
(0.4)
(0.9)
(0.4)
—
0.1
(1.2)
1.5
0.4
—
1.9
—
0.1
—
2.0
(0.5)
(0.1)
—
(0.6)
0.8
—
—
0.2
2019
£m
—
39.7
39.7
334.9
334.9
374.6
Total
£m
0.8
—
(0.4)
0.4
0.4
0.1
0.1
1.0
2018
£m
—
37.6
37.6
255.2
255.2
292.8
Bank loans due in less than one year of £39.7m (FY18: £37.6m) include the short-term loan and £10.8m of the €25.0m amortising loan. The
principal features of these loans are set out in note 25.
Bank and other loans due after more than one year comprise of the revolving credit facility, the US Private Placements and the remainder of the
€25.0m amortising loan. The principal features of these loans are set out in note 25.
The weighted average of interest rates paid are set out in note 25.
180 | HomeServe plc Annual Report & Accounts 2019
Reconciliation of movements in liabilities arising from financing
Current liabilities
Bank and other loans
£m
Non-current liabilities
Bank and other loans
£m
At 1 April 2017
Proceeds from new loans and borrowings
Repayment of borrowings
Repayment of overdraft
Interest paid
Costs associated with new bank and other loans raised
Total changes from cash flows
Other changes
Foreign exchange
Interest expense
Transfers to/(from)
At 1 April 2018
Proceeds from new loans and borrowings
Repayment of borrowings
Interest paid
Costs associated with new bank and other loans raised
Total changes from cash flows
Other changes
Foreign exchange
Interest expense
Transfers to/(from)
At 31 March 2019
40.1
—
(10.7)
(4.4)
(0.2)
(0.1)
(15.4)
0.2
2.0
10.7
37.6
—
(10.7)
(2.1)
—
(12.8)
(0.2)
4.3
10.8
39.7
44. Financial instruments
The tables below set out the classification of financial instruments in the statement of financial position:
Financial assets
Amortised cost
Financial liabilities
Other financial liabilities at amortised cost
Principal financial instruments
The principal financial instruments used by the Company 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
other payables.
268.2
221.0
(215.4)
—
(6.8)
(3.0)
(4.2)
(5.3)
7.2
(10.7)
255.2
174.2
(87.9)
(6.1)
(1.6)
78.6
5.0
6.9
(10.8)
334.9
2019
£m
597.4
2019
£m
385.6
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
Total
£m
308.3
221.0
(226.1)
(4.4)
(7.0)
(3.1)
(19.6)
(5.1)
9.2
—
292.8
174.2
(98.6)
(8.2)
(1.6)
65.8
4.8
11.2
—
374.6
2018
£m
493.1
2018
£m
302.5
HomeServe plc Annual Report & Accounts 2019 | 181
Company financial statements
Notes to financial statements
Year ended 31 March 2019
44. Financial instruments (continued)
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 43, cash and cash equivalents disclosed in note 40 and equity comprising issued capital, reserves and retained earnings as disclosed in this
note and notes 27, 28 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
2019
£m
411.7
117.4
374.6
2018
£m
389.0
75.6
292.8
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 and liquidity risk.
Interest rate risk
The Company’s exposure to the risk of changes in market interest rates primarily relates to the Company’s long-term debt requirements with
floating interest rates. The Company’s policy is to manage its interest cost using a mix of fixed and variable rate debts. 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 25.
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.
Euro
US dollar
Assets
Liabilities
2019
£m
—
186.3
2018
£m
—
122.1
2019
£m
(28.2)
(116.5)
The following table demonstrates the sensitivity to a reasonably possible change of 10% increase in sterling against the relevant foreign
currencies, with all other variables held constant, of the Company’s profit after tax and equity.
2019
10%
(5.1)
(5.1)
10%
2.1
2.1
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)
182 | HomeServe plc Annual Report & Accounts 2019
2018
£m
(33.1)
(48.4)
2018
10%
(5.4)
(5.4)
10%
2.4
2.4
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 25 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.
