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Annual Report
& Accounts 2020
HomeServe’s purpose is to make
home repairs and improvements easy.
Easy for homeowners and easy for trades.
In our Membership business, customers buy a policy from HomeServe. Our growing Heating, Ventilation and Air
Conditioning (HVAC) installations and Home Experts businesses connect homeowners with trustworthy local trades
(tradespeople) who can help them fi x, maintain and improve their homes.
Our vision is to be the world’s most trusted
provider of home repairs and improvements.
We employ c.7,000 people worldwide, to serve our customers principally in the
UK, North America, France, Spain and Japan. The HomeServe Way is to operate
with courage, persistence and integrity in the service of our customers.
Read more about our business model
on page 12.
Read more about The HomeServe
Way on page 20.
North America is our
largest market place.
Our policy retention
rate is 82%.
8.3m
customers
globally
1.0
1.8
1.1
Total
customers
(m)
4.4
UK
North America
France
Spain
We signed our first affinity
partnership in Japan in
January 2020.
c.1,000
Affi nity partners
globally
+42%
1,000
700+
2019
2020
In April 2019 we launched a best-in-class
whole home warranty plan in North
America with spokesman Mike Rowe.
In November 2019 we
acquired 79% of eLocal to
enter the Home Experts
market in North America.
Performance highlights
Another year of strong
growth, investment and
customer service
£1,132.3m
Revenue +13% from £1,003.6m
£158.6m
Statutory operating profit +4%
from £152.6m
31.7p
Contents
Strategic report
2 At a glance
4 Chairman’s statement
6 Chief Executive’s review
10 Market overview
12 Business model
14 Strategy
16 KPIs
18 Resources, relationships and responsibilities
26 Principal risk and uncertainties
32 Operating review
42 Financial review
46 Section 172(1) statement
47 Viability statement
49 Going concern
50 Non-financial information statement
Basic earnings per share -3% from 32.7p
reflecting exceptional items
Governance
23.6p
Ordinary dividend per share +10%
from 21.4p
Awards
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.
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52 Corporate governance statement
52 Chairman’s overview
54 Compliance and other statements
57
Board leadership and company purpose
61 Division of responsibilities
65 Composition, succession and evaluation
65
66
Board of Directors
Executive team
70 Nomination Committee report
72
73
76
People Committee report
Audit, risk and internal control
Audit & Risk Committee report
82 Directors’ remuneration report
82
84
Annual statement
Remuneration at a glance
85 Directors’ remuneration policy
93
Annual report on remuneration
106 Directors’ report
109 Statements of responsibilities
111 Independent Auditor’s report
Financial statements
122 Group financial statements
174 Company financial statements
193 Glossary
To view this report online, go to
homeserveplc.com
At a glance
Our purpose is to make home repairs and improvements easy,
and our ambition is to be able to do every job, in every home.
We reach homeowners through two global business lines.
Membership and HVAC
(Heating, Ventilation and Air Conditioning)
MEMBERSHIP
Home Experts
To give homeowners the peace of mind of a policy, of knowing
they have one number to call if they need assistance with
plumbing, heating, electrical, locks, glazing, pest control
and technology.
An online marketplace to help homeowners find local
trades (tradespeople) on-demand, to help with a broad range of
home repairs and improvements, from landscape gardening to
carpet cleaning.
See more on page 14.
See more on page 15.
By offering Membership, HVAC and Home Experts, we can help out all around the home. We are creating a large network
of skilled trades, and are committed to helping our trades make a good living, whether they are self-employed or
part of our workforce. This is what we mean by making home repairs and improvements easy, for homeowners and trades.
We run our business by geography and by business line
North
America
Our largest and fastest
growing Membership business
is driving the Group’s near term
growth and has potential to keep
expanding. North America also has
the Group’s most established HVAC
business and in FY20 acquired a
further 3 businesses to support
our buy-and-build strategy.
See more on
page 35.
Home
Experts
Home Experts is
HomeServe’s most exciting
medium to long-term opportunity.
We are investing to build a unique
business model, through Checkatrade
in the UK and Habitissimo in Spain.
Our investment in eLocal gives us a
profitable entry in North America.
See more on
page 39.
UK
Our most mature
Membership business.
The keys to growth are
offering more value to existing
customers and harnessing
technology like intelligent
call routing to revolutionise
customer service.
See more on
page 33.
New
Markets
New business
development and
innovation activities include
our joint venture with
Mitsubishi Corporation
in Japan.
See more on
page 41.
France
A well established
Membership business
with the highest customer
retention rates and operating
margins in the Group. FY20 saw the
most new customers ever, thanks to
strong partnerships with large water
companies and new relationships
with online aggregators.
See more on
page 37.
Spain
The market-leading
Claims business works
with a growing number of
B2B bancassurer partners. The
Membership business is focused
on establishing new partnerships,
after our partnership with Endesa
ended in 2018.
See more on
page 38.
Since FY19, Home Experts has been reported as a separate segment, reflecting the size of the opportunity and the way we
allocate resources and review performance.
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Strategic report | HomeServe plc Annual Report & Accounts 2020 HomeServe plc Annual Report & Accounts 2020
FY20 achievements
We are investing in our exciting growth plans for HVAC and Home Experts and expect them to support Membership in
delivering growth in the medium to long-term.
Membership
Our biggest growth opportunity is in
North America. Our key growth driver is to
sign more affinity partners and grow our
customer base.
We signed c.250 new affinity partnerships
in FY20 to take the total to c.1,000.
4.4m
customers in
North America
Every Job.
In Every Home.
HVAC
Every home has a heating and/or an air
conditioning unit. Our buy-and-build strategy
is creating an HVAC installations capability in
all of our established Membership markets.
15
acquisitions completed
£19m
net profit and loss
investment across
Home Experts and
New Markets in FY20.
Home Experts
Our Home Experts business
complements our Membership
business by giving access to more
trades on an on-demand basis.
£million
UK
North America
France
Spain
New Markets
Home Experts
Inter-segment
Group
Our primary reporting segmentation is by geography
Revenue
Adjusted operating profit
FY20
372.9
429.5
111.8
154.1
—
71.8
(7.8)
FY19
391.7
333.4
104.6
140.8
—
40.4
(7.3)
1,132.3
1,003.6
3
3
% change
(5%)
29%
7%
9%
—
78%
7%
13%
FY20
81.0
85.4
33.8
20.1
(4.7)
(13.9)
—
FY19
66.0
67.6
33.3
17.7
(2.4)
(7.4)
—
201.7
174.8
% change
23%
26%
1%
13%
89%
86%
—
15%
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Strategic reportGovernanceFinancial statements Chairman’s statement
JM Barry Gibson
With the new requirement this year to report on
the Board’s actions to promote the success of the
company for all of our stakeholders, we were given a
timely reminder of the breadth and seriousness of our
corporate responsibility.
Throughout my long career, it has never been more
important for companies to play their part in wider society.
I would like to start my report by thanking the whole team
at HomeServe, Checkatrade, Habitissimo, eLocal and our
associated companies for everything they have done to
safeguard key stakeholders during the coronavirus crisis,
including our people, customers, trades (tradespeople) and
partner networks. The Board’s most significant decision at
the onset of the pandemic was to support our executive
colleagues’ recommendation not to furlough or make
any redundancies as a result of the current lockdown. This
was great for staff morale, and will help us come out of
lockdown ready to serve our customers better than ever.
FY20 was another record year for HomeServe, where
continued strong performance in our Membership business
gave us scope to invest in Home Experts, HVAC (Heating,
Ventilation and Air Conditioning) and New Markets. The
Board advocated a disciplined approach to investing for
growth, guided by our overarching purpose of making
home repairs and improvements easy.
Here are some of the areas of strategy where the Board’s
involvement was most significant:
• Every fifteen years or so, each home needs a new boiler
or air-conditioning unit. This makes HVAC installations an
attractive addition to our Membership business, because
it means we can replace HVAC units for our customers as
well as service them. The Board scrutinised our buy-and-
build HVAC strategy to satisfy ourselves that it will deliver
long-term value.
• There is clear potential to take HomeServe’s successful
business model into new countries. We challenged our
international development team to create profitable
entry strategies for new territories as
well as forging strong new
partnerships, like our relationship with
Mitsubishi Corporation in Japan.
• We took a careful look at our expansion plans for Home
Experts, for example to make sure we understood
the value of owning 100% of Habitissimo. Even more
significantly, with the acquisition of eLocal, we needed
to be confident that it would give us the right platform to
build an online, on-demand Home Experts business in
North America.
• We also analysed strategic course corrections such as our
withdrawal from Italy to ensure that they were consistent
with our strategy.
The diversity of expertise and experience we have in our
Non-Executive team makes these discussions constructive
and valuable for all involved.
Throughout my time at HomeServe, I have championed
the development of talent and diversity, and it is great to see
such good progress on the People Committee agenda:
• Our global senior leadership team is now one third
female, but we have more work to do specifically with
the Executive Committee and Board. This work is now
accelerating, and we have set a target of one third female
representation across our Board, Executive Committee
and their direct reports by March 2021, moving us
towards the targets set out in the Hampton Alexander
report.
• We keep a close eye on overall employee engagement,
and I would like to congratulate our Membership
businesses in France, North America and the UK for
achieving Great Place to Work status in the past year.
HomeServe is a business staffed by dedicated, creative,
customer-focused people who constantly demonstrate The
HomeServe Way’s key behaviours of courage, persistence
and integrity. Never has the strength of our corporate
culture been clearer than during the coronavirus crisis.
Richard Harpin talks in detail about our response in his Chief
Executive’s review, but I just wanted to formally record how
impressed I have been with the speed and clarity of thinking
which governed our response, the resilience of the whole
business and the compassion our employees have shown to
our customers.
Given our strong performance in FY20 and expectation
of resilience in the year ahead, the Board proposes a final
dividend of 17.8p, to take the total dividend for the year to
23.6p, up 10%.
JM Barry Gibson
Chairman
19 May 2020
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Strategic report | HomeServe plc Annual Report & Accounts 2020 Putting our customers first
HomeServe plc Annual Report & Accounts 2020
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José Luis Olmedo
Locksmith
I went to the home of an ICU doctor
at a hospital in Jaén who was locked
out and had left her keys inside. When
she finally got access, after a hard
day’s work fighting against COVID-19,
she was so filled with excitement that
she almost hugged me. She walked
me out just as the applause for the
health workers started and said “this
applause is for you too”. I ended the
day happy to have been able to help
one of the superheroes without a
cape who works tirelessly to defeat
this virus.
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Strategic report | HomeServe plc Annual Report & Accounts 2020
Chief Executive’s review
Richard Harpin
I am writing my review of the year to March 2020
at a moment when the coronavirus pandemic is
dominating our personal lives, our business decisions
and the international agenda. To create a balanced
review, I have started by describing the financial year as
a whole, then addressed our response to coronavirus
and current business performance, and finished with
some thoughts on the future.
The current crisis has reinforced my belief in the importance
of a clear sense of corporate purpose. HomeServe’s
purpose – to make home repairs and improvements
easy for homeowners and trades (tradespeople) – drives
everything we do. To achieve our ambition of being able to
do every job in every home, we need to see growth across
both of our business lines – Membership & HVAC (Heating,
Ventilation and Air Conditioning) and Home Experts – and
in our international development activities. We made good
progress on all fronts this year.
FY20
FY20 was another successful year for HomeServe, in which
we continued to serve our customers with passion and
commitment, delivered double digit revenue and profit
growth, and invested for the future.
Continued strong growth in Membership & HVAC
Our Membership and HVAC business line delivered revenue
growth of 10%, together with 18% growth in adjusted
operating profits, North America remains the outstanding
growth driver, and we also saw efficiency gains in the UK,
record new customers in France and a good performance
in Spain, particularly in the Claims business.
Membership remains attractive, predictable and highly
cash generative and has significant further potential. In
North America, we now work with over 950 utilities (FY19:
c.700) and have access to 64m households (FY19: 60m).
New partner signings continue, and after the year end we
were particularly pleased to sign Alabama Power with 1.3m
households and a large partner in Canada, the Municipality
of Ottawa, with 0.4m households. The customer count
grew to 4.4m (up 9%), and North America
delivered revenue growth of 25% to $546.1m
and topped $100m of adjusted operating
profit for the first time, reaching $108.6m
(FY19: $88.1m). The acquisition of
ServLine opened an interesting new
channel with rural water associations
as well as new product potential, and
we entered the Whole Home Warranty
market with an initial product launch
and two small acquisitions to give us
expertise in the real estate channel.
Our Continental European Membership businesses also
performed well. France added its most new customers
ever, driven by strong relationships with the top three water
utilities and new partners such as JeChange and Papernest.
In Spain, strong performance in the Claims business drove
revenue up 11%, and we continue to seek new partners in
Membership to replace Endesa, which ended in May 2018.
UK Membership also had a good year, delivering efficiency
gains which drove strong profit growth, and is at the
forefront of innovations to revolutionise the way we serve
customers in the future. HomeServe Now connects
customers directly to an available, local engineer, and has
the potential to attract new customers to HomeServe and
further reduce our cost to serve.
In HVAC, we made 15 acquisitions across North America,
France and Spain for a cash outflow in the year of c.£25m.
Our buy-and-build strategy drove total HVAC revenue up
83% to £80.9m and HVAC installations are becoming a
significant contributor to our customer value proposition
in all four of our Membership businesses. With HVAC
acquisitions adding c.0.1m policies through cross-sell and
existing policy books it is also a solid contributor to customer
growth.
First utility partnership in Japan
Beyond our established businesses in the UK, North
America, France and Spain, we achieved a significant
milestone in Japan in January 2020, when we signed our
first utility partner, Chugoku Electric. Our first marketing
campaign yielded encouraging results, with take-up rates
approaching those achieved in North America. Strong
relationships between Japanese utilities and our joint
venture partner, Mitsubishi Corporation, have driven rapid
progress, and we look forward to seeing this partnership
develop further in FY21 and beyond.
Productive investment in Home Experts
We estimate that our core Membership business in its
current form appeals to about a third of homeowners – an
older, insurance-minded demographic who want to avoid
the financial shock and disruption of an unexpected home
emergency. Home Experts gives us the opportunity to
broaden our target audience and to make home repairs and
improvements easy for homeowners whose instinct is to
search for reputable trades online when something needs
repairing or improving in their homes.
Total revenue in Home Experts grew by 78% to £71.8m (FY19:
£40.4m) driven principally by a 30% increase at Checkatrade
to £38.5m and four months of revenue following the
acquisition of 79% of eLocal at the end of November 2019.
The adjusted operating loss of £13.9m (FY19: £7.4m) reflects
increased marketing and advertising to both homeowners
and trades as we look to expand both sides of our Home
Experts platform.
6
At our Investor Day in June 2019, we invited shareholders
and analysts to visit Checkatrade’s new offices in
Portsmouth so that they could see our expansion plans
first hand. During the year, we made excellent progress
strengthening the management team at Checkatrade,
and investing in technology and marketing. We saw good
growth on the demand side of the website, with consumer
visits up 32% to c.24m, and made good progress on building
supply, reaching 39,000 trades. Trades are an increasingly
important stakeholder community for the Group, and we
want to make home repairs and improvements easy for
them too to help them grow their business.
Our purchase of the remaining 30% of Habitissimo and
the appointment of Sarah Harmon to lead the business
has brought fresh ambition and ideas to our Home Experts
business plan in Spain and Latin America. Habitissimo has
started working with HomeServe Spain to test the potential
to sell a policy after a successful on-demand repair. We
are also applying sharper focus and have decided to exit
Argentina, Columbia and Peru, our three smallest LATAM
operations.
In November 2019, we acquired 79% of eLocal, which gave
us a profitable entry into the Home Experts market in North
America. Unique aspects of eLocal’s business model, such
as their use of affiliates to generate high volumes of lead
calls and relationships with national accounts to satisfy these
at scale, are already proving informative to our other Home
Experts businesses.
In May 2020 in France, following a successful test of the
Home Experts model in the Lyon area, we entered into a
new structure to scale the business. The management team
will own 80% with HomeServe taking a 20% stake with an
option for us to increase this in the future, once the business
has achieved national scale.
Discipline and focus
We maintain a disciplined approach to capital allocation and
constantly review our investment priorities. In the course
of this year, we sold our stake in our Italian associate. I
constantly challenge my management team and myself to
be bold in the pursuit of our highest potential opportunities,
but also in testing, learning and exiting projects if necessary.
As our business expands and opportunities multiply, this
discipline will become more and more important.
Consumers and insurance partners have been slower than
expected to adopt smart leak detection technology and we
have consequently impaired our existing LeakBot assets.
We will continue to run trials with insurers and our revised
business plan frees up management resource and reduces
investment as we preserve the intellectual property and look
to use LeakBot as a cross sell opportunity to accelerate other
initiatives e.g. HomeServe Now.
HomeServe plc Annual Report & Accounts 2020
COVID-19 response
Responding to the developing coronavirus pandemic
dominated the last three weeks of our financial year. Our
top priority was to do the right thing for our staff, in the
knowledge that they would look after our customers. Within
two weeks, all of our c.6,000 office-based staff, including
contact centre agents, were working successfully from
home, thanks to a monumental effort by operations staff
and recent technology investments. In the field, we put
additional social distancing procedures in place to safeguard
our engineers, contractors and customers, and continued
to respond to emergency repair requests in all the countries
where we operate, in line with government guidance. We
took the decision not to furlough or make redundant any
staff as a result of the current crisis.
At Checkatrade, we acted fast to support our trades
community – another vitally important stakeholder group.
Trades were proactively offered a 50% membership
discount for April and May if they wanted to continue to
feature in consumer searches. If they wished to maintain
their presence on the platform but, for now, not appear
in searches, they were offered free-of-charge affiliate
membership. This is also being offered to new trades that
wish to join and start creating an online presence.
I have always known that HomeServe is full of dedicated,
talented people. I could not have been more impressed by
their response to the coronavirus crisis, which epitomised
The HomeServe Way – our key leadership behaviours
and skills. We adapted quickly and efficiently to new ways
of working, and went beyond the call of duty to help our
customers. The actions by our UK team merit a special
mention, where the team launched a special offer of free
emergency plumbing and heating repairs for NHS and
social care workers, aiming to do around 10,000 free jobs
for them during the lockdown period. The response has
been phenomenal, with well over 2,000 jobs completed to
date, and we were all delighted to be able to help the front
line healthcare staff who continue to demonstrate such
enormous bravery and dedication.
To our NHS and Social Care workers:
You’re taking care of us,
let us take care of your homes.
Got a plumbing or heating emergency
during lockdown?
We’ll repair it for FREE
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Strategic reportGovernanceFinancial statements Chief Executive’s review
Continued
Current trading
In Membership, we expect our business model to remain
resilient. Policy retention – the key top line driver – remained
in line with historic trends through April and early May (FY20:
82%), there has been no noticeable increase in cancellation
attempts and our internal measures for customer satisfaction
returned some of their best ever scores in April. Response
rates to marketing campaigns held up well through
March and online new customer sign-ups continue. The
Membership cost base is approximately one third variable,
with marketing spend discretionary and affinity partner
commissions linked directly to new sales and renewals. April
to September is in any case a quieter period for marketing.
We have decided to pause most large scale campaigns and
will test regularly on a small scale to assess response rates.
This action will affect new customer additions, but also
reduce costs.
Checkatrade, Habitissimo and eLocal experienced falling
demand from consumers from mid March in light of
government directives to minimise unnecessary contact. At
Checkatrade, 78% of trades have moved to the 50% discount
offer, while 22% have moved to free affiliate membership.
We have had an encouraging response from new trades
joining up as they focus on how they will rebuild their
business post-crisis. Around half of new trades signing up
are choosing paid rather than free affiliate membership.
Consumer marketing has been substantially reduced at
Checkatrade, while in Habitissimo and eLocal, there is a
natural offset between reduced traffic on the platforms and
the expense involved in generating leads. The performance
of these businesses is currently much less material to the
Group’s overall financial performance, accounting for less
than 10% of revenue and are all still in their investment phase.
We are continuing to work on key innovations – notably
HomeServe Now and at Checkatrade – in anticipation of
substantial demand for home repairs and improvements
when the period of lockdown ends. Some of the new ways
of working we have learnt during the crisis – telefixes over
the phone and video quotes at Checkatrade – will continue
to play a valuable role when the crisis is over.
Mergers and acquisitions activity is largely on hold for the
time being, but HomeServe is ready to act quickly as quality
future opportunities arise.
To complete the Viability statement (page 47), the Directors
assessed the viability of the Group over a three year period
to 31 March 2023. We have modelled additional stress test
scenarios linked to the COVID-19 pandemic. Stress tests
indicated that no single scenario would impact the viability
of the Group over the next three years and HomeServe’s
swift response to the crisis means it is well placed to face the
ongoing challenges the crisis presents. Trading metrics have
remained stable since the onset of the pandemic; the Group
has demonstrated its ability to continue to provide a good
level of service and its funding position remains healthy.
As might be expected the impact increases if different risks
were to materialise simultaneously or continue for longer.
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 scenarios
in sufficient number would occur. In such scenarios
HomeServe would be able to take decisions to protect the
profitability of its business.
Outlook
The situation with COVID-19 is unprecedented and
continually evolving, and it has never been more difficult to
predict the year ahead. In light of this we are taking action
to preserve profitability and reduce discretionary spend and
capital expenditure, while at the same time preparing to
meet pent-up demand for home repairs and improvements
as our customers come out of lockdown.
Our current working assumption is that the world will
gradually come out of lockdown over the summer months
of 2020. In this scenario, we will continue to work towards
our stated medium to long-term targets for growth in North
American Membership & HVAC, and Checkatrade, with
breakeven at Checkatrade likely to be delayed from FY22
until FY23. Adjusted operating profit at eLocal in FY21 is now
expected to be in excess of $10m.
Given the resilience of our business model, we expect to
deliver a solid performance in FY21, with our prospects for
growth thereafter unchanged.
Dividend
Given our strong performance in FY20 and expectation
of resilience in the year ahead, the Board proposes a final
dividend of 17.8p, to take the total dividend for the year to
23.6p, up 10% and in line with earnings growth.
Conclusion
I expect the coronavirus pandemic to permanently change
the way we think about our homes. Many of us have learnt
that we can work successfully from home, and may be
considering how to work from home more in the future.
Our appreciation of a safe, agreeable home environment
has never been greater. Which means that HomeServe’s
purpose of making home repairs and improvements easy
has never been more relevant.
I would like to finish by expressing my heartfelt thanks to my
colleagues for all they have done to support our business
and our customers this year. I look forward with confidence
to many more successful years ahead.
Richard Harpin
Founder and Chief Executive
19 May 2020
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Strategic report | HomeServe plc Annual Report & Accounts 2020 Putting our customers first
HomeServe plc Annual Report & Accounts 2020
Contractors engaged in HomeServe Cares
work to bring relief to our most vulnerable
customers.
Ms Johnson, a resident of Mount Vernon, NY, was
referred to HomeServe Cares by one of HomeServe’s
network contractors, O’Grady Plumbing. O’Grady went
to Ms Johnson’s home on behalf of the city to investigate
a water service line leak. Ms Johnson had lived in the
home less than a year and is the sole provider for a family
of six. She was anxious about the situation because she
feared the city would turn off her water unless the leak
was repaired quickly, and also that she would be unable
to afford the repairs given her situation. Josephine
O’Grady, the co-owner of O’Grady Plumbing, suggested
that Ms Johnson apply for help with HomeServe Cares.
This is when Sara Parris, a HomeServe Customer
Advocate, took over. After gathering all the facts and
job costs, Sara called Ms Johnson with good news. Ms
Johnson was overcome with joy that HomeServe was
willing to help with this desperately needed repair at no
cost to her and texted:
I want to thank you a million times for your
kindness and support. We really appreciate your
love and effort.
Left: Sara Parris, Customer Advocate. Right: Josephine O’Grady,
co-owner O’Grady Plumbing, is currently the only female
licensed plumber in Westchester County.
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Market overview
Our target market: homeowners
Based on our experience worldwide, we segment homeowners into three groups.
30%
Insurance minded
20%
DIYers
50%
Home Improvers
• Want to avoid the disruption of
dealing with a problem in their
home.
• Like to budget carefully and
avoid unexpected repair bills.
• Tend to be an older
demographic; often on fixed
incomes.
What’s changing?
There may be a demographic
shift in this segment with younger
homeowners accustomed to
subscriptions in other areas of their
lives e.g. Spotify, Netflix.
HomeServe offer
Membership
HVAC
Market size 1
Home
repairs and
improvements
£450bn
Home
assistance
£14bn
• Have the knowledge, skills
• Find a trade when needed – by word of mouth, paper
and motivation to
carry out repair work
themselves.
• These homeowners may
call on a third party for
jobs requiring specialist
skills, equipment or
qualifications e.g. in the
UK, needing a qualified
Gas Safe Registered
engineer for a boiler
installation.
What’s changing?
In most countries, there are
fewer confident DIYers and
younger homeowners are
less likely to live closer to the
support network provided by
their parents.
HomeServe offer
HVAC
Home Experts
directories and increasingly online.
• Finding a high quality trade, without hassle, is often just as
important as financial considerations.
• Typically appeals to a younger demographic whose
instincts are to search online.
What’s changing?
This segment is increasingly moving online, initially to “online
word of mouth” like community Facebook groups, but
eventually to platforms which match consumers and trades.
HomeServe offer
Home Experts
A segment ready to move online
There is big growth potential when we look to where
consumers in other industries spend their time and money
today compared to what we see in home services.
% online
100
80
60
40
20
0
Trades
Property
Cars
Travel
Home Experts
This is a much broader market, covering trades from plumbing to kitchen
fitting, carpet cleaning to garden design. It is an expanding market, as more
and more trades categories are invented to serve the needs of modern-day
homeowners. Professional flat pack furniture assemblers and home WiFi
gurus did not exist ten years ago! We expect it eventually to follow property,
car purchases and travel, all of which are now over 60% online.
Membership and HVAC
This is a stable market in the geographies where we are currently
established, and essentially covers plumbing, heating and electrics. The key
to market growth is to expand into new territories with high quality housing
stock, an established utility landscape and an insurance-minded population.
Membership is HomeServe’s traditional business, which we have been
operating since 1993. We are now adding to our HVAC installation
capabilities in the UK, North America, France and Spain, to be able to
replace equipment for customers as well as repair and service it.
1 Market size estimates incorporate the UK, US, France and Spain and are based on national statistics where available, supplemented by HomeServe estimates.
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Strategic report | HomeServe plc Annual Report & Accounts 2020 Home assistance market penetration
There is a marked difference in penetration between our most mature market, the UK, and our highest growth market in
North America. Our experience shows that with most affinity partners, maximum uptake amongst their customer base is
around 30% worldwide. This defines our addressable market.
UK: 27m households
North America: 144m households
Unserviced
Unserviced
Addressable
market
8m
homes
Other
Addressable
market
43m
homes
Whole Home
Warranty
Acquirable utility
policy books
The UK market is nearing maturity. The UK is the only
market where HomeServe has a bigger competitor, but the
competitive dynamic is stable. There may be opportunities
over time to buy small policy books or work with challenger
energy companies as they disrupt the status quo.
North America remains a significantly under-penetrated
market. The key to growth is to sign more affinity partners to
reach the over 50% of homeowners who have yet to see a
HomeServe offer from their utility. There are various whole
home warranty providers including Frontdoor. HomeServe is
building a total home warranty offer.
See more on page 33.
See more on page 35.
HomeServe competitive positioning
HomeServe
Insurance minded
Home Assistance
DIYers
On-demand access
to specialists
Home improvers
Find me a trade
HomeServe is in a unique competitive position. There is very little competition in Home Assistance, and the directory-led
model being pioneered at Checkatrade is unique. HomeServe is the company best placed to serve all three homeowner
segments, and there is significant potential to create economies of scale and synergies.
Our key sources of advantage are set out in our business model (page 12). For example, in Home Assistance, HomeServe is
the only company which forms partnerships with utility companies, giving us a unique opportunity to grow market share.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Business model
What we do
HomeServe’s purpose is to make home repairs and improvements easy,
and our vision is 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 policies to cover a range of home emergencies via
subscription-based Membership services. For people who prefer to deal
with issues as they arise (‘Home improvers’), or DIYers who need specialist
help, we have online, on-demand Home Experts platforms that match
homeowners with local trades. Our Heating, Ventilation and Air Conditioning
(HVAC) installations business appeals to all types of homeowner.
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 (tradespeople) 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.
Together, our Membership, HVAC installations and Home Experts business
will enable us to fulfil our aspiration of being able to do every job, in every
home.
How we do it
At HomeServe, our key stakeholders are employees, homeowners, trades, affinity partners, underwriters and regulators, as
well as our shareholders. We have five key sources of value for them which are distinct to us and crucial to the success of our
business. These sources of value are relevant across both of our business lines – Membership, HVAC and Home Experts –
meaning that we can share learnings and resources to compound our growth prospects.
See page 18 for our Key stakeholder map.
See page 10 for Market overview.
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Strategic report | HomeServe plc Annual Report & Accounts 2020 Five sources of value
Partnerships
We have a strong track record of developing productive partnerships with firms whose skills and
assets complement ours. In our Membership & HVAC business, 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.1,000 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. HomeServe acts as an insurance intermediary, and does not take any material
insurance risk. Our Membership products are underwritten by independent third party underwriters.
In Home Experts, we work in partnership with trades – sole traders, small and large firms – as well as
specialists such as web developers.
Marketing
Our three key areas of expertise resonate across both our Membership & HVAC and Home Experts
businesses.
•
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 HomeServe brand, which is starting to resonate with consumers as well
as partner businesses, as well as leading Home Experts and HVAC brands, such as Checkatrade and
Cropp Metcalfe.
Principal risks:
• Partner loss
• Underwriting capacity
& concentration
• Information security
& cyber resilience
• Regulation
• Competition
Principal risks:
• Digital transformation
• Technology
investment
• Regulation
Customer service
Putting the customer at the heart of everything we do is the 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 across the world.
Principal risks:
• People
• Digital transformation
• Technology
investment
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 our networks and 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 trades we work with to deliver on-demand repairs and improvements.
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. We have stringent investment criteria which we apply to organic and acquisition
opportunities.
Principal risks:
• People
• Technology
investment
• Competition
Principal risks:
• Financial risks
• People
Our principal risks, and in particular our Group enterprise risks, each impact 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
downside threat. For example, market disruption in the digital world may also accelerate customer take-up; or in respect of
partnerships, we may conceivably sign more partners than we expect in North America.
See page 26 for our Principal risk and uncertainties.
See page 18 for Resources, relationships and responsibilities.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Strategy
HomeServe’s vision is to be the world’s most trusted
provider of home repairs and improvements. We will
achieve this by developing the capabilities and services to
be able to do every job, in every home. This is the core of
our Group strategy. To achieve this vision, we need to grow
both of our global business lines to be able to serve every
customer segment, and to expand into new geographies.
There are material similarities in our business model in
both of our global business lines, namely our expertise
in forming partnerships, marketing and managing local
networks of trades (tradespeople), and at the heart of both
businesses is our unerring focus on customer service.
We are disciplined in the way we deploy capital, and
currently see the highest return potential from investing in
Membership in North America and in Home Experts. We
are also disciplined about where we will not invest and
since last year, we have decided to seek a strategic partner
for our principal Smart Home initiative, LeakBot.
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.
See page 10 Market overview. Page 12 Business model.
Page 18 for Resources, relationships and responsibilities.
Sustain and grow our Membership businesses
Overview
Our Membership business appeals to insurance-minded homeowners, and currently delivers all of our profits. We have established
Membership businesses in the UK, France and Spain and a high growth business in North America.
We drive growth in our Membership businesses by:
• developing new partnerships to give us access to more homeowners;
• marketing effectively to turn homeowners 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.
Developing the capability to install and replace heating, ventilation and air conditioning (HVAC) units completes the circle of service we
already provide for our Membership customers. It also gives us new opportunities to sell Membership policies. 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.
Our biggest growth opportunity in Membership and HVAC is in North America.
Targets for North American Membership
Customers (KPI)
Income per customer
Margin (policies)
HVAC profit
Adjusted operating profit
FY20
4.4m
$102
20%
Not currently disclosed
$109m
Medium to long-term target
6m - 7m
$120 - $125
24% - 26%
$30m - $45m
$230m
FY20 progress
In North America, we continued to sign new utility partners at the rate of almost three a week, and saw our customer base rise to 4.4m
(FY19: 4.0m). We launched a new product to serve the whole home warranty market and acquired ServLine, which brings a new product
and a new distribution channel.
In the UK, we focused on the customers who value our services most, and on efficiency gains and innovations such as HomeServe Now.
In France, we continued to grow our partnerships with the three largest water companies, and created partnerships with challenger energy
brands.
In Spain, we signed new partnerships in our Claims and Membership businesses, as we continue to look for new partnerships following the
end of our Endesa partnership in May 2018.
In HVAC, we continued our buy-and-build strategy with 15 acquisitions: three in North America, five in France and seven in Spain. 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 FY20 were 27k (FY19: 18k).
At some stage almost every home will need an HVAC unit replaced, so HVAC installation is a core capability for our business.
KPIs 1 Affinity partner homeowners 2 Customers 3 Policies 4 Retention rate 5 Income per customer
Principal risks S Competition O Partner loss O HVAC Integration
S Information security
& cyber resilience
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Strategic report | HomeServe plc Annual Report & Accounts 2020 Build an online, on-demand
Home Experts platform
Overview
Home Experts enables HomeServe to serve the Home Improvers customer segment: homeowners
who go online to find a local trade to help them with home repairs and improvements.
We have three online platforms: Checkatrade, the UK’s leading online directory of checked and
vetted trades; Habitissimo, the market leader in Spain; and eLocal, where we acquired a 79% stake in
November 2019.
Each platform is currently pursuing its own growth path, and we are learning from each opportunity.
Over time, we expect to move towards a single winning model – Directory Extra. Homeowners will
be able to choose from a directory of checked and vetted trades for substantial home improvement
projects such as fitting a new kitchen – essentially using the current Checkatrade model. The lead
generation model currently used at Habitissimo and eLocal is better suited for smaller, time critical
jobs (such as replacing a dishwasher), so will also feature in Directory Extra.
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.
The most advanced investment plan is at Checkatrade.
Targets for Checkatrade
Trades (KPI)
Average revenue per trade/customer
Margin
Adjusted operating profit
FY20
39,000
£1,023
—
—
Medium to long-term target
150,000 - 200,000
£1,200 - £1,300
25% - 35%
£45m - £90m
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,
provided that we can find a
committed utility partner. We have
identified 15 countries where we
see expansion potential.
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.
FY20 progress
At Checkatrade, we invested in people, marketing and technology. Trades (tradespeople) on the
platform reached 39,000, up 9% and consumer web visits rose to 24m (FY19: 18m).
At Habitissimo, we strengthened our management team in preparation for launching a more
ambitious growth plan.
In November 2019 we acquired 79% of eLocal, which gave us a profitable entry into Home Experts
in North America.
In France, following the successful test of a commercial model, we entered into a new associate
relationship with the local management team to scale the business.
In January 2020 we signed our first
utility partnership in Japan, with
Chugoku Electric, giving us access
to 2.9m homeowners.
KPIs
6 Trades 7 Web visits
Principal risks
S Competition
S Information security
& cyber resilience
O Technology
investment
O People
Over time as new markets are
developed we will introduce
relevant KPIs i.e. Affinity partner
homeowners, customers, etc.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 KPIs
At HomeServe we measure progress against the key strategic initiatives of our global business lines by tracking
eight key performance indicators.
Directors’ remuneration is structured to support the Group’s strategy and its financial and operational performance. As such,
certain of the KPIs below form part of the performance measures to which Executive Directors’ remuneration is linked. This is
discussed more fully in the Directors’ remuneration policy on page 85.
1
Affinity Partner
Households
111m 6%
2
Customers
8.3m 1% 1
Definition
Tracks the growth in Membership’s addressable market,
delivered through existing and new partnerships with utilities
and municipals.
Definition
Tracks our success in converting our addressable market into
revenue-generating customers by delivering great products and
services.
Strategy
Strategy
Sustain and grow our Membership businesses
Sustain and grow our Membership businesses
Performance
Good growth driven by signing over 2 new partners a week in
North America.