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
2019
Under 2 months
Between 2 and 12 months
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Total
2018
Under 2 months
Between 2 and 12 months
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Total
Bank and
other loans
£m
Trade, other and group
payables
£m
1.8
46.1
22.7
125.4
276.0
472.0
3.5
7.5
—
—
—
11.0
Bank and
other loans
£m
Trade, other and group
payables
£m
2.1
40.2
17.2
204.0
62.6
326.1
2.1
7.6
—
—
—
9.7
It is, and has been throughout the year under review, the Company’s policy that no speculative 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)
2019
10%
0.1
Total
£m
5.3
53.6
22.7
125.4
276.0
483.0
Total
£m
4.2
47.8
17.2
204.0
62.6
335.8
2018
10%
0.3
HomeServe plc Annual Report & Accounts 2019 | 183
Company financial statements
Notes to financial statements
Year ended 31 March 2019
45. Share incentive reserve
At 1 April 2017
Share-based payment charges in the year
Share options exercised in year
At 1 April 2018
Share-based payment charges in the year
Share options exercised in year
At 31 March 2019
46. 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
£m
16.2
8.1
(4.3)
20.0
8.8
(7.6)
21.2
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)
2019
£m
(20.3)
0.8
0.1
6.1
3.6
(9.7)
(39.7)
(1.8)
(41.5)
(51.2)
3.5
(8.2)
(55.9)
184 | HomeServe plc Annual Report & Accounts 2019
47. Share-based payments
During the year ended 31 March 2019, the Company had three (FY18: three) share-based payment arrangements, which are described in
note 31.
LTIP
SAYE
One Plan
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
2019
Number
Outstanding at 1 April 2018
Granted
Transfer
Forfeited
Exercised
Outstanding at 31 March 2019
Exercisable at 31 March 2019
Weighted average exercise price (£)
Outstanding at 1 April 2018
Transfer
Forfeited
Exercised
Outstanding at 31 March 2019
Exercisable at 31 March 2019
Range of exercise price of options outstanding at 31 March 2019
£2.00 to £2.99
£3.00 to £3.99
Weighted average remaining contractual life
2,117,178
515,865
4,810
—
(846,990)
1,790,863
—
—
—
—
—
—
—
—
—
2
Weighted average fair value of options granted in 2019
£9.12
24,249
—
—
(418)
(23,831)
—
—
£3.24
—
£3.35
£3.24
—
—
—
—
—
—
5,390
2,619
(207)
(237)
(224)
7,341
—
—
—
—
—
—
—
—
—
2
£9.24
HomeServe plc Annual Report & Accounts 2019 | 185
Company financial statements
Notes to financial statements
Year ended 31 March 2019
47. Share-based payments (continued)
2018
Number
LTIP
SAYE
One Plan
Outstanding at 1 April 2017
2,473,627
76,368
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
549,657
5,846
(34,295)
(877,657)
2,117,178
—
—
—
—
—
—
—
—
—
2
Weighted average fair value of options granted in 2018
£6.70
—
—
(2,686)
(49,433)
24,249
3,461
£2.82
—
£3.35
£2.58
£3.24
£2.60
3,461
20,788
1
—
2,302
3,572
170
(93)
(561)
5,390
—
—
—
—
—
—
—
—
—
2
£7.56
The weighted average share price at the date of exercise for share options exercised during the year was £9.01 (FY18: £7.46).
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 31.
In FY19 the Company recognised an IFRS 2 charge of £3.6m (FY18: £3.0m) related to equity-settled share-based payment transactions.
186 | HomeServe plc Annual Report & Accounts 2019
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
48. Related party transactions
The Company has no immediate parent company or ultimate controlling party.
The Company purchased services of £0.2m (FY18: £0.3m) from Harpin Limited, £0.1 (FY18:£nil) from Pilot Services (GB) Limited and £0.2m
(FY18:£0.2m) from Sirio Limited (formerly known as 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 2019 amounted to £0.1m (FY18:£0.2m).