Performance
Continued strong growth in North America with customers up
from 4.0m to 4.4m, giving further confidence in the medium to
long-term target of 6-7m customers in this territory. Offset by
Spain where the Endesa book is in run-off and a reduction in
the UK.
Households
Customers
109m
105m
111m
102m
92m
2016
2017
2018
2019
2020
2020
2019
2018
2017
2016
8.3m
8.4m
8.4m
7.8m
7.0m
3
Policies
15.9m
0%
4
Retention rate
82%
0%
Definition
Illustrates our ability to grow our product line through customer
focus and innovation and to market those policies to customers.
Strategy
Definition
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.
Sustain and grow our Membership businesses
Strategy
Performance
Existing customers are continuing to choose more products
and benefit from increased cover. 12% increase in North
America, partially offset by Spain where the Endesa book is in
run off, a reduction in the UK and the sale of Italian JV.
Sustain and grow our Membership businesses
Performance
Retention rate stable year on year with France continuing to be
the highest performer at 89%.
Policies
12.8m
14.3m
15.7m
15.9m
15.9m
Retention rate
82%
2017
82%
2019
83%
2016
82%
2018
82%
2020
2016
2017
2018
2019
2020
1 Reduction reflects sale of share in Italian JV with 0.2m customers in August 2019.
16
Strategic report | HomeServe plc Annual Report & Accounts 2020 Definitions for each KPI are given below, in addition to the strategic initiative to which they correspond.
The KPIs, and factors driving movements on the prior year, are discussed in more detail at the country level in the Operating
review.
HomeServe’s use of adjusted figures and a reconciliation back to the statutory equivalents is included in the the Glossary,
beginning on page 193.
5
Income per
Customer
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
6
Trades
66k 3%
Definition
The number of paying customers in our Home Experts
business, being tradespeople. Tracks our progress in building
the supply of a large online community of trades. For
Checkatrade in particular this KPI measures progress to our
stated long-term goal of 150-200k trades.
Sustain and grow our Membership businesses
Strategy
Performance
A record number of new customer wins saw income per
customer dip slightly in France, with all other businesses
growing this measure.
Build an online, on-demand
Home Experts platform
Performance
Total trades at Checkatrade grew 9% to 39k, whilst trades at
Habitissimo fell by 4k to 24k.
Income per Customer
UK
15%
North
America
France
Spain
6%
1%
8%
£140
$102
€108
€61
Trades
2020
2019
2018
2017
66k
64k
58k
47k
7
Web visits
110.9m 10%
8
Adjusted Profit
Before Tax
£181.0m 12%
Definition
Total web visits to our Home Experts platforms Checkatrade &
Habitissimo. Tracks our success in driving consumer awareness
of our online community of trades. This currently excludes
eLocal, which was acquired part way through the year in
November 2019.
Definition
Our key profit measure by which we monitor business growth,
efficiency and sustainability.
Strategy
Sustain and grow our Membership businesses
Strategy
Build an online, on-demand
Home Experts platform
Performance
We continue to drive higher consumer awareness of the
availability of local trades through our Home Experts
businesses.
Build an online, on-demand
Home Experts platform
Expand into new geographies
Performance
Double digit profit growth, driven by strong performance in
North America and the UK.
Web visits
2020
2019
2018
2017
110.9m
101.1m
97.4m
Adjusted PBT
£112.4m
£93.0m
£181.0m
£161.7m
£141.7m
71.4m
2016
2017
2018
2019
2020
16
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Resources, relationships and responsibilities
A home is the most significant investment many of
us will ever make, and everyone feels passionately
about where they live. We are trusted to enter
people’s homes, and play an important role in home
maintenance and improvement. To do this well, we
have to be skilled in the management of our resources,
relationships and responsibilities.
Resources thoughtful and disciplined management of
people, systems and finances, with our most valuable
resource being our people.
Relationships strong bonds with utilities, underwriters,
suppliers, trades (tradespeople), the financial markets and
critically, our customers.
Responsibilities to all of our stakeholders, upheld through
robust policies and governance, our commitments to the
communities in which we operate and to protecting our
environment.
This year, HomeServe’s Board reviewed its stakeholder
relationships, considered which stakeholders will become
more influential as our business grows, thought about where
we need to stimulate greater interest and resolved to apply
resources accordingly.
HomeServe employs a variety of channels to engage with its
stakeholders. Dedicated account managers and scheduled
meetings are in place for the majority of our affinity partners
consulting on such items as marketing campaign volumes
and performance and customer satisfaction. Customers
can choose from a number of digital, print and telephony
channels and we encourage and respond to feedback left
on social media or review sites such as TrustPilot in the UK.
We regularly meet face to face with all underwriters not
only to discuss financial performance but also topics such
as customer value and contract renewals (such as occurred
in FY20 with Aviva). Our ‘Members Board’ is just one of the
ways we invite the views of our trades at Checkatrade, with
representatives from our trades base attending face to face
discussions with the management team to discuss new
initiatives such as website and search function changes and
the roll out of ‘managed contacts’ (Checkatrade-owned
telephone numbers used to provide insight into call volumes).
The table summarises our current stakeholder engagement, and how we see this changing over time.
Homeowners
Homeowners are the key consumers of our services, and making home repairs and improvements easy for them
is at the core of our business. It is essential that we remain abreast of their changing needs and requirements
through market research and customer feedback. We want homeowners’ interest in HomeServe to increase, and
are working to build brand awareness to achieve this goal.
Trades (tradespeople) including directly employed engineers and contractors
We want to make home repairs and improvements easy for trades as well as homeowners. For our business to
grow, the network of trades we work with must expand – be they directly employed engineers, the sub-contractor
network that powers our Membership business, or the trades who find work via Checkatrade, Habitissimo and
eLocal. We are working to deliver value to our trades, wherever they sit in our network, and expect their influence
on our business to increase as we grow.
Affinity partners and the communities they serve
Affinity partnerships with utilities provide our most important marketing channels in Membership. We continue
to expand our range of partnerships, but recognise the importance of maintaining our existing relationships,
understanding the pressures and opportunities in the utilities sector and delivering excellent customer service to
justify our partners’ faith in us. We work with our partners to add value to the communities they serve.
Underwriters and other key suppliers
The firms who underwrite the short-term cost of our Membership repair network are key suppliers, protecting our
business from short-term claims volatility and enable us to always do the right thing for our customers. We will
continue to manage these and other key supplier relationships carefully and review them regularly.
Our people, their representatives and the communities in which they live
We have a diverse international work force – technicians, contact centre teams, marketers, salespeople,
accountants, lawyers and HR specialists to name but a few. We are investing more than ever in developing our
people, focusing on key policy areas like diversity and ensuring that our people’s voices are heard as we deliver our
plans for growth. We encourage our people to engage in the communities where they live and work, and support
them when they do so.
Financial community
We maintain a regular dialogue with current and prospective shareholders and the wider investment community
to make sure they have sufficient information and contact to drive investment decisions. We invest time in our
banking relationships and with our financial markets advisors.
Regulators, government, opinion formers and influencers
We maintain active relationships with our regulators and will build our relationships with government, opinion
formers and influencers as our business grows.
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Strategic report | HomeServe plc Annual Report & Accounts 2020 Resources
Throughout the Strategic report, we highlight the
key resources required to drive our business model,
such as our investments in innovation and IT and our
knowledge-based marketing operation. Here, we focus
on our most important resource - our people.
Our people
HomeServe employs c.7,000 people globally, with about
45% of these being based in the UK, 25% in the US and 30%
in Continental Europe. Over 6,200 people are employed in
our Membership and HVAC businesses and around 800 in
our Home Experts businesses - Checkatrade, Habitissimo
and eLocal. We directly employ c.1,000 engineers.
Our people make the difference for our customers, so a
shared bonus scheme reminds us that we are working
towards a common goal and means we can all share in
our successes. For those of our people who are not part
of the Management Bonus schemes (or any other local
arrangement), the Colleague Bonus schemes provides this.
It is clearly aligned to the same business objectives and is
our way of saying ‘Thank You’ to all of our people for their
contribution to our achievements each year.
Apart from contributions to legally required social security
state schemes, HomeServe offers market aligned and
competitive retirement provisions across the Group.
We are passionate about the opportunities ahead of us for
HomeServe, and we are fulfilling our people strategy by
creating a high-performance culture in which a talented,
engaged, diverse and inclusive workforce can thrive. This
year our Group-wide people priorities were:
Additionally, our Global Share Incentive Plan, One Plan, offers
our people the opportunity to invest in HomeServe shares.
Our people can contribute between £10 and £150 per
month (or local currency equivalent) to become owners in
the Company.
• Enabling a high-performance culture and environment
by enhancing our global leadership capability, and the
performance & reward plans which enable them to
deliver.
• Continuing to build bench strength at all levels in
the organisation, from extending our successful
apprenticeship programmes to hiring and developing
new skills and capabilities on our frontline.
• Building an inclusive culture, by valuing diversity at every
stage of the employee lifecycle, and establishing a
clear ‘tone from the top’ with regard to our more senior
executive populations.
• Continuing to evolve our employee engagement
strategy, as it provides vital insights into how we can make
HomeServe an even better place to work.
Performance and reward
This year we undertook a review of the way we define
and then reward performance, starting with our Senior
Leadership Team. Key to this was ensuring that we are
building the high performance culture that will enable us
to achieve our growth ambitions. We have evolved both
our annual and long-term performance plans to achieve
much clearer alignment between our KPIs and our reward
strategy by defining a more precise and focused leadership
performance model.
We have also reviewed our performance management
process and The HomeServe Way (the essential behaviours
and skills that outline leadership effectiveness at HomeServe)
to ensure they align fully with our high performance
principles, as well as ensuring an equal focus on ‘what’ is
delivered and ‘how’ these outcomes are achieved – through
the right behaviours and collaboration across the Group.
Moving forward we want to take a more agile approach to
performance management, with leaders, managers and
teams assessing their performance on an ongoing basis.
Engagement – A Great Place to Work
This year, 86% of our people shared their views in our
Global People Survey (GPS) and, once again, the results
were encouraging. For the past two years, our overall
engagement remains at 71%. We ran a ‘check in’ Pulse
Survey in December and were very pleased to see a 6%
increase in the number of our people who believe action
has been taken based on the results of the GPS.
Engagement Score
Global Engagement Survey
2019
71%
2018
71%
In addition to participation in the global engagement survey,
all businesses within the Group have the opportunity to
enter into the ‘Best Workplaces’ recognition programme,
operated by our engagement partner – ‘Great Place to
Work’. In 2019, our Membership businesses in North
America, France and the UK were all accredited as a ‘Best
Workplace’ within their marketplace, with the UK and France
going on to be ranked as 2020 Best Workplaces. We expect
additional markets and business units to receive this local
accreditation in the next 12 months. Over time we aspire to
be recognised as a ‘World’s Best’ workplace at HomeServe
Group level.
HomeServe is committed to employee involvement
throughout the business. The Group is intent on motivating
our people, keeping them informed on matters that concern
them in the context of their employment, and involving
them through local consultative processes. Where there are
recognition and bargaining agreements with trade unions,
the consultation process is established through national
and local trade union representatives and through joint
consultation committees.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Resources, relationships and responsibilities
Resources continued
Talent and development
Our Group-wide Talent Programmes are designed to
accelerate the development of high potential talent across
the business, reflecting our ongoing commitment to
develop and promote talent from within. The programmes
are aligned with principles of The HomeServe Way. Our
strategy aims to intervene at pivotal points in the leadership
careers of our most promising people, upskilling them with
the readiness and mindset to do more at the next level of
leadership.
At a more local level, we put a clear focus on developing
emerging leaders as they transition into their first role as a
line manager. In HomeServe North America, HomeServe
University has developed the LEAD Pathway, a selection of
courses designed to build essential leadership skills. Courses
are curated into programs targeted to Aspiring, Newly Hired
or Promoted First-Time, Frontline, Mid-Level, and Senior-
Level Leaders.
In the UK, we are continuing to cross-train our customer
service agents in multiple areas, adding not only to their
knowledge base to serve our customers, but also increasing
their likelihood of taking on more responsibility in next
level roles.
We continue to review the critical talent imperatives for
the business, including leadership succession planning,
a minimum of twice yearly through the HomeServe
Executive Committee and the Board People Committee.
A set of global talent measures are in place so progress
can be measured and reported bi-annually. One of these
measures focuses on using global mobility as a targeted
way of meeting both strategic business and individual talent
development needs.
To ensure we are hiring the best leadership talent across
the Group, this year we transformed our talent acquisition
proposition to ensure we consistently attract and select the
right people to drive our growth aspirations. A new four stage
I lead with Courage:
I believe in our strategy, keep things simple and strive
for great results and continuous improvement; I am
decisive, speak my mind and confront challenges;
I value innovation, “failing fast” and learning from
experiences.
I lead with Persistence:
I work hard, do my best, take responsibility and am
accountable for delivering results; I am optimistic,
have a “can do attitude”, choose action and make
things happen; I am resilient when faced with
setbacks, collaborate, and find solutions.
I lead with Integrity:
I am honest, act with integrity and seek the truth; I
value open communication and debate and listen
respectfully to challenges and opinions; I act with
humility and openness and embrace diversity to
build great teams.
hiring process has been embedded across the Group for
all senior leader recruitment. This ensures that we are being
consistent in the way that we assess the capabilities of future
talent and test the potential candidates have to develop into
bigger roles.
Acquiring the skills we need to operate the business both
now and in the future requires a particular focus on building
our supply of talented and well trained technicians and
other skill sets. In our UK business, 175 people have been
engaged in apprenticeships, covering 23 subject areas. The
Apprenticeship Academy is based out of our Nottingham
training facilities. Our purpose is to support trades
(tradespeople) – whether we have a relationship with them
or not – to unlock the Apprentice Levy and in doing so,
help create the next generation of tradespeople. Ultimately,
Since 2018, 63 emerging leaders have completed the Edge Talent Acceleration Programme with 37%
promoted to larger roles.
P
U
O
R
G
L
A
C
O
L
CEO
Forum
Summit
Edge
ALPS
Leadership Development for our highest potential Leaders
- Successors to the Executive Committee.
High potential Senior Leaders preparing for expanded
responsibility and larger roles.
Emerging mid-level leaders preparing for more responsibility in
Senior Leader roles.
Group-wide development for our frontline Supervisors.
Local Leadership Development
Programmes
Local Leadership Development for all People Managers;
customised to current priorities at the business or country level.
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Strategic report | HomeServe plc Annual Report & Accounts 2020 our aim is to help consumers find the very best trades
whomever they choose to use.
Diversity and Inclusion
At HomeServe, we take a progressive approach to inclusion
and diversity because we want everyone to be themselves
and bring their own perspectives to our business. We do
not tolerate discrimination in any form and our people are
always considered for employment, development and
promotion solely on the basis of their ability. Releasing the
talent of every employee is the ultimate aim of our approach
to diversity & inclusion, as it is only by achieving this that we
benefit from the many different and unique perspectives
that our people bring to our business.
In the UK, Femi Bamisaiye, Chief Information Officer of
HomeServe Membership Ltd., was recognised as a Top
50 ethnic minority leader by Involve, the London based
D&I consultancy. Under Femi’s sponsorship, four diversity
networks have been established for BAME, LGBT+, Disability,
and Gender, appointing volunteer senior leaders and
deputies to head these steering groups, and devising a new
inclusion agenda.
In France, the Talent Acquisition team devised a new way
of screening potential contact centre agents who possess
the right skills to provide the best customer service. This was
done through ‘job dating’ sessions, 10 minute conversations
where hiring managers and recruiters initially screened
candidates based on their interpersonal skills alone, not their
CV. This eliminated any personal or experiential identifiers
that could contribute to unconscious bias. The process
resulted in several second interviews and ultimately 19
new hires.
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 especially
focused on achieving an ongoing annual increase in female
representation across our most senior and executive
populations. As at March 2020, women made up 33% of our
senior leadership roles globally, whilst representing 42% of
our global workforce.
Our performance in the 2019 Hampton Alexander report
was as follows:
Benchmark
FTSE 250 2019
HomeServe 2019
HomeServe 2018
Board
29.4%
22.2%
20.0%
ExCo
ExCo & Directs
18.6%
11.1%
0.0%
27.9%
26.2%
21.4%
Whilst we made solid progress in 2019, the rest of the FTSE
250 made more progress, particularly at the Board and
Executive team level. We are pleased that our broader global
senior leadership team has 32% female representation, but
there is clearly more to do at the executive level. We are now
committed to accelerating our focus on this key agenda and
have agreed to work towards 33% female representation on
a combined basis across our Board, Executive Committee
and their direct reports by March 2021, moving us towards
the targets set out in the Hampton Alexander report.
Total employees 31 March 2020
Total employees 31 March 2019
FY20
FY19
Plc Board (Executive &
Non-Executive Directors)
Executive Committee
Global Senior Leaders
Male
Female
Total
4,197
3,311
58%
53%
7
9
111
3,004
7,201
2,990 6,301
42% 100%
47% 100%
2
1
53
22%
10%
32%
Since publishing our first mandatory Gender Pay Gap report
for UK employees in 2017 we have seen a year on year
increase to the mean hourly rate pay gap.
Mean pay gap
Entity
2019
2018
2017
HomeServe Membership
Help-Link 1
Checkatrade
HomeServe ‘UK’
21.1%
N/A
39.6%
22.3%
19.2%
35.6%
2.7%
20.8%
15.7%
35.3%
22.2%
20.5%
1 Help-Link has <250 employees. The business is being integrated into Membership with
employees transferring across (included within HomeServe Membership above).
There are two key drivers of our pay gap – the balance of
women in our senior leadership roles and the low volume
of female water and gas engineers, which is in line with the
national average. In HomeServe Membership for example,
a large number of higher paid male engineers occupy the
upper middle and upper quartiles pay bands (upper middle
quartile for our 2019 report starts at £26k).
We are confident despite the widening of our gender pay
gap that we reward jobs of equal value equitably and fairly.
The measures that we have put in place to ensure that
women have the opportunity to progress their careers and
reach the highest level are having a positive effect. Progress
has been made in the number of women occupying
senior roles in the last 12 months which will have a positive
impact next year. Likewise in HomeServe Membership
98 management hires were made in 2019 - 50% of those
recruited were female. This shift in the number of female
managers has been delivered through balanced shortlists,
provision of mentoring schemes and development
opportunities, as well as a drive to promote internally.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Resources, relationships and responsibilities
Relationships
Contractors
As our business grows, we are also expanding our sub-
contractor network of engineers to complete repairs for
our customers. A key benefit for our sub-contractors is that
we provide them with a reliable source of work, as well as
tools to improve the efficiency of their business like job
scheduling technology. We monitor customer satisfaction
for contractors rigorously and, because we are a key supplier
to them, are able to call for more resources when we see a
surge in jobs.
Contractor testimonial – Jonathan Brickley, Owner,
Sunflower Services, El Dorado, Kansas
We’ve been very happy with our relationship with
HomeServe. I don’t believe I’ve ever worked with a company
where the management team are as quick to respond to
a contractor’s request or question. We’re a family-based
business and reputation is very important to us in the
community and the surrounding area. So to be able to work
with a company that has those same values really allows
us to partner in a way that is very beneficial to customers.
Customers are not only working with HomeServe, that does
what they say they’re going to do, they are also working with
a contractor that has the same principles and will provide a
good service.
Trades (tradespeople)
In our Home Experts businesses, our key relationships
are with trades, who are our customers, either paying a
subscription (the directory model, used in Checkatrade) or
per lead (in Habitissimo and eLocal). We are working hard to
create a trades community, to make sure trades value their
participation and continue to benefit from being on our
platforms for many years to come.
Trades testimonial - Dave Baker, B&W Plastering,
Bishops Stortford
We’ve been part of Checkatrade for the last 3 years
now and we have not looked back. It’s been an incredible
platform for us to not only generate more work but to meet
the fantastic people that make up the local community, and
beyond.
Our business model depends on our ability to create,
develop and maintain high quality relationships with all
of our stakeholders. With groups such as underwriters,
the financial community (considered in more detail on
page 60), government and regulators, our relationships
are well-established and generally stable. Below, we
discuss the relationships which will evolve most as we
deliver our growth strategy.
Homeowners
In our Membership businesses, our fundamental
relationships are with our customers – homeowners.
In each geography, we have a set of customer promises
which are embraced at every level, from the front line to
senior management and the Board. Customer satisfaction
features prominently in our management bonus schemes
and we have fostered a culture which places the customer
at the heart of our business. We have a strong reputation
for customer service and we continue to win awards for
high levels of customer service in all of our established
Membership businesses.
Affinity Partners
We continue to develop our relationships with our affinity
partners – mainly utility companies. For these partners,
the main benefits of working with HomeServe are a new
revenue stream from commission payments, but much
more importantly, an opportunity to deliver a valuable
service to their own customers. In some cases, a public
service utility prefers not to accept commission from us,
and will ask us instead to sponsor community projects in
their location, which we gladly do. Key developments with
affinity partners in this financial year included continuing to
sign new utility partnerships in North America; deepening
our relationship with our biggest partner in France, Veolia;
continuing to work with Endesa in Spain on billing and re-
activation marketing, even though the partnership came to
an end in 2018; and signing our first utility partner, Chugoku
Electric, in Japan.
Affinity partner testimonial - Liann Walborsky, Director
of Corporate Communications at San Jose Water.
Our partnership with HomeServe has been highly
beneficial to our customers as well as to San Jose Water. Their
collaborative approach allowed us to quickly and efficiently
launch the partnership after the contract was executed. This
included developing educational materials that reflect our
brand and values, and providing training for our customer
service staff. HomeServe continues to be great to work with
and remains highly attentive to our needs. They have a true
commitment to customer service and satisfaction. Additionally,
our customers appreciate that San Jose Water is informing
them about these protection plans.
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Strategic report | HomeServe plc Annual Report & Accounts 2020
Responsibilities
HomeServe’s robust Corporate Governance, which
is covered in detail from page 52, is underpinned by
a comprehensive policy framework which governs
and is fully embedded across all of our Membership
businesses in the Group.
Membership businesses are requested on an annual basis
to self-certify their compliance with the key governance
policies which form part of that framework. A similar policy
framework is being developed for all other businesses
and will be rolled out during FY21. In the meantime, the
Group’s key governance policies have been communicated
widely. In relation to newly acquired businesses, where
due diligence enquiries during the acquisition process
have highlighted any significant gaps against the Group’s
standards steps have been taken to address these in a timely
manner.
Compliance with policies is monitored and reviewed over
the course of the year. Example monitoring includes, but
is not limited to, sample testing of self-certification, formal
reviews by the Group Legal team and inclusion in Group
Audit & Assurance plans. All policies were deemed to be
operating effectively in 2020.
All of our policies below can be found on our corporate
website: https://www.homeserveplc.com/about-us/
corporate-governance/policies
Financial Crime and Sanctions policy
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 financial
crime, including fraud or bribery, in any area of our business.
HomeServe is also committed to compliance with the
sanctions laws of every country in which we operate and
of the United Nations. These commitments are reflected in
our Financial Crime and Sanctions policy, compliance with
which is audited on a regular basis.
Human Rights
HomeServe does not currently have a standalone human
rights policy but all businesses are expected to comply with
our key governance policies which address such matters
as employment rights, equal opportunities, the privacy of
personal data and dignity at work.
Code of Business Conduct
HomeServe operates a comprehensive Code of Business
Conduct which applies across the Group. The Code sets out
the standards of behaviour expected of all employees and
workers, and includes guidance on conflicts of interest, use
of company property, political and charitable contributions
as well as some of the key governance policies described in
the section above.
Whistleblowing
HomeServe is committed to the highest standards of quality,
honesty, openness and accountability, and our employees
have an important part to play in ensuring that 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 may raise any concern about illegal or improper
behaviour without fear of victimisation, discrimination or
disadvantage. We have a confidential online and telephone
service in place, run by an independent third party, which all
employees may contact.
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 people.
Full and fair consideration (having regard for a person’s
particular aptitudes and abilities) is given to applications
for employment and the career development of disabled
persons. We take all practicable steps to ensure that if one
of our people 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 talent management and development processes.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Resources, relationships and responsibilities
Responsibilities continued
Health & Safety
With c.7,000 employees globally, the health, safety and
wellbeing of HomeServe’s people is central to what we
do and we strive to provide safe working environments
and support for all our people whether they are routinely
office-based or completing work in our customers’ homes.
HomeServe targets zero work-related injuries and illnesses.
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 health and safety director. Any
new businesses acquired are expected to apply the same
focus to comply with the Group’s policies.
During FY20, HomeServe saw a reduction in both accident
frequency rates and lost time injury rates across all of our
businesses with the exception of North America, where
an increased level of HVAC acquisitions created new
challenges. The rates reported demonstrate a positive
improvement to the comparable period and should be
indicative of the pro-active work that continues across the
Group with improved awareness and an increased accuracy
of incident reporting. Each business continues to monitor
rates and take a practical approach to performance by
identifying actions to improve which are monitored through
annual health and safety improvements plans.
PwC was engaged to conduct health and safety audits and
health and safety remains as an annual item on the Internal
Audit agenda.
In the UK, health and safety culture has improved greatly
over the past two years with an upturn in reported accident
volumes.
France continued to see low accident rates even with the
integration of newly acquired HVAC businesses Electrogaz
and VBGaz, with the key driver being mandatory training and
employee awareness campaigns.
North America has seen an increase in both accident rates
and lost time injury rates, which is to be expected with the
increased acquisition activity and awareness campaigns to
support with incident reporting. Initiatives such as a triage
hotline have also proven to be a success in managing injury
severity. The implementation of a new environment, health
and safety enterprise system continues to be a key focus
for the business which will further improve the control,
oversight and management of safety incidents and activities
more efficiently through FY21.
Spain’s accident and lost time incident rates continue to be
stable. The key health and safety focus for the business this
year has been to increase awareness, to support a robust
reporting process and a positive health and safety culture.
The Home Experts businesses Checkatrade and Habitissimo
have both seen a reduction in accident and lost time
rates. Both businesses have made significant progress in
developing and implementing health and safety specific
training, prompting healthy habits and engaging with the
business with regards to mental and physical wellbeing.
Carbon emissions continue to be measured across all Group
companies and there has been no prosecution or other
enforcement action taken in respect of our business by any
of the health, safety or environmental regulators.
Communities
HomeServe’s community activities are organised business
by business, to enable us to focus on causes our people are
passionate about and make a positive impact on the local
areas in which we operate. Across our business, the skills of
our people and our trades (tradespeople) networks enable
us to help less privileged members of our communities
with home repairs and improvements. Particularly in North
America, we engage in community activities alongside our
affinity partners.
In Spain, 62% of our workforce participated in volunteering
activities last year. Charities supported included the Spanish
Cancer Association and Down Madrid Foundation, and
around fifty employee volunteers joined with their families
and franchisees on building renovation projects. Thirty
of our people cooked and helped to prepare a charity
Christmas lunch for 1,000 homeless people.
In France, we renewed our partnership with Habitat &
Humanisme for the fifth year. Our engineers carried out
43 repairs to social housing, and our people raised over
€6,000 from sponsored running and cycling events. The
“BOOST!” programme ran for its second year, and funded
eight employee-proposed projects for between €500 and
€2,500. As part of our “Best Customer Service of the Year
2020” contest, during which we organised sport events, we
also made a donation of €4,700 to the “Sport dans la Ville/
Sport in the City” association which helps youth in their
social and professional integration through sport.
In North America, FY20 saw the launch of the HomeServe
Cares Foundation (HSCF), whose mission is “Spreading
Hope and Supporting Communities One Home at a Time”.
The HSCF is built on four pillars.
Caring for People
The Caring for People pillar is the banner under
which we support vulnerable people, whether in
the communities we serve or in our company.
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Strategic report | HomeServe plc Annual Report & Accounts 2020 Caring for Community
Through the Caring for Community pillar, the
HSCF awards grants of varying amounts to
municipality and non-profit organisations. In
FY20, awards were made to eight organisations.
Caring for Veterans
The Caring for Veterans pillar is designed to
help us support transitioning military personnel,
veterans and veterans’ organisations throughout
the U.S. A core focus for the HSCF is partnering
with our nationwide contractor network to help
them identify, recruit, train and retain veterans in
the trades.
Caring for Good
The Caring for Good pillar was designed to
engage and inspire our people to be part of our
social responsibility efforts. In FY20, our people
participated in six volunteer events coordinated
by the HSCF where they helped demolish, build
and refurbish houses for Habitat for Humanity,
clean up and revive a small community park, and
prepare meals in a community food pantry.
In UK Membership, we continued to invest in the
communities where our people and their families live and
support the charities our people care about. All staff benefit
from two days volunteer leave, matched fundraising for
team chosen charities, our programme to purchase an extra
day holiday with funds going to team charities and support
of local schools with skills development and mentoring.
At Checkatrade, our workforce continues to take charity
leave to support individual causes which are close to them.
Our employee-elected company charity of the past year
was Dementia Support, and we fundraised for them in a
variety of ways including a spooky sweet treats bake sale at
Halloween and wear a Christmas jumper day. We supported
International Women’s Day in March by hosting an inaugural
inclusive event at Checkatrade HQ.
Environment
HomeServe’s environmental impact has moved up the
Board agenda this year. The services we provide to our
customers deliver environmental benefits such as reducing
water leakage and replacing boilers with more energy
efficient models. We want to build on these benefits and
look to reduce the environmental impact of our operating
model.
We started a programme of pragmatic actions across our
global business and will continue to focus on these activities
next year. These activities are enabled through a global
group of employee green champions and driven through
a programme of ongoing internal communication and
education:
•
Improved recycling provision in all office locations
• Reduction of single use plastic
• New policies to reduce business travel
• Move to renewable energy across office sites
• Replace office and outside lighting with LED alternatives
• Encourage paper free meetings and reduce printing and
paper usage
• Discussions with current and potential suppliers to
establish common environmental goals.
In the course of the coming year, we will give further
consideration to whether our global business should unite
around a bigger, more impactful environmental goal to
benefit the communities in which we operate.
Meanwhile, this year, our business units have made progress
on individual environmental initiatives, including the
following highlights:
• UK Membership are testing a customer proposition to
install domestic electric vehicle charger points. Their
catering facilities have removed all single use plastic
items, replaced with compostable Vegware alternatives.
• Checkatrade employees are able to lease an electric
vehicle through salary sacrifice and are the benchmark
for HomeServe Group in their new Portsmouth office
design with paper-free environment as standard,
sustainable catering and recycling provision.
• Spain have achieved ISO 14001 certification in
recognition of their environmental management system.
For information on our greenhouse gas emissions,
please see Directors’ report on page 107.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Principal risk and uncertainties
Risk framework
Plc Board
HomeServe has a robust risk management framework which encompasses the Group’s risk policy and overall
risk appetite. The framework utilises the three lines of defence model which is recognised as best practice across
the industry. It 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.
This structured approach is aimed not only at monitoring and mitigating identified risks but also aims to capture and escalate
emerging risks and opportunities and is best illustrated by HomeServe’s response to COVID-19, the rapid move to home
working for all office based staff and initiatives in the field to ensure a safe continuity of service for HomeServe’s customers.
Plc Board
Audit & Risk Committee
Executive Committee
Three scheduled risk discussions per annum
• 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.
Line 1
Business Unit Operations
Line 2
Risk, Control & Compliance
Functions
Line 3
Independent
O
t
h
e
r
E
x
t
e
r
n
a
l
i
b
o
d
e
s
e
g
.
Internal Audit & Assurance
• Review 1st and 2nd lines
•
Independent testing &
challenge & oversight of
Lines 1 & 2.
.
E
x
t
e
r
n
a
l
A
u
d
i
t
,
R
e
g
u
l
a
t
o
r
s
All front line and support
functions
• Lead day-to-day risk
management
• Maintain local Risk
Registers
• Own and operate
processes and mitigating
controls
• Undertake quality
assurance activities and
provide appropriate
training.
Including Financial Control,
Information Security, Risk
Management, Legal and
Compliance
• Oversee & challenge risk
management
• Monitor and test risk
systems & controls in the
1st line
• Review & challenge
incident management in
the 1st line & develop Risk
Management framework
• Provide risk MI to
governance committees.
Strategic risks
S
Operational risks
O
26
Financial risks
F
Strategic report | HomeServe plc Annual Report & Accounts 2020
Changes in FY20
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.
In previous years all businesses had separately considered the
effects of climate change within the context of other risks.
With increasing interest in this area amongst our staff, as well
as other stakeholder Groups, all businesses commenced
a more coherent approach this year to implement actions
which improve HomeServe’s environmental impact. With
discussions also occurring at Board and Exec level, the
potential impacts of climate change and other environmental
considerations on HomeServe’s business model have been
considered more formally and Sustainability is now reported
separately as a Group Enterprise Risk.
Whilst climate change affects all of our business lines,
Membership continues to dominate the rest of our Principal
risks - understandably so, given its current size relative to
other business lines. However as Home Experts continues
to grow and with the acquisition of eLocal, there have been
movements in certain other risks and new emerging risks in
Home Experts may become elevated to Group Enterprise
Risks in the future.
The following table sets out what the Board believes to be
the principal risk and uncertainties facing the Group, the
mitigating actions for each, and where applicable, updates
on any change in the profile of each risk during the past
year. All risks carry equal importance and weighting for the
Board, however additional focus and priority may be given
to specific risks for a period of time in certain circumstances
e.g. following a material acquisition or to implement plans to
reduce any risk which exceeds the appetite threshold.
Some additional, presentational, changes have been made
this year to align risk labels to those reviewed internally by
HomeServe’s Committees and Board. Where there has been
an update, the previous name is denoted below the risk label
in the principal risks table.
The principal risk and uncertainties should be read in
conjunction with the Operating review and the Financial
review. Additional risks and uncertainties of which
HomeServe is not currently aware or which are believed not
to be significant may also adversely affect strategy, business
performance or financial condition in the future.
Risk Appetite
In accordance with the Group’s Risk Management policy,
the Group risk appetite is subject to an annual review of its
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.
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 has never featured as one of HomeServe’s enterprise
risks but it continues to be monitored at a local and a Group
level following the UK’s formal exit on 31 January 2020.
Brexit retains the potential to be one of the most significant
economic events for the UK and the full range, scale and
timing of potential outcomes and impacts are not yet certain.
However, HomeServe continues to believe the impact on the
underlying performance of the Group will be limited.
HomeServe’s businesses trade exclusively within their own
borders and HomeServe is not exposed to any cross border
transactional currency risk. The Group remains subject
to translation risk on the presentation of results in Sterling
however this is within the ordinary course of business.
COVID-19
The COVID-19 crisis is still an evolving situation which all
businesses are actively tackling in a number of different
respects. For example in ensuring technology is available to
support staff working from home, ensuring that engineers
on the front line can complete repairs whilst protecting
themselves and our customers and ensuring that supplier
relationships are maintained safely and appropriately to
deliver the necessary protective equipment and parts and
materials.
As a risk which has crystallised, COVID-19 is categorised
neither as an enterprise level risk nor as an emerging risk.
However consideration is being given to a wider emerging
risk of the potential for other pandemics in the future. The
work undertaken to switch to home working and maintain
emergency repairs is being reviewed as is the impact on sales
volumes, claims volumes, cancellation rates and a number of
other KPIs and metrics. The results of this analysis will inform
not only short-term return to work plans but also longer term
risk monitoring approaches and mitigations.
Having demonstrated in the short-term that we were
able to respond quickly and effectively to keep operations
functioning and maintain good levels of service in all
businesses, key to the longer term prospects of the Group
will be the resilience of the model and consumer behaviour.
In previous periods of consumer uncertainty and economic
downturn, for example during the financial crisis in c.2008
to 2009, little negative impact on business performance was
observed and the model remained resilient.
Impacts have so far been more pronounced on the Home
Experts businesses but the portfolio effect of different
business lines, and four main Membership businesses
situated in different countries affords a good degree of
protection for the Group as a whole and the longer term
prospects for Home Experts, including Checkatrade’s
milestone targets remain unchanged. Underpinning the
resilience of the Membership model is the type of customer
it attracts; policy buyers like to protect themselves from
unforeseen expenses and the difficulty of getting a good
26
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Principal risk and uncertainties
Continued
tradesman out quickly. The additional requirement to find a
provider who can perform repairs whilst adhering to strict
health and hygiene guidance is an extra factor customers
now need to consider.
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. With over £330m of headroom against its debt
facilities, liquidity is healthy and the Group is well positioned
to face the ongoing challenges of COVID-19.
For further detailed actions and initiatives being taken
as a result of COVID-19, please see page 7 of the Chief
Executive’s review.
Enterprise risks
Movements in risks shown below are largely ‘business as
usual’ but all risks are now in sharper focus as a result of the
circumstances concerning COVID-19 and wider economic
uncertainty. However some risks have increased as a direct
consequence of COVID-19 e.g. Cyber, as a result of c.6,000
new homeworkers.
The COVID-19 situation is unprecedented and will likely
have a number of other unforeseen outcomes on the
risks below potentially both positive and negative e.g.
M&A activity was paused as the Group exercised additional
caution due to the widespread uncertainty but there is
every possibility that more M&A opportunities may now
arise and at more favourable multiples. For example a utility
could revisit its current stance and opt to sell its policy book
in order to fully focus on its core operations. Additionally
there may be further upside opportunities as HomeServe
advances its current product initiatives e.g. HomeServe
Now and looks to meet the possibility of increased demand
when situations ease across the countries in which
HomeServe operates.
Overview
Mitigations
Update in year
Movement
& Strategy
S Competition (FY19: Market Disruption)
In all of our business lines a successful new
entrant or an existing competitor adapting
more quickly to changing customer
demands and needs could adversely impact
our business and our financial results with
lower customers, retention rates, revenue
and profitability.
Competitors with active M&A programmes
could also show interest in HomeServe’s
targets, leading to missed opportunities or
over-paying.
Competitive threats today 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
•
Incumbent competitors to Home Experts
in the UK e.g. Rated People, MyBuilder.
S Information security & cyber resilience (FY19: Cyber security)
In line with other businesses, HomeServe
is subject to the increased prevalence and
sophistication of cyber-attacks, which could
result in unauthorised access to customer
and other data or cause business disruption
to services.
A successful cyber attack might have a
significant impact on reputation, reducing
the trust that customers place in HomeServe
and could lead to legal liability, regulatory
action and increased costs to rectify. A lapse
in internal controls and a subsequent data
breach or loss would have a similar impact.
Total customer numbers and policy retention
rates may reduce and partners may terminate
affinity relationships if they perceive customer
data to be at risk.
No material change in existing businesses but acquisition
of eLocal in November 2019 provided an entry for Home
Experts in North America, a market where the current
number one provider, ANGI Home Services is located.
eLocal management team retained as part of the deal to
provide local market knowledge. eLocal is already sharing
best practice with our other Home Experts teams.
Cyber continues to be a key area of focus for the Group
with emphasis on both maintaining and increasing
the maturity and capabilities of our controls and
countermeasures. A single team has been created
bringing together those people with a primary cyber
security responsibility, who until recently operated with
a degree of independence within individual Group
businesses. The change will further enhance consistency
and maturity of risk management and mitigation, as
well as improve efficiency in the delivery of our strategic
roadmap. A comprehensive suite of Policies and
Standards remains in force. Cyber audits were completed
as part of the annual assurance plan in FY20, with more
visits scheduled for FY21.
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, analysing
consumer trends and
developing leading products
and services.
Home Experts businesses
all currently employ
different models; we are
adapting and learning from
each of them and liaising
more frequently with our
Membership businesses
to develop the range of
services that customers
want and the best means of
accessing them.
HomeServe has a number
of defensive and proactive
mitigrations across the
Group.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.
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Strategic report | HomeServe plc Annual Report & Accounts 2020 Movement
Increased risk
No change
Reduced risk
Strategy
Risks
Sustain and grow our
Membership businesses
Build an online, on-demand
Home Experts platform
Expand into new
geographies
S
Strategic risks
O
Operational risks
F
Financial risks
Overview
Mitigations
Update in year
Movement
& Strategy
S M&A Strategy
HomeServe has an active M&A strategy focussed
on two primary areas; Membership policy books
and a buy-and-build strategy to grow the HVAC
business line.
There is a risk 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.
O Underwriting capacity & concentration
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.
These arrangements are a core part of the
Membership model and help protect HomeServe
from short-term risk e.g. of rising claims costs or
frequencies.
Seeking new underwriters and obtaining relevant
regulatory approvals may take time, leading to
business disruption.
Lack of suitable underwriters could force
HomeServe to underwrite policies in-house,
exposing it to material insurance risk.
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.
Strict criteria when building
a prospects pipeline.
Independent advisers
engaged in due diligence
processes.
There has been increased M&A expenditure
this year (see note 16 for details of Business
Combinations in the year) but no change to the
underlying risk, with all acquisitions appropriately
appraised by dedicated M&A teams and transactions
approved by local and/or Group Board.
M&A was paused post year end as a result
of COVID-19. When it restarts there will be a
requirement for an even sharper focus to ensure we
do not overpay.
HomeServe’s agreement with Aviva in the UK
was renewed for a further 5 years and all other
relationships remain strong with regular meetings
conducted over the course of FY20.
We have remained in regular contact with our
underwriters to discuss the potential impacts of
COVID-19. Our two biggest underwriters across
the Group (Aviva and Amtrust) are in a strong
financial position and we do not anticipate any
issues with regards to our underwriting relationships
as a result of the current crisis.
Strong track record and
experience of acquiring and
growing policy books.
Local management
expertise with oversight
from central plc function
Clear investment hurdles
and completion of post-
investment reviews.
All investments require
local and, where applicable,
plc Board approval.
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.
O Regulation (FY19: Regulation & customer focus)
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.
Like many companies HomeServe is also subject
to wider regulation concerning e.g. anticorruption,
anti-fraud and bribery, modern slavery etc. For
more details see page 23.
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 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.
In 2019 the FCA released its Interim Review of
Pricing Practices in General Insurance in which it
stated a number of possible intervention measures
it may consider with regards to pricing journeys,
payment methods and disclosure requirements for
all insurance providers.
The scrutiny of the wider UK insurance industry is
seemingly increasing, but HomeServe maintains
a robust approach to regulatory matters and we
continue to monitor and await the publication of
the FCA’s full report.
The FCA has also published additional guidance
for insurance providers throughout the coronavirus
pandemic stating their expectation that firms
display increased awareness and respond flexibly
to changing consumer circumstances. HomeServe
is keeping its customers regularly informed via its
many channels, including letters and telephony as
well as online and continues to closely monitor the
FCA’s updates.
There has been no change in the regulatory
environments in which our other businesses
operate.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Principal risk and uncertainties
Continued
Overview
Mitigations
Update in year
Movement
& Strategy
O Digital transformation (FY19: Digital & innovation)
As distinct from Technology Investment (below) Digital
Transformation relates principally to interactions with
customers (be they homeowners or trades), ensuring we
offer a multi-channel, multi-media approach to interact
with them and that we do so in an efficient and cost
effective manner.
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.
O HVAC Integration
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. the engineer network.
Failure to integrate acquisitions quickly and effectively
could result in failure to deliver synergies, and increase
costs, resulting in failure to achieve predicted revenues
and potentially lead to impairment.
O Partner loss (FY19: Partnerships)
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 benefitted 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.
With c.1,000 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 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 homeowners, customers and also retention rates,
without use of the partner brand.
O Sustainability
Disruption in operations within our Membership and
Home Experts businesses as a direct result of increased
frequency and intensity of extreme weather events could
impact on both customers and the network due to a
potential change in demand e.g. as temperatures rise,
demand for heating will decline potentially impacting our
core business model and unpredictable weather patterns
make running the network less cost effective.
Reputational impact as all stakeholders become less
accepting of businesses that do not work proactively to
reduce their environmental impact.
Increased costs to the business such as insurance,
regulatory restrictions on goods linked to climate change,
health and safety costs due to potentially harsher working
conditions etc, disruption to supply chains creating a
bigger challenge for the business with regard to materials
and resources.
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.
The importance of providing a flexible
approach became very clear in March
2020 as restrictions on movement came
into force, limiting the ‘normal’ day to day
operations. The ability for customers to claim
online or use a Smart IVR made the transition
to c.6,000 employees working from home a
much smoother process.
We continue to make investment in the
development of HomeServe Now, a new
way for customers to gain a fast response
from an available engineer.
Integration plans form part of
all business case approvals.
A total of 15 HVAC acquisitions were made in
FY20 across the US, France and Spain.
We are signing partners at a rate of over two
a week in North America and continue to
renew partnerships in our other businesses.
In January 2020 we announced our first
partnership – with Chugoku Electric – for
our Japanese joint venture.
New for FY20.
For more detail on our current initiatives
please see page 25.
Post-investment reviews
provide learning back for
future acquisitions.
Dedicated teams and
resources and retention of key
management personnel in the
acquired businesses.
HVAC managed locally but
with a central global team
to coordinate and ensure
consistent application of best
practice.
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.
Environmental issues
discussed at Exec and Board
level.
In FY21, the business
will focus on pragmatic,
achievable actions to reduce
its environmental impact,
such as improved recycling
and reduced business travel.
A carbon offset scheme
will be put in place. Going
forward, the Group will look
for opportunities to lead on
environmental issues close
to the core of our business
and the Board will turn its
discussions towards agreeing a
formal Environmental policy.
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Strategic report | HomeServe plc Annual Report & Accounts 2020 Overview
Mitigations
Update in year
Movement
& Strategy
O People
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.
The inability to attract, motivate or retain key talent
could impact overall business performance.
HomeServe has a lot of growth opportunities and
ensuring appropriate bandwidth at the top of the
organisation is key to maintaining effective control
and oversight.
Gender Pay disclosures in the UK and reviews such
as Hampton Alexander also play an increasing
role informing HomeServe’s People agenda and
ensuring we have the appropriate diversity of
people, experience and ideas to move the business
forward.
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.
HomeServe now employs c.7,000 people globally.
86% of those people completed our Global
People Survey, returning an engagement score
which remained in line with the prior year at 71%.
In 2019, our businesses in North America,
France and the UK were all accredited as a ‘Best
Workplace’ within their marketplace. We expect
additional markets and business units to receive
this local accreditation in the next 12 months. Over
time we aspire to be recognised as a ‘World’s Best’
workplace at HomeServe Group level.
Annual and long-term performance plans
have been reviewed and changes are being
implemented to achieve clearer alignment
between our KPIs and our reward strategy.
Our performance management process and The
HomeServe Way, our leadership ‘DNA’ have also
been reviewed to ensure they align fully with our
growth strategy and to ensure that consideration
is given not only to what is achieved but also how
it is achieved through the right behaviours and
collaboration across the Group.
O International
HomeServe has enjoyed success with its
Membership model in markets outside of the UK
and intends to expand to other regions.
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.
Strict criteria to identify attractive
markets
Signed first utility partnership in Japan and initial
marketing results are encouraging.
International development team continues to
prospect other markets.
Joint venture structure such
as that employed with Japan
diversifies risk and minimises
investment
JV partner brings local market
knowledge and contacts
HomeServe brings membership
model systems and process
expertise.
O Technology Investment (FY19: Investment in technology)
As distinct from Digital Transformation (above),
this risk principally relates to investment in the key
systems the Group relies on to manage its daily
operations.
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.
Failure in back office systems may lead to business
interruption and lack of investment to provide
timely and appropriate data 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.
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.
F Financial
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.
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The UK’s new core customer management
system went live in 2019. c.75% of all new
customer acquisition activity is now managed
through this system and migration of existing
customers from the legacy system has
commenced. Completing the migration in an
efficient and cost effective way is a critical next
step to the full deployment of the new system.
France and Spain are also conducting CRM
implementations, Checkatrade is introducing a
new billing engine and the Group continues to
appraise the systems and processes in place at
each business to ensure it is efficiently using the
functionality and processes available from leading
software providers.
Technology investments in recent years helped
facilitate the mobilisation of 6,000 office based
employees to working from home in support of
the restrictions on movement during COVID-19.
A treasury management system implemented to
improve global cash visibility, bank connectivity
and process efficiency went live this year.
On 30 March 2020, HomeServe arranged an
additional £50m of RCF funding. At the year
end HomeServe had over £330m of headroom
against its total debt facilities and only £36m of
the c.£780m of facilities is due within the next
12 months.
Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Operating review
Financial performance for the year ended 31 March
£million
UK
North America
France
Spain
New Markets
Total Membership & HVAC
Home Experts
Inter-segment 1
Group
Revenue
Statutory operating
profit/(loss)
Adjusted operating
profit/(loss)
2020
372.9
429.5
111.8
154.1
—
1,068.3
71.8
(7.8)
2019
391.7
333.4
104.6
140.8
—
970.5
40.4
(7.3)
1,132.3
1,003.6
2020
62.8
67.6
26.9
19.6
(0.9)
176.0
(17.4)
—
158.6
2019
68.4
54.7
26.8
17.5
(2.4)
165.0
(12.4)
—
152.6
2020
81.0
85.4
33.8
20.1
(4.7)
215.6
(13.9)
—
201.7
2019
66.0
67.6
33.3
17.7
(2.4)
182.2
(7.4)
—
174.8
1 Inter-segment revenues includes transactions with other Group companies removed on consolidation and principally comprise royalty and other similar charges.
Membership KPIs
UK
North America
France
Spain
New Markets
Group
Home Experts KPIs
Checkatrade
Habitissimo
eLocal 1
Group
Customer
numbers (m)
Income per
customer
Policy retention
rate
2020
1.8
4.4
1.1
1.0
—
8.3
2019
2.0
4.0
1.1
1.1
0.2
8.4
2020
£140
$102
€108
€61
—
N/A
2019
£122
$96
€109
€57
—
N/A
2020
78%
83%
89%
83%
—
82%
Trades (tradespeople)
(000)
2020
2019
39
24
3
66
36
28
N/A
64
Website visits (m)
2020
23.6
87.3
N/A
110.9
2019
79%
83%
89%
80%
—
82%
2019
17.9
83.2
N/A
101.0
1 Annual web visits not reported - eLocal acquired part way through the year on 26 November 2019.
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Strategic report | HomeServe plc Annual Report & Accounts 2020
UK
1.8m
Customers -11% from 2.0m
£140
Income per customer +15% from £122
4.9m
Policies -9% from 5.4m
HomeServe plc Annual Report & Accounts 2020
Financial performance
Net policy income increased by 2% with lower customer
numbers more than offset by a 15% increase in income per
customer, as retained customers continued to deepen their
product coverage.
Repair network revenue decreased by 18% as HomeServe
completed 0.9m jobs (FY19: 1.2m) for its customers. Lower
job volumes were driven principally by a lower customer
count year on year and changes in policy mix as well as
a small reduction resulting from the cessation of non-
emergency work (e.g. maintenance and boiler servicing) in
March owing to COVID-19.
HVAC revenue fell by 16%, driven by lower installation
volumes. In FY20 the business increased its focus on
providing installations for Membership customers and
reduced the number of sales outside of this. Approximately
100,000 customers from the 1.8m UK customer base will
require a new boiler installation each year. Accessing these
should require less marketing, provide a profitable revenue
stream and help strengthen relationships with existing
customers.
Other revenue of £12.8m (FY19: £13.3m) principally included
transactions with other Group companies and income for
non-insured, on-demand jobs.
Adjusted operating costs fell by 10% to £291.9m, due to
reduced direct costs as a result of lower job volumes and
customer acquisition as well as reduced overheads as a
result of decisions taken 12 months ago on changes to the
organisational design of the UK business.
As a consequence of these changes, adjusted operating
profit rose by 23% to £81.0m, with adjusted operating margin
up by five percentage points to 22%. The business will retain
its focus on efficiency in FY21 with a margin of c.20% seen as
sustainable over the longer term.
£million
Revenue
2020
2019
Change
Affinity partner
households
26m 26m
78%
Retention
rate
Net policy income
249.4
244.0
Repair network
89.5
108.9
Membership
338.9
352.9
HVAC
Other
21.2
12.8
25.5
13.3
Total revenue
372.9
391.7
Adjusted operating costs
(291.9)
(325.7)
2%
(18%)
(4%)
(16%)
(4%)
(5%)
(10%)
23%
3232
32
33
2019
2020
FY19: 79%
Adjusted operating profit
Adjusted operating margin
81.0
22%
66.0
17%
+5ppts
Strategic reportGovernanceFinancial statements Operating review
UK continued
On a statutory basis the UK segment recorded an
exceptional charge of £15.0m in relation to an impairment
of LeakBot reflecting slower uptake of the device from
consumers and insurance partners. The financial impact of
the exceptional charge is not shown in the adjusted results
but is discussed in further detail in the financial review.
service and reduce costs to serve. By combining the App
with a subscription-based consumer offer there is also an
opportunity to access homeowners that typically would not
consider the core Membership product but who frequently
buy other products and services on mobile devices and via
a subscription.
HomeServe has worked with the majority of UK water
utilities for a number of years. In February 2020 the UK
signed an agreement with one of the remaining providers,
Portsmouth Water, which will see HomeServe initially
offering plumbing and drainage products to Portsmouth’s
customer base of c.0.3m households. The first customer
policies have since been written, a pleasing result coming as
it does against the backdrop of the COVID-19 restrictions.
The UK continued to integrate its HVAC business. Help-Link,
the HVAC business acquired in 2017, was one of only a few
national HVAC providers in the UK and HomeServe UK is
now assessing larger regional providers in order to build a
pipeline of buy-and-build opportunities as it looks to follow
the wider Group’s HVAC growth strategy. Acquiring well
run, profitable HVAC companies with great local brands
where there is existing high policy density also creates the
opportunity to compete for the installations that the UK’s
1.8m customers require each year but that they currently
source elsewhere.
The Financial Conduct Authority’s (FCA) market study into
pricing practices across the General Insurance industry
was due to be published in the first quarter of 2020 but has
been delayed amidst the COVID-19 outbreak. HomeServe’s
focus remains, as ever, on providing products which
customers value and use and providing a transparent and
fair pricing journey. The business continues to provide all the
information necessary to ensure customers are able to make
well-informed decisions when choosing their products.
HomeServe continues to monitor the situation and remains
well positioned to address any recommendations the study
makes to the insurance industry.
The FCA has also published additional guidance for
insurance providers throughout the coronavirus pandemic
stating their expectation that firms display increased
awareness and respond flexibly to changing consumer
circumstances. HomeServe is keeping its customers
regularly informed via its many channels, including letters
and telephony as well as online and continues to closely
monitor the FCA’s updates.
Operational performance
UK customers were 1.8m (FY19: 2.0m) with retention at
78% (FY19: 79%). The UK business continued its focus on
serving its core customer base, for whom the HomeServe
proposition of a reliable and easy way to deal with home
repairs and emergencies remains as valued as ever. There
continues to be less emphasis on attracting and retaining
marginal customers through deep discounts. This approach,
combined with lower customer acquisition year on year,
drove a 15% rise in income per customer with the retention
rate remaining broadly in line with the prior year.
Customer satisfaction remains high with an
“Excellent” rating of 4.4 from 39k reviews on
Trustpilot (FY19: 4.3) and a Reevoo score of
96% (FY19: 96%).
The UK network of 800 directly employed engineers and
446 subcontractors completed 0.9m jobs (FY19: 1.2m). The
directly employed network fulfilled in excess of 90% of water
jobs and over half of gas jobs, with the remainder completed
by the subcontract network.
The UK business continues to pursue initiatives to transform
both the customer experience and operational efficiency.
HomeServe Now, HomeServe’s app-based technology to
swiftly identify a customer’s need and connect them directly
with an available engineer in close proximity to their home,
was trialled in further UK regions during the second half.
HomeServe Now has the potential to transform customer
34
34
Strategic report | HomeServe plc Annual Report & Accounts 2020 HomeServe plc Annual Report & Accounts 2020
Financial performance
Total revenue increased by 25% to $546.1m and total
adjusted operating profit increased by 23% to $108.6m as
North America continued its strong growth trajectory.
North America alone accounts for over a third of the Group’s
revenue and total adjusted operating profit.
Net policy income increased by 14% to over $450m as
income per customer passed the $100 mark, increasing by
6% to $102 and as the business added 0.4m customers.
Repair network revenue includes jobs performed by
HomeServe’s growing number of directly employed
engineers, including those employed by acquired HVAC
companies completing jobs for Membership customers, and
almost doubled to $39.5m (FY19: $20.5m).
HVAC revenue tripled to $53.3m (FY19: $17.6m) due to a full
year run rate of prior year HVAC acquisitions such as Cropp
Metcalfe and an additional three acquisitions in the period
for total consideration of $20.7m, the largest of which was
Crawford Services, HomeServe’s first acquisition in Texas.
Acquisitions in the year contributed just $15.9m of revenue
and $1.6m profit, with North American progress still very
much driven by organic growth.
The North America margin remained stable at 20% as total
adjusted operating profit exceeded $100m for the first time,
growing by 23% to $108.6m. HomeServe remains on track
to achieve its previously stated medium to long-term profit
milestone for its North America business of $230m.
North America
4.4m
Customers +9% from 4.0m
$102
Income per customer +6% from $96
7.5m
Policies +12% from 6.7m
Affinity partner
households
+6%
64m
60m
83%
Retention
rate
2019
2020
FY19: 83%
USD million
Revenue
2020
2019
Change
£million
2020
2019
Change
Revenue
Net policy income
354.9
303.3
Net policy income
451.2
396.8
Repair network
Membership
HVAC
Other
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
39.5
490.7
53.3
2.1
546.1
(437.5)
108.6
20%
20.5
417.3
17.6
1.3
436.2
(348.1)
88.1
20%
34
34
14%
93%
18%
Repair network
Membership
203%
HVAC
58%
Other
25%
26%
23%
Total revenue
Adjusted operating costs
Adjusted operating profit
—
Adjusted operating margin
35
35
30.6
385.5
42.4
1.6
429.5
(344.1)
85.4
20%
15.7
319.0
13.4
1.0
333.4
(265.8)
67.6
20%
17%
195%
21%
217%
60%
29%
29%
26%
—
Strategic reportGovernanceFinancial statements Both are great indications of the continuing appeal of
HomeServe’s services to utilities, even during the COVID-19
pandemic.
In December 2019 HomeServe acquired ServLine for total
consideration of $24.1m. ServLine works with over 150
rural water utilities across 18 states through an exclusive
partnership with the National Rural Water Association and
28 State Rural Water Associations. ServLine offers a unique
leak adjustment product to participating utilities protecting
both homeowner and utility from the cost of water lost
from leaking pipes. The leak product increases the range of
solutions HomeServe can offer homeowners and utilities,
providing further opportunities to increase the customer and
partner count as HomeServe looks to achieve its ambitions
in North America.
Two further acquisitions in the year were made in the
Whole Home Warranty space: American Home Guardian
and Nations were added for total consideration of $8.0m.
Both acquisitions contributed to HomeServe’s launch of
its TotalHome Warranty product, a cover-all approach to
the main systems and appliances in the home. The launch
has used TV and online channels to attract consumers
who are typically younger and more digitally minded than
HomeServe’s current customer demographic. As a much
broader product the TotalHome offer attracts a higher price
point and over time should provide a further opportunity to
increase income per customer.
The HVAC market in North America is highly fragmented
with tens of thousands of providers in a market estimated to
be worth $29bn annually. HomeServe is building a pipeline
of high quality HVAC businesses that can generate synergies
with Membership. HomeServe’s 4.4m customer base
generates hundreds of thousands of installation requests
every year which would usually go to competitors but which
marketing efforts can now direct to HomeServe’s own
HVAC businesses. By acquiring HVAC businesses in areas of
high policy density HomeServe can also use the acquired
workforces to complete repairs for the Membership business
and over time reduce its underwriting cost and contribute to
future margin growth.
Operating review
North America continued
Operational performance
Total customers increased by 9% to 4.4m driven principally
by organic growth and the continued success of
HomeServe’s utility-branded marketing campaigns which
added 1.2m (FY19: 1.2m) gross new customers in the year.
Supporting this customer growth is a core base of renewing
customers and the retention rate remained strong at 83%
(FY19: 83%). Customers are also opting for more cover, with
policies increasing by 12% to 7.5m and helping drive income
per customer over $100 to $102 (FY19: $96).
HomeServe continues to deliver high levels of service when
its customers need it most and in FY20 its network of 205
engineers and c.5k contractors completed 0.5m jobs (FY19:
195 engineers and c.5k contractors, 0.5m jobs). The business
retains its A+ Better Business Bureau rating and in March
2020 was once again honoured at the annual Stevie Awards
for Sales and Customer Service with 30 awards including
a gold award for “Innovation in Customer Service”. Recent
investments in technology and innovation such as Smart
IVR have proven invaluable in recent months, delivering
additional scale and flexibility to serve customers throughout
the challenges presented by COVID-19 in March and April.
In March 2020 HomeServe was once again
honoured at the annual Stevie Awards for
Sales and Customer Service with 30 awards
including a gold award for “Innovation in
Customer Service”
Providing great customer service is one of the key reasons
utilities trust HomeServe to provide products to their
customer base and HomeServe now works with over 950
utility and municipal partners (FY19: c.700) providing access
to 64m North American households under a utility brand
(FY19: 60m). Although the situation with COVID-19 inevitably
paused some utility partner discussions, HomeServe
continues to sign new partnerships and in April 2020 signed
Alabama Power for an additional 1.3m households and the
Municipality of Ottawa in Canada with 0.4m households.
36
Strategic report | HomeServe plc Annual Report & Accounts 2020 France
1.1m
Customers +5% from 1.1m
€108
Income per customer -1% from €109m
2.4m
Policies +2% from 2.3m
Affinity partner
households
18m
18m
89%
Retention
rate
2019
2020
FY19: 89%
Euro 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
2020
2019
Change
120.1
0.4
120.5
7.8
0.1
128.4
(89.4)
39.0
30%
115.6
0.5
116.1
1.7
0.9
118.7
(80.9)
37.8
32%
4%
(12%)
4%
355%
(90%)
8%
11%
3%
(2ppts)
2020
2019
Change
104.5
0.4
104.9
6.8
0.1
111.8
(78.0)
33.8
30%
101.9
0.4
102.3
1.5
0.8
104.6
(71.3)
33.3
32%
3%
(13%)
3%
348%
(89%)
7%
9%
1%
(2ppts)
Financial performance
2020 was another successful year for France, returning its
highest ever revenue of €128.4m (FY19: €118.7m) and highest
profit of €39.0m (FY19: €37.8m) whilst continuing to invest in
Membership and HVAC growth initiatives.
Net policy income increased by 4% to €120.1m driven
principally by a higher customer count and HVAC revenue
rose significantly to €7.8m (FY19: €1.7m) due to the full year
run rate of prior year HVAC acquisitions and five additional
acquisitions made during the year.
At 30% the French margin was lower than the prior year,
as expected, due to increased marketing to grow the
customer book but it remains the highest in the Group and is
sustainable in the long-term.
Operational performance
A 5% increase in customers to 1.1m was the strongest
percentage growth in France for five years and total gross
new customers of 0.2m was the highest ever. The business
prospered from a number of new relationships with non-
utility partners, e.g. JeChange and Papernest, as an active
business development team added six new energy retailers
in total and continues to grow the prospects pipeline.
HomeServe continued to generate new customers from
its existing water partnerships and Veolia, Suez and Saur all
added more customers this year than last but new partners
generated c.20% of new customer joins. Veolia is offering
HomeServe’s products in its call centres via its Homefriend
initiative, Suez has agreed to further direct mail campaigns
and all 15 Saur regions are now transferring prospect sales
calls to HomeServe.
The retention rate was strong at 89% (FY19: 89%) and remains
a good indication of the high levels of customer satisfaction
in French Membership. The business was awarded Elu
Service Client de l’Année for the fourth year in succession
and internally measured complaints statistics are close to all
time lows.
In HVAC the buy-and-build strategy added a further
five small acquisitions for total combined consideration
of c.€3.3m. The HVAC team is focussed on successful
integration of these businesses ensuring strong links are
made to enable the best cross-selling opportunities for
installations and Membership cover.
In November HomeServe France was awarded status as
a Great Place to Work, and in March 2020 ranked 23rd
amongst companies with 250 to 1,000 employees within
Best Place To Work 2020.
36
37
Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Operating review
Spain
1.0m
Customers -13% from 1.1m
€61
Income per customer +8% from €57
1.1m
Policies -16% from 1.3m
83%
Retention rate +3ppts from 80%
Financial performance
Total revenue in Spain increased by 11% to €176.6m as new
contracts drove an 18% increase in repair revenue in the
Claims business, acquisitions contributed to a 143% uplift in
HVAC revenue and Membership revenue was more resilient
than anticipated as initiatives were implemented to preserve
its back book of customers, and income per customer rose
by 8% to €61.
Adjusted operating costs grew by 10% to €153.5m as a result
of costs directly attributable to the increased repair revenue
and growing HVAC business line. The adjusted operating
margin rose slightly to 13% principally reflecting the benefit of
additional scale in the Claims business.
Operational performance
The Membership business had a good year and total
customers were 1.0m (FY19: 1.1m) as HomeServe continued
to explore opportunities for new partnerships to replace
the relationship with Endesa, which ended in May 2018. In
the absence of a major new partner the customer book will
continue to decline but the relationship with Endesa remains
positive with an extended billing agreement and continued
re-activation marketing. The retention rate increased to 83%
(FY19: 80%) and income per customer increased to €61
(FY19: €57) reflecting the increasing maturity of the book.
The customer number was also boosted by the addition
of a small policy book of c.30k from Sareteknika, an HVAC
provider, and a further 15k acquired with various smaller
HVAC acquisitions in the year.
The Claims business had its most successful year ever,
completing 1.0m jobs (FY19: 0.8m), a year on year increase of
17% despite a marked reduction in March due to the effects
of COVID-19. The increase in job volumes was driven by
successful business development activities and a number of
new partnerships including Bansabadell Seguros Generales.
The business is also working closely with Habitissimo to buy
leads which can be deployed to its existing network of 266
franchisees and c.2.2k subcontractors (FY19: 190 franchisees
and c.1.9k subcontractors).
HomeServe Spain made seven HVAC acquisitions in
the year including three policy books and four business
combinations (Somgas, Linacal, Tecno Arasat and Sate) for a
total cash outflow of €9.4m. The business continues to build
a pipeline of further potential acquisitions and in line with
the wider Group’s HVAC strategy, all acquisitions to date are
being integrated in order to generate maximum synergies
with the Membership business - cross-selling Membership
cover following an installation and marketing installations of
new HVAC appliances to the Membership customer base.
Euro million
Revenue
Net policy income
Repair network
Membership
HVAC
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
2020
2019
Change
£million
Revenue
56.3
108.2
164.5
12.1
176.6
(153.5)
23.1
13%
62.7
92.0
154.7
5.0
159.7
(139.9)
19.8
12%
(10%)
18%
6%
143%
11%
10%
16%
+1ppt
Net policy income
Repair network
Membership
HVAC
Total revenue
Adjusted operating costs
Adjusted operating profit
Adjusted operating margin
2020
2019
Change
49.2
94.4
143.6
10.5
154.1
(134.0)
20.1
13%
55.3
81.1
136.4
4.4
140.8
(123.1)
17.7
13%
(11%)
16%
5%
138%
9%
9%
13%
—
38
Strategic report | HomeServe plc Annual Report & Accounts 2020 Home Experts
39,000
Checkatrade trades +9% from 36,000
24,000
Habitissimo trades -13% from 28,000
3,000
Paying eLocal trades
Website visits 1
32%
23.6m
17.9m
5%
87.3m
83.2m
2019
Checkatrade
2020
2020
2019
Habitissimo
1 Excludes eLocal, acquired part way through the year in November 2019.
Financial performance
Total Home Experts revenue increased by 78% to £71.8m
principally as a result of a 30% increase at Checkatrade to
£38.5m and the addition of £22.1m revenue from eLocal,
which was acquired in November 2019. Habitissimo revenue
grew 4% to £11.1m despite a 4k reduction in trades as the
business increased its focus on serving and growing its larger
trades.
The total adjusted operating loss of £13.9m increased by 86%
due to increased marketing activity at Checkatrade, structural
changes at Habitissimo and the cost of an organic test of
Home Experts in France. eLocal generated an adjusted
operating profit for the four months post-acquisition
of $2.5m, below the anticipated $5m, due to increased
headcount to strengthen the team for its future growth
plans and the effects of COVID-19 that significantly reduced
demand in March.
On a statutory basis an exceptional gain of £3.6m was
recorded in relation to the acquisition of the remaining
30% of Habitissimo. This is discussed in further detail in the
Financial review.
Checkatrade
Checkatrade is making good progress to grow both sides
of its platform as it strives to achieve its milestone targets of
150k to 200k trades, average revenue per trade of £1,200 to
£1,300 and an adjusted operating margin of 25% to 35%.
Visitors to Checkatrade’s newly refreshed website grew by
32% and now benefit from additional functionality when
selecting and contacting trades such as ‘shortlist’ and ‘call
back’. Average revenue per trade grew by 10% to £1,023, total
trades grew by 9% to 39k and Checkatrade was on track for
slightly higher growth until the impacts of COVID-19 caused
numbers to fall in March.
£million
Revenue
Checkatrade
Habitissimo
France
eLocal
Total revenue
Adjusted operating costs
Adjusted operating loss
2020
2019
Change
38.5
11.1
0.1
22.1
71.8
(85.7)
(13.9)
29.8
10.6
—
—
40.4
(47.8)
(7.4)
30%
4%
—
—
78%
79%
86%
38
39
Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Operating review
Home Experts continued
Matching increased consumer web visits with high trades
growth has been a key focus of the business throughout
FY20. Gross trade acquisition of 16k was very successful but
a higher level of cancellations amongst members within
their first year slowed overall progress. Key to retaining these
trades is ensuring a fair distribution of work generated by
the increased visitor traffic amongst all trades. Initiatives to
achieve this, such as inserting new trades higher up the
search results pages for a period of time, had begun to take
effect and showed encouraging improvements early in the
final quarter.
Directory leaflets also play a crucial role in driving brand
awareness amongst consumers and generating work
that provides value for trades’ membership. Calls to leaflet
members in FY20 were up 42% year on year reflecting the
roll out to new geographies and an increased frequency of
leaflet ‘drops’ in some areas.
Back office changes to improve the platform and its
supporting systems to ensure the business scales effectively
and efficiently to meet its growth plans continue apace with
projects to automate the vetting process and implement a
new customer management system and billing engine well
underway.
The impact of COVID-19 has been particularly pronounced
in Checkatrade but proactive decisions taken to support
trades and offer options to pause or alter Memberships have
been well received and should serve to underline the value
of the platform to its trades in the future.
Habitissimo
In June 2019 HomeServe acquired the remaining 30%
of Habitissimo and appointed Sarah Harmon, previously
Country Manager of LinkedIn Spain and Portugal, as its new
CEO. Sarah spent the second half of the year building a new
commercial plan for the business and determining its future
priorities.
Learnings from other successful lead generation businesses,
including eLocal, show the benefit of offering a solution
for national accounts and larger trades companies. These
companies want a greater volume of leads and have
the support functions to enable them to maximise lead
conversion. HomeServe Spain’s Claims operation is a good
example of such a business and Habitissimo has been
working closely with them to develop its offer.
By focussing its efforts on increasing the volume and quality
of leads it generates, Habitissimo intends to grow its lead
generation business whilst also launching the directory
40
model under the HomeServe brand in Spain later in 2020.
To provide additional bandwidth and oversight, the decision
has also been taken to exit Argentina, Columbia and Peru,
Habitissimo’s three smallest LATAM territories.
eLocal
On 26 November 2019 HomeServe acquired 79% of eLocal
for £98.8m. eLocal is a fast growing Home Experts business
based in Philadelphia, in North America, with annualised
revenue of c.$90m, a network of 3k paying trades and a
directory of c.8.5m free listings. The key management team
has been retained with Bruce Aronow, one of the founders,
continuing as CEO.
eLocal’s business model most closely resembles lead
generation with a number of unique aspects that can be
applied in HomeServe’s other Home Experts businesses.
As well as using its own SEO and SEM (Search Engine
Optimisation and paid Search Engine Marketing), eLocal
utilises a wide network of affiliates to generate leads
principally via calls from consumers. These are then
monetised by matching to a network of trades, many of
whom are larger national accounts buying hundreds or
even thousands of leads a year. The focus on calls and
larger national accounts means that today eLocal generates
fewer web visits and has fewer paying trades than both
Checkatrade and Habitissimo so all business are already
working closely together to share best practice and initiatives
to drive future growth. eLocal is also looking at ways to work
more closely with the North America Membership business.