The Company also provided goods of £nil (FY18: £nil), provided services of £6.2m (FY18: £5.6m), lent monies to of £43.7m (FY18: £54.5m) and
borrowed monies from of £nil (FY18: £nil) with subsidiary companies of the Group. Amounts due to subsidiary companies total £0.1m (FY18:
£nil). Amounts owed by subsidiary companies total £479.1m (FY18: £417.0m) which principally relate to loans receivable. The Company provided
services of £0.3m (FY18: £0.3m) 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 IAS 24 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
Termination benefits
2019
£m
3.6
0.3
3.6
0.1
7.6
2018
£m
3.7
0.3
3.7
—
7.7
Except as noted above there were no other transactions with Directors requiring disclosure. Termination benefits are expected to be paid
in FY20.
HomeServe plc Annual Report & Accounts 2019 | 187
Company financial statements
Notes to financial statements
Year ended 31 March 2019
48. 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
HomeServe International Limited
Trading
England
Trading
England
HomeServe GB Limited (No. 5536994) 1
Dormant
England
HomeServe France Holding SAS
HomeServe Energy Services SAS (formerly PXB Invest SAS)
HomeServe USA Holdings Corp
HomeServe Beteiligungs GmbH
Sherrington Mews Limited
UK & Ireland
Trading
Trading
Trading
France
France
USA
Trading
Germany
Trading
England
HomeServe Membership Limited
Trading
England
HomeServe Servowarm Limited (No. 560810) 4
Trading
England
HomeServe At Home Limited (No. 4186398) 1
Dormant
England
Vetted Limited
Trading
England
Checkatrade National Limited (No. 7512642) 1
Dormant
England
Checkatrade.com Limited (No. 7450143) 1
Dormant
England
Checkaprofessional.com Limited
Trading
England
Checkagroup Holdings Limited (No. 7325074) 1
Dormant
England
Checkatrade Limited (No. 7440889) 1
Dormant
England
Checkatrade Installers Limited (No. 9964195) 1
Dormant
England
247999 Limited (No. 7183505) 1
Dormant
England
Home Energy Services Limited (No. 8419975) 4
Trading
England
HomeServe Manufacturer Warranties Limited (No. 4079068) 1
Dormant
England
HomeServe Heating Services Limited (No. 3468609) 4
Trading
England
HomeServe Trustees Limited (No. 3349817) 1
Dormant
England
HomeServe France Limited (No. 9469168) 4
Trading
England
HomeServe USA Limited (No. 9468635) 4
Trading
England
HomeServe Europe Limited
Non-Trading
Ireland
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
9, rue Anna Marly, CS 80510, 69007 Lyon Cedex 7
9, rue Anna Marly, CS 80510, 69007 Lyon Cedex 7
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
Cable Drive, Walsall, WS2 7BN
25-28 Adelaide Road, Dublin 2
188 | HomeServe plc Annual Report & Accounts 2019
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
Name of legal entity
Activity
Place of
incorporation
ownership (or
registration)
and operation
Proportion
of voting
interest
and
power %
HomeServe America Limited
Non-Trading
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
HomeServe Labs Limited
Help-Link UK Limited
Trading
England
Trading
England
Energy Insurance Services Limited
Trading
England
Continental Europe
HomeServe SAS
Deltatherm (SARL)
Electro Gaz Service SA
Electro Maintenance Chauffage (SARL)
Trading
Trading
Trading
Trading
France
France
France
France
Ad Services Gaz SAS
Trading
France
HomeServe On Demand SAS
HomeServe Home Experts SAS
Societe V.B. Gaz 5
HomeServe Assistencia Spain SAU 2
HomeServe Spain SLU 2
Seguragua SAU 2
Habitissimo S.L. 2
Bit Advanced Marketing S.L. 2
Oscagas Hogar SLU 5
Assistenza Casa Srl 3
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
France
France
France
Spain
Spain
Spain
Spain
Spain
Spain
Italy
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
70
70
100
49
Registered address
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
3310 Century Way, Thorpe Park,
Colton, Leeds, LS15 8ZB
Cable Drive, Walsall, WS2 7BN
9, rue Anna Marly, CS 80510, 69007 Lyon Cedex 7
17, rue Bavastro, 06300, Nice
17, rue Bavastro, 06300, Nice
17, rue Bavastro, 06300, Nice
2040 Chemin de Saint-Bernard Lotissment
Fogliani, 06220, Vallaruis
9, rue Anna Marly, CS 80510, 69007 Lyon Cedex 7
9, rue Anna Marly, CS 80510, 69007 Lyon Cedex 7
1 rue George Sand, 94000 Creteil
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/ Rita Levi, Edificio Blue - Parc Bit CP 07121, Palma de
Mallorca, Baleares
Passeig Mallorca 17C, 07011 Palma de Mallorca
Rafael Alberti Nº 8, Zaragoza CP 50018
Via Giovanni Battista Cassinis, 7, 20139 Milano
HomeServe plc Annual Report & Accounts 2019 | 189
Group financial statements
Notes to financial statements
Year ended 31 March 2019
Name of legal entity
North America
HomeServe USA Corp
HomeServe USA Repair Management Corp
HomeServe USA Repair Management (Florida)
Leakguard Inc.