Financial performance for FY20 was lower than originally
anticipated with additional costs incurred to integrate the
business into a Plc environment and to introduce headcount
to prepare the business for its future growth plans. The
business was also impacted by COVID-19 with significantly
reduced demand in March. HomeServe now expects eLocal
to add in excess of $10m of adjusted operating profit in FY21
vs. previous guidance of $16m.
France
During the year Home Experts in France launched a test
with free basic website listings, upselling trades to enriched,
fuller profiles. Following the successful test, in May 2020
HomeServe entered into a new structure to scale the
business. The management team will now own 80%
with HomeServe taking a 20% stake with an option to
increase this in the future, once the business has achieved
national scale.
Strategic report | HomeServe plc Annual Report & Accounts 2020 New Markets
In January 2020 HomeServe announced that its Japanese
joint venture with Mitsubishi Corporation had signed its
first utility partnership, with Chugoku Electric a utility in
Western Japan serving 2.9m households. Responses to
initial marketing campaigns launched in January were
very encouraging with take-up rates approaching those
seen in North America. Marketing was paused as a result
of COVID-19 but the business continues to run tests and is
building a pipeline of other utility partnerships as it attempts
to grow its access to Japan’s 53m households.
The £4.7m loss also includes the cost of the international
business development team, which continues to prospect
and hold discussions in a number of other countries.
HomeServe saw limited opportunities for Membership
growth in Italy, so in line with its discipline of focusing
resources on the Group’s largest opportunities, the decision
was taken to exit the Italian operations. HomeServe sold
its 49% share in its Italian associate and 0.2m customers to
its partner and existing 51% shareholder Edison Energia for
cash consideration of £8.4m, giving rise to a £3.8m
exceptional gain.
£million
Adjusted operating loss
2020
(4.7)
2019
(2.4)
Change
91%
40
41
Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 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
2020
1,132.3
2019
1,003.6
158.6
(20.7)
181.0
(35.5)
152.6
(13.1)
161.7
(26.8)
Exceptional items
(7.6)
4.6
Statutory profit before tax
Tax
Profit for the year
137.9
(32.1)
105.8
139.5
(31.2)
108.3
Net finance costs
Net finance costs rose to £20.7m (FY19: £13.1m) due to the
unwinding of interest on deferred consideration in relation
to previous M&A activity, the impact of IFRS 16 and the
higher average net debt balance year on year combined
with a higher weighted interest rate as a result of US Private
Placements agreed in the prior year.
Exceptional items
The Group incurred the following exceptional items in the
year, amounting to a net charge of £7.6m (FY19: net gain
of £4.6m).
Consumers and insurance partners have been slower
than expected to adopt smart leak detection technology.
Following the Group’s annual budgeting process and
subsequent updates in light of COVID-19 HomeServe
completed an impairment review of the Group’s LeakBot
assets, concluding that the net assets of the business are
impaired, and incurring £15.0m of exceptional charges. This
conclusion has been reached based on a number of factors
affecting expected future cash flows including commercial
traction, access to investment and the pace of technology
change. Of the £15.0m, £12.9m related to the impairment
of development assets for the LeakBot device, £1.4m of
inventory and a £0.7m restructuring provision.
Attributable to:
Equity holders of the parent
Non-controlling interests
106.0
(0.2)
105.8
108.5
(0.2)
108.3
An exceptional gain of £3.8m was recorded in relation to
the sale of HomeServe’s Italian associate, Assistenza Casa,
principally representing the excess of the total £8.4m sale
proceeds over the carrying value of the investment in the
Group’s balance sheet.
Profit before tax
A strong operational performance driven by profit growth
in all Membership businesses resulted in a 12% growth in
adjusted profit before tax to £181.0m.
Statutory profit before tax is reported after the amortisation
of acquisition intangibles and exceptional items. On this
basis profit before tax was £137.9m (FY19: £139.5m) as
underlying profit growth was offset by net exceptional
charges of £7.6m recorded principally in the UK in relation
to the Group’s LeakBot asset.
A further exceptional gain of £3.6m was recorded in relation
to the purchase of the remaining 30% stake in Habitissimo,
principally representing the lower consideration paid of
£7.7m compared to the carrying value of the option liability
in the Group’s balance sheet.
The prior year exceptional item of £4.6m included 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. Offsetting
this 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 remote and that the fair value of the
outstanding liabilities was £nil.
Amortisation of acquisition intangibles
Acquisition amortisation relates to customer and other
contracts held by businesses, which were acquired by
HomeServe as part of business combinations and asset
purchases.
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Strategic report | HomeServe plc Annual Report & Accounts 2020
The amortisation of acquisition intangibles of £35.5m (FY19:
£26.8m) increased principally due to charges relating to prior
year M&A activity.
value of its investment by £3.7m. This movement, net of a
£0.8m reduction in the associated deferred tax liability, has
been recorded in the investment revaluation reserve.
Amortisation of acquisition intangibles is excluded from the
adjusted performance measures reported by the Group in
each specific reporting period, ensuring that these measures
only reflect the revenue attributable to, and costs incurred
by, the Group in managing and operating its businesses and
assets at that time in each reporting period. A reconciliation
between adjusted and statutory amounts is included with
the Glossary at the end of this announcement along with
further commentary on HomeServe’s use of adjusted items
as Alternative Performance Measures.
Tax strategy
The Group has continued to operate within the tax strategy
approved by the Board in May 2019. 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:
i) applies tax governance on an ongoing basis and
maintains strong internal controls in order to substantially
reduce tax risk;
ii) will not engage in artificial transactions the sole purpose
Free cash flow
of which is to reduce tax;
Acquisition of subsidiaries
(140.6)
Cash flow and financing
HomeServe’s business model continues to be highly cash
generative with free cash flow in FY20 of £93.4m (FY19:
£44.3m).
£million
2020
2019
Adjusted operating profit
201.7
Exceptional items
(7.6)
Amortisation of acquisition
intangibles
Operating profit
Impact of exceptional items
(35.5)
158.6
7.6
Depreciation and amortisation
109.1
Non-cash items
9.2
174.8
4.6
(26.8)
152.6
(4.6)
73.9
10.7
Increase in working capital
(44.1)
(30.4)
Cash generated by operations
240.4
202.2
Net interest and associated
borrowing costs
Repayment of lease principal
Taxation
Capital expenditure - ordinary
Capital expenditure - acquisitions
of policy books
Acquisition of non-controlling
interest
Acquisition of investments
Proceeds on disposal of equity
accounted investments
Equity dividends paid
Purchase of own shares
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
IFRS 16 lease liabilities acquired
(18.5)
(12.4)
(30.2)
(79.0)
(6.9)
93.4
(9.9)
(0.6)
(31.7)
(66.9)
(48.8)
44.3
(37.5)
(7.7)
—
—
(5.4)
8.4
—
(73.5)
(3.0)
(65.0)
—
0.1
2.2
(122.9)
(61.4)
(11.5)
(11.8)
(3.4)
(5.4)
(0.1)
—
—
—
Lease liabilities – adoption of IFRS 16
(52.6)
Movement in IFRS 16 lease liabilities
(2.1)
Opening net debt
Closing net debt
(304.7)
(237.8)
(509.0)
(304.7)
iii) holds a strategic aim to retain its low tax risk rating as
determined by the UK Tax Authority’s Business Risk
Review process; and
iv) works with all tax authorities in an open, honest and
transparent manner.
Tax charge and effective tax rate
The Group’s tax charge in the financial year was £32.1m
(FY19: £31.2m), representing an effective tax rate of 23%
(FY19: 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% (FY19:
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.
Other comprehensive income
At 31 March 2020 the fair value of the Group’s investment
held in a manufacturer of smart thermostat connected
home technology has been reassessed. In light of the
current market conditions and uncertainty associated with
the COVID-19 pandemic the Group has reduced the fair
42
43
Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Financial review
Continued
Working capital
Working capital absorption was £44.1m in FY20 (FY19:
£30.4m) slightly higher than guided, reflecting the expected
growth in all businesses, in particular in North America and
the adverse timing of underwriting payments in the UK.
Capital expenditure
Total capital expenditure of £85.9m (FY19: £115.7m) included
£6.9m (FY19: £48.8m) for the acquisition of five small policy
books across France, Spain and North America. Bolt-on
policy books continue to be a proven, comparatively low-
risk approach for acquiring additional customers. In FY19 the
cash outflow of £48.8m related principally to the second
tranche of the Dominion Products and Services policy book.
Ordinary capital expenditure of £79.0m included £21.0m
(FY19: £15.0m) of payments made to partners who
undertake marketing activity to acquire customers on
HomeServe’s behalf with the largest increase in France due
to higher sales completed by Veolia which helped drive
France’s highest ever new customers acquired.
The balance of £58.0m (FY19: £51.9m) principally
comprised technology investments in customer and
network management systems in Membership and
platform developments at Checkatrade. With major capex
programmes such as the UK Customer Relationship
Management system coming to an end, capital expenditure
is expected to fall.
HomeServe USA Holdings Corp. holds a call option which,
if exercised, requires certain non-controlling shareholders to
sell their remaining interests. This option is only exercisable
if in scope shareholders leave the company and are
not considered ‘Good Leavers’ as defined in the option
agreements. HomeServe currently assesses the likelihood
that any in scope shareholder would trigger this clause to be
remote and as such has determined that the fair value of this
call option is £nil.
An additional 14 businesses were acquired for an outflow of
£16.6m as the Group continued the pursuit of its HVAC buy-
and-build strategy in North America, France and Spain and
Membership added two whole home warranty providers,
enabling the North America business to gain experience and
a foothold in this growing market to support the launch of its
own TotalHome Warranty product.
In addition to the total net cash outflow on the acquisitions
above of £134.2m, deferred and contingent consideration
was paid relating to previous business combinations of
£6.4m (FY19: £10.4m).
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, particularly North America.
Acquisitions
M&A activity continued to support HomeServe’s growth
ambitions, incurring a cash outflow in the year of £140.6m.
There were three material acquisitions in the year, all in
North America;
Purchase of own shares
During the year 249,975 (FY19: nil) shares were repurchased
at a cost of £3.0m (FY19: £nil) to fulfil awards made under
share incentive schemes. No shares were transferred to
individuals to satisfy awards (FY19: nil).
• 79% of eLocal Holdings LLC for a net cash outflow of
£93.4m, bringing Home Experts to North America
• a group of assets constituting a business under IFRS
3 from Sunbelt Group LLC, “ServLine”, for an outflow
of £13.7m, expanding the product and partnership
opportunities of the North American Membership
business
• Crawford Services Inc., a HVAC service provider,
enhancing the scale and scope of HomeServe’s HVAC
capabilities, for a net outflow of £10.5m.
The acquisition of 79% of eLocal also provided HomeServe
with options to acquire the remaining 21% by FY26. Further
detail on the structure and operation of the different ‘put’
and ‘call’ options is disclosed in note 16. At 31 March 2020
the carrying value of obligations under these put options
was £31.3m.
Earnings per share
Basic earnings per share for the year decreased by 3%
to 31.7p from 32.7p due principally to the impact of the
exceptional items discussed above. On an adjusted basis,
earnings per share increased 10% from 37.5p to 41.3p. The
weighted average number of shares increased from 331.7m
to 334.2m principally due to new shares issued in fulfilment
of share schemes that vested in the year.
Dividends
Given the Group’s good performance, the Board’s
confidence in HomeServe’s continued short-term resilience
and its future prospects, the Board is proposing to increase
the final dividend to 17.8p per share (FY19: 16.2p) to be paid
on 3 August 2020 to shareholders on the register on 3 July
2020.
Together with the interim dividend declared in November
2019 of 5.8p (November 2018: 5.2p), this represents a 10%
increase in the total ordinary dividend payment for the year
44
Strategic report | HomeServe plc Annual Report & Accounts 2020 of 23.6p (FY19: 21.4p), which is 1.75x covered by the FY20
adjusted earnings per share (FY19: 1.75x).
Financing
In FY20 the Group continued to target net debt in the range
of 1.0-2.0x adjusted EBITDA, measured at 31 March each
year. With adjusted EBITDA of £275.3m and net debt of
£509.0m, including c.£60m of lease liabilities at 31 March
2020 following the adoption of IFRS 16 in this financial year,
the Group was inside its target range at 1.8x. Due to the
ordinary seasonality of the business, net debt is expected to
increase at the next half year before declining, absent any
future M&A.
Excluding lease liabilities, gross debt was c.£580m and cash
was c.£131m, giving the Group over £330m of headroom
against total available facilities of £780m. Included within
the facilities is a new £50m revolving credit facility added on
30 March 2020. With this headroom and with only £36m of
the facilities due within the next 12 months the Group is well
positioned to address the challenges posed by COVID-19.
Net interest and borrowing costs paid increased to £18.5m
(FY19: £9.9m) principally due to the higher net debt figure
year on year and a full year’s fixed interest charge on the
c.£175m US Private Placement agreed in October 2018.
At a Company only level HomeServe has replaced
intercompany receivables with an injection of capital into
its intermediary holding companies to better match their
funding requirements. There is no impact from this to the
consolidated Group financing position.
Foreign exchange impact
The impact of changes in the Euro and USD exchange rates
between FY19 and FY20 resulted in a £9.1m increase in the
reported revenue and a £1.3m increase in adjusted operating
profit of the international businesses as summarised in the
table below, largely as a result of a beneficial movement in
the US dollar. The impact of foreign exchange on statutory
operating profit was in line with this.
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 FY20 average
USD rate of 1.27 and the Euro rate of 1.15 would have had
approximately a £7.0m and £5.0m impact respectively on full
year adjusted operating profit.
The impact of future movements in the Yen in FY21
following HomeServe’s new joint venture in Japan is not
expected to be material.
IFRS 16
HomeServe has adopted IFRS 16 using the modified
retrospective ‘Asset = Liability’ approach with a date of
initial application of 1 April 2019. Comparative information
provided in this announcement has not been restated. The
effect of IFRS 16 on the income statement is to remove
operating lease charges previously shown within ‘operating
costs’, replacing them with depreciation and interest
charges that now result from the capitalisation of “Right of
Use Assets” and the recording of “Lease Liabilities” in the
consolidated balance sheet (see note 2 Accounting Policies).
There is no material impact on FY20 PBTA as a result of
adopting IFRS 16. The effect on adjusted operating profit at
a Group level is a reduction of £0.2m with the segmental
breakdown shown in the Glossary, at the end of this
announcement (see note 2).
Customers
HomeServe Membership’s growth strategy aims for the
business to provide its products to more homeowners.
It does this by successfully marketing its products to end
consumers and by delivering high standards of service.
HomeServe’s customer KPI measures its success in
achieving this aim.
Under IFRS 15 a customer is defined 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. The Glossary at the end of this announcement
provides further detail on customer definitions and the
associated effect this has on revenue recognition.
Foreign exchange impact
North America
France
Spain
Home Experts 1
Total International
$
€
€
€
Average exchange rate
Revenue Adj. operating profit
Effect on (£m)
2020
1.27
1.15
1.15
1.15
2019
1.31
1.13
1.13
1.13
Change
(3%)
1%
1%
1%
2020
12.1
(1.4)
(1.5)
(0.1)
9.1
2020
2.2
(0.7)
(0.2)
–
1.3
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.
44
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Section 172(1) statement
This statement aligns to the Section 172(1) statement
requirements contained in Section 414CZA of the
Companies Act 2006 (‘the Act’). It focuses on how the
Directors have had regard during the year to the matters set
out in Section 172(1) (a) to (f) of the Act when performing
their duties by incorporating information from other areas of
the Annual Report to avoid unnecessary duplication.
In the performance of its duty to promote the success
of the Company, the Board has regard to a number of
matters, including considering the views of shareholders
and the Company’s other key stakeholders to ensure it fully
understands the potential impacts of the decisions it makes
for our stakeholders, the environment and the communities
in which we operate.
HomeServe’s key stakeholders and the way in which we
interact and engage with them are shown on page 18. Whilst
these relationships are generally managed on a day-to-day
basis by the teams and Boards of our local businesses, certain
key decisions affecting our overall strategy or impacting our
principal risks will be escalated for discussion at Executive
and Plc Board Level. Key matters discussed in the year and
their impact on, amongst others, employees, customers
and shareholders such as our COVID-19 response and the
acquisition of eLocal are detailed on page 59.
The governance and processes that the Company operates to
ensure that relevant matters are considered by the Board are
set out in the Governance report.
The table below identifies where, in the Annual Report,
information on the issues, factors and stakeholders the Board
has considered in respect of Section 172(1).
The Board has had regard to the following matters:
More information:
Page
Long-term results – the likely consequences of any decision in the
long-term
Our workforce – the interests of our people
Our business relationships – the importance of developing the
Group’s business relationships with suppliers, customers and others
Strategic report
Chairman’s statement
Chief Executive’s review
Market overview
Business model
Strategy
KPIs
Principal risk and uncertainties
Viability statement
Governance
Board leadership and company purpose
Strategic report
Business model
Resources, relationships and responsibilities
Governance
Board leadership and company purpose
Nomination Committee report
People Committee report
Strategic report
Market overview
Business model
Resources, relationships and responsibilities
Governance
Board leadership and company purpose
The community and our environment – the impact of the Group’s
operations on the community and the environment
Strategic report
Resources, relationships and responsibilities
Our reputation – our desire to maintain our reputation for high
standards of business conduct
Our shareholders – the need to act fairly as between members of
the Company
Strategic report
Chairman’s statement
Chief Executive’s review
Resources, relationships and responsibilities
Strategic report
Chairman’s statement
Resources, relationships and responsibilities
Governance
Chairman’s overview
Board leadership and company purpose
Directors’ report
46
4
6
10
12
14
16
26
47
57
12
18
57
70
72
10
12
18
57
18
4
6
18
4
18
52
57
106
Strategic report | HomeServe plc Annual Report & Accounts 2020 Viability statement
In accordance with provision 31 of the UK Corporate
Governance Code July 2018, the Directors have
assessed the viability of the Group over a three year
period to 31 March 2023. 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 2020 were
initially reviewed by the Executive Committee in February
2020 and subsequently approved by the Board in March
2020 prior to the potential impact of COVID-19 being fully
assessed.
As a result of the COVID-19 pandemic all businesses have
subsequently modelled scenarios with varying levels of
severity; considering different timelines for emerging
from lockdowns and the resultant impacts on customer,
employee and supplier mobility and how this impacts profits
and cash flows. All businesses have also considered potential
upside factors such as increased demand as situations ease.
These scenarios have also been reviewed by members of the
Executive Committee and were approved by the Plc Board in
April 2020.
HomeServe’s rapid response to dealing with the crisis
provides confidence in its ability to meet a variety of trading
and operational challenges. Around 6,000 office-based staff
were mobilised to work from home ahead of government
imposed lockdowns and front line engineers have continued
to deliver high levels of service whilst completing emergency
repairs safely for customers. Key to maintaining a good
level of service in the UK has been the ability to keep the
supply chain open safely and effectively in order to provide
directly employed engineers with appropriate protective
equipment as well as the parts and materials necessary
to complete repairs. A Group COVID-19 taskforce was
assembled with representatives from all areas of the business,
meeting regularly to discuss emerging issues, review MI
(e.g. cancellation attempts, claims logged, completed jobs,
absence rates) and enact action plans.
The situation has been more difficult for the trades providing
non-emergency services in HomeServe’s Home Experts
businesses Checkatrade, Habitissimo and eLocal but in
Checkatrade, for example, the support provided to trades in
order to keep them on the platform will ensure Checkatrade
and its members will emerge from the lockdown in the
strongest position possible. In the year ended 31 March 2020
revenue from Home Experts represented less than 10% of
total Group revenue and the businesses incurred total losses
of £13.9m as they are still in an investment phase. The impact
of reduced Home Experts performance on the overall short-
term results of the Group is therefore less significant whilst
over the longer term the expectation is that these businesses
return to growth once investment plans are restarted as the
crisis subsides and lockdowns are eased.
Having demonstrated its ability to provide a continued
level of service, the response of HomeServe’s customers
further supports confidence that the business model is well
equipped to deal with increased challenge. Group retention
remained stable at 82% through April and early May 2020,
cancellation attempts remained in line with historic trends
and customer satisfaction remained strong.
In making this year’s Viability statement, the Board also
carried out a robust assessment of the principal risks facing
the Group. The Principal risk and uncertainties set 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 26)
which addresses its risk appetite and risk policy and continues
to review both emerging risks and opportunities. In the
financial year ended 31 March 2020 HomeServe formally
documented Sustainability as a new risk. 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 in the
Membership business
•
the impact of reduced customer focus across the Group
• 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 in the
Membership business
the impact of an extended lockdown period on consumer
demand and trade subscriptions at Checkatrade
the impact of operational challenges resulting from
COVID-19 including increased usage of subcontractors
over directly employed engineers.
•
•
•
•
47
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Viability statement
Continued
One new scenario has been introduced to Membership as
a result of COVID-19. The root cause of other reasonably
plausible impacts are the same under COVID-19 as under
HomeServe’s normal viability assessments. However, in
recognition of the significance of the COVID-19 impact the
range of impacts these assessments consider have been
modelled with increased severity over both the short and
long-term.
In addition to measures enacted in response to COVID-19
detailed above, 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
The new scenario in relation to requiring additional use of
subcontractors in the UK would result in additional expense
incurred in the short-term as the business carries the largely
fixed payroll costs of an under-utilised engineer network.
However the flexibility of being able to use subcontractors
ensures that customer claims continue to be serviced - a key
driver for strong retention rates which is one of Membership’s
key business drivers.
With specific reference to the Home Experts businesses,
scenarios have been modelled to reflect trades not buying
leads (at eLocal and Habitissimo) due to reduced consumer
demand/the inability of trades to carry out work due to social
distancing requirements, or trades being offered discounted
fees (at Checkatrade) for an extended period of time together
with a slower future growth in the number of trades on the
Checkatrade platform.
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 or continue for longer. 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 scenarios in sufficient
number 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.
• high customer retention
• a strong financial position with over £330m of headroom
in its debt facilities at 31 March 2020
• historic and ongoing compliance with all banking
covenants
• a small, but increasing, contribution from other business
lines with Home Experts and HVAC each growing
revenues this financial year.
HomeServe’s business model has demonstrated resilience
during previous times of economic downturn e.g.
throughout the financial crisis of 2008 and 2009 when
retention rates remained stable across the Group. In
particular, in Spain, where the financial crisis was particularly
pronounced, the business was also able to successfully grow
its customer count. More recently, Spain has demonstrated
the resilience of the model following the loss of a major
partner; the retention rate on the back book has increased
from 80% to 83% in FY20, and thanks to efficient cost control
and the diversification provided by the HVAC and Claims
businesses, both revenue and profits grew in FY20.
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 111m 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 8.3m 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 2023.
48
Strategic report | HomeServe plc Annual Report & Accounts 2020 Having also reviewed the Group’s position in respect of other
material uncertainties, including Brexit, which is reviewed
in more detail within the Principal risk and uncertainties on
page 26, the Directors have concluded that there are no
items that would affect going concern or that should be
separately disclosed. The Directors have concluded that they
have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the
foreseeable future. For this reason, they continue to adopt
the going concern basis in preparing the financial statements.
David Bower
Chief Financial Officer
19 May 2020
Going concern
The Group’s business activities, together with the
factors likely to affect its future development, including
the potential impact of COVID-19, on its performance
and position are set out in the Strategic report. The
Directors have reviewed the Group’s budget, forecast
and cash flows for FY21 and beyond, and concluded
that they are in line with their expectations with regards
to the Group’s strategy and future growth plans.
COVID-19
COVID-19 is having a deep and pronounced effect on the
world economy and the repercussions for many aspects of
society including, but not limited to, future economic growth,
government policy and changing consumer attitudes and
behaviour are likely to be felt for some time. The Directors
have assessed additional stress test scenarios which model
the potential impact of COVID-19 across the Group’s
different businesses and have also considered possible wider
macro implications. There is a high degree of uncertainty
for many businesses but HomeServe’s swift response to the
crisis means it is well placed to face the ongoing challenges
the crisis presents.
The business responded quickly and effectively to be able
to continue operating and respond to customers’ home
emergencies throughout the height of the lockdowns in
March and April 2020. Trading metrics remained stable over
this period with, for example, Group retention remaining
at 82%, cancellation trends in line with historic trends and
strong customer satisfaction scores. Having demonstrated
its ability to continue to provide a good level of service,
the resilience of the Group’s business model during times
of previous economic crisis provides confidence than
customers will continue to retain their cover and use the
service. The Group’s healthy funding position with £330m of
headroom on existing debt facilities and ongoing covenant
compliance provide a further level of confidence for the
future. Further detail on HomeServe’s response to COVID-19
and its potential impacts on the business can be found in the
Chief Executive’s review and in the Viability statement.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Non-financial information statement
Continued
The Group seeks to comply with the Non-financial Reporting requirements as detailed in the Companies Act 2006. The
below table, and information it refers to, is intended to help stakeholders understand our position on key non-financial
matters. Copies of policies referred to in the table can be accessed here: homeserveplc.com/about-us/corporate-
governance/policies
Requirement
Anti-bribery and
anti-corruption
Our policies
Where you can find out more
Financial Crimes and Sanctions
Whistleblowing
Resources, relationships and responsibilities
page 23.
Employees
Code of Business Conduct
Environment
Human rights
Social activities
HomeServe does not currently have a Group
wide policy on the environment. Individual
businesses engage in different activities for
the benefit of their local environments.
HomeServe does not currently have a
human rights policy but all businesses
are expected to comply with key policies
regarding e.g. employment rights and equal
opportunities.
Resources, relationships and responsibilities
page 23.
Resources, relationships and responsibilities
page 25.
Resources, relationships and responsibilities
page 23.
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 24.
Description of the principal
risks and impact of business
activity
Description of the business
model
Non-financial KPIs
N/A
N/A
N/A
Strategic report 2020
For and on behalf of the Board
Richard Harpin
Founder and Chief Executive
19 May 2020
Principal risk and uncertainties pages 26
to 31.
Business model pages 12 and 13.
KPIs pages 16 and 17.
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Strategic report | HomeServe plc Annual Report & Accounts 2020 Putting our customers first
HomeServe plc Annual Report & Accounts 2020
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Safeguarding the elderly
Keeping the elderly safe is crucial, and all our
tradespeople are taking strict precautions when
visiting the homes of the most vulnerable.
A 93-year-old customer from London praised
the considerate steps taken by Kevin from
Harrow, Wembley and Uxbridge-based Sirius
AV to fix her TV aerial. Not only did he carry out
all communication by telephone from his car
to adhere to social distancing, he was praised
highly for being “polite and hardworking.” The
customer couldn’t have praised him highly
enough for his considerate approach to social
distancing and even gave a tip because of his
professional service.
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020
Chairman’s overview
JM Barry Gibson
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 application of the new UK Corporate Governance Code has provided an opportunity for us to review how
our governance framework operates and whilst there are always opportunities to learn and develop, I was pleased that no
significant changes were needed to our existing practices.
Purpose and Board focus
As I explained in my introduction to the Strategic report, our purpose is to make home repairs and improvements easy, and I
believe that clarity of purpose makes it easier for the Board to operate and make decisions.
During the year the Board focused on promoting a disciplined approach to investing for growth, guided by our purpose
and our ambition to be able do every job, in every home. As presented at our Investor Day in June 2019, we believe that the
potential for highest returns is from investing in North America and in Home Experts. Acquiring new partners is the key to
accelerating growth in North America and the Board had the benefit during the year of visiting the US to review and challenge
the team’s plans.
On Home Experts, I am pleased to welcome eLocal to the Group. The opportunity to enter the Home Experts market in
our largest territory was supported wholeheartedly by the Board and we will continue to keep close to developments as the
business settles into the Group.
Stakeholders
The new reporting requirements in respect of stakeholders led us to review how we consider the views of, and engage with,
our stakeholders. We considered our activity in respect of each of the key stakeholders and where, as the business develops
and grows, future activity should be focused.
Shareholder engagement
All resolutions were passed at the 2019 AGM but there was 31% opposition to the Directors’ remuneration report due to
concerns around payments to two Directors who left us in 2018. We reviewed our remuneration policy as a result of the
feedback received and consulted with our major shareholders. As a result of that consultation process, we have updated the
policy on termination payments. Our remuneration policy will be subject to a vote at the 2020 AGM and further information
on the updated policy can be found on pages 85 to 92.
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Leadership and board effectiveness
As a Board, we need to ensure that we have the right people and leadership to deliver our strategy and plans. Talent is an
ongoing challenge in a growing business and the Board, through the People Committee, has encouraged Management to
ensure that we have the right resource to support our stretching plans for growth. We are making good progress in identifying
new talent and in developing our internal talent.
I am proud of how the business has reacted to the COVID-19 crisis. The way in which the leadership team and the workforce
rose to the multiple challenges presented by the crisis epitomised our three key cultural behaviours of courage, persistence
and integrity.
During the year, a questionnaire based review of the Board and its committees was facilitated by Lintstock Limited. Further
detail on the review is provided on page 68. Based on this review and my experience as Chairman, I am satisfied that the
Board and its Committees are performing efficiently and that there is an appropriate balance of skills, experience, knowledge
and independence to enable the Board to discharge its duties effectively.
Board changes
Stella David reached the end of her third term of appointment in November 2019. Having consulted with shareholders, we
have appointed her for one final term so that she can continue to lead the development of the People Committee. I am
delighted that we have been able to retain Stella. As she is no longer considered to be independent, she was replaced as
Senior Independent Director by Katrina Cliffe.
Future outlook
The COVID-19 pandemic has created great uncertainty for businesses across the world and there will no doubt be difficult
times ahead for everyone. Our appreciation of our homes has never been greater which means our purpose of making
home repairs and improvements easy has never been more relevant. I feel sure that continued discipline and focus at Board
level will help us thrive despite the challenging environment.
JM Barry Gibson
Chairman
19 May 2020
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Corporate governance statement | HomeServe plc Annual Report & Accounts 2020
Compliance and other statements
Compliance with the UK Corporate Governance Code
The principles set out in the UK Corporate Governance Code (‘the Code’) emphasise the value of good corporate
governance to the long-term sustainable success of listed companies. These principles, and the supporting provisions
cover five broad themes and the Board is responsible for ensuring that the Company has appropriate frameworks in place to
comply with the requirements of the Code.
The Board believes that throughout FY20, the Company has applied the principles and complied with the relevant provisions
of the Code save that our Chairman has been in post for longer than nine years and we are continuing to work to align
the pension contributions for Executive Directors to those available to the workforce. Explanations of these two points are
provided on pages 61 and 83 respectively.
The Code is available at http://www.frc.org.uk
Application of UK Corporate Governance Code Principles
The Code has placed increased emphasis on “apply and explain” with regard to the Principles of the Code. Our explanations
about how we have applied the main principles of the Code can be found as follows:
Board leadership and company purpose
Principle A
A successful company is led by an effective and entrepreneurial board,
whose role is to promote the long-term sustainable success of the
company, generating value for shareholders and contributing to wider
society.
Strategic report pages 2 to 51
Governance pages 52 to 110
Directors’ remuneration report pages 82 to 105
Principle B
The board should establish the company’s purpose, values and strategy,
and satisfy itself that these and its culture are aligned. All directors must
act with integrity, lead by example and promote the desired culture.
Principle C
The board should ensure that the necessary resources are in place for
the company to meet its objectives and measure performance against
them. The board should also establish a framework of prudent and
effective controls, which enable risk to be assessed and managed.
Strategic report pages 2 to 51
Board leadership and company purpose pages
57 to 60
Division of responsibilities pages 61 to 64
Directors’ remuneration report pages 82 to 105
Resources, relationships and responsibilities
pages 19 to 25
Principal risks and uncertainties pages 26 to 31
Section 172(1) Statement page 46
Audit, risk and internal control pages 73 to 75
Audit & Risk Committee report pages 76 to 81
Principle D
In order for the company to meet its responsibilities to shareholders and
stakeholders, the board should ensure effective engagement with, and
encourage participation from, these parties.
Resources, relationships and responsibilities
pages 19 to 25
Section 172(1) statement page 46
Shareholder relations page 60
Principle E
The board should ensure that workforce policies and practices are
consistent with the company’s values and support its long-term
sustainable success. The workforce should be able to raise any matters
of concern.
Resources, relationships and responsibilities
pages 19 to 25
Section 172(1) statement page 46
Board leadership and company purpose pages
57 to 60
Directors’ remuneration report pages 82 to 105
54
Division of responsibilities
Principle F
The chair leads the board and is responsible for its overall effectiveness in
directing the company. They should demonstrate objective judgement
throughout their tenure and promote a culture of openness and debate.
In addition, the chair facilitates constructive board relations and the
effective contribution of all non-executive directors, and ensures that
directors receive accurate, timely and clear information.
Principle G
The board should include an appropriate combination of executive and
non-executive (and, in particular, independent non-executive) directors,
such that no one individual or small group of individuals dominates
the board’s decision-making. There should be a clear division of
responsibilities between the leadership of the board and the executive
leadership of the company’s business.
Principle H
Board leadership and company purpose pages
57 to 60
Division of responsibilities pages 61 to 64
Division of responsibilities pages 61 to 64
Board biographies pages 65 to 67
Non-executive directors should have sufficient time to meet their board
responsibilities. They should provide constructive challenge, strategic
guidance, offer specialist advice and hold management to account.
Board leadership and company purpose pages
57 to 60
Division of responsibilities pages 61 to 64
Audit & Risk Committee report pages 76 to 81
Principle I
The board, supported by the company secretary, should ensure that it
has the policies, processes, information, time and resources it needs in
order to function effectively and efficiently.
Composition, succession and evaluation
Principle J
Appointments to the board should be subject to a formal, rigorous
and transparent procedure, and an effective succession plan should be
maintained for board and senior management. Both appointments and
succession plans should be based on merit and objective criteria and,
within this context, should promote diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths.
Principle K
Resources, relationships and responsibilities
pages 19 to 25
Board leadership and company purpose pages
57 to 60
Division of responsibilities pages 61 to 64
Audit, risk and internal control pages 73 to 75
Audit & Risk Committee report pages 76 to 81
Directors’ remuneration report pages 82 to 105
Nomination Committee report pages 70 to 71
Composition, succession and evaluation
page 68
The board and its committees should have a combination of skills,
experience and knowledge. Consideration should be given to the length
of service of the board as a whole and membership regularly refreshed.
Board biographies pages 65 to 67
Principle L
Annual evaluation of the board should consider its composition, diversity
and how effectively members work together to achieve objectives.
Individual evaluation should demonstrate whether each director
continues to contribute effectively.
Nomination Committee report pages 70 to 71
Composition, succession and evaluation pages
68 to 69
Audit, risk and internal control
Principle M
The board should establish formal and transparent policies and
procedures to ensure the independence and effectiveness of internal
and external audit functions and satisfy itself on the integrity of financial
and narrative statements.
Audit, risk and internal control pages 73 to 75
Audit & Risk Committee report pages 76 to 81
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Compliance and other statements
Continued
Audit, risk and internal control
Principle N
The board should present a fair, balanced and understandable
assessment of the company’s position and prospects.
Strategic report pages 2 to 51
Audit, risk and internal control pages 73 to 75
Audit & Risk Committee report pages 76 to 81
Financial statements pages 122 to 191
Principle O
The board should establish procedures to manage risk, oversee the
internal control framework, and determine the nature and extent of the
principal risks the company is willing to take in order to achieve its long-
term strategic objectives.
Principal risks and uncertainties pages 26 to 31
Viability statement pages 47 to 49
Audit, risk and internal control pages 73 to 75
Audit & Risk Committee report pages 76 to 81
Remuneration
Principle P
Remuneration policies and practices should be designed to support
strategy and promote long-term sustainable success. Executive
remuneration should be aligned to company purpose and values, and
be clearly linked to the successful delivery of the company’s long-term
strategy.
Strategic report pages 2 to 51
Board leadership and company purpose page
57 to 60
Directors’ remuneration report pages 82 to 105
Principle Q
A formal and transparent procedure for developing policy on executive
remuneration and determining director and senior management
remuneration should be established. No director should be involved in
deciding their own remuneration outcome.
Principle R
Directors should exercise independent judgement and discretion when
authorising remuneration outcomes, taking account of company and
individual performance, and wider circumstances.
Directors’ remuneration report pages 82 to 105
Directors’ remuneration report pages 82 to 105
Viability and going concern
Statements in respect of viability and going concern are set out on pages 47 to 49.
Robust assessment of emerging and principal risks
The Board confirms that they have carried out a robust assessment of emerging and principal risks facing the Group
(including those which would threaten the business model, future performance, solvency or liquidity), its appetite with
respect to those risks and the systems required to mitigate and manage them. Details on the review process are set out on
pages 73 to 75. Further details on the emerging and principal risks and uncertainties can be found on pages 26 to 31.
Annual review of systems of risk management and internal control
The Board 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
pages 73 to 75.
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 position, performance, business model and strategy. Details on
the process for arriving at this conclusion are set out on page 79.
Section 172(1)
The Directors have performed their duty under Section 172(1) of the Companies Act 2006. The statement on how this duty
has been fulfilled is contained in the Strategic report on page 46.
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Board leadership and company purpose
The Board
The Board is responsible for the effective leadership and long-term success of the Group and our purpose is at the heart of
Board discussions. 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 stakeholders and how we engage with them
• Our governance and controls.
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, and their potential impacts, on a regular basis but the focus
changes depending on business priorities and where the biggest potential lies. Home Experts continues to be a key focus
and ongoing investment in that business has been made possible by continued growth in Membership.
There has been continued focus on the plan to acquire HVAC businesses in each of our territories with the Board regularly
reviewing the performance of acquired businesses along with the development of the strategy.
We plan to continue to grow our business internationally and the Board has regularly discussed potential opportunities in
new territories. Regular updates have been received on the development of our joint venture in Japan, where the first utility
partnership was signed in January 2020.
As well as looking for new opportunities, the Board also reviews existing activity and considers whether there is anything that
the business should stop doing. During the year this led to the sale of our stake in our Italian associate.
Our purpose, values and culture
Our purpose is to make home repairs and improvements easy and this is underpinned by our values. The culture set by the
Board is intended to deliver performance and growth whilst maintaining high standards of business conduct. Central to our
focus on culture has been the development of the HomeServe Way (see page 20) which sets out the essential behaviours,
skills and knowledge needed to be effective at HomeServe, based on the fundamentals of courage, persistence and integrity.
The People Committee of the Board (see page 72) reviews the results of the regular employee engagement surveys and uses
these reviews as the principal means of assessing the culture across the Group. Questionnaires are completed by employees
on an anonymous basis and the process is facilitated by an external provider.
The Board gains valuable insight and feedback from the Executive Directors in respect of the culture and behaviour across
the Group and the internal audit function also considers culture as part of its reviews.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Board leadership and company purpose
Continued
Board Activity in FY20
Strategy, operations and finance
• Received regular updates from the Executives on trading
• Reviewed the Group’s brand strategy
performance
• Considered a number of international development
• Approved the annual budget and business plan
opportunities
• Reviewed and approved the Group’s FY19 and half year
• Received regular updates on M&A activity
FY20 results (including dividends)
• Approved the FY19 Annual Report (including a fair,
balanced and understandable assessment) and 2019
AGM Notice
• Reviewed the Group’s debt, capital and funding
arrangements
• Received updates on business plans and strategic
initiatives (Checkatrade, Whole Home Warranty,
HomeServe Now, On Demand to Policy)
• Received updates on technology related developments
• Discussed and input into the content for the Investor Day
held in June 2019
• Considered and approved a proposal to accelerate the
purchase of management’s shares in Habitissimo
• Approved the acquisition of a majority holding in eLocal
• Discussed and evaluated the HVAC strategy
• Discussed environmental strategy and approved a
number of actions
Leadership and people
Internal control and risk management
• Reviewed the succession plan for the Board and
• Reviewed the principal risks and uncertainties
Executive team
• Considered organisational design and approved
changes required to deliver the Group’s strategy
• Discussed the talent pipeline and in particular, how
diversity could be improved
• Reviewed and confirmed the Group’s viability
statement and going concern status
• Reviewed and validated the effectiveness of the
Group’s systems of internal controls and risk
management
• Received regular updates from the Chair of the People
• Received updates on health and safety
Committee
• Received updates on social responsibility activity in
each of the businesses
Governance and legal
• Considered and approved the Group’s tax strategy
• Received updates on corporate governance developments, in particular, compliance with the new UK Corporate
Governance Code
• Reviewed the matters reserved for the Board and the terms of reference of its committees to ensure compliance with
the new Code
• Received reports on engagement with investors and other stakeholders
• Conducted an externally facilitated evaluation of the Board’s effectiveness and discussed the outcome
• Received regular reports from the Chair of the Audit & Risk Committee
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Our stakeholders
Engagement with our main stakeholders is summarised on page 18 of the Strategic report.
Our business environment presents us with opportunities and challenges and it is vital for the Board to respond to these while
continuing to grow our business and maintain our reputation. The Board seeks to understand the views of our stakeholders
and engage with many of them to ensure that stakeholder interests can be considered during our discussions and decision
making.
The importance and influence of stakeholder groups differs depending on the matter being discussed. It is possible for
stakeholder interests to conflict and when this happens, the Board uses its judgement to reach a final decision.
The Board is advised of stakeholder views in a number of different ways:
• The monthly Business Review
• Business updates
• Presentations on strategic developments
• Updates on international development
• People Committee updates
• Succession plans
• Employee engagement survey results
• Annual General Meeting
• Corporate governance and regulatory development updates
• Presentations from external advisers and internal experts.
Stella David has been appointed as the designated workforce engagement Director and this activity is covered in the People
Committee report on page 72.
Detailed below are some examples of matters discussed during the year and how the Board considered our stakeholder
groups.
Matter discussed
Decisions
How the Board or Committee had regard to stakeholders
Stakeholder groups considered
COVID-19 response Decision taken not
to furlough staff and
to launch services
to support health
workers in the UK
during the crisis
Acquisition of
eLocal
Decision taken to
acquire a majority
shareholding in
eLocal
Shareholders, employees,
customers, community,
government
Consideration was given to:
• how we could maintain our services
to customers (particularly vulnerable
customers) during the crisis
• how we could keep our workforce safe
• how our core skills could be leveraged to
•
support key workers
the impact of these decisions on our
ability to deliver our strategic plans and
returns for shareholders.
Consideration was given to:
• extending the range of services available
Shareholders, customers,
employees
to our customers
• use of our capital and the impact on
•
returns for shareholders
the cultural fit of the business with
HomeServe and how it would be
managed.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Board leadership and company purpose
Continued
Relations with shareholders
The Board, on the Company’s behalf, recognises the need to maintain an active dialogue with its shareholders. The Chief
Executive and Chief Financial Officer meet regularly with institutional investors and analysts to discuss the Company’s
performance and all shareholders have access to the Chairman and the other Directors, who are available to discuss any
questions which they may have in relation to the running of the Company. All major shareholders were given the opportunity
to meet with the Chairman during the year but only one chose to do so.
We ensure that all Directors are fully aware of the views of major shareholders. Copies of all analysts’ research relating to
the Company are circulated to Directors upon publication. The Board receives a monthly Investor Relations report which
includes an analysis of the Company’s shareholder register as well as any feedback received from shareholders and analysts.
Feedback is actively sought following the Interim and Preliminary Results presentations and presented to the Board.
All resolutions were passed at the 2019 AGM but there was 31% opposition to the Directors’ remuneration report due to
concerns around payments to two Directors who left us in 2018. We reviewed our remuneration policy as a result of the
feedback received and consulted with our major shareholders. As a result of that consultation process, we have updated the
policy on termination payments. Further details are set out on page 83.
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.
Whistleblowing
A whistleblowing 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. The policy is
available on our website http://www.homeserveplc.com/about-us/corporate-governance/policies
All reports are formally investigated by the Assurance & Risk Director with support from relevant functions within the business.
Incidents and their outcomes are reported to the Audit & Risk Committee and the Board. A number of calls were made to the
external hotline during the year and management action was taken where appropriate. No issues were raised that required
any direct action from the Board.
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Division of responsibilities
The Chairman of the Board, Barry Gibson, is responsible for the effectiveness of the Board. He was independent on
appointment but has now served as Chairman since 2010 . As reported last year, we consulted with shareholders and gained
support to appoint Barry for one final term (from April 2019 to April 2022) during which we would start a process to recruit his
successor. That process is now underway.
The roles of the Chairman, Chief Executive and Senior Independent Director are clearly defined and written specifications are
available on our website: http://www.homeserveplc.com/about-us/corporate-governance/
At least half of the Board, excluding the Chairman, are independent Non-Executive Directors; there are five Non-Executive
Directors (excluding the Chairman) and three Executive Directors. Four of the Non-Executive Directors are considered to
be independent. Stella David is no longer considered to be independent as she has served on the Board for more than nine
years. Shareholders were consulted before her appointment was renewed for one final term.
Stella David acted as Senior Independent Director until she reached the end of her third term of appointment in November
2019. Katrina Cliffe replaced Stella as Senior Independent Director.
The Board
The Board has a Schedule of Matters specifically reserved to it for decision and has approved the written terms of reference of
the various Committees to which it has delegated its authority in certain matters.
Matters reserved to the Board include:
•
•
•
•
•
•
the 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
Chairman
Key responsibilities
Chief Executive Officer
Senior Independent Director
• The effective running of the Board
• Management of the Group
• Supporting the Chairman on
• Direction and focus
• Developing and proposing strategy
governance issues
• Guardian of the decision making
•
Implementing Board decisions
process
• Maintaining an active dialogue with
• Provide challenge
the Chairman
• Ensures the Board receives accurate,
timely and clear information
• Leading shareholder
communication.
• Maintaining relationships with
Executive and Non-Executive
Directors.
• Acting as a sounding board for the
Chairman and a trusted intermediary
for other Directors
• Leading the annual review of the
Chairman’s performance
• Leading the process to find a new
Chairman.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Division of responsibilities
Continued
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
People Committee
Audit & Risk Committee
Remuneration Committee
• Makes recommendations
to the Board on the
appointment of Directors
• Reviews the size, structure
and composition of the
Board
• Considers succession
planning arrangements for
Directors and other senior
managers.
Committee report on pages
70 to 71.
• Determines, agrees and
oversees the people
strategy for the Group
• 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 page
72.
• 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
76 to 81.
• 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 82 to 105.
The element on the activities
of the Remuneration
Committee on pages 93 to
105 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.
62
Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 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.
During the year, Barry Gibson was appointed as Chairman of GVC Holdings plc. He discussed this with the Board during the
recruitment process and it was agreed that given Barry’s tenure and experience at HomeServe, coupled with the fact that he
was in his final term as Chairman, he had sufficient bandwidth to take on another Chairman role.
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 and other meetings
Eight regular meetings are usually 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 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 FY20, the Board held its annual strategy meeting in the US where it was able to meet with the management team
as well as spend time with the wider workforce. An additional meeting was also arranged so that the Board could visit
Checkatrade’s new location in Portsmouth in order to benefit from more detailed insight into that business.
The Chairman and Non-Executive Directors meet at least annually without the Executives. In addition, the Senior
Independent Director held a private meeting of the Non-Executive Directors without the Chairman being present to assess
his performance. It was concluded that Barry Gibson’s performance and contribution were strong and he continues to
demonstrate effective leadership and commitment to the business.
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.
Board
Audit & Risk Committee
Remuneration Committee
People Committee
D Bower
R Harpin
T Rusin
K Cliffe
S David 1
J M B Gibson
E Fitzmaurice
O Grémillon
R McMillan
9/9
9/9
9/9
9/9
9/9
9/9
9/9
9/9
9/9
3/3
3/3
3/3
5/5
4/5
5/5
1/1
1/1
5/5
3/3
3/3
3/3
3/3
3/3
3/3
1/1
1 Stella David was unable to attend one meeting of the Remuneration Committee as she was appearing as a witness in legal proceedings unrelated to the Company.
Nomination Committee meetings are held on an ad hoc basis as required. In FY20, succession was considered by the
Board and diversity was considered by the People Committee. As such, the standing committee did not meet during the
year. Specific sub-committees are established for new appointments to the Board and a sub-committee was established
during the year to progress the search for a new Chairman. The activities of the Nomination Committee and related sub-
committees are described on pages 70 to 71.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Division of responsibilities
Continued
Executive Committee
Members
Richard Harpin (Chairman)
David Bower
Deb Dulsky
Mike Fairman
Guillaume Huser
John Kitzie
H Stephen Phillips
Fernando Prieto
Greg Reed
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 66 to 67.
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Composition, succession and evaluation
Board of Directors and Executive Team
BOARD OF DIRECTORS
JM Barry Gibson (68)
Chairman
Richard Harpin (55)
Chief Executive
David Bower (48)
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: 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 GVC Holdings plc
Committee memberships: Executive,
People
Committee memberships: Executive,
People
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, where
he qualified as a Chartered Accountant, and
then later Deloitte LLP.
Key areas of prior experience: Accountancy,
audit, investor relations, mergers and
acquisitions
Principal current external appointments:
None
Tom Rusin (51)
Global CEO, Membership
Appointed to the Board: May 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
Katrina Cliffe (53)
Senior Independent Director
(Independent)
Appointed to the Board: May 2017
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.
Stella David (56)
Non-Executive Director (Not Independent)
Appointed to the Board: November 2010
Committee memberships: People (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: Financial
services, membership services
Key areas of prior experience: Marketing,
drinks industry, international
Principal current external appointments:
Non-Executive Director of Cembra Money
Bank AG, London and Country Mortgages
Limited, Naked Wines plc
Principal current external appointments:
Chairman of C&J Clark Ltd, Non-Executive
Director of Bacardi Ltd and Norwegian
Cruise Line Holdings
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Composition, succession and evaluation
Board of Directors and Executive team continued
BOARD OF DIRECTORS
Edward Fitzmaurice (57)
Non-Executive Director (Independent)
Olivier Grémillon (40)
Non-Executive Director (Independent)
Ron McMillan (67)
Non-Executive Director (Independent)
Appointed to the Board: May 2017
Appointed to the Board: March 2019
Appointed to the Board: October 2017
Committee memberships: Audit & Risk,
Nomination, Remuneration
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
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
Committee memberships: Audit & Risk
(Chair), Remuneration, Nomination, People
A Chartered Accountant, Ron worked in
PwC’s assurance business for 38 years and
has extensive knowledge and experience in
auditing, financial reporting and governance.
During his time at PwC, his roles included
Global Finance Partner, Chairman of the
North of England and Deputy Chairman and
Head of Assurance for the Middle East.
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
EXECUTIVE TEAM
Anna Maughan (50)
Company Secretary
H Stephen Phillips (53)
CEO, Global Partnerships
Guillaume Huser (53)
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
66
Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Greg Reed (50)
CEO, HomeServe UK
John Kitzie (66)
CEO, HomeServe North America
Fernando Prieto (54)
CEO, HomeServe Spain
Committee memberships: Executive
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, Trustee of Talent Rise
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
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
Mike Fairman (53)
CEO, Checkatrade
Deb Dulsky (49)
Global CEO, HVAC
Committee memberships: Executive
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
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 in M&A and business development at
Affinion Group. She was previously a Non-
Executive Director of The Ambassadors
Group.
Key areas of prior experience: Business
development, M&A, marketing, international
Principal current external appointments:
Principal current external appointments:
None
None
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Composition, succession and evaluation
Continued
Board composition
The Board is comprised of 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.
Short biographies of each of the Directors, including their membership of Committees, are set out on pages 65 to 66.
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.
Succession
We recognise the importance of ensuring that there is an appropriate pool of talented and capable individuals to fill senior
roles and a succession planning process has been established across the Group to facilitate this. The process identifies
emergency, short-term and long-term successors for each role and therefore allows any training and development
requirements or recruitment issues to be highlighted. Each business and corporate function prepares and maintains
succession plans with the support of local and Group 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.
Board evaluation
The Board has implemented a formal process for reviewing its own effectiveness, that of its Committees and its individual
members. The Board evaluation is facilitated by Lintstock Limited. Lintstock Limited has no other connection with the
Company or to individual Directors.
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.
Length of tenure of Chairman
and Non-Executive Directors
Board Independence
Board Gender Diversity
2
2
1
1
1
3
4
1
7
0 - 3
years
3 - 6
years
6 - 10
years
10+
years
Executive Director
Chairman
Non-Executive (Independent)
Non-Executive (Non Independent)
68
4
2
2
3
0
M F
Total board
M F
Executive
M F
Non-Executive
Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 In FY20, Directors completed online evaluation questionnaires in January 2020 and Lintstock compiled a formal written
report summarising the Directors’ views. This report was discussed by the Board in March 2020. Key findings included:
• a high overall level of satisfaction with the functioning of the Board, the competence and capabilities of the Directors and
•
•
the quality of relationships between members of the Board
the level of support and challenge provided by the Board to management was viewed positively
the performance of the Committees was rated positively including the nature of the work undertaken on behalf of the
Board.
The main areas identified by the Board for continued focus during FY21 were:
•
•
the process to identify a successor to the Chairman and implement a more formal succession plan for the Non-Executives
the monitoring and challenge of technological and digital programmes
• ongoing, in-depth monitoring of the competitive environment and the changing needs of customers.
As a result, discussions on customer needs, competition and technology and change have been added to the Board’s
forward agenda. In addition, the Company Secretary has been asked to develop a formal succession plan for the Non-
Executives for discussion during the year.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Composition, succession and evaluation
Nomination Committee report
Members
J M Barry Gibson (Chairman)
Katrina Cliffe
Stella David
Edward Fitzmaurice
Ron McMillan
Responsibilities
The primary responsibilities of the Committee are to:
• make recommendations to the Board on the appointment of Directors
• review the size, structure and composition of the Board
• consider succession planning arrangements for Directors and other senior managers.
The Committee has adopted formal terms of reference which are available on our website
http://www.homeserveplc.com/about-us/corporate-governance/committees
Key issues considered during the year
A specific sub-committee of the Board was appointed during the year to commence a search for a new Chairman. The
process is being led by Katrina Cliffe, our Senior Independent Director and the other members of the sub-committee are
Ron McMillan, Stella David, Edward Fitzmaurice and Richard Harpin. The relationship between Chairman and Chief Executive
Officer is of paramount importance and it was therefore agreed that it was vital to ensure that Richard’s views could be
considered early in the process.
Three leading consultants were interviewed and Spencer Stuart were selected to assist in the search. Spencer Stuart has
undertaken both non-executive and executive searches for the Group with one executive search currently ongoing. It has
no other current connection to HomeServe or to individual Directors. Spencer Stuart is a signatory to the Voluntary Code of
Conduct for Executive Search Firms.
Spencer Stuart spoke to all members of the Board in order to inform the candidate specification. They then presented a long
list of candidates for consideration. The sub-committee met to consider the long list and agree which potential candidates
should be approached. Active discussions are underway with a number of individuals and interviews are being arranged. We
currently expect to announce a successor for the Chairman during FY21.
Succession planning
Board succession plans are considered by the Board as a whole and the plan for the wider senior management population is
considered by the People Committee. Further details are set out on page 68.
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Diversity
We are committed to ensuring that our Board is appropriately diverse and that it 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 diversity of experience and personal strengths
are 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.
22% of the Board is currently female. 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.
We have made significant improvement in respect of our global senior leadership team which now has 33% female
representation but there is more to do at Executive Committee and Board level. We are committed to accelerating our
focus on this and have agreed to work towards 33% female representation on a combined basis across our Board, Executive
Committee and their direct reports by March 2021, moving us towards the targets set out in the Hampton Alexander report.
More information on talent and diversity is provided in the Strategic report on page 21.
JM Barry Gibson
Chairman
19 May 2020
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Composition, succession and evaluation
People Committee report
Members
Stella David (Chairman)
Katrina Cliffe
J M Barry Gibson
Ron McMillan (appointed 27 March 2020)
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
• 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 People
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 a deep pool 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.
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.
The Committee has been closely involved in the UK team’s plans to establish an apprenticeship academy. Skilled and
experienced tradespeople are central to our purpose and there is currently a shortage of such people in all of our territories.
Offering apprenticeships directly and in partnership with our trades and sub-contractors allows us to invest in the future and
ensure that we can keep delivering the needs of our customers.
Workforce engagement
I am the nominated Non-Executive Director in respect of workforce engagement and to support me in that role, we have
established an International People Forum. The Forum is made up of representatives from each of our businesses and it
met for the first time during the year. Our initial discussions focused on the local plans devised in response to the employee
engagement survey and provided a useful opportunity to share best practice. The intention is that the Forum
will meet twice a year and I fully expect that as the agenda develops it will provide a unique insight into the
views and concerns of our workforce across the world.
The Committee also monitors progress with overall employee engagement, and I would like to
congratulate our businesses in France and North America for achieving Great Place to Work status.
Stella David
Chairman
19 May 2020
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Audit, risk and internal control
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 the setting
of risk appetite. The Audit & Risk Committee has a key role to play in overseeing risk management and internal controls and
advising the Board thereon. More detail in respect of the role of the Audit & Risk Committee is provided in the report of that
Committee on pages 76 to 81.
The Board is responsible for reviewing the effectiveness of risk management and internal control systems and 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 47 to 48 and page 79. The principal risks and
uncertainties are set out on pages 26 to 31.
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
Oversight is provided by the various control functions including risk, compliance and specialist functions such as health and
safety and information security. The 2nd line provides advice to the Board and the Audit & Risk Committee on risk appetites,
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.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Audit, risk and internal control
Continued
Risk management cycle
Risk appetite
Risk appetite is defined as the amount and type of risk we are willing to pursue or retain in order to meet our strategic
objectives. Our assessment of risk appetite is guided by our vision and mission and informed by our strategic objectives. It is
used as a measure against which all of our current and proposed activities are tested.
Risk appetite is reviewed bi-annually to ensure that it is aligned with strategy.
Risk framework
A risk framework is in place across the Group which includes risk appetite, materiality 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.
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Half year and annual consolidated accounts are prepared and verified by the 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 pages 47 to 48.
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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
All members of the Committee are independent Non-Executive Directors and the Committee as a whole has competence
relevant to our sector. I am a chartered accountant and 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 has served on risk and audit committees elsewhere. Edward Fitzmaurice 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 FY20
review concluded that the Committee was operating effectively and benefited from a high quality cycle of work.
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Responsibilities
The primary responsibilities of the Committee are to:
• monitor, on behalf of the Board, compliance with and the effectiveness of, the Group’s accounting and internal control
systems
• review the independence of the external auditor and agree their terms of engagement and remuneration
• review the scope of and outputs from the external audit
• approve the scope of the work undertaken by and the outputs from the work done by internal audit
• make recommendations to the Board on accounting policies and their application
• review the annual and interim financial statements before they are presented to the Board
• review the Group’s overall risk appetite, tolerance and strategy
• monitor, on behalf of the Board, current and emerging risk exposures
• receive reports from compliance functions and review and approve the means by which the Group seeks to comply with
its regulatory obligations.
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 FY20. Details of meeting attendance are set out on page
63. The timing of Committee meetings is arranged to accommodate the release of financial information, the approval of the
external and internal audit plans and the review of the outputs of those plans. In addition to scheduled meetings, I met with
the CFO and members of his team, the Assurance & Risk Director and the external auditors 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
Internal audit effectiveness and independence
External audit
External audit plan
External audit reports
External audit effectiveness and independence
Risk
Risk registers
Other matters
Regulatory compliance activity
IT security
Post investment reviews of acquisitions
May 2019
November 2019
February 2020
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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 pages 47 to 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.
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 2020 of £510m 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 satisfied itself that the accounting policies for revenue
are compliant with IFRS 15 and considered whether any changes were
needed to take account of COVID-19.
The Committee reviewed the ‘headroom’ to ensure that the value
in use supported the carrying value of the net assets with particular
regard to the potential impact of COVID-19 and satisfied itself that no
impairment was required.
Business combinations
During the year the Group completed a number of
acquisitions including a 79% shareholding in eLocal Holdings
LLC for £98.8m. The Group also entered into a put and call
option agreement to purchase the remaining 21% equity
interest over a period of up to 5 years.
The Committee reviewed the Group’s accounting for acquisitions
and satisfied itself that it was appropriate. Particular focus was given
to: the valuations of the eLocal intangible assets and put and call
options; along with the allocation of the put option payments between
amounts recognised at acquisition and amounts recognised as post
acquisition employee benefit expenses.
Capitalisation of development costs
The Group has incurred significant costs in relation to the
development of new IT systems.
Exceptional items
During the year, the Group acquired the final 30% of
Habitissimo, disposed of its holding in its Italian associate
and took the decision to impair the LeakBot asset.
COVID-19 impact
The COVID-19 pandemic has had an impact in all of
HomeServe’s territories
The Committee considered the benefits due to be delivered and the
costs, noting that the new CRM system in the UK was now in use for
front book policies and back book migration had commenced. It
satisfied itself that the discounted benefits of the new systems were
significantly higher than the carrying value of the asset.
The Committee considered the assumptions behind each of these
judgements and satisfied itself that they were appropriate, and were
indeed, exceptional in nature.
The Committee considered the impact of COVID-19 on the financial
sustainability and operational resilience of the business, taking into
account the additional stress testing completed as part of the going
concern and viability assessments. It satisfied itself that the business is
well placed to face the ongoing challenges of the crisis.
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.
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Board statements
Going concern
The Committee reviewed whether it was appropriate to adopt the going concern basis for the preparation of the Annual
Report and considered a report from management. Consideration was given to the Group’s three year forecasts, availability
of committed bank facilities, expected headroom under the financial covenants and the impact of the COVID-19 pandemic.
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. Additional stress tests had been completed to take account of
COVID-19.
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 set out on page 49.
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 set out on pages 47 and 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, 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.
Robust assessment of emerging and principal risks
The Committee completed a robust assessment of the emerging and principal risks by reviewing detailed risk registers and
considering the mitigating actions being taken.
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.
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 FY20, 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 73 to 75. Details in respect of the
principal risks and uncertainties are set out on pages 26 to 31.
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.
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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 and the lead audit partner rotates every five years. The current lead
audit partner, Peter Birch was first appointed for FY20.
Prior to each audit or review, Deloitte presented their plan to the Committee for discussion. 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 2018 to March 2019 and the proposed improvement plans arising from the report. The Committee noted that no firm
inspected achieved the quality targets set by the FRC and will monitor progress against the improvement 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 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.
The Committee has noted the changes to EU audit legislation and the UK adoption of this legislation, which requires
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. The Committee is also mindful of the restrictions which now apply to firms providing non audit
services in the two year period prior to an audit appointment. A recommended course of action will be proposed to the
Board in 2021. 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 £1,369,000 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.
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Corporate governance statement | HomeServe plc Annual Report & Accounts 2020 Internal audit
The Committee reviews and approves the internal audit plan which is based on an assessment of the risks faced by the
Group. The internal audit team undertakes an initial review of the 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.
During the year, the Committee received 51 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.
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.
The Committee has discussed the performance of internal audit and I have met with PwC. The Committee believes that
internal audit performs in a very professional manner, provides constructive challenge and demonstrates a realistic and
commercial view of the business.
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. 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
19 May 2020
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Directors’ remuneration report
Dear Shareholder
I am pleased to present the Remuneration report for the year ended 31 March 2020.
Performance and reward
FY20 was another successful year for HomeServe in which we delivered double digit revenue and profit growth and
continued to invest for the future. More detail on performance during the year is set out in the Strategic report on pages 2
to 51.
The stretching financial targets for the Group have been met but there was only partial achievement in respect of the non
financial targets. Despite strong customer growth in Membership, particularly in North America and France, the growth in
the number of trades in Home Experts fell short of the stretching target. The continued focus on delivering great customer
service meant that the customer dissatisfaction target was met in full.
On employee engagement, the annual employee engagement survey was due to be run in March 2020. Given the
COVID-19 crisis, it was agreed that it was not appropriate to run the survey due to the operational challenges being faced
by the whole workforce. The Remuneration Committee evaluated this element based on the interim survey completed half
way through the year and a COVID Care survey run to assess the impact of the crisis on our people, which reflected the
tremendous efforts made to keep the business running during the crisis. On the basis of this evidence, it was agreed that it
was appropriate to pay the part of the bonus relating to employee engagement in full.
In respect of longer-term performance, the LTIP awards granted in 2017 will vest in full in June 2020. The awards were based
25% on TSR performance and 75% on adjusted earnings per share (EPS) performance. HomeServe’s TSR performance to 31
March 2020 was 118.3% (compared to the FTSE 250 Index TSR of 14.7%) and EPS growth of 15.26% 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.
A strong record of performance over the past three years and particularly in FY20 has led to commensurate payments to the
Executive Directors, as indeed it has for colleagues across our business.
The Committee’s activities during the year are described in more detail later in this report.
Remuneration policy renewal
The current policy was approved by shareholders at the 2017 AGM and in line with regulatory requirements is subject to a
vote at the forthcoming AGM. Ahead of the policy renewal, the Committee reviewed the current arrangements in the light of
feedback received from shareholders in recent years, developments in remuneration governance and market best practice
and undertook a shareholder consultation.
We acknowledge that some investors were concerned about termination payments made last year to two former directors
and as a result voted against the remuneration report at the AGM in 2019. We have taken this feedback into account and are
recommending a policy going forward that specifically addresses these concerns.
82
The Committee believes that the current policy has served the Company and its stakeholders well. The policy includes a
number of features that are already in line with the new UK Corporate Governance Code, including the two year holding
periods for vested LTIP awards and the ability to apply malus and clawback to bonus and LTIP awards. However, in order
to maintain alignment with changes in market best practice, several changes are proposed to take account of governance
developments and recent investor feedback. An overview of the proposed changes is set out below.
a) Termination Arrangements
The current policy allowed for flexibility in the declaration of notice periods for departing Executive Directors (which, last
year, allowed for notice periods to commence for two directors after their redundancies were announced publicly, in effect
extending payment of salary, pension contributions and benefits continuation beyond 12 months from announcement). In
response, the Committee is proposing that the policy be amended to allow payment of no more than 12 months’ pay from
the date of announcement (i.e. notice would be served concurrently with announcement).
b) Pension
The current policy for Executive Directors allows for pension contributions (or cash in lieu) of up to 20% of salary. Our pension
provision for employees in the wider workforce is varied, as summarised below:
• The majority of the UK workforce receives a defined company contribution of 6% of salary;
• A small number of senior managers in the UK receive a 10% defined contribution rate, or cash in lieu, with pensionable
salary capped at £148k (which increases each year in line with inflation).
Our proposal for the new policy is to align the maximum company contribution for new Executive Directors with the majority
of the wider workforce, up to a maximum of 6% of salary. For existing directors, it was agreed that contributions would be
reduced to the level of the workforce not later than the end of 2022.
c) Post-cessation shareholding requirements
Under our current policy, any share awards to Executive Directors retained by good leavers will vest on their normal vesting
date, but there is no formal requirement to maintain a shareholding post cessation. While employed, Executive Directors have
a minimum shareholding requirement of 300% of salary, which is above market for a company of our size.
We are therefore proposing to implement a guideline for post-cessation shareholding requirements which is in line with
the more usual shareholding level of 200% of base salary; this would apply for two years post cessation and would apply to
shares awarded after the implementation of the new policy.
d) LTIP
No changes are being recommended to the structure of the LTIP, since we believe it continues to work well for the company
and it received very strong support from shareholders when we renewed the plan in 2018. We are currently considering the
performance criteria for the awards in FY21, taking into account the context of the COVID-19 pandemic and will announce
the details when awards are granted.
The Remuneration Committee is satisfied that the remuneration policy continues to work effectively and supports our
strategy as an entrepreneurial, customer focused business.
Katrina Cliffe
Chairman of the Remuneration Committee
19 May 2020
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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
1,570
4,029
3,238
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
£000's
Key
Salary
Benefits
Pension
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 96.
Weighting
Target/Stretch
Actual
% Payable
Financial measures Group profit before tax
20%
£181.0m
£181.0m
Group net debt - year end
Group net debt - half year
Non financial
measures
Customer growth
Trades growth
Customer dissatisfaction
Employee engagement
Personal targets
£515.8m
£449.7m
£444.5m
£415.0m
8.2m
8.3m
81k
5.0
74%
66k
4.6
n/a
5%
5%
20%
5%
20%
5%
20%
100%
100%
100%
100%
0%
100%
100%
70-100%
FY20
89-95%
payout
LTIP Outcome
Adjusted earnings per share
(75% weighting)
Relative TSR
(25% weighting)
25%
20%
15%
10%
5%
0%
150%
100%
50%
100%
vesting
6%
Threshold
15%
Stretch
15.26%
HomeServe
0%
14.66%
Threshold
66.74%
118.31%
Stretch
HomeServe
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Directors’ remuneration policy
The Directors’ remuneration policy was approved by shareholders at the 2017 AGM and as required under the regulations, will
be re-submitted to shareholders for approval at the 2020 AGM. An overview of the proposed changes to the policy is set out
in the Chairman’s letter.
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 during the year by Aon plc and considered by the Committee in May
2020. 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
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.
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Directors’ remuneration policy
Continued
Element
Purpose and link to strategy
Performance Period
Operation (including performance measures and maximum limits)
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).
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.
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.
Performance awards and matching awards are subject to
challenging performance conditions. Performance is measured
over a performance period of at least three years and a two year
post vesting holding period applies.
Newly appointed UK based Executive Directors may receive a
pension allowance that is aligned with the majority of colleagues
(currently 6% of salary in the UK), 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.
Current Executive Directors receive a pension allowance of 20% of
salary, which may be taken as a cash allowance in lieu. This benefit
will reduce to the level of the workforce no later than December
2022.
Other benefits include a fully expensed car (or cash alternative),
fuel allowance, private health cover (for the individual, partner and
dependant children), death in service benefits (up to 8 x salary) and
permanent health insurance.
Other benefits may be provided as appropriate and Directors can
access HomeServe products and services on the same terms as
offered to employees.
Any reasonable business related expenses (including tax thereon)
may be reimbursed if determined to be a taxable benefit.
There is no maximum limit on the value of the benefits provided
but the Committee monitors the total cost of the benefit provision.
86
Pension
To provide benefits
comparable with
similar roles in similar
companies.
N/A
Other
benefits
N/A
Provides a
competitive
package of benefits
to assist with
recruitment and
retention of staff.
Element
Purpose and link to strategy
Performance Period
Operation (including performance measures and maximum limits)
All Employee
Share Plans
To encourage
employee share
ownership.
Chairman
and Non-
Executive
Directors’
fees
To attract and retain
Non-Executive
Directors of the right
calibre.
N/A
N/A
The Executive Directors may participate in any employee share
plans offered by the Company on the same terms as other
employees.
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.
Performance measures
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.
The choice of measures may change for future award cycles, but is currently based on the following:
Metric
Type of Award
Link to strategy
Profit Before Tax
Customer/Trades
Growth
Reduced Customer
Dissatisfaction
Personal Strategic
Objective
Earnings per Share
(EPS)
Total Shareholder
Return (TSR)
Bonus
Bonus
Bonus
Bonus
LTI
LTI
Core short-term profitability metric
Core non-financial top line volume metric aligned with our growth
strategy
Core non-financial quality metric that contributes to long-term customer
retention and reflects operational improvement
One unique non-financial personal strategic objective reflecting a “must
win” goal for that individual in the year
This provides an assessment of the profitability of the Group over the
longer-term and is strongly aligned to the execution of the business
strategy. Challenging targets are set for each award cycle based on
internal and external forecasts.
This measures the total return provided to shareholders through share
price appreciation and dividends. 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 the introduction of new measures to be applied to future
award cycles.
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Directors’ remuneration policy
Continued
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 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 will vest for achieving the threshold performance hurdle.
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 applies to all awards. There is a minimum period of five years from the date of grant of an award
before shares can be sold. To the extent that nil cost options are exercised after the three year vesting point, but before five
years, the net of tax value of the vested shares must continue to be held. The dividend roll up on unexercised nil cost options
will continue until five years from grant. This five year view provides a longer-term perspective to the incentive programme
than the three year performance period.