Leakguard Repair Services Inc.
HomeServe USA Repair Management Corp (Iowa)
Activity
Trading
Trading
Trading
Dormant
Dormant
Dormant
HomeServe USA Repair Management Corp (California)
Dormant
HomeServe USA Repair Management Corp (Virginia)
Dormant
HomeServe USA Repair Management Corp (Wisconsin)
HomeServe USA Energy Services LLC
HomeServe USA Energy Services (New England ) LLC
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.
HomeServe HVAC LLC
Gregg Mechanical Corp. 5
Geisel Heating and Air Conditioning Inc. 5
Cropp-Metcalfe Air Conditioning and Heating Company 5
Centriq Technology Inc. 6
190 | HomeServe plc Annual Report & Accounts 2019
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
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 %
Registered address
601 Merritt 7, Norwalk, CT 06851
1232 Premier Drive, Chattanooga, TN 37421
1232 Premier Drive, Chattanooga, TN 37421
601 Merritt 7, Norwalk, CT 06851
601 Merritt 7, Norwalk, CT 06851
601 Merritt 7, Norwalk, CT 06851
601 Merritt 7, Norwalk, CT 06851
601 Merritt 7, Norwalk, CT 06851
601 Merritt 7, Norwalk, CT 06851
500 Bi-County Blvd, Farmingdale, NY 11735
5 Constitution Way, Woburn, MA 01801
1307 Manatuck Blvd, Bay Shore, NY 11706
4295 Arthur Kill Rd, Staten Island, NY 10309
420 N. 2nd Road, Unit 1, Hammonton NJ 08037
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
4000 Town Center Blvd, Suite 400,
Canonsburg, PA 15317
601 Merritt 7, Norwalk, CT 06851
100
100
100
100
100
100
100
100
100
100
100
49
49
90
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
198 Pulaski Avenue, Staten Island, New York 10303
100
100
20
633 Broad Street, Elyria, Ohio 44035
8421 Hilltop Road, Fairfax, VA 22031
180 Sutter St, San Francisco, CA 94104, USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
Name of legal entity
Asia
Place of
incorporation
ownership (or
registration)
and operation
Proportion
of voting
interest
and
power %
Activity
Registered address
HomeServe Japan Corporation 6
Trading
Japan
50
Marunouchi Nijubashi Building, 3-2-2 Marunouchi,
Chiyoda-ku, Tokyo 100-0005
Australia
Home Service Direct Pty Limited
Non-Trading
Australia
100
50 Queen Street, Melbourne, VIC 3000
1 The Group has taken advantage of the exemption from audit of the dormant subsidiaries registered in England under S480 of the Companies Act 2006. 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 These companies qualify for an exemption to audit for non-dormant entities under the requirements of S479A of the Companies Act 2006. As such, no audit has been conducted for
these companies in the current financial year. The registered numbers of the audit exempt subsidiaries are provided above.
5 These companies were acquired during 2019. Please refer to note 16 for full details.
6 The Group obtained equity accounted investments in these companies during 2019. Please refer to note 18 for full details.