Clawback
The Committee has the power to reclaim some, or all, of a cash bonus and vested LTIP awards (performance and matching)
in exceptional circumstances, such as misstatement of financial results, an error in assessment of performance, the use of
misleading information and/or gross misconduct on the part of the individual. The Committee’s power was strengthened in
2018 as part of the LTIP review process.
88
Shareholding guidelines
It is the Board’s policy that Directors build up and retain a minimum shareholding in the Company. A formal policy in respect
of the shareholding requirement was adopted during FY19. Each Director is encouraged to hold shares of at least equal value
to three times their annual basic salary or fee. 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).
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 on page 101.
The policy 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.
We are proposing to implement a guideline for post-cessation shareholding requirements of 200% of base salary; this would
apply for two years post cessation and would apply to shares awarded after the implementation of the new policy.
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 during the year
in respect of the renewal of the policy.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Directors’ remuneration report | HomeServe plc Annual Report & Accounts 2020
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.
'
)
s
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
R
£4,500
£4,000
£3,500
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£0
£3,948
67%
£3,070
57%
£2,251
47%
£730
21%
19%
15%
$4,333
69%
$3,338
60%
$2,410
50%
£2,531
67%
£1,968
57%
£1,443
47%
£468
21%
19%
15%
$686
22%
20%
15%
100%
32%
24%
18%
100%
32%
24%
18%
100%
28%
20%
16%
Minimum
Target
Maximum
Minimum
Target
Maximum
Maximum
+ 50%
share price
growth
Minimum
Target
Maximum
Maximum
+ 50%
share price
growth
Maximum
+ 50%
share price
growth
R Harpin
D Bower
T Rusin 1
Key
Total fixed pay
Annual bonus
Long-term incentives
1 Tom Rusin is paid in USD and the USD amounts have been converted to GBP for illustrative purposes.
Assumptions
Fixed:
On target:
Maximum:
Maximum plus share price growth: The maximum scenario above but illustrating the impact of a 50% increase in the share price on the LTIP awards.
Fixed pay only (salary plus benefits plus pension).
Target annual bonus of 80% of salary plus target LTIP awards in FY21 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.
Salary levels (on which other elements of the packages are calculated) are based on salaries as at 31 March 2020.
The value of taxable benefits is based on the actual values paid in FY20.
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.
90
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
D Bower
R Harpin
T Rusin
Date of contract
3 February 2017
18 January 2002
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. From the date of the announcement of an Executive Director’s termination, any payment would be
capped at 12 months’ pay (that is, notice must be served concurrent with the announced departure).
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).
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Directors’ remuneration report | HomeServe plc Annual Report & Accounts 2020
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
K Cliffe
S David
E Fitzmaurice
J M B Gibson
O Grémillon
R McMillan
Date of contract
23 May 2017
23 November 2019
23 May 2017
1 April 2019
29 March 2019
27 October 2017
Outside Appointments
Executive Directors may hold one outside appointment and can retain any fees received.
92
Annual report on remuneration
This part of the report has been prepared in accordance with Part 3 of the revised Schedule 8 set out in The Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, and 9.8.6R of the Listing
Rules. The annual report on remuneration will be put to an advisory shareholder vote at the 2020 Annual General Meeting.
Remuneration Committee Members
Katrina Cliffe (Chairman)
JM Barry Gibson
Stella David
Edward Fitzmaurice (appointed 30 January 2020)
Olivier Grémillon (appointed 30 January 2020)
Ron McMillan
All of the members except Stella David are independent Non-Executive Directors. The Board determined that the Company
Chairman, Barry Gibson, should remain a member of the Committee taking account of the fact that he was considered to be
independent on appointment and also that, as a former Chairman of the Remuneration Committee, his knowledge of the
development of the remuneration policy and practices at HomeServe is invaluable. He takes no part in discussions relating to
his own remuneration.
Responsibilities
The principal role of the Remuneration Committee is to set the framework and policy for remuneration of the Board of
Directors, both Executives and Non-Executives, and the Executive Committee. In determining these arrangements, the
Committee takes account of the employment conditions and remuneration arrangements across the Group, seeking to
ensure they align with common objectives and are based on the same principles. Insofar as possible, we ensure they also
follow similar structures, since this is the most reliable way of ensuring transparency. We aim to offer a remuneration package
that is sufficiently attractive to attract and appropriately reward the leadership team required to successfully run a complex
international Group.
The primary responsibilities of the Committee include:
• Determining the Group’s overall remuneration strategy
• Determining the remuneration packages of the Executive Directors and other members of the Executive Committee
• Selecting the measures and setting the performance criteria for the annual bonus and LTIP; and, at the end of the
performance periods, evaluating performance against these criteria and determining if discretion should be applied in
determining the final level of payment
• Approving the grant and exercise of executive share-based long-term incentive arrangements and overseeing the
operation of other share-based plans across the Group
• Agreeing the terms and conditions of service agreements with Executive Directors, including termination payments
• Monitoring the pay of the Executive Committee whose pay is set against that of the whole workforce; in this regard, the
Committee reviews internal relativities and pay ratios, and invites the Group People Director to its meetings to provide a full
picture of pay and conditions across the Group
• Considering the guidance issued by shareholders, their representative bodies and proxy agencies (including the
Investment Association and Institutional Shareholder Services) on matters related to executive compensation and
corporate governance; further, the Committee encourages an open dialogue with shareholders throughout the
year, soliciting feedback and consulting their views ahead of enacting significant changes to the Policy Report or its
implementation.
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Annual report on remuneration
Continued
The Committee’s terms of reference were reviewed during the year to ensure they were aligned to the new UK Corporate
Governance Code. 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 renewal of the remuneration policy.
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 ending 31 March 2020 amounted to £80,384
(excluding VAT). Aon also provided additional remuneration advisory services to the Company during the year ending
31 March 2020 which fell outside of its support to the Remuneration Committee. These fees amounted to £23,445
(excluding VAT).
The Committee has also received assistance from Richard Harpin, Group Chief Executive, David Bower, Chief Financial
Officer, Kate Keyworth, Group People 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.
94
Remuneration for the year under review (Audited)
Executives
D Bower
R Harpin
T Rusin 1
M Bennett 2
J Ford 3
Non-Executives
K Cliffe
S David
E Fitzmaurice
O Grémillon 4
J M B Gibson
R McMillan
C Havemann 5
Total FY20
Total FY19
Year
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
FY20
FY19
Salary
and fees
£000
Taxable
benefits 6
£000
Pension 7
£000
Bonus
£000
LTIP 8
£000
Total
FY20
£000
Total
FY19
£000
375
328
585
574
519
494
—
129
—
309
68
62
70
78
55
55
55
—
263
250
65
65
—
41
2,055
2,385
18
20
28
29
9
10
—
6
—
15
—
—
—
—
—
—
—
—
—
—
—
—
—
—
55
80
75
66
117
110
9
9
—
26
—
62
—
—
—
—
—
—
—
—
—
—
—
—
—
—
201
273
356
246
538
430
462
361
—
98
—
219
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,356
1,354
746
395
2,761
4,538
2,239
3,313
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,746
8,246
1,570
4,029
3,238
—
—
68
70
55
55
263
65
—
9,413
1,055
5,681
4,187
259
605
62
78
55
—
250
65
41
12,338
1 Tom Rusin 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 FY20.
2 Martin Bennett left the Board on 20 July 2018.
3 Johnathan Ford left the Board on 31 December 2018.
4 Olivier Grémillon was appointed to the Board on 29 March 2019.
5 Chris Havemann retired from the Board on 1 December 2018.
6 Benefits comprise company car, fuel allowance and medical insurance.
7 Details of pension contributions can be found later in the report.
8 The figures for FY19 have been updated to reflect the actual share price on vesting for the 2016 award. The figures for FY20 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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Annual report on remuneration
Continued
Details of variable pay earned in the year (Audited)
Annual Bonus
For FY20, the annual bonus was based on the following stretching targets:
Financial and non financial bonus targets for David Bower and Richard Harpin
Weighting
% Payable at
Threshold
Threshold
Target/Stretch
Actual
% Payable
25%
£172.0m
£181.0m
£181.0m
£515.8m
£449.7m
£444.5m
£415.0m
8.2m
81k
8.3m
66k
100%
100%
100%
100%
0%
Financial
measures
Group profit before tax
Group net debt - year end
Group net debt - half year
Non financial
measures
Customer growth
Trades growth
Customer dissatisfaction
(measured as a weighted
average level of customer
dissatisfaction across the
UK, US, France and Spain)
Employee engagement
20%
5%
5%
20%
5%
20%
5%
Financial and non financial bonus targets for Tom Rusin
—
—
—
—
—
—
—
—
—
—
—
—
5.0
74%
4.6
1
100%
100%
Weighting
% Payable at
Threshold
Threshold
Target/Stretch
Actual
% Payable
Group profit before tax
20%
25%
£172.0m
£181.0m
£181.0m
100%
Financial
measures
Membership net debt -
year end
Membership net debt -
half year
Non financial
measures
Customer growth
Trades growth
Customer dissatisfaction
(measured as a weighted
average level of
customer dissatisfaction
across the UK, US, France
and Spain)
Employee engagement
5%
5%
20%
5%
20%
5%
—
—
—
—
—
—
—
—
—
—
—
—
£392.3m
£358.8m
100%
£349.0m
£393.3m
8.2m
81k
8.3m
66k
100%
100%
0%
5.0
74%
4.6
1
100%
5%
1 The annual employee engagement survey was due to be run in March 2020. Given the COVID-19 crisis, it was agreed that it was not appropriate to run the survey due to the
operational challenges being faced by the whole workforce. The Remuneration Committee considered the tremendous efforts made to keep the business running during the
crisis,the results of the interim survey completed half way through the year and a COVID Care survey run to assess the impact of the crisis on our people. On the basis of the evidence
presented, it was agreed that it was appropriate to pay the part of the bonus relating to employee engagement in full.
96
Personal bonus targets
Objectives
Weighting Outcome
D Bower
• Establish a framework for HVAC
20%
Key achievements included:
% Payable
100%
M&A.
• Deliver a successful Investor Day.
• Develop additional long-term
incentives for new businesses.
• Deliver significant IT cost savings.
•
Implemented a streamlined approvals
process which has increased deal
flow.
• The Investor Day won best
external event at the Corporate
Communications Awards.
• Special Value Creation Plan
implemented for Home Experts and
Japan.
• Budgeted savings were delivered.
R Harpin
• Purchase remaining 30% of
20%
Key achievements included:
85%
Habitissimo and appoint a new
management team.
• Prove out at least three elements
of the new Checkatrade model.
• Accelerate the development of
LeakBot.
• Sign first utility partnership in
Japan.
• Remaining shares purchased and new
CEO appointed.
•
Implemented a new recruitment
model for Checkatrade and added
shortlist capability and video
quotations.
• LeakBot rolled out by one UK insurer
and trials commenced in the US.
• Signed Chugoku Electric and
commenced marketing.
T Rusin
• Test HomeServe Now.
20%
Key achievements included:
70%
• Prove out Whole Home
• HomeServe Now tested in both the
Warranty.
UK and the US.
• Deliver the HVAC operating plan
and progress the M&A pipeline.
• Launch a fully digital version of
HomeServe Membership.
• Purchased two whole home warranty
businesses and developed winning TV
advertising.
• Developed HVAC operating plans in
each territory and the M&A pipeline.
• Completely digital customer journey
launched in the US.
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Annual report on remuneration
Continued
The stretching financial targets for the Group have been met but there was only partial achievement in respect of the non
financial targets. Despite strong customer growth in Membership, particularly in North America and France the growth in
the number of trades in Home Experts fell short of the stretching target. The continued focus on delivering great customer
service meant that the customer dissatisfaction target was met in full.
Having reviewed performance, the following bonuses were payable:
Name
D Bower
R Harpin
T Rusin
Bonus £
356,250
538,366
461,654
% of salary
95%
92%
89%
Annual bonuses are paid in cash but 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 2017 LTIP performance and matching awards were granted on 27 June 2017. The performance awards were granted in
two parts with different performance conditions applying to each part.
The performance conditions for the performance and 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 2020
TSR equal to
the FTSE 250
index
TSR exceeds
the index by an
average of 15%
p.a.
118.3%
100%
EPS
75%
3 years to
31 March 2020
Compound
annual growth
of 6%
Compound
annual growth
of 15%
15.26%
100%
Based on the strong performance of HomeServe over the performance period the stretch performance targets were
exceeded and the awards will vest in full in June 2020. A two year post-vesting holding requirement applies to the awards.
The 2017 awards have been valued for the purpose of the remuneration table on page 95 using the average share price over
the last three months of the financial year.
98
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 2020
Awarded during year
Lapsed during year
Vested during year
31 March 2019
Date granted
Type of award
D Bower
R Harpin
T Rusin
—
59,250
46,247
45,117
47,468
40,789
—
—
111,632
107,547
87,133
84,691
74,438
71,453
—
—
93,920
83,823
74,699
67,192
65,926
62,030
—
—
—
—
47,468
40,789
—
—
—
—
—
—
74,438
71,453
—
—
—
—
—
—
65,926
62,030
—
—
—
—
—
—
1,912
—
—
—
—
—
—
—
1,408
—
—
—
—
—
—
—
31,779
—
—
—
—
—
209,426
155,521
—
—
—
—
—
—
154,216
112,223
—
—
—
—
—
—
31,779
59,250
46,247
45,117
—
—
211,338
155,521
111,632
107,547
87,133
84,691
—
—
155,624
112,223
93,920
83,823
74,699
67,192
—
—
1.7.16 Performance
27.6.17 Performance
24.7.18 Performance
24.7.18 Matching
26.6.19 Performance
26.6.19 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
26.6.19 Performance
26.6.19 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
26.6.19 Performance
26.6.19 Matching
The performance conditions for the outstanding awards are as follows:
• 25% comparative TSR (FTSE 250 Index + 15% per annum for maximum vesting)
• 75% compound annual EPS growth (15% CAGR for maximum vesting).
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Annual report on remuneration
Continued
Further details on LTIP awards granted in the year
On 26 June 2019, the following performance and matching share awards were granted to the Executive Directors under the
LTIP:
Performance share awards
D Bower
R Harpin
T Rusin
Date of grant
Number of shares
Share price used to
determine awards
Award size
(% salary)
26.6.19
26.6.19
26.6.19
47,468
74,438
65,926
£11.85
£11.85
£11.85
150%
150%
150%
Face value at
grant £
562,496
882,090
781,223
% that vests at
threshold
25%
25%
25%
Matching share awards
Number of
investment shares
purchased
10,809
18,935
16,438
Date of grant
26.6.19
26.6.19
26.6.19
Award size
2:1 match
2:1 match
2:1 match
Number of
shares subject to
matching award
Share price used to
determine awards
40,789
71,453
62,030
£11.85
£11.85
£11.85
Face value £
483,350
846,718
735,056
% that vests at
threshold
25%
25%
25%
D Bower
R Harpin
T Rusin
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.
Further details on awards vested in the year
Performance and matching awards granted on 1 July 2016 vested in full during the year.
D Bower
R Harpin
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 £
1.7.16
Performance
1.7.16
Performance
1.7.16
Matching
1.7.16
Performance
1.7.16
Matching
3.7.19
3.7.19
3.7.19
3.7.19
3.7.19
31,779
209,426
155,521
154,216
112,223
£11.95
£11.95
£11.95
£11.95
£11.95
379,759
2,502,641
1,858,476
1,842,881
1,341,065
15,413
101,572
75,428
74,795
54,428
One Plan Matching Shares (Share Incentive Plan)
R Harpin
D Bower
T Rusin
31 March 2020
Sold during the
year to pay tax on
vesting
Acquired during
year
31 March 2019
Aggregate face value
of shares awarded
during the year £ 1
382
382
371
—
—
53
78
78
93
304
304
331
903
903
1,081
1 Based on the acquisition price of the associated Partnership Shares. The highest share price was £13.38 and the lowest share price was £8.72.
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.
100
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:
19 May 2020
31 March 2020
31 March 2019
Outstanding LTIP
awards
Total
31 March 2020
Value of shares
counting towards
guideline holding
(as a % of salary
or fee) ¹
Guideline met?
D Bower
R Harpin ²
T Rusin
K Cliffe
S David
E Fitzmaurice
O Grémillon
J M B Gibson
R McMillan
124,688
124,648
113,586
238,871
363,519
352%
40,553,137
40,553,117
40,146,773
536,894
41,090,011
72,960%
703,886
18,276
100,020
786,265
10,000
150,070
15,249
703,862
18,276
100,020
786,265
10,000
150,070
15,249
544,634
447,590
1,151,453
12,076
68,945
786,265
—
150,070
—
—
—
—
—
—
—
18,276
100,020
786,265
10,000
150,070
15,249
1,429%
267%
1,628%
15,125%
192%
529%
248%
1 Calculated using the shareholding and share price on 31 March 2020 of £10.58 divided by the Executive’s salary or Non-Executive’s fee on that date.
2 Total shareholding includes an indirect interest of 9,285 shares.
Yes
Yes
Yes
No
Yes
Yes
No
Yes
No
Directors’ pensions (Audited)
The following contributions were made:
R Harpin
D Bower
2020
£000
117
75
2019
£000
110
66
Tom Rusin participates in a US 401k pension plan (a defined contribution scheme) to which the Company contributed £8,915
($11,340) in FY20. (FY19: £8,783)
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Directors’ remuneration report | HomeServe plc Annual Report & Accounts 2020
Annual report on remuneration
Continued
Performance graph
The graph below shows the Company’s performance, measured by TSR, compared with the performance of the FTSE-250
Index (also measured by TSR) for the ten years ended 31 March 2020. 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.
500
450
400
350
300
250
200
150
100
50
0
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
31 March 20
This graph shows the value, by 31 March 2020, of £100 invested in HomeServe on 31 March 2011 compared with that of £100 invested in the FTSE-250 Index on the same date.
FTSE-250 index
HomeServe plc
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
FY11
953
87%
51% 1
FY12
559
0%
60%
FY13
953
75%
0%
FY14
FY15
FY16
FY17
FY18
FY19
FY20
1,212
100%
0%
1,200
3,355
4,256 8,563 2
4,749 3
4,029
96%
0%
98%
100%
100%
100%
96%
75%
92%
100%
100%
100%
Notes:
1 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.
2 The total includes the 2014 and 2015 LTIP awards which were granted and vested a year apart.
3 Standard LTIPs vested at 100%. Additional LTIPs vested at 96.38%.
102
Percentage change in remuneration levels
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 FY19 and FY20 compared to the average
for all employees of HomeServe plc.
Chief Executive Officer
Average of other HomeServe plc employees
% Change from FY19 to FY20
Salary
2.0%
-4.4%
Benefits
-1.9%
0.0%
Annual Bonus
25.1%
0.1%
CEO pay ratio
The table below compares the Chief Executive’s total remuneration against that of all of its UK employees.
Year
FY20
Method
25th Percentile pay ratio
Median pay ratio
75th percentile pay ration
Option B
278:1
172:1
125:1
In terms of reporting options, the Company chose option B, using the most recent gender pay gap information to determine
the relevant employee at the 25th, 50th and 75th percentile to compare to the Chief Executive’s pay, as that data was
considered to be the most accurate and comprehensive data available. It refers to gender pay data as at 1 April 2019.
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 (£m)
Dividends (£m)
Tax (£m)
Retained profits (£m)
FY19
£m
306.9
65.0
31.2
108.5
FY20
£m
339.2
73.5
32.1
106.0
% change
11%
13%
3%
-2%
£6.9m 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 paid in respect of the relevant financial year.
Application of the remuneration policy for FY21
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). Given the opportunity for short-term profit
growth will be more limited as a result of the COVID-19 crisis, the Committee has decided that no inflationary salary increases
will be awarded during FY21.
The salaries for the Executive Directors will therefore continue to be as follows:
Name of Director
D Bower
R Harpin
T Rusin
Salary
£375,000
£588,064
$663,000
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Annual report on remuneration
Continued
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 FY19 but no
changes were made.
During FY20, as part of the work undertaken in respect of the search for a successor to Barry Gibson, the Chairman, the
fees paid in respect of that role were reviewed. The Chairman’s fee had been unchanged since 2016 and having reviewed
the market data, and taking into account the growth in the size and complexity of the Group, it was agreed that the fee be
increased from £250,000 to £300,000. This increase took effect on 1 January 2020.
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
£300,000
£7,500
£55,000
£10,000
Annual bonus performance targets
The annual bonus plan for FY21 will operate on a similar basis to FY20 and is consistent with the policy detailed earlier in this
report.
The bonus measures will be as follows:
Financial measures
(40% of bonus)
• Profit before tax
Non financial measures
(40% of bonus)
Personal objectives
(20% of bonus)
• Customer/trades growth (20%)
• Reduction in Customer dissatisfaction (20%)
• One personal strategic
objective
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.
Performance criteria
Performance criteria for the FY21 grant are still under consideration and will be confirmed when awards are granted.
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.
104
Shareholder voting at the 2019 Annual General Meeting
At last year’s Annual General Meeting held on 19 July 2019, 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
182,688,926
80,889,568
263,578,494
8,772,877
272,351,371
69%
31%
100%
General
The market price of the Company’s shares at 31 March 2020 was £10.58 (2019: £10.25). During the year the price ranged from
£7.68 to £13.40.
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 2020 amounted to 265,204 ordinary shares.
By Order of the Board
Katrina Cliffe
Chairman of the Remuneration Committee
19 May 2020
104
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Directors’ report
The Directors have pleasure in presenting their Annual Report for the year ended 31 March 2020.
Management report
The Directors’ report, together with the Strategic report set out on pages 2 to 51 form the Management Report for the
purposes of Disclosure Guidance and Transparency Rule (DTR) 4.1.5R.
Statutory information contained elsewhere in the Annual Report
Information required to be part of this Directors’ Report can be found elsewhere in the Annual Report as indicated in the table
below and is incorporated into this report by reference.
Information
Location in Annual Report
Likely future developments in the business of the Company or its subsidiaries
Pages 2 to 51
Employees (employment of disabled persons, employee engagement and policies)
Pages 19 to 21
Stakeholder engagement
Corporate Governance Statement
Directors’ details (including changes made during the year)
Related party transactions
Diversity
Share Capital
Going Concern and Viability Statement
Employee share schemes (including long-term incentive schemes)
Page 18
Pages 52 to 81
Pages 65, 66 and 68
Note 49 on page 188
Page 21
Note 28 on page 166
Pages 47 to 49
Note 32 on page 169
Financial instruments: Information on the Group’s financial instruments and risk
management objectives and policies, including our policy for hedging
Notes 27 and 45 on pages
164 and 183
Statements of responsibilities
Disclosure of information to auditor
Page 109
Page 109
Results and Dividends
The Directors are recommending the payment on 3 August 2020 of a final dividend of 17.8p per ordinary share to
shareholders on the register at the close of business on 3 July 2020 which, together with the net interim dividend of 5.8p per
ordinary share paid on 7 January 2020, results in a total net dividend for the year of 23.6p per share (FY19: 21.4p).
Political donations
No political donations were made during the year.
Rules on appointment and replacement of Directors
All the Directors will seek 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.
106
Capital Structure
Details of the issued share capital, together with details of shares issued during the year, are set out in note 28. 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 32. 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 2019 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 2020 AGM.
Authority to purchase shares
The Company was authorised at the 2019 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 2020 AGM. No shares were purchased during the
year and no shares are held in Treasury.
Greenhouse Gas Emissions Reporting
Group
UK
FY20
FY19
Global tonnes
of CO2e
FY20
Global tonnes
of CO2e
FY19
Global tonnes
of CO2e
FY20
Global tonnes
of CO2e
FY19
UK
Other
UK
Other
12,022
12,899
8,468
9,324
70%
30%
72%
28%
1,574
1,697
1,015
1,070
64%
36%
63%
37%
13,596
14,596
9,483
10,394
1.6
1.7
5.4
5.2
Group
UK
FY20
FY19
KwH
FY20
KwH
FY19
KwH
FY20
KwH
FY19
UK
Other
UK
Other
50,119,440 53,062,709 35,089,025
37,986,426
70%
30%
72%
28%
6,158,729
5,993,395
3,971,866
3,780,844
64%
36%
63%
37%
Combustion of fuel and
operation of facilities
Electricity, heat, steam
and cooling purchased
for own use
Total
Tonnes of CO2e per
thousand customers
Combustion of fuel and
operation of facilities
Electricity, heat, steam
and cooling purchased
for own use
Total
56,278,169 59,056,104 39,060,891
41,767,270
69%
31%
71%
29%
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.
During the year, steps have been taken to reduce energy usage by installing automatic light sensors and replacing office and
outside lighting with LED alternatives.
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Directors’ report
Continued
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 2020 Annual General Meeting of the Company will be held on 17 July 2020.
Fixed Assets
Capital expenditure on tangible fixed assets amounted to £8.5m (FY19: £9.8m) during the year.
Directors’ interests in shares
The beneficial interests of the Directors in the shares of the Company and the options held as at 31 March and 19 May 2020
are set out in the Remuneration report on page 101. 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 19 May 2020, except for the following:
Name
R Harpin 1
Baillie Gifford & Co
1 Total shareholding includes an indirect interest of 9,285 shares.
As at 31 March 2020
ordinary shares
40,553,117
17,124,224
%
12.1
5.1
As at 19 May 2020
ordinary shares
40,553,137
17,124,224
%
12.1
5.1
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
19 May 2020
108
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;
• 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 (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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Statements of responsibilities
Continued
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 Directors’ report, together with the Strategic report, which represent the Management Report, include a fair review of
the development and performance of the business and the position of the company and the undertakings included in the
consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By Order of the Board
Richard Harpin
Chief Executive Officer
19 May 2020
David Bower
Chief Financial Officer
19 May 2020
110
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 2020 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 49.
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. The non-audit services provided to the Group and parent company for the year are disclosed in note 5 to the
financial statements. 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;
• eLocal acquisition accounting; and
• revenue deferrals.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the Group financial statements was £7.3 million which was determined on the basis of 5% of
profit before tax.
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HomeServe plc Annual Report & Accounts 2020
Independent Auditor’s report | HomeServe plc Annual Report & Accounts 2020
Independent Auditor’s report
to the members of HomeServe plc
Continued
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.
These operating segments were subject to a full scope audit. The New Markets and Home Experts operating segments were
subject to specific audit procedures, with the exception of the Checkatrade entity which was subject to a full scope audit.
Significant changes in our approach
As a result of the Group’s acquisition of 79% of eLocal, we have identified a new key audit matter in relation to the valuation of
eLocal acquisition intangibles and the valuation of the put option over the remaining 21% equity interest.
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 parent 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 the COVID-19 pandemic and 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.
Going concern is the basis of preparation of the financial statements that assumes an entity will remain in operation for a
period of at least 12 months from the date of approval of the financial statements.
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 28-31 that describe the principal risks, procedures to identify emerging risks, and an explanation
of how these are being managed or mitigated;
the directors’ confirmation on page 56 that they have carried out a robust assessment of the principal and emerging risks
facing the Group, including those that would threaten its business model, future performance, solvency or liquidity; or
the directors’ explanation on pages 47-48 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.
Viability means the ability of the Group to continue over the time horizon considered appropriate by the directors.
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 £509.9m (2019: £407.9m).
Management’s goodwill impairment analysis is completed at an individual cash generating unit (‘CGU’) basis. 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 accuracy of the most sensitive assumption, which is the weighted average cost of capital (‘WACC’) for each CGU used
to discount the cash flows within the Group’s impairment assessment; and
the cash flow forecasts used for the Home Experts businesses, Checkatrade, Habitissimo and eLocal. All three are highly
sensitive to variations in the short-term cash flow growth assumptions, and the Home Experts business model is most
heavily affected by the impact of the COVID-19 pandemic.
•
As a result of COVID-19, the level of headroom has reduced across the Group. As a result, we identified an increased level of
risk in comparison to prior year.
Further detail on the key judgements involved is set out within the Audit and Risk Committee report on page 78, significant
accounting policies in note 2, the key sources of estimation uncertainty 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, specifically the Group’s
review process to assess the accuracy and completeness of key assumptions within the impairment assessment.
We assessed the Group’s WACC working with our internal valuations specialists. We 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 the Home Experts
businesses. Our procedures included:
• reviewing the Group’s assessment of the potential impact that COVID-19 could have on future cash flows, which assumes
lockdown will continue across all operating segments for a period of time, followed by a slow recovery. This included
consideration of the performance of each CGU since the COVID-19 pandemic commenced;
• consideration of the potential impact on headroom if the lockdown period is extended, as well as the impact if the
recovery is slower than currently anticipated;
• challenging the forecast growth rates applied over the next three years through understanding the key drivers of growth
for each CGU; and
• assessing the Group’s ability to accurately forecast business performance with reference to historical trading performance.
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.
We have reviewed management’s carrying value of goodwill disclosures, including the potential impact on headroom under
a range of alternative lockdown scenarios.
Key observations
The WACC used by management for each Home Experts CGU was lower than the WACC derived by our internal valuations
specialists. We assessed the impact of using our own WACC in management’s impairment calculation, noting that it reduced
the level of headroom within the Home Experts CGU’s, however it did not indicate that an impairment write down was
required.
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Independent Auditor’s report
to the members of HomeServe plc
Continued
We concluded that other key assumptions used within the Group’s goodwill impairment assessment were acceptable.
We consider management’s carrying value of goodwill disclosures to be reasonable.
Carrying value of the new CRM system
Key audit matter description
The Group is continuing to progress with its implementation of the new CRM system in the UK. The carrying value of
the system is £81.8m (2019: £81.8m). In September 2019, the system was classified as available for use and amortisation
commenced over its 10 year useful economic life. The system is now being used for front book policies, however the back
book migration is scheduled for the next financial year.
The key judgement in relation to the new CRM system is the successful migration of the back book, which underpins the
expected future cash flows associated with the benefits case.
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 to the current carrying value, including the successful migration of the back
book within the next financial year.
Further detail on the key judgements involved is set out within the Audit and Risk Committee report on page 78, 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, specifically
the Group’s review process to assess the accuracy and completeness of key assumptions used to determine the expected
future cash flows.
We have assessed the progress of the back book migration, which included inquiry with management and review of the key
performance indicators being monitored in relation to the data migration. We also reviewed the plausibility of the migration
plan for the back book to the extent that migration is needed in order to support the carrying value of the system.
We challenged management’s impairment assessment to determine whether the recoverable amount of the asset supports
its carrying value as at 31 March 2020, by comparing the consistency of the cash flows and WACC to those used in the
carrying value of goodwill assessment.
Key observations
We are satisfied that the progress made in relation to the back book migration and the impairment assessment performed
supported the carrying value of the system and therefore no impairment is required.
eLocal acquisition accounting
Key audit matter description
On 26 November 2019, the Group acquired a 79% shareholding in eLocal Holdings LLC for £98.8m. In addition, the Group
entered into a put and call option agreement which means they will be required to purchase the remaining 21% equity
interest over the next five years.
As part of the transaction a number of acquisition intangibles have been identified in relation to customer relationships,
technology and domains. A high level of judgement is required in order to determine the fair value of these assets at the point
of acquisition, as well as the fair value of the put option for the remaining 21% equity interest.
Given this is a technically complex area with high levels of judgement, we identified a new key audit matter in relation to:
•
•
the valuation of acquisition intangibles; and
the valuation of the put and call options over the remaining 21% equity interest.
Further detail on the key judgements involved is set out within the Audit and Risk Committee report on page 78, significant
accounting policies in note 2, the associated key judgements involved are set out in the critical accounting judgements and
key sources of estimation uncertainty in note 3 and a transaction overview is provided in note 16 to the financial statements.
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How the scope of our audit responded to the key audit matter
We understood the key controls the Group has in place to manage the risk of inappropriate conclusions being reached within
the acquisition accounting assessment.
We challenged the key accounting assumptions, most notably whether the presence of the put and call option over the
remaining 21% equity interest constitutes a present ownership interest, as well as the judgement required to identify the split
of potential cash payments under the put option between those which should be recognised at the transaction date and
those which relate to post combination employee benefit expenses.
We worked with our valuation specialists in order to:
• challenge the methodology used by management in order to identify and fair value the intangibles including the
appropriateness of the discount rate used; and
independently recalculate the fair value of the put and call options.
•
We also assessed the key assumptions within management’s forecasts for reasonableness, including assessing whether the
forecasts did not include post-acquisition events such as the COVID-19 pandemic.
Key observations
We concurred with the intangible assets identified by management, and the key assumptions used to value the identified
assets were within an acceptable range.
Management’s put and call option valuation was materially consistent with our independently derived valuation.
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.
Given the degree of judgement and estimation involved in determining the level of revenue to defer, we also identified that
there is a potential for fraud through possible manipulation of this balance.
The total amount of revenue deferred at 31 March 2020 in respect of the Group’s future claim handling obligations is
£19.1m (2019: £19.4m). The total amount of revenue deferred at 31 March 2020 in respect of the Group’s directly employed
operations is £18.9m (2019: £20.7m).
The key assumptions used by the Group for claims handling and directly employed operations are the directly employed
engineer rate, claims profiles and the average cost per claim, which are based on recent behavioural experience.
Further detail on the Group’s revenue recognition policy is set out within the Audit and Risk Committee report on page 78,
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. Specifically, 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 the key inputs and assumptions used in the revenue deferral calculations. As part of this, we specifically
considered whether any adjustments were required to revenue deferrals in light of COVID-19 through review of current
behavioural experience during the lockdown period, as well as forecast volumes during the recovery period:
• For cost per claim we compared budgeted costs to previous actual behaviour;
• We re-calculated directly employed engineer rates based on previous claims data; and
• For claims profiles we substantively tested policy information and agreed underwriter rates to third party information.
We substantively tested the source data to third party information.
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Independent Auditor’s report
to the members of HomeServe plc
Continued
Additionally we have assessed if the Group are consistent in implementing the calculations across the membership
businesses worldwide and in line with Group policy.
Key observations
We found that the key assumptions used in the revenue deferrals were reasonable.
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
£7.3m (2019: £6.5m)
£2.5m (2019: £4.9m)
Basis for
determining
materiality
5% (2019: 5%) of profit before tax.
Parent company materiality equates to 0.6% (2019:
1.2%) of net assets, which is capped at 50% of
Group performance materiality.
The prior year materiality was capped at 75%
of Group materiality. In the current year we
determined 50% of Group performance materiality
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. The Company is the parent company
for the Group and is not a trading entity, hence
we considered this to be the most appropriate
measure for the Company.
Group materiality
£7.3m
Component materiality
range £2.5m to £3.5m
Audit & Risk Committee
reporting threshold £0.36m
PBT
£137.9m
PBT
Group materiality
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Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole. Group performance materiality
was set at 70% of Group materiality for the 2020 audit (2019: 70%). In determining performance materiality, we considered the
following factors:
• The level of decentralisation and autonomy displayed by the operating segments of the Group;
• The level of growth within the Group including the number of acquisitions completed during the year; and
• The nature, volume and size of uncorrected misstatements in the previous year.
Error reporting threshold
We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess of
£360,000 (2019: £323,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit & Risk Committee on disclosure matters that we identified when assessing the overall
presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide
controls, and assessing the risks of material misstatement at the Group level. Based on that assessment, as in the prior year,
we focused our Group audit scope primarily on the following operating segments:
• UK;
• North America;
• France; and
• Spain.
These operating segments were subject to a full scope 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 scope audit.
The UK, North America, France and Spain segments and the Checkatrade entity account for 97% (2019: 99%) of the Group’s
revenue and 100% (2019: 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 £2.5m to £3.5m (2019: £2.9m to £4.5m).
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.
Working with other auditors
We have previously followed a programme of planned visits in which at least two senior members of the Group audit team
physically visited the UK, North America, France and Spain at least twice a year.
However as a result of COVID-19, we were unable to complete our fieldwork component visits, nor were we able to
complete our planning visit to France. As a result, we increased the frequency of our communications with each component
to monitor progress. At least two senior members attended each component audit close meeting, which was held via
video conference. In the absence of fieldwork component visits, we used video conferencing to review component audit
documentation.
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.
116
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Independent Auditor’s report
to the members of HomeServe plc
Continued
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 & Risk Committee reporting – the section describing the work of the Audit & Risk Committee does not
appropriately address matters communicated by us to the audit & 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.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the 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 and non-
compliance with laws and regulations 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.
118
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, we considered the following:
•
the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit and the Audit & Risk Committee about their own identification and
assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their 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 of fraud or non-compliance with laws and regulations;
the matters discussed among the audit 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 a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for
fraud and identified the greatest potential for fraud in relation to revenue deferrals. In common with all audits under ISAs (UK),
we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on
provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in
the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing
Rules, UK Corporate Governance Code and local tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty.
These included compliance with Financial Conduct Authority regulation for the UK operating segment and compliance with
local legislation for the overseas operating segments.
Audit response to risks identified
As a result of performing the above, we identified revenue deferrals as a key audit matter related to the potential risk of fraud.
The key audit matters section of our report explains the matter in more detail and also describes the specific procedures we
performed in response to that key audit matter.
Our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Audit & Risk Committee in-house and external 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;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing regulatory
correspondence with the Financial Conduct Authority;
• obtained an understanding of provisions and held discussions with management to understand the basis of recognition or
•
non-recognition of tax provisions; 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.
118
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Independent Auditor’s report
to the members of HomeServe plc
Continued
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
•
In the light of the knowledge and understanding of the Group and the 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.
Other matters
Auditor tenure
Following the recommendation of the Audit & Risk Committee, we were appointed by the Board of Directors on 1 August
2002 to audit the financial statements for the year ending 31 March 2003 and subsequent financial periods. The period of
total uninterrupted engagement including previous renewals and reappointments of the firm is 18 years, covering the years
ending 31 March 2003 to 31 March 2020.
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 & 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.
Peter Birch FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Leeds, UK
19 May 2020
120
Putting our customers first
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t
e
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e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
Mrs S’s house
March 17 2020
It was a leak. My husband tried to fix it by himself by placing a bucket under the sink, as I wasn’t
sure HomeServe would come over. By the time I was hanging up the phone, an engineer just
called me. He arrived within a half-hour: we couldn’t believe it! He was very professional and
mindful regarding the current sanitary conditions. We didn’t have any contact, but it didn’t
prevent him from being very friendly. He made us ventilate our home upon arrival and let us
know we wouldn’t shake hands. He talked to my husband from a certain distance and that
was very reassuring.
What struck us the most in the end, is that the engineer seemed to be delighted to be here, to
do his job and help us. We had the feeling he was a very skilled craftsman and that we knew
him. We were at ease and that was very valuable especially during this period. We wanted to
express our heartfelt thanks to everyone and to your engineer in particular, who did a good
job with great kindness.
120
121
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F
n
a
n
c
a
l
s
t
a
t
e
m
e
n
t
s
Group income statement
Year ended 31 March 2020
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
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
10
11
12
12
2020
£m
1,132.3
(971.6)
(2.1)
158.6
0.5
(21.2)
181.0
(35.5)
(7.6)
137.9
(32.1)
105.8
106.0
(0.2)
105.8
23.6p
31.7p
31.5p
2019 1
£m
1,003.6
(850.7)
(0.3)
152.6
0.2
(13.3)
161.7
(26.8)
4.6
139.5
(31.2)
108.3
108.5
(0.2)
108.3
21.4p
32.7p
32.3p
1 The Group’s results are being reported under IFRS 16 for the first time in 2020 following the mandatory adoption of the standards from 1 April 2019. In accordance with the transitional
provisions of IRFS 16, comparatives have not been restated. See note 2.
122
123
Group financial statements | HomeServe plc Annual Report & Accounts 2020
Group statement of comprehensive income
Year ended 31 March 2020
Notes
33
10
17
10
Profit for the year
Items that will not be reclassified subsequently to profit and loss:
Actuarial gain/(loss) on defined benefit pension scheme
Deferred tax (charge)/credit relating to actuarial re-measurements
Fair value (loss)/gain on "fair value through other comprehensive
income" (FVTOCI) investment in equity instruments
Deferred tax credit/(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
Total other comprehensive income
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
2020
£m
105.8
1.6
(0.3)
(3.7)
0.8
(1.6)
14.1
14.1
12.5
118.3
118.5
(0.2)
118.3
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
122
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Group balance sheet
31 March 2020
Non-current assets
Goodwill
Other intangible assets
Contract costs
Right-of-use assets
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
Lease liabilities
Provisions
Net current assets
Non-current liabilities
Bank and other loans
Other financial liabilities
Deferred tax liabilities
Lease liabilities
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
26
15
18
17
10
33
19
20
21
22
25
25
24
25
23
10
25
28
29
29
29
29
29
30
2020
£m
509.9
497.1
16.8
56.8
42.0
4.0
5.6
6.0
10.3
1,148.5
7.9
495.4
131.2
634.5
1,783.0
(410.6)
(40.3)
(5.4)
(14.1)
(2.0)
(472.4)
162.1
(540.6)
(52.3)
(26.2)
(45.2)
(664.3)
(1,136.7)
646.3
9.0
189.3
21.9
37.0
(0.6)
79.2
299.9
635.7
10.6
646.3
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)
(0.5)
(5.7)
(434.2)
70.0
(336.4)
(23.3)
(26.4)
(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
The financial statements were approved by the Board of Directors and authorised for issue on 19 May 2020. They were signed on its behalf by:
David Bower
Chief Financial Officer
19 May 2020
124
Group financial statements | HomeServe plc Annual Report & Accounts 2020
Group statement of changes in equity
Year ended 31 March 2020
Balance at 1 April 2019
Profit for the year
Other comprehensive income
for the year
Total comprehensive income
Dividends paid (note 11)
Issue of share capital
Purchase of own shares
Share-based payments
Share options exercised
Tax on exercised share options (note 10)
Deferred tax on share options (note 10)
Changes in non-controlling interests
Obligations under put options (note 16)
Share
capital
£m
Share
premium
account
£m
Share
incentive
reserve
£m
Currency
translation
reserve
£m
Investment
revaluation
reserve
£m
Other
reserves 1
£m
Retained
earnings
£m
Attributable
to equity
holders of
the parent
£m
Non-
controlling
interests
£m
Total
equity
£m
9.0
180.7
23.3
22.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.6
—
—
—
—
—
—
—
—
—
—
—
—
—
7.2
(8.6)
—
—
—
—
—
14.1
14.1
—
—
—
—
—
—
—
—
—
2.3
—
(2.9)
(2.9)
—
—
—
—
—
—
—
—
—
82.2
293.0
613.4
0.2
613.6
—
106.0
106.0
(0.2)
105.8
—
—
—
—
(3.0)
—
—
—
—
—
—
1.3
107.3
12.5
118.5
—
12.5
(0.2)
118.3
(73.5)
(73.5)
—
—
—
0.1
3.0
(1.2)
—
8.6
(3.0)
7.2
(8.5)
3.0
(1.2)
—
—
—
—
—
—
—
—
(73.5)
8.6
(3.0)
7.2
(8.5)
3.0
(1.2)
10.6
10.6
(28.8)
(28.8)
—
(28.8)
Balance at 31 March 2020
9.0
189.3
21.9
37.0
(0.6)
79.2
299.9
635.7
10.6
646.3
Year ended 31 March 2019
Share
capital
£m
Share
premium
account
£m
Share
incentive
reserve
£m
Currency
translation
reserve
£m
Investment
revaluation
reserve
£m
Other
reserves 1
£m
Retained
earnings
£m
Attributable
to equity
holders of
the parent
£m
Non-
controlling
interests
£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
—
—
—
—
Opening balance under IFRS 15
8.9
171.8
22.1
16.1
—
1.8
—
(2.1)
(2.1)
—
(2.1)
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
—
—
8.8
(7.6)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(0.3)
7.0
—
7.0
108.2
115.5
(0.2)
115.3
(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
1 Other reserves comprise the Merger, Own shares and Capital redemption reserves. Full details of these reserves are included in Note 29.
124
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Group cash flow statement
Year ended 31 March 2020
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
Disposal of equity accounted investments
Acquisition of equity accounted investments
Acquisition of subsidiaries
Net cash used in investing activities
Financing activities
Dividends paid
Repayment of lease principal
Acquisition of non-controlling interests
Purchase of own shares
Proceeds on 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
Impact of foreign exchange rate changes
Cash and cash equivalents at end of year
Notes
31
18
16
11
30
2020
£m
192.0
0.5
0.5
(74.3)
(3.9)
(8.2)
8.4
—
(140.6)
(217.6)
(73.5)
(12.4)
(7.7)
(3.0)
0.1
—
(0.8)
182.6
85.3
59.7
72.6
(1.1)
131.2
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
126
Group financial statements | HomeServe plc Annual Report & Accounts 2020
Notes to financial statements
Year ended 31 March 2020
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 except as explained in note 34.
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 27.
Adoption of new or revised standards
The following accounting standards, interpretations and amendments have been adopted in the year:
IFRIC 23
Amendments to IFRS 9
Amendments to IAS 19
Amendments to IAS 28
Annual Improvements to IFRSs
Uncertainty over Income Tax Treatments
Prepayment Features and Negative Compensation
Plan Amendment, Curtailment or Settlement
Long-term Interests in Associates and Joint Ventures
2015-2017 Cycle
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 IFRS 16 Leases, is discussed under ‘Changes in accounting policies’ and ‘Financial impact of adoption of IFRS 16’ below.
Changes in accounting policies
The Group has adopted IFRS 16 with effect from 1 April 2019. In accordance with the transitional provisions of the standard, comparatives
have not been restated. The impacted accounting policies for the years ended 31 March 2020 and 31 March 2019 are outlined below. All other
accounting policies of the Group are set out in the ‘Other Accounting Policies’ section of this note.
IFRS 16 Leases
IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-
27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on
or after 1 January 2019. The Group has adopted IFRS 16 using the modified retrospective approach with a date of initial application of 1 April
2019. Comparative information has not been restated.
Impact on lessee accounting
IFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17. With the exception of low value
assets (below £4k) and short-term leases (with a term of 12 months or less), the Group now recognises right-of-use assets and lease liabilities
in the consolidated balance sheet, initially measured at the present value of the future lease payments. The depreciation of the right-of-use
asset and interest charges on the outstanding lease liability replace the IAS 17 straight-line rental expense previously booked to operating
costs. Any lease incentives are recognised as part of the measurement of the right-of-use assets and lease liabilities whereas under IAS 17 they
resulted in the recognition of a lease incentive liability, amortised as a reduction of rental expenses on a straight-line basis.
Under IFRS 16 the Group presents repayments of lease principal within financing activities and interest payments on lease liabilities within
operating activities in the consolidated cash flow statement for leases that are on balance sheet. Under IAS 17 all operating lease payments
were presented as operating cash outflows.
Right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to
recognise a provision for onerous lease contracts.
The Group is not party to any material leases where it acts as a lessor, but does contract as lessee for a significant number of property and
vehicle leases, which aggregate to a material commitment.
Approach to transition and practical expedients adopted
In respect of those leases the Group previously treated as operating leases, the Group has elected to measure right-of-use assets using the
approach set out in IFRS 16.C8(b)(ii). Under this approach right-of-use assets are calculated at an amount equal to the lease liability, adjusted
by any prepaid or accrued lease payments relating to the lease that were recognised in the consolidated balance sheet at 31 March 2019.
At 1 April 2019 right-of-use assets of £52.8m and lease liabilities of £53.8m, inclusive of grandfathered finance lease assets and liabilities of
£1.7m and £1.2m respectively, were recognised on the balance sheet. The Group’s weighted average incremental borrowing rate applied to
lease liabilities as at 1 April 2019 was 2.5%.
126
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
2. Significant accounting policies (continued)
IFRS 16 Leases (continued)
Approach to transition and practical expedients adopted (continued)
The table below presents a reconciliation from IAS 17 operating lease commitments disclosed at 31 March 2019 to IFRS 16 lease liabilities
recognised at 1 April 2019.
Operating lease commitments disclosed under IAS 17 at 31 March 2019
Finance lease liabilities recognised under IAS 17 at 31 March 2019
Discounting
Impact of lease term reassessments under IFRS 16 vs. IAS 17
Short-term and low value lease commitments expensed through operating costs under IFRS 16
Other movements
IFRS 16 lease liabilities recognised at 1 April 2019
£m
56.0
1.2
(4.4)
2.0
(0.6)
(0.4)
53.8
The complete impact on the consolidated income statement during the year ended 31 March 2020 is presented under ‘Financial impact of
adoption of IFRS 16’ below.
The Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is, or contains, a lease.
Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered into or modified
before 1 April 2019.
As part of the Group’s adoption of IFRS 16 and application of the modified retrospective approach to transition, the Group also elected to use
the following practical expedients:
• The Group has not made any adjustments on transition for leases for which the underlying asset is of low value (as described in
paragraphs B3 – B8 of IFRS 16);
• The Group has adjusted the carrying amount of right-of-use assets at 1 April 2019 by the carrying amount of onerous lease provisions at 31
March 2019 instead of performing impairment reviews under IAS 36.
Details of the Group’s accounting policies under IFRS 16 are set out below, followed by a presentation of the financial impact of adopting IFRS
16. Judgements applied in the adoption of IFRS 16 included determining the lease term for those leases with termination or extension options
and determining an incremental borrowing rate where the rate implicit in a lease could not be readily determined.
Accounting policy for leases (effective 1 April 2019)
The Group assesses whether a contract is, or contains, a lease, at inception of the contract. The Group recognises a right-of-use asset and
a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases
with a lease term of 12 months or less) and leases of low value assets (where the value of the asset is below £4k). For these leases, the Group
recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.
Lease liabilities
Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by
using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses a lease specific incremental borrowing rate. Lease
payments included in the measurement of the lease liability comprise:
•
•
fixed lease payments (including in substance fixed payments), less any lease incentives;
fixed service costs associated with the Group’s property and vehicle lease portfolios (as the Group has elected to apply the expedient
available under paragraph 15 of IFRS 16 not to separate non-lease components, and instead account for any lease and associated non-
lease components as a single arrangement);
• variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;
•
•
the amount expected to be payable by the lessee under residual value guarantees;
the exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and
• payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.
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Group financial statements | HomeServe plc Annual Report & Accounts 2020
Lease liabilities are subsequently measured at amortised cost using the effective interest method by increasing the carrying amount to reflect
interest on the lease liability and by reducing the carrying amount to reflect the lease payments made. The Group re-measures the lease
liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
•
•
the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is re-
measured by discounting the revised lease payments using a revised discount rate;
the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in
which cases the lease liability is re-measured by discounting the revised lease payments using the initial discount rate (unless the change in
lease payments is due to a change in a floating interest rate, in which case a revised discount rate is used);
• a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is re-
measured by discounting the revised lease payments using a revised discount rate.
The Group did not make any such adjustments during the periods presented.
Right-of-use assets
Right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at, or before, the
commencement date and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment
losses. Right-of-use assets are depreciated over the shorter period of the lease term and the useful life of the underlying asset. Depreciation
begins at the commencement date of the lease.
Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore
the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37.
The costs are included in the related right-of-use asset.
Variable rents
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and the right-of-use asset. The
related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs and are
included in the line “Other operating expenses” in the income statement.
Leasing (applicable up to 31 March 2019)
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, and depreciated over their expected useful lives on the same basis as owned
assets or, where shorter, over the term of the relevant 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.
Financial impact of adoption of IFRS 16
The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use assets
and lease liabilities. Provisions for onerous lease contracts have been derecognised and operating lease incentives previously recognised as
liabilities have been derecognised and factored into the measurement of the right-of-use assets and lease liabilities.
The following abridged statements summarise the impact of adopting IFRS 16 on the Group’s Consolidated Income Statement, Balance
Sheet and Cash Flow Statement for the year ended 31 March 2020.
128
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
2. Significant accounting policies (continued)
Financial impact of adoption of IFRS 16 (continued)
Impact on the consolidated income statement
Continuing operations
Revenue
Operating costs
Others
Operating profit
Investment income
Finance costs
Adjusted profit before tax
Others
Profit before tax
Tax
Profit for the year
Earnings per share
Basic
Diluted
Impact on the consolidated balance sheet
Non-current assets
Right-of-use assets
Others
Current assets
Total assets
Current liabilities
Lease liabilities
Others
Net current assets
Non-current liabilities
Lease liabilities
Others
Total liabilities
Net assets
Equity
Retained earnings
Others
As reported
31 March 2020
£m
IFRS 16 adjustments
£m
Amounts without adoption
£m
1,132.3
(971.6)
(2.1)
158.6
0.5
(21.2)
181.0
(43.1)
137.9
(32.1)
105.8
31.7p
31.5p
—
(0.2)
—
(0.2)
—
(1.5)
(1.7)
—
(1.7)
0.4
(1.3)
(0.4)p
(0.4)p
1,132.3
(971.4)
(2.1)
158.8
0.5
(19.7)
182.7
(43.1)
139.6
(32.5)
107.1
32.1p
31.9p
As reported
31 March 2020
£m
IFRS 16 adjustments
£m
Amounts without adoption
£m
56.8
1,091.7
1,148.5
634.5
1,783.0
(14.1)
(458.3)
(472.4)
162.1
(45.2)
(619.1)
(664.3)
(1,136.7)
646.3
299.9
346.4
646.3
56.8
(1.7)
55.1
0.1
55.2
(13.7)
1.7
(12.0)
(11.9)
(44.5)
—
(44.5)
(56.5)
(1.3)
(1.3)
—
(1.3)
—
1,093.4
1,093.4
634.4
1,727.8
(0.4)
(460.0)
(460.4)
174.0
(0.7)
(619.1)
(619.8)
(1,080.2)
647.6
301.2
346.4
647.6
Ref
i)
i)
ii)
Ref
iii)
iv)
ii), iv)
iii)
iv)
iii)
ii)
130
Group financial statements | HomeServe plc Annual Report & Accounts 2020
Impact on the consolidated cash flow statement
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Others
Cash generated by operations
Income taxes paid
Ref
iv)
v)
Interest paid (inclusive of payments on lease liabilities)
v)
Net cash inflow from operating activities
Net cash used in investing activities
Financing activities
Repayment of lease principal
Others
Net cash generated by financing activities
Net increase in cash and cash equivalents
References
v)
As reported
31 March 2020
£m
158.6
9.3
14.2
58.3
240.4
(30.2)
(18.2)
192.0
(217.6)
(12.4)
97.7
85.3
59.7
IFRS 16 adjustments
£m
Amounts without adoption
£m
(0.2)
(0.5)
14.2
—
13.5
—
(1.5)
12.0
—
(12.0)
—
(12.0)
—
158.8
9.8
—
58.3
226.9
(30.2)
(16.7)
180.0
(217.6)
(0.4)
97.7
97.3
59.7
i) Historically all rental charges were booked to operating costs on a straight-line basis. Under IFRS 16 rental costs for all leases, other than
those with an initial term of below 12 months and those of assets of approximately below £4k in value, as new, are recorded in the income
statement as depreciation of right-of-use assets, in operating costs, and interest charges on lease liabilities, in financing costs. The impact
of this change in accounting treatment during the period was to increase operating costs by £0.2m and increase finance costs by £1.5m.
ii) Current tax impacts of changes detailed under i) above as well as deferred tax impacts in jurisdictions where the available deductions for
tax do not align with the accounting charge in the income statement for the period.
iii) Under IAS 17 lessees did not record assets and commitments associated with operating lease contracts on the balance sheet. IFRS 16
removes the distinction between operating and finance leases for lessees and requires that they recognise right-of-use assets and lease
liabilities for all lease contracts. At 31 March 2020 this resulted in the recognition of right-of-use assets of £56.8m and lease liabilities of
£59.3m.
iv) Rent prepayments, deferred rent and IAS 17 finance lease assets of £0.3m, £1.3m and £1.7m respectively were set against opening right-of-
use assets on transition. Additionally onerous lease balances of £0.4m were transferred into the opening value of right-of-use assets at
1 April 2019.
v) Historically all cash flows associated with operating leases were presented as operating cash flows. Under IFRS 16 repayments of lease
principal are classified as financing cash flows. IAS 7 provides entities with an accounting policy choice as to whether they classify interest
paid as an operating or financing cash flow. HomeServe’s policy is to classify all interest paid within operating cash flows and consequently
interest paid on lease liabilities recorded under IFRS 16 will be classified as such.
Depreciation of right-of-use assets is added back to operating profit as a non-cash movement in the consolidated cash flow statement, in
a similar manner to depreciation on property, plant and equipment or amortisation on intangible assets.
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 17
Amendments to IFRS 3
Amendments to IFRS 10 and IAS 28
Amendments to IAS 1 and IAS 8
Conceptual Framework
Insurance Contracts
Definition of a Business
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Definition of Material
Amendments to References to the Conceptual Framework in IFRS Standards
The Directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact on the financial
statements of the Group in future years.
130
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Notes to financial statements
Year ended 31 March 2020
2. Significant accounting policies (continued)
Going concern
The Group’s business activities, together with the factors likely to affect its future development, including the potential impacts of COVID-19
and Brexit, performance and position are set out in the Strategic report.
The Directors have reviewed the Group’s budget, forecast and cash flows for 2020 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 2019:
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.
Revenue recognition
The Group records revenue in accordance with the five-step recognition model outlined in IFRS 15:
1) Identify the contract with the customer
2) Identify the performance obligations in the contract
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 claims 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.
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 standalone selling price is not directly observable the Group applies judgment to determine an appropriate
estimated standalone selling price, typically using an expected cost plus margin, adjusted market assessment or residual approach.
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Group financial statements | HomeServe plc Annual Report & Accounts 2020 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 to in exchange for transferring the promised good or service to the customer; or
ii) the terms of the variable payment relate specifically to the satisfaction of an individual performance obligation.
The Group’s variable consideration primarily relates to intermediary commissions received on contracts with underwriters to sell policies and
provide claims 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).
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 affected 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
Significant payment terms
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.
Billed and paid over the
term of the contract
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).
Claims 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
132
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
2. Significant accounting policies (continued)
Other accounting policies (continued)
Revenue stream Nature and timing of satisfaction of performance obligations
Significant payment terms
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
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.
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.
Foreign currencies
Transactions in currencies other than a Group entity's 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.
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Group financial statements | HomeServe plc Annual Report & Accounts 2020 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 costs are 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 costs, 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.
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.
134
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
2. Significant accounting policies (continued)
Business combinations (continued)
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, the amount of any non-controlling interests in the acquiree and the fair
value of the Group’s previously held equity interest in the acquiree, if any, over the net amounts of identifiable assets acquired and liabilities
assumed at the acquisition date. The interest of the non-controlling shareholders in the acquiree may initially be measured either at fair value
or at the non-controlling shareholders’ proportion of the net fair value of the identifiable assets acquired, liabilities and contingent liabilities
assumed. The choice of measurement basis is made on an acquisition-by-acquisition basis.
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.
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.
Other acquired intangibles include acquired brands recorded at fair value using the relief from royalty valuation method and technology
assets recorded at fair value using a replacement cost approach. Other acquired intangibles are amortised over the period over which the
assets are reasonably expected to transfer economic benefits to the Group, on a straight-line basis over their estimated useful lives, which are
in the range of 8-11 years.
Other intangible assets
Access rights arise from the contractual agreements with Affinity Partners which provide the contractual framework within which the Group
markets, sells and renews policies with the individual customers of the Affinity Partner. Access rights are valued at the discounted present
value of the contractually committed payments, where such payments are not related to the success or otherwise of activity under the
contractual agreements and are amortised on a straight-line basis over the length of the contractual agreement, up to a maximum of
20 years.
Trademarks represent costs incurred to legally protect the established brand names of the Group. Trademarks are stated at cost and
amortised on a straight-line basis over their useful economic lives, up to a maximum of 20 years.
Customer databases represent the value attributable to the portfolios of renewable 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.
136
Group financial statements | HomeServe plc Annual Report & Accounts 2020 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 and leasehold improvements 25–50 years
Furniture, fixtures and equipment
5–7 years
Computer equipment
3–7 years
Motor vehicles
3 years (with 25% residual value)
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in
order to determine the extent of the impairment loss, if any. Where the asset does not generate cash flows that are independent from other
assets, the Group estimates the recoverable amount of the CGU to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the assets for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is
reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognised for the asset or CGU in prior years. A reversal of an impairment loss is recognised as income
immediately.
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.
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 above. 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.
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.
136
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
2. Significant accounting policies (continued)
Financial instruments (continued)
Financial assets are classified, at initial recognition, and subsequently measured at amortised cost, Fair Value through Other Comprehensive
Income (FVTOCI) or Fair Value through Profit or Loss (FVTPL). The classification is based on two criteria:
•
• whether the instruments’ contractual cash flows represent “Solely Payments of Principal and Interest” on the principal amount
the Group’s business model for managing the assets; and
outstanding (the “SPPI criterion”).
Trade receivables
Trade receivables do not carry any interest and are stated at amortised cost, reduced by appropriate allowances for estimated irrecoverable
amounts, as the business model of the Group is to collect contractual cash flows and the debt meets the SPPI criterion. 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.
Cash and cash equivalents
Cash and cash equivalents are held at amortised cost and 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.
Other investments
At each balance sheet date the Group conducts a fair value assessment of its investment, 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. On
transition to IFRS 9 the Group designated its other investment as held at FVTOCI due to its intention to hold the investment for long-term
strategic purposes.
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. The present value of the expected gross obligation is
reassessed at the end of each reporting period and any changes are recorded in the income statement at the end of each reporting period. In
the event that the option expires unexercised, the liability will be derecognised with a corresponding adjustment to retained earnings.
Other ‘put’ and ‘call’ options
Other put and call options are recognised at fair value with any associated benefit being recognised directly in the income statement.
Forward contracts and hedge accounting
The Group enters into derivative transactions with a view to managing currency risks associated with financing acquisitive activities. Forward
contracts used by the Group are stated at fair value on initial recognition and at subsequent balance sheet dates. The fair values of forward
contracts are calculated by discounting all future cash flows by the applicable market yield curves at the balance sheet date.
Cash flow hedges mitigate exposure to variability in cash flows that are either attributable to a particular risk associated with a recognised
asset or liability or a forecast transaction. Hedge accounting is only used where, at the inception of the hedge, there is formal designation
and documentation of the hedging relationship, it meets the Group’s risk management objective strategy for undertaking the hedge and it
is expected to be highly effective. The portion of any gains or losses on cash flow hedges which meet the conditions for hedge accounting
and are determined to be effective, are recognised directly in the statement of comprehensive income. The gains or losses relating to the
ineffective portion are recognised immediately in the income statement. When a firm commitment or highly probable future transaction that
is hedged becomes an asset or a liability recognised on the balance sheet, then, at the time the asset or liability is recognised, the associated
gains or losses that had previously been recognised in equity are included in the initial measurement of the acquisition cost or other carrying
amount of the asset or liability.
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.
138
Group financial statements | HomeServe plc Annual Report & Accounts 2020 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 below, management have determined that 15% increases/decreases to primary inputs are
appropriate thresholds to illustrate the potential impact on profit in the year. In FY19 management performed sensitivities with 10% increases/
decreases to primary inputs. The increase to 15% in FY20 reflects the potential increased volatility and uncertainty of forward looking
judgements and estimates when operating during the COVID-19 pandemic, particularly in the short-term.
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
Present ownership interest
Acquisition transactions are reviewed to determine whether they give the Group a present ownership interest when subsidiaries are acquired
with non-controlling interests subject to put options that are mandatorily exercisable at a final exercise date. Factors taken into account
include considering whether there are any restrictions on voting rights, dividend rights and decision making for the non-controlling interests.
Furthermore consideration is given to the extent to which non-controlling interests are able to participate in any increase in value over the
period to the exercise date. On the basis that there are no restrictions on voting rights, dividend rights or decision making and that non-
controlling interests are able to participate in any increases in value over the period to the exercise date the Directors’ judgement is that the
Group does not have a present ownership interest over the remaining 21% equity interest of eLocal Holdings LLC (see note 16)
Post acquisition employment services
Potential cash payments relating to put options that relate to post acquisition employment services of the put option holders are accounted
for as post combination employee benefit expenses in accordance with IAS 19. Judgement is involved in determining the correct allocation
between employment costs and further purchase consideration.
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 2020 in respect of the Group’s future claim
handing obligations is £38.0m (FY19: £40.1m). If either of these assumptions were individually higher or lower than the Group’s historical
experience by 15% the impact to the profit in the year would be £5.7m (FY19: 10%, £4.0m).
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 2020 is £124.6m (FY19: £126.7m). If the
retention rate or income per customer was individually higher or lower by 15% the impact to profit in the year would be £18.7m (FY19: 10%,
£12.7m).
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 2020 is £156.5m (FY19: £90.8m), therefore if the
assumptions used in this valuation were individually higher or lower by 15% the impact to the profit in the year would be £23.5m (FY19: 10%,
£9.1m).
Valuation of put options over non-controlling interests
On acquisition of a subsidiary the Group records any associated put options over non-controlling interests at the expected gross present
value of the obligations. Subsequent changes in the present value of the expected gross obligation are recorded in the income statement at
the end of each reporting period. Determining the value of the obligations, both at initial recognition and subsequent reporting dates
138
139
Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
3. Accounting judgements and key sources of estimation uncertainty (continued)
Key sources of estimation uncertainty (continued)
Valuation of put options over non-controlling interests (continued)
requires that management make assumptions and utilise techniques that are key sources of estimation uncertainties. Key assumptions
include using Monte Carlo simulations to determine the expected performance of the acquired business over a period of up to five years
as well as the probability of a range of actions available to the non-controlling interests regarding the timing of exercise. Initial estimates of
expected performance are made by the Directors responsible for completing the acquisition and form a key component of the financial
due diligence that takes place prior to completion. Subsequent measurement is based on the Directors’ appraisal of the acquired business’
performance in the post-acquisition period with any required adjustments to the amount payable recognised in the income statement. Due
to the various number of assumptions used in the valuation model, the Directors do not consider it to be meaningful to include estimates
of sensitivities. It is however possible, that within the next financial year changes to assumptions used in the valuation model could require
a material adjustment to the carrying amount of the put option. At 31 March 2020 the carrying value of obligations under put options
was £31.3m, in association with the option to acquire the outstanding non-controlling interests in eLocal Holdings LLC (FY19: £11.0m), in
association with the option to acquire the outstanding non-controlling interests in Habitissimo S.L, see notes 16 and 23.
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, although all impairment reviews during FY20 were performed based on
three years of plan cash flows, the impairment review of Checkatrade in FY19 was performed using four years of plan cash flows approved by
the Directors. In both years presented the long-term growth rate applied to the Checkatrade analysis was consistent with all other CGUs.
The carrying value of goodwill is £509.9m (FY19: £407.9m). The carrying value of acquisition intangibles is £292.3m (FY19: £229.1m). Following
the annual impairment review, impairment charges of £0.5m and £0.7m respectively (FY19: £nil and £nil) have been recorded against the
goodwill and acquisition intangibles associated with the acquisition of Somgas Hogar S.L, see notes 13 and 14.
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.
All businesses have modelled scenarios with varying levels of severity as a result of the COVID-19 pandemic, considering different timelines
for emerging from lockdowns and the resultant impacts on customer, employee and supplier mobility and how this impacts profits and cash
flows. In addition, all businesses have also considered potential upside factors such as increased demand as situations ease. The analyses,
which management believe are based on reasonably plausible assumptions, does not result in the carrying amount of goodwill exceeding
the recoverable amount.
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 2020 in respect of potential
future cancellations is £24.3m (FY19: £17.7m). 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 15% the impact to profit in the year
would be £3.6m (FY19: 10%, £1.8m).
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. During FY19 the Group’s ‘Home Experts’ businesses met the definition of an operating segment under IFRS 8 and
since 31 March 2019 have been presented separately from ‘New Markets’. The ‘Home Experts’ segment contains the results of Checkatrade,
eLocal, Habitissimo and Home Experts France. New Markets includes the Group’s international development initiatives, including its Japanese
joint venture and its former Italian associate which was disposed of on 1 August 2019, see notes 7 and 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.
140
Group financial statements | HomeServe plc Annual Report & Accounts 2020 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.
2020
Revenue
Net policy income
Repair income
HVAC
Home Experts
Other
Total revenue
Inter-segment
External revenue
Result
Adjusted operating profit/(loss) 1
Exceptional items
Amortisation of acquisition intangibles
Operating profit/(loss)
Investment income
Finance costs
Profit before tax
Tax
Profit for the year
2019
Revenue
Net policy income
Repair income
HVAC
Home Experts
Other
Total revenue
Inter-segment
External revenue
Result
Adjusted operating profit/(loss) 1
Exceptional items
Amortisation of acquisition intangibles
Operating profit/(loss)
Investment income
Finance costs
Profit before tax
Tax
Profit for the year
Total
£m
758.0
214.9
80.9
71.8
14.5
1,140.1
(7.8)
1,132.3
201.7
(7.6)
(35.5)
158.6
0.5
(21.2)
137.9
(32.1)
105.8
Total
£m
704.5
206.1
44.8
40.4
15.1
1,010.9
(7.3)
UK
£m
North
America
£m
France
£m
Spain
£m
New
Markets
£m
Home
Experts
£m
249.4
354.9
104.5
89.5
21.2
—
12.8
372.9
(7.8)
365.1
81.0
(15.0)
(3.2)
62.8
30.6
42.4
—
1.6
0.4
6.8
—
0.1
49.2
94.4
10.5
—
—
429.5
111.8
154.1
—
—
—
429.5
111.8
154.1
85.4
—
(17.8)
67.6
33.8
—
(6.9)
26.9
20.1
—
(0.5)
19.6
—
—
—
—
—
—
—
—
(4.7)
3.8
—
(0.9)
—
—
—
71.8
—
71.8
—
71.8
(13.9)
3.6
(7.1)
(17.4)
UK
£m
North
America
£m
France
£m
Spain
£m
New
Markets
£m
Home
Experts
£m
244.0
108.9
25.5
—
13.3
391.7
(7.3)
303.3
101.9
15.7
13.4
—
1.0
0.4
1.5
—
0.8
55.3
81.1
4.4
—
—
333.4
104.6
140.8
—
—
—
384.4
333.4
104.6
140.8
—
—
—
—
—
—
—
—
—
—
—
40.4
—
40.4
—
40.4
1,003.6
66.0
4.6
(2.2)
68.4
67.6
—
(12.9)
54.7
33.3
—
(6.5)
26.8
17.7
—
(0.2)
17.5
(2.4)
—
—
(7.4)
—
(5.0)
(2.4)
(12.4)
174.8
4.6
(26.8)
152.6
0.2
(13.3)
139.5
(31.2)
108.3
140
141
1 Adjusted operating profit is defined in the Glossary to the Annual Report & Accounts on page 193.
Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Notes to financial statements
Year ended 31 March 2020
4. Segmental information and revenue from contracts with customers (continued)
Segment information
Assets
Liabilities
Capital additions
Depreciation, amortisation
and impairment
2020
£m
1,183.3
557.1
247.3
143.8
0.6
210.1
(559.2)
2019
£m
953.8
436.6
225.4
113.3
6.9
77.5
2020
£m
2019
£m
653.2
468.0
683.6
163.3
105.5
31.9
58.4
441.3
152.1
78.6
28.8
31.1
(378.9)
(559.2)
(378.9)
2020
£m
21.1
27.7
14.2
8.9
—
10.5
—
2019
£m
27.6
64.2
9.8
8.7
—
4.7
—
2020
£m
47.5
35.3
13.6
17.4
—
10.8
—
1,783.0
1,434.6
1,136.7
821.0
82.4
115.0
124.6
2019
£m
16.9
23.8
10.0
16.6
—
6.6
—
73.9
UK
North America
France
Spain
New Markets
Home Experts
Inter-segment
Total
All assets and liabilities including inter-segment loans and trading balances are allocated to reportable segments.
Figures for depreciation, amortisation and impairment are shown inclusive of depreciation of IFRS 16 right-of-use assets in FY20. In FY20
these figures also include £14.3m (FY19: £nil) of impairment charges booked in the UK segment in relation to HomeServe Labs (see note 7)
and £1.2m (FY19: £nil) of impairment charges booked in the Spain segment in relation to the acquisition of Somgas Hogar S.L. (see notes 13
& 14).
Information about major customers
During the periods presented three 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
Other customers individually representing below 10% of Group revenue
2020
%
28.9
16.7
12.9
41.5
2019
%
32.6
16.7
13.6
37.1
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
and Japan.