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
HomeServe plc Annual Report & Accounts 2019 | 191
Group financial statements
Five year summary
Continuing operations
Unaudited
External revenue
UK
North America
France
Spain
Home Experts
New Markets
External sales
Profit/(loss)
UK
North America
France
Spain
Home Experts
New Markets
Amortisation of acquisition intangibles
Exceptional items
Operating profit
Net interest
Profit before tax
2019
£m
2018
£m
2017
£m
2016
£m
2015
£m
384.4
333.4
104.6
140.8
40.4
—
1,003.6
66.0
67.6
33.3
17.7
(7.4)
(2.4)
174.8
(26.8)
4.6
152.6
(13.1)
139.5
357.7
282.1
100.0
141.3
18.6
—
899.7
61.1
48.6
31.5
16.6
(2.8)
(1.6)
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
633.2
58.0
12.1
23.2
9.9
—
(5.9)
97.3
(10.4)
—
86.9
(4.3)
82.6
279.6
125.3
74.9
90.9
—
13.5
584.2
56.4
6.4
23.4
7.5
—
(5.9)
87.8
(10.4)
1.7
79.1
(2.4)
76.7
192 | HomeServe plc Annual Report & Accounts 2019
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
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 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, adjusted EBITDA, adjusted profit before tax and adjusted earnings per share as its primary profit
performance measures. These are non-IFRS measures which exclude the impact of the amortisation of acquisition intangible assets. Acquisition
intangible assets are calculated using the estimated and discounted incremental future cash flows resulting from the affinity relationship or
future policy renewals as appropriate, which will include the impact of the past actions of the former owners. These past actions will include
historic marketing and business development activity, including but not limited to, the staff and operational costs of the business. In addition the
specific construct of the policy terms and conditions and the current and expected future profitability to be derived from the acquired business
or asset is also a factor in determining the valuation of acquisition intangible assets.
The on-going service and operating costs incurred by the Group in managing the acquired businesses or assets, including but not limited to
print, postage, telephony, claims costs and overheads are recognised as operating costs within these adjusted measures in the reporting period
in which they are incurred.
Accordingly, by excluding the amortisation of acquisition intangibles from the adjusted performance measures reported by the Group in each
specific reporting period ensures that these measures only reflect the revenue attributable to, and costs incurred by, the Group in managing and
operating those businesses and assets at that time in each reporting period and do not include the impact of the historic costs of the vendor or
considerations of the future profits to be derived from the acquired business or assets.
HomeServe plc Annual Report & Accounts 2019 | 193
Glossary
Glossary
Reconciliations of statutory to adjusted profit measures
Total group
£million
Operating profit (statutory)
Exceptional restructuring costs
Exceptional fair value movement on contingent consideration
Amortisation of acquisition intangibles
Adjusted operating profit
Operating profit (statutory)
Exceptional restructuring costs
Exceptional fair value movement on contingent consideration
Depreciation
Amortisation of acquisition intangibles
Amortisation of other intangibles
Amortisation of contract costs
Adjusted EBITDA
Profit before tax (statutory)
Exceptional restructuring costs
Exceptional fair value movement on contingent consideration
Amortisation of acquisition intangibles
Adjusted profit before tax
Pence per share
Earnings per share (statutory)
Exceptional restructuring costs (net of tax)
Exceptional fair value movement on contingent consideration (net of tax)
Amortisation of acquisition intangibles (net of tax)
One-off deferred tax impact of US & French tax reform
Adjusted earnings per share
194 | HomeServe plc Annual Report & Accounts 2019
2019
152.6
5.5
(10.1)
26.8
174.8
152.6
5.5
(10.1)
9.1
26.8
23.1
14.9
221.9
139.5
5.5
(10.1)
26.8
161.7
32.7
1.3
(2.6)
6.1
—
37.5
2018
135.0
—
—
18.4
153.4
135.0
—
—
8.0
18.4
36.2
—
197.6
123.3
—
—
18.4
141.7
30.2
—
—
3.9
(0.5)
33.6
Segmental
2019 £million
Revenue
Statutory operating profit/(loss)
Operating margin %
Adjusting items
Exceptional restructuring costs
Exceptional fair value movement on contingent consideration
Amortisation of acquisition intangibles
Total adjusting items
Effect on operating margin %
Adjusted operating profit/(loss)
Adjusted operating margin %
2018 £million
Revenue
Statutory operating profit/(loss)
Operating margin %
Adjusting items*
Amortisation of acquisition intangibles
Effect on operating margin %
Adjusted operating profit/(loss)
Adjusted operating margin %
*There were no exceptional items recorded in the prior year.
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
New
Markets
—
(2.4)
—
—
—
—
—
—
UK
North
America
France
Spain
391.7
333.4
104.6
140.8
Home
Experts
40.4
17.5
(12.4)
68.4
17%
5.5
(10.1)
2.2
(2.4)
—
66.0
17%
54.7
16%
—
—
12.9
12.9
4%
67.6
20%
26.8
26%
—
—
6.5
6.5
6%
33.3
32%
12%
—
—
0.2
0.2
1%
17.7
13%
—
—
—
5.0
5.0
—
(7.4)
—
(2.4)
—
UK
North
America
France
Spain
365.6
282.1
100.0
141.3
59.3
16%
1.8
1%
61.1
17%
40.5
14%
8.1
3%
48.6
17%
25.1
25%
6.4
7%
31.5
32%
16.5
12%
0.1
—
16.6
12%
Home
Experts
18.6
(4.8)
—
2.0
—
(2.8)
—
New
Markets
—
(1.6)
—
—
—
(1.6)
—
HomeServe plc Annual Report & Accounts 2019 | 195
Glossary
Glossary
Segmental (continued)
2019 Local currency million
Revenue
—
(2.4)
—
—
—
—
—
—
(2.4)
—
—
(1.6)
—
—
—
(1.6)
—
UK £
North
America $
France €
Spain €
Home
Experts £
New
Markets £
391.7
436.2
118.7
159.7
40.4
Statutory operating profit/(loss)
68.4
71.3
30.4
19.6
(12.4)
Operating margin %
Adjusting items
Exceptional restructuring costs
Exceptional fair value movement on contingent consideration
Amortisation of acquisition intangibles
Total adjusting items
Effect on operating margin %
Adjusted operating profit/(loss)
Adjusted operating margin %
17%
16%
26%
12%
5.5
(10.1)
2.2
(2.4)
—
—
—
16.8
16.8
4%
—
—
7.4
7.4
6%
—
—
0.2
0.2
—
—
—
—
5.0
5.0
—
66.0
88.1
37.8
19.8
(7.4)
17%
20%
32%
12%
—
2018 Local currency million
Revenue
UK £
North
America $
France €
Spain €
Home
Experts £
New
Markets £
365.6
375.2
113.2
160.1
18.6
Statutory operating profit/(loss)
59.3
53.6
28.5
18.8
(4.8)
Operating margin %
Adjusting items*
Amortisation of acquisition intangibles
Effect on operating margin %
Adjusted operating profit/(loss)
Adjusted operating margin %
*There were no exceptional items recorded in the prior year.
16%
14%
25%
12%
1.8
1%
10.8
3%
7.2
7%
0.1
—
—
2.0
—
61.1
64.4
35.7
18.9
(2.8)
17%
17%
32%
12%
—
196 | HomeServe plc Annual Report & Accounts 2019
Leverage
In FY19 the Group targeted net debt in the range of 1.0 to 2.0x EBITDA measured at the year end and will continue to do so in FY20.
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 25 provides a full reconciliation of the movements in liabilities arising from borrowings and finance leases. The closing balances at 31
March were as follows:
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
Current liabilities from borrowing and finance leases
Finance leases
Banks 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
Adjusted EBITDA
Leverage
2019
£m
0.5
39.7
40.2
0.7
336.4
337.1
377.3
2018
£m
0.5
38.0
38.5
0.4
256.7
257.1
295.6
(72.6)
(57.8)
304.7
221.9
237.8
197.6
1.4x
1.2x
HomeServe plc Annual Report & Accounts 2019 | 197
Glossary
Glossary
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.
2019
£m
174.8
(5.5)
10.1
(26.8)
152.6
(4.6)
73.9
10.7
(30.4)
202.2
(9.9)
(31.7)
(66.9)
(0.6)
93.1
2019
174.8
202.2
116%
2018
£m
153.4
—
—
(18.4)
135.0
—
62.6
9.0
(42.4)
164.2
(10.5)
(27.2)
(71.1)
(0.6)
54.8
2018
153.4
164.2
107%
Adjusted operating profit
Exceptional restructuring costs
Exceptional fair value movement on contingent consideration
Amortisation of acquisition intangibles
Operating profit
Impact of exceptional items
Depreciation and amortisation
Non-cash items
Increase in working capital
Cash generated by operations
Net interest and borrowing costs
Taxation
Capital expenditure
Repayment of finance leases
Free cash flow
£million
Adjusted operating profit
Cash generated by operations
Cash conversion
198 | HomeServe plc Annual Report & Accounts 2019
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
I
F
I
KPIs
The Group uses a number of operational key performance indicators that provide insight into past performance and are an indicator of the
future prospects of the Group as a whole and its individual segments.
Affinity partner households tracks the growth in addressable market delivered through existing and new partnerships with utilities and
municipals.
Customers tracks success in converting addressable market into revenue-generating customers, by delivering great products and service.
Retention rate reflects ability to deliver fit-for-purpose product and great service to customers.
Policies illustrates ability to grow the product line through customer focus and innovation.
Income per customer measures ability to design and market increasingly valuable products, and sell them efficiently. Due to currency
differences, this measure is tracked at a geographic level.
Income per customer is calculated as the last 12 months’ net policy income divided by customers.
Trades are customers in the Home Experts business. Growing the network of vetted and reviewed trades will enable HomeServe to meet
consumer needs and grow its business.
Adjusted profit before tax is the key profit measure by which business growth, efficiency and sustainability are monitored.
Net debt to EBITDA is the key cash ratio, which is used to monitor usage of financial resources within agreed risk parameters.
Customers
2019 is the first year the Group has presented its results under IFRS15 Revenue from contracts with customers. IFRS15 defines a customer as ‘a
party that has contracted with an entity to obtain goods or services’. In the Membership businesses where the Group acts as an intermediary
selling contracts and insurance policies to end consumers, the ‘IFRS 15 customer’ is considered to be the underwriter with which the Group has
contracted to sell policies.
This is different, however, from how the Group markets and communicates the value of its products and services to end consumers. Here,
the businesses strategy and communications (both internally and externally) refer to the end consumer as the customer. As a result, for the
purposes of describing the strategy and operational performance of the business, the Strategic Report and the Group’s KPIs refer to the end
consumer as the customer of the Group, rather than the underwriter. However, for the purposes of preparing the financial statements, the
accounting transactions are recorded in accordance with IFRS 15 where the customer is the underwriter.
For all other sources of revenue, it is the party that has contracted with the Group to obtain goods and services that is classified as the customer.
The following table summarises this position:
Revenue Stream
IFRS 15 ‘contracted’ customer
Customer as referred to in the
Strategic report
Policy Income – insurance intermediary commissions
Underwriters
End user of the service
Policy Income – repairs
Policy Income – home assistance
Home Experts
HVAC
Other
Underwriters or other B2B contracted parties
End user of the service
HomeServe plc Annual Report & Accounts 2019 | 199
Company financial statements
Shareholder information
Financial calendar
2019
19 July
2 August
19 November
2020
January
May
June
Annual General Meeting
Final dividend for the year ended 31 March 2019
Interim results for the six months ending 30 September 2020
Interim dividend for the year ending 31 March 2020
Preliminary results for the year ending 31 March 2020
2020 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: 0370 707 1053
Address: PO Box 82, The Pavilions, Bridgwater Road, Bristol, BS99 7NH
Website: 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.
200 | HomeServe plc Annual Report & Accounts 2019
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HomeServe plc
Registered Office:
Cable Drive, Walsall, WS2 7BN
Registered in England No. 2648297
Tel: 01922 426262
homeserveplc.com