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
2020
£m
403.7
451.6
273.2
3.8
2019
£m
414.2
333.4
252.4
3.6
2020
£m
457.2
248.5
426.5
—
1,132.3
1,003.6
1,132.2
2019
£m
461.9
232.9
221.8
—
916.6
Information relating to Continental Europe in the table above includes the Group’s businesses in France and Spain.
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Group financial statements | HomeServe plc Annual Report & Accounts 2020
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 £51.7m (FY19: £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 (see note 20)
Accrued income (see note 20)
Current liabilities
Deferred income (see note 22)
2020
£m
2019
£m
427.3
16.9
369.9
15.1
51.7
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.
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:
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 1 April 2019
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 2020
Accrued
Income
£m
9.6
2.3
11.9
(10.0)
—
—
13.4
—
(0.2)
15.1
(14.6)
—
—
16.1
—
0.3
16.9
Deferred
Income
£m
86.3
(37.3)
49.0
—
(50.2)
46.1
—
3.2
1.2
49.3
—
(50.1)
47.5
—
3.7
1.3
51.7
Revenue deferred not yet earned is presented net of amounts created and released within the same reporting period. Revenue recognised in
2020 and 2019 in relation to performance obligations satisfied (or partially satisfied) in previous periods was immaterial.
142
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Notes to financial statements
Year ended 31 March 2020
4. Segmental information and revenue from contracts with customers (continued)
Contract costs
At 1 April 2018
Transferred from intangible assets on transition to IFRS 15 1
Additions
Amortisation
Foreign exchange
At 1 April 2019
Additions
Disposals
Amortisation
Impairment
Foreign exchange
At 31 March 2020
£m
—
38.5
4.3
(14.9)
(0.4)
27.5
2.3
(1.6)
(11.8)
(0.1)
0.5
16.8
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 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.
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
Depreciation of right-of-use assets
Depreciation of property, plant and equipment
Amortisation of acquisition intangible assets
Amortisation of other intangible assets
Amortisation of contract costs
(Gain)/Loss on disposal of property, plant and equipment, intangibles and contract costs
Net amounts written off on trade receivables and contract assets (see note 20)
Non-exceptional impairment of goodwill and acquired intangibles
Exceptional impairment charges (see note 7)
Expenses relating to variable lease payments not included in the measurement of lease liabilities
Expenses relating to leases of low value assets, excluding short-term leases of low value assets
Expenses relating to short-term leases
2020
£m
2019
£m
339.2
24.2
14.2
9.3
35.5
38.3
11.8
(0.8)
4.1
1.2
14.3
1.9
0.1
0.9
306.9
29.8
—
9.1
26.8
23.1
14.9
0.6
1.1
—
—
—
—
—
144
Group financial statements | HomeServe plc Annual Report & Accounts 2020
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)
Total non-audit fees
Total auditor’s remuneration
2020
£'000
153
1,161
1,314
55
55
2019
£'000
72
878
950
52
52
1,369
1,002
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.
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 (see note 33)
2020
number
3,397
1,614
1,821
6,832
2019
number
3,814
1,522
1,112
6,448
2020
£m
2019
£m
295.2
36.9
7.1
339.2
266.0
34.1
6.8
306.9
Included within wages and salaries is £1.0m of post combination employee benefit expenses recorded in relation to the Group's option to
acquire the non-controlling interest of eLocal Holdings LLC (see note 16).
The Company only staff numbers and remuneration amounts for HomeServe plc are disclosed in note 36 to the parent company financial
statements.
144
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
7. Exceptional items
Exceptional items, booked to operating costs, comprised the following:
Gain on acquisition of subsidiary non-controlling interests
Gain on disposal of investment in associate
Impairment charges associated with HomeServe Labs
Restructuring costs
Fair value movement on contingent consideration liabilities
Exceptional items included within Group operating profit before tax
Net taxation on exceptional items
Net exceptional items after tax
Year ended 31 March 2020
Acquisition of subsidiary non-controlling interest
See note 30.
Disposal of interest in associate
See note 18.
2020
£m
3.6
3.8
(14.3)
(0.7)
—
(7.6)
2.0
(5.6)
2019
£m
—
—
—
(5.5)
10.1
4.6
(0.2)
4.4
Impairment and restructuring charges associated with HomeServe Labs
Consumers and insurance partners have been slower than expected to adopt smart leak detection technology. Following the Group’s
annual budgeting process and subsequent updates in light of COVID-19 HomeServe has completed an impairment review of the Group’s
LeakBot assets, concluding that the net assets of the business are impaired, and incurring a £15.0m exceptional charge. This conclusion has
been reached based on a number of factors affecting expected future cash flows including commercial traction, access to investment and
the pace of technology change. Of the £15.0m, £12.9m related to the impairment of development assets for the LeakBot device, £1.4m of
inventory and a £0.7m restructuring provision.
Year ended 31 March 2019
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 UK
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 moved 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
9. Finance costs
Interest on bank and other loans
Interest on lease liabilities
Unwinding of discount on deferred and contingent consideration
Unwinding of discount on obligations under put options
Exchange movements
146
2020
£m
0.5
2020
£m
17.7
1.5
1.0
0.5
0.5
21.2
2019
£m
0.2
2019
£m
11.5
—
0.6
1.0
0.2
13.3
Group financial statements | HomeServe plc Annual Report & Accounts 2020
10. Taxation
Current tax
Current year charge
Adjustments in respect of prior years
Total current tax charge
Deferred tax charge
Total tax charge
2020
£m
33.7
(1.8)
31.9
0.2
32.1
2019
£m
31.8
(1.9)
29.9
1.3
31.2
The pre-exceptional effective tax rate for the year ended 31 March 2020 was 23%. The post-exceptional effective tax rate for the same period
was 24%. UK corporation tax is calculated at 19% (FY19: 19%) of the estimated assessable profit for the year. The UK Government in its 2020
Budget announced that the main UK corporate rate would be maintained at 19% until 31 March 2022, before being reviewed, and would not
be reduced to 17%. We have reflected this change in our UK deferred tax calculations.
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 (FY19: 27%), 31% in France (FY19: 33%) as a result of France enacting new tax legislation in December 2018 effective for
accounting periods beginning on or after 1 January 2019 and 25% in Spain (FY19: 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% (FY19: 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
2020
£m
137.9
26.2
1.1
(1.8)
6.6
32.1
2019
£m
139.5
26.5
(0.6)
(1.9)
7.2
31.2
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.
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. The UK Government and a number of taxpayers have appealed this judgment applying for the decision
to be annulled. These annulment proceedings are likely to take several years before a decision is handed down. In the meantime, HM
Revenue & Customs (HMRC) recently published guidance as to how it plans to implement this EU decision. Whilst we await the decision in
the annulment proceedings it is likely that certain of HomeServe’s financing arrangements will be impacted by this EU decision (and HMRC’s
subsequent guidance). 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.
A retirement benefit tax charge of £0.3m (FY19: £0.1m credit) has been recognised directly in other comprehensive income. In addition to the
amounts credited/(charged) to the income statement and other comprehensive income, the following amounts relating to tax have been
recognised directly in equity:
Current tax
Excess tax deductions related to share-based payments on exercised options
3.0
2.7
2020
£m
2019
£m
Deferred tax
Opening impact of IFRS 15
Change in estimated excess tax deductions related to share-based payments
Total tax recognised directly in equity
—
(1.2)
1.8
0.5
0.3
3.5
146
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Notes to financial statements
Year ended 31 March 2020
10. Taxation (continued)
Deferred tax
The following are the major deferred tax assets/(liabilities) recognised by the Group and the movements during the current and prior year:
Asset/(liability)
At 1 April 2018
Impact of IFRS 15 (equity credit)
(Charge)/credit to Income
Timing
differences
£m
Elected
goodwill
deductions
£m
Retirement
benefit
obligations
£m
Share
schemes
£m
Acquired
intangible
assets
£m
Unutilised
losses
£m
Investment
revaluation
reserve
£m 1
(1.2)
0.5
(3.6)
(0.1)
—
0.1
(0.9)
—
(0.4)
5.4
(28.9)
7.7
(0.7)
—
—
—
4.0
(1.5)
Credit to equity
—
—
—
—
Credit/(charge) to
Comprehensive Income
Acquisition of subsidiaries
Transfers
Exchange movements
At 1 April 2019
Credit/(charge) to Income
Charge to equity
Credit/(charge) to
Comprehensive Income
Acquisition of subsidiaries
Exchange movements
At 31 March 2020
—
—
0.6
0.4
(3.3)
(4.8)
—
—
—
0.1
(8.0)
—
—
—
—
—
(0.8)
—
—
—
—
—
(1.2)
(0.4)
—
(0.3)
—
—
(0.8)
(1.9)
0.1
—
—
—
—
—
—
0.1
0.3
0.2
6.0
(0.3)
(1.2)
—
—
0.1
4.6
—
—
—
(0.6)
0.6
6.2
(1.6)
—
—
—
0.2
4.8
(0.6)
—
(0.4)
(25.9)
7.7
—
—
(0.1)
(0.6)
(18.9)
—
—
—
(0.2)
—
—
0.1
(0.8)
—
—
0.8
—
—
—
Total
£m
(18.7)
0.5
(1.3)
0.3
(0.1)
(0.6)
—
0.9
(19.0)
(0.2)
(1.2)
0.5
(0.1)
(0.2)
(20.2)
1 The 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
—
(11.8)
(11.8)
France
£m
—
(14.4)
(14.4)
Spain
£m
3.6
—
3.6
North
America
£m
2.4
—
2.4
2020
£m
6.0
(26.2)
(20.2)
2019
£m
7.4
(26.4)
(19.0)
Deferred tax has not been recognised on £13.2m (FY19: £9.7m) 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.
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Group financial statements | HomeServe plc Annual Report & Accounts 2020
11. Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 March 2019 of 16.2p (2018: 14.4p) per share
Interim dividend for the year ended 31 March 2020 of 5.8p (2019: 5.2p) per share
2020
£m
54.1
19.4
73.5
2019
£m
47.8
17.2
65.0
The proposed final dividend for the year ended 31 March 2020 is 17.8p per share amounting to £59.6m (FY19: 16.2p per share amounting to
£54.1m). 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
Adjusted profit for the year attributable to equity holders of the parent
2020
pence
31.7
31.5
41.3
41.0
2019
pence
32.7
32.3
37.5
37.0
2020
m
2019
m
334.2
331.7
2.8
3.9
337.0
335.6
2020
£m
2019
£m
106.0
108.5
35.5
7.6
(11.0)
26.8
(4.6)
(6.4)
138.1
124.3
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 year by the weighted average number of ordinary shares in issue during the year.
Adjusted earnings per share is calculated excluding the amortisation of acquisition intangibles, exceptional items and the associated tax
impacts.
The Group uses adjusted operating profit, adjusted operating margin, adjusted EBITDA, adjusted profit before tax and adjusted earnings per
share as its primary performance measures. These are non-IFRS measures which exclude the impact of exceptional items, the amortisation
of acquisition intangibles and the associated tax impacts. For further details refer to the ‘Profitability’ section of the Glossary.
Diluted earnings per share includes the impact of dilutive share options in issue throughout the year.
148
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
13. Goodwill
Cost
At 1 April 2018
Recognised on acquisition of subsidiaries
Adjustment related to prior year acquisition
Exchange movements
At 1 April 2019
Recognised on acquisition of subsidiaries
Impairment
Adjustment related to prior year acquisition
Exchange movements
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
£m
386.6
21.0
(0.7)
1.0
407.9
92.8
(0.5)
0.3
9.4
509.9
509.9
407.9
Adjustments to provisional balances
During FY20 the provisional fair values for the acquisition of Cropp Metcalfe Air Conditioning and Heating Company Inc. disclosed as part
of the Group’s FY19 Annual Report have been updated, resulting in a £0.3m increase to goodwill at 31 March 2020. 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.
Impairment of goodwill associated with the acquisition of Somgas Hogar S.L.
During the period between acquisition on 25 July 2019 and 31 March 2020 a significant revenue generating contract of Somgas Hogar S.L.,
a Group company, ceased. In light of these circumstances and due to the recent nature of the acquisition, it was considered appropriate to
perform a separate impairment review of the Somgas business, resulting in an impairment to goodwill of £0.5m. The recoverable amount of
goodwill associated with Somgas at 31 March 2020 was £2.8m based on its value in use. The financial performance and position of Somgas is
reported within the Group's "Spain" segment and in the "HVAC" business line. The discount rate used to perform the impairment assessment
was consistent with that of the "Spain" CGU disclosed below.
Impairment testing methodology and goodwill allocation
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 financial
budgets and plans have been updated to reflect the anticipated impact on our business of the COVID-19 pandemic. Our assumption is that
the lockdown period continues for a three month period until the end of June 2020 with a gradual return to more normal levels of demand
thereafter. It has been anticipated that there will be a greater impact on our Home Experts businesses due to the non-emergency nature of
some of the work; therefore the recovery period is assumed to be more gradual with a phased recovery across the remainder of the financial
year to March 2021.
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% (FY19: 2%). Changes in selling prices and direct costs are based on expectations of future changes in the market.
150
Group financial statements | HomeServe plc Annual Report & Accounts 2020 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, although all
impairment reviews during FY20 were performed based on three years of plan cash flows, the impairment review of Checkatrade in FY19 was
performed using four years of plan cash flows approved by the Directors. In both years presented, the long-term growth rate applied to the
Checkatrade 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
Home Experts
France
Spain
Checkatrade
Habitissimo
eLocal
2020
9.8%
10.3%
9.5%
10.4%
11.6%
12.8%
12.2%
2019
8.8%
9.7%
8.6%
9.9%
8.8%
9.9%
N/A
Pre-tax cost of capital rates reflect the latest cost of debt and equity for a sample of comparable companies in accordance with the market
participant premise detailed in IAS 36. The increase in the discount rates versus FY19 reflects the impact of COVID-19 and the associated cost
of both equity and debt.
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. This includes modelling scenarios with varying levels of severity as a result of the COVID-19 pandemic; considering
different timelines for emerging from lockdowns (e.g. 3 and 6 months) and the resultant impacts on customer, employee and supplier
mobility and how this impacts profits and cash flows.
Having performed this analysis, 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. However, if the lockdown period was significantly
longer than the scenarios noted above and the demand for home improvements remains suppressed after the end of the lockdown,
this could potentially have an impact on the carrying value of our Home Experts CGUs. This view is based upon inherently judgemental
assumptions, however, it takes account of the headroom in the value in use calculation versus the current carrying value.
The carrying amount of goodwill has been allocated, by CGU, as follows:
UK
North America
France
Spain
Home Experts – Checkatrade
Home Experts – Habitissimo
Home Experts – eLocal
The Group’s CGUs do not contain any intangible assets with indefinite useful economic lives.
2020
£m
183.6
76.8
93.6
23.7
58.6
11.3
62.3
2019
£m
183.6
48.5
88.6
17.6
58.6
11.0
—
509.9
407.9
150
151
Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
14. Other intangible assets
Cost
At 1 April 2018
IFRS 15 reclassification
Additions
Acquisition of subsidiaries
Disposals
Transfers
Exchange movements
At 1 April 2019
Additions
Acquisition of subsidiaries
Disposals
Transfers
Exchange movements
At 31 March 2020
Accumulated amortisation
At 1 April 2018
IFRS 15 reclassification
Charge for the year
Disposals
Transfers
Exchange movements
At 1 April 2019
Charge for the year
Impairment
Disposals
Transfers
Exchange movements
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
Acquired
access rights
£m
Acquired
customer
databases
£m
Other
acquired
intangibles
£m
Total
acquisition
intangibles
£m
Trademarks &
access rights
£m
Customer
databases 1
£m
Software
£m
Total
intangibles
£m
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
126.5
224.9
13.9
365.3
4.1
72.3
—
(3.7)
8.7
4.2
6.7
(0.2)
3.7
7.6
—
1.4
—
—
—
207.9
246.9
15.3
8.3
80.4
(0.2)
—
16.3
470.1
27.4
—
7.5
—
0.1
0.7
35.7
13.8
—
—
0.1
1.8
78.6
—
17.6
—
—
2.0
98.2
19.9
0.7
—
(0.1)
3.6
51.4
122.3
0.6
106.6
—
1.7
—
—
—
2.3
1.8
—
—
—
—
4.1
—
26.8
—
0.1
2.7
136.2
35.5
0.7
—
—
5.4
177.8
—
1.3
—
—
0.6
1.4
37.4
4.8
—
—
—
0.8
43.0
27.0
—
3.0
—
(0.1)
0.5
30.4
4.1
1.0
—
(0.8)
0.4
35.1
94.1
(85.0)
8.8
—
—
—
(0.3)
17.6
13.1
—
—
—
0.7
31.4
49.1
(46.5)
2.3
—
—
(0.1)
4.8
3.5
—
—
0.8
0.2
9.3
211.7
—
633.0
(85.0)
42.0
100.9
—
(1.1)
(0.9)
1.9
253.6
45.4
0.1
(4.5)
0.7
3.1
298.4
15.0
(1.1)
—
11.1
673.9
71.6
80.5
(4.7)
0.7
20.9
842.9
65.5
248.2
—
17.8
(0.1)
—
0.7
83.9
30.7
11.9
(4.5)
0.2
1.4
(46.5)
49.9
(0.1)
—
3.8
255.3
73.8
13.6
(4.5)
0.2
7.4
123.6
345.8
156.5
124.6
90.8
126.7
11.2
11.6
292.3
229.1
7.9
7.0
22.1
174.8
12.8
169.7
497.1
418.6
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).
Other acquired intangibles include acquired brands and technology assets. At the balance sheet date there are no contractual commitments
for the purchase of intangible assets (FY19: £nil).
Software includes assets with a book value of £81.8m (FY19: £81.8m) in respect of the new Customer Relationship Management (CRM)
system which has been rolled out in the UK business during FY20 for front book policies. The asset is being amortised over 10 years on a
straight-line basis and over 9 years remains of its useful economic life. Acquired access rights include assets with a book value of £62.1m in
respect of customer relationships acquired as part of the acquisition of eLocal Holdings LLC (see note 16). The assets are being amortised over
periods ranging between 10 and 11 years on a straight-line basis and have over 9 to 10 years useful economic life remaining.
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Impairment
At 31 March 2020 the carrying value of intangible assets associated with HomeServe Labs were reviewed for impairment resulting in charges
being recorded in association with the software assets (£11.9m) and trademarks & access rights (£1.0m) of the business. The total impairment
charges of £12.9m associated with HomeServe Labs related intangible assets were treated as exceptional due to their size and incidence (see
note 7). Post impairment the carrying value of the impaired intangibles was £nil.
Additionally, during the period between acquisition on 25 July 2019 and 31 March 2020 a significant revenue generating contract of Somgas
Hogar S.L., a Group company, ceased. In light of these circumstances and due to the recent nature of the acquisition, it was considered
appropriate to perform a separate impairment review of the Somgas business, resulting in an impairment to acquired customer databases of
£0.7m. For additional detail on the impairment review of the Somgas business see note 13.
15. Property, plant and equipment
Land & buildings
£m
Furniture, fixtures
& equipment
£m
Computer
equipment
£m
Motor
vehicles
£m
Cost
At 1 April 2018
Additions
Disposals
Acquisition of subsidiaries
Exchange movements
At 1 April 2019
Transfers 1
Additions
Disposals
Acquisition of subsidiaries
Exchange movements
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for the year
Disposals
Exchange movements
At 1 April 2019
Transfers 1
Charge for the year
Disposals
Exchange movements
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
35.4
2.1
(0.1)
0.3
0.1
37.8
0.4
2.3
(0.4)
0.4
0.3
40.8
13.7
1.7
—
0.1
15.5
—
1.7
(0.2)
0.2
17.2
23.6
22.3
12.1
1.6
(0.2)
—
0.2
13.7
(0.5)
1.6
(0.2)
0.1
0.2
14.9
7.8
1.6
(0.2)
0.1
9.3
(0.9)
2.1
(0.2)
0.1
10.4
4.5
4.4
26.8
4.9
(0.3)
—
0.6
32.0
(0.3)
3.3
(0.3)
0.2
0.6
35.5
14.7
5.0
(0.1)
0.4
20.0
(0.3)
5.1
(0.3)
0.4
24.9
10.6
12.0
5.5
1.2
(0.5)
1.9
0.4
8.5
(6.1)
1.3
(0.5)
1.2
0.3
4.7
3.7
0.8
(0.3)
0.2
4.4
(3.1)
0.4
(0.4)
0.1
1.4
3.3
4.1
Total
£m
79.8
9.8
(1.1)
2.2
1.3
92.0
(6.5)
8.5
(1.4)
1.9
1.4
95.9
39.9
9.1
(0.6)
0.8
49.2
(4.3)
9.3
(1.1)
0.8
53.9
42.0
42.8
1 Included within transfers in FY20 is a carrying book value of £1.7m in respect of assets held under finance leases at 31 March 2019. At 1 April 2019, on transition to IFRS 16, these amounts
were transferred to right of use assets. See note 26.
At the balance sheet date, there are no contractual commitments for the purchase of property, plant and equipment (FY19: £nil).
152
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
16. Business combinations
The Group has incurred a net cash outflow in respect of business combinations of £140.6m in the year (FY19: £37.5m).
There were three material acquisitions in the year ended 31 March 2020:
• On 26 November 2019, HomeServe USA Holdings Corp., a Group company, acquired 79% of the partnership capital and obtained control
of eLocal Holdings LLC (hereafter ‘eLocal’). eLocal operates within the Home Experts business line of the Group. The acquisition of eLocal
allows HomeServe to continue to progress the Group wide growth strategy in the Home Experts market.
• On 6 December 2019 HomeServe HVAC LLC, a Group company, acquired 100% of the issued share capital and obtained control of
Crawford Services, Inc., (hereafter ‘Crawford’). Crawford operates within the HVAC business line of the Group. The acquisition of Crawford
enhances the scale and scope of the Group’s HVAC capabilities in North America.
• On 17 December 2019, HomeServe USA Repair Management Corp., a Group company, acquired a group of assets constituting a business
under IFRS 3 from Sunbelt Group LLC (hereafter ‘ServLine’). ServLine operates within the Membership business line of the Group. The
acquisition of ServLine allows HomeServe to expand the range of products available to offer to its North American water partners.
Additionally the following immaterial acquisitions, which have been combined and presented as ‘Other’ for the purpose of provisional fair
value disclosures, were made during the year ended 31 March 2020.
Membership
• On 31 May 2019, HomeServe USA Repair Management Corp., a Group company, acquired 100% of the issued share capital and obtained
control of American Home Guardian, Inc., (hereafter ‘AHG’).
• On 1 November 2019, HomeServe USA Repair Management Corp., a Group company, acquired 100% of the issued share capital and
obtained control of Nations Preferred Home Warranty Inc., (hereafter ‘Nations’).
The acquisitions of AHG and Nations enhance the scale and scope of the Group’s home warranty offering and increase the opportunity for
future growth in this market.
HVAC
• On 11 July 2019 HomeServe Spain S.L.U., a Group company, acquired 100% of the issued share capital and obtained control of Linacal S.L.,
(hereafter ‘Linacal’).
• On 11 July 2019 HomeServe Spain S.L.U., a Group company, acquired 100% of the issued share capital and obtained control of Tecno
Arasat Servicios de Mantenimiento S.L., (hereafter ‘Tecno Arasat’).
• On 25 July 2019 HomeServe Spain S.L.U., a Group company, acquired 100% of the issued share capital and obtained control of Somgas
Hogar S.L., (hereafter ‘Somgas’).
• On 31 July 2019 HomeServe HVAC LLC, a Group company, acquired 100% of the issued share capital and obtained control of FAB Electric,
Inc., (hereafter ‘FAB’).
• On 17 September 2019 HomeServe HVAC LLC, a Group company, acquired 100% of the issued share capital and obtained control of
Newcore, Inc., also known as Fred’s Home Services.
• On 31 October 2019 Electro Gaz Service SA, a Group company, acquired a group of assets constituting a business under IFRS 3 from
Michel Vial Services SARL.
• On 30 December 2019 HomeServe Spain S.L.U., a Group company, acquired 100% of the issued share capital and obtained control of
Servicios Tecnicos SATE, S.L.
• On 31 December 2019 HomeServe Energy Services SAS, a Group company, acquired 100% of the issued share capital and obtained
control of Sylvain Brun Froid SAS.
• On 31 December 2019 HomeServe Energy Services SAS, a Group company, acquired 100% of the issued share capital and obtained
control of ID Energies EURL (‘ID Energies’). Subsequent to this transaction, on 31 December 2019, ID Energies, a Group company by virtue
of its aforementioned acquisition by HomeServe Energy Services SAS, acquired the outstanding 90% of the issued share capital of ID S.A.T
SAS not already owned by ID Energies, thereby obtaining control of ID S.A.T SAS and bringing the Group’s total ownership interest to 100%
of the issued share capital.
• On 2 March 2020 ID Energies, a Group company, acquired a group of assets constituting a business under IFRS 3 from Ener’nat SARL.
All HVAC acquisitions made during FY20 enhance the scale and scope of the Group’s HVAC capabilities and increase the opportunity for
future growth related to new HVAC system installations.
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Group financial statements | HomeServe plc Annual Report & Accounts 2020 Home Experts
• On 27 June 2019 HomeServe Home Experts SAS, a Group company, acquired a group of assets constituting a business under IFRS 3 from
Sell Me Up SAS.
The provisional fair values of identifiable assets acquired and liabilities assumed are set out in the table below:
At fair value
Property, plant and equipment
Right-of-use assets
Cash and cash equivalents
Inventories
Trade and other receivables
Trade and other payables
Deferred income
Lease liabilities
Bank & other loans
Deferred & contingent consideration
Intangible assets identified on acquisition
Deferred tax on acquisition intangibles
Net assets acquired
Less non-controlling interests
Goodwill
Total
Satisfied by:
Cash
Deferred consideration
Contingent consideration at fair value
Net cash outflow arising on acquisition
Cash consideration
Less: Cash acquired
Total
eLocal
£m
Crawford
£m
ServLine
£m
0.2
1.5
3.0
—
4.9
(5.4)
(0.8)
(1.5)
(11.6)
(4.4)
63.2
—
49.1
(10.3)
60.0
98.8
96.4
—
2.4
98.8
96.4
(3.0)
93.4
1.0
0.5
0.4
0.2
1.1
(1.0)
(0.5)
(0.5)
—
—
3.6
—
4.8
—
6.9
11.7
10.9
0.8
—
11.7
10.9
(0.4)
10.5
—
—
—
—
—
—
—
—
—
—
5.4
—
5.4
—
13.1
18.5
13.7
—
4.8
18.5
13.7
—
13.7
Other
£m
0.7
1.4
3.1
1.0
1.9
(2.0)
(2.4)
(1.4)
(0.2)
—
8.3
(0.1)
10.3
—
12.8
23.1
19.7
1.8
1.6
23.1
19.7
(3.1)
16.6
Total
£m
1.9
3.4
6.5
1.2
7.9
(8.4)
(3.7)
(3.4)
(11.8)
(4.4)
80.5
(0.1)
69.6
(10.3)
92.8
152.1
140.7
2.6
8.8
152.1
140.7
(6.5)
134.2
The information above is provisional with fair value assessment activities ongoing.
The goodwill arising on the excess of consideration over the fair value of the assets and liabilities acquired represents the expectation of future
growth, synergistic benefits and efficiencies. Where elections are made to treat an acquisition that is in scope of US tax legislation as an asset
purchase for tax, goodwill is deemed deductible for tax purposes. No other goodwill balances are expected to be deducted for tax purposes.
Deferred tax liabilities associated with elected goodwill deductions are disclosed in note 10. The gross contracted amounts due are equal to
the fair value amounts stated above for trade and other receivables.
The post-acquisition revenue, operating profit and acquisition related costs (included in operating costs) from these acquisitions in the year
ended 31 March 2020 were as follows:
Revenue
Operating profit/(loss)
Acquisition related costs
eLocal
£m
22.1
2.8
(1.7)
Crawford
£m
ServLine
£m
4.1
—
—
0.4
—
(0.2)
Other
£m
11.2
(0.8)
(0.4)
Total
£m
37.8
2.0
(2.3)
If all acquisitions had been completed on the first day of the financial year, Group revenue for the year would have been £1,199.2m and Group
adjusted profit before tax would have been £192.2m.
In addition to the net cash outflow on the acquisitions above of £134.2m, deferred and contingent consideration was paid relating to previous
business combinations of £6.4m (FY19: £10.4m).
154
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
16. Business combinations (continued)
Options in relation to the future acquisition of the non-controlling interests in eLocal
The non-controlling shareholders of eLocal hold a series of put options exercisable between 1 July 2021 and 1 July 2023 which obligate
HomeServe USA Holdings Corp. to acquire the remaining 21% of eLocal’s outstanding partnership capital not already owned by the Group.
Option pricing is based on certain future non-market performance metrics and is subject to a floor, being the implied value of eLocal at the
time it was acquired by HomeServe USA Holdings Corp.
To the extent that the potential cash payments relating to the put options issued by the Group over the equity of eLocal do not relate to
post-acquisition employment services of the option holder, they have been accounted for as financial liabilities. These liabilities have been
recognised at the present value of the expected gross obligation with the corresponding entry being recognised in retained earnings. A
finance charge will be recorded in order to accrete the liability up to the expected amount payable under the options. All subsequent changes
in the carrying amount of the financial liability that result from the re-measurement of the present value of the amount payable upon exercise
of the NCI puts will be recognised in the income statement as part of the profit or loss attributable to the parent, and not impact the NCIs’
share of the profit or loss of the subsidiary. The carrying values of the put options are provisional with measurement period assessment
activities ongoing.
The proportion of the potential cash payments relating to the put options which relate to post-acquisition employment services of the option
holder are accounted for as post combination employee benefit expenses in accordance with IAS 19. The expenses are not considered within
the scope of IFRS 2 as the associated liabilities are determined based on a fixed multiple which does not reflect the market price of the equity
on an ongoing basis.
Additionally, HomeServe USA Holdings Corp. holds a call option which, if exercised, requires certain non-controlling shareholders to sell
their remaining interests. This option is only exercisable if in scope shareholders leave the company and are not considered ‘Good Leavers’
as defined in the option agreements. HomeServe currently assess the likelihood that any in scope shareholder would trigger this clause to be
remote and as such have determined that the fair value of this call option is £nil.
17. Other investments
Equity investments carried at fair value through other comprehensive income
At 1 April 2018 1
Fair value gain on FVTOCI investment
Exchange movements
At 1 April 2019
Fair value loss on FVTOCI investment
Exchange movements
At 31 March 2020
£m
8.7
0.7
(0.2)
9.2
(3.7)
0.1
5.6
1 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.
At 31 March 2020 the fair value of the Group's investment held in a manufacturer of smart thermostat connected home technology has been
reassessed. In light of the current market conditions and uncertainty associated with the COVID-19 pandemic the Group has reduced the
fair value of its investment by £3.7m. This movement, net of a £0.8m reduction in the associated deferred tax liability, (see note 10) has been
recorded in the investment revaluation reserve.
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
49 to the Company’s separate financial statements.
The Group made no additional investments during the year ended 31 March 2020.
Disposal of interest in associate
On 1 August 2019 HomeServe International, a Group company, disposed of its 49% equity accounted investment in Assistenza Casa Srl, by
way of sale for cash consideration of €9.4m (£8.4m). At the point of disposal the carrying value of the Group’s investment was £4.6m resulting
in the recognition of a £3.8m gain in the consolidated income statement. The gain has been classified as exceptional due to its size, nature
and incidence.
156
Group financial statements | HomeServe plc Annual Report & Accounts 2020
The following amounts relate to the combined results of the Group’s associate interests in Assistenza Casa Srl (until date of disposal) and
Centriq as well as its joint venture interest in HomeServe Japan Corporation:
Summary Financial Information
Loss after tax
Total comprehensive expense
Amounts recognisable
2020
£m
(5.9)
(5.9)
(2.1)
2019
£m
(0.9)
(0.9)
(0.3)
The proportion of the Group’s ownership interest in equity accounted investments is equal to their carrying amounts in the consolidated
balance sheet.
19. Inventories
Consumables
20. Trade and other receivables
Amounts receivable for the provision of services
Other receivables
Accrued income
Prepayments
2020
£m
7.9
2020
£m
427.3
33.6
16.9
17.6
495.4
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 15% 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 £26.8m (FY19: £17.6m) 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.
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Notes to financial statements
Year ended 31 March 2020
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 (FY19: £nil).
Ageing of impaired balances:
1 - 30 days
31 - 60 days
61 - 90 days
91 days +
Current/not yet due
At 31 March
2020
£m
12.5
6.5
4.7
3.1
26.8
400.5
427.3
2020
£m
1.6
4.9
(2.3)
(0.8)
0.3
0.1
3.8
2020
£m
0.3
0.6
0.1
0.6
2.2
3.8
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
Other receivables
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 2020 or 31 March 2019 as there has been no experience of significant historic losses and no charge
was reported in the income statement. No other receivable balances were considered past due but not impaired.
21. Cash and cash equivalents
Cash and cash equivalents
2020
£m
131.2
2019
£m
72.6
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 £14.5m (FY19: £11.8m) 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.
158
Group financial statements | HomeServe plc Annual Report & Accounts 2020 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
2020
£m
155.5
0.9
4.7
51.7
24.3
14.3
92.7
66.5
2019
£m
148.8
—
5.9
49.3
17.7
14.5
76.8
69.3
410.6
382.3
Trade payables, other payables and accruals principally comprise amounts outstanding for trade purchases and other ongoing costs.
Deferred and contingent consideration relate to future amounts payable, or potentially 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
Obligations under put options
Trade and other payables
2020
£m
10.5
8.8
31.3
1.7
52.3
2019
£m
—
8.9
11.0
3.4
23.3
Deferred and contingent consideration relate to future amounts payable, or potentially payable, on business combinations and asset
purchases.
On 18 June 2019 HomeServe International Limited, a Group company, exercised its call option to acquire the remaining 30% of the shares in
Habitissimo S.L., resulting in the de-recognition of the Group’s obligation under put option to the non-controlling shareholders of Habitissimo
S.L. (see note 30).
On 26 November 2019 HomeServe USA Holdings Corp., a Group company, entered into a series of put options in relation to the option to
acquire the remaining 21% non-controlling interest in eLocal Holdings LLC, following HomeServe USA Holdings Corp’s initial 79% acquisition
(see note 16). The carrying values of the put options are provisional with measurement period assessment activities ongoing.
158
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Notes to financial statements
Year ended 31 March 2020
24. Provisions
Movements in provisions during the years ended 31 March 2020 and 31 March 2019 are disclosed below:
At 1 April 2018
Created
Utilised
At 1 April 2019
Created
Utilised
Transferred
At 31 March 2020
Restructuring
costs
£m
—
4.9
(1.0)
3.9
1.6
(4.5)
—
1.0
Other
£m
—
1.8
—
1.8
0.8
(1.2)
(0.4)
1.0
Total
£m
—
6.7
(1.0)
5.7
2.4
(5.7)
(0.4)
2.0
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
Provisions for restructuring principally relate to the costs associated with programs in the Group’s UK and HomeServe Labs businesses as
discussed in note 7.
Other
Other provisions principally relate to the expected cost of residual value guarantees inherent within certain vehicle leases as well as certain
warranty and legal provisions. Onerous contract provisions relating to lease agreements were transferred into the opening value of right-of-
use assets at 1 April 2019 upon adoption of IFRS 16 (see note 26).
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
2020
£m
27.5
11.2
1.6
40.3
267.9
27.5
245.2
540.6
580.9
2019
£m
27.2
10.8
1.7
39.7
116.4
10.9
209.1
336.4
376.1
The US Dollar and Euro denominated borrowings are used to provide debt funding to the North America and Continental Europe operations
respectively. Foreign currency borrowings are drawn in the UK and passed to the overseas subsidiaries of the Group by way of intercompany
loans, denominated in the same currencies. These external borrowings and the equivalent intercompany receivable loans are treated as
monetary liabilities and assets respectively and, as such, the Group’s foreign currency exposure risk is minimised.
The weighted average interest rates paid on bank and other loans were as follows:
Fixed
Floating
2020
2019
£
%
3.2
1.7
€
%
—
1.0
$
%
5.0
2.9
£
%
3.1
1.6
€
%
—
0.9
$
%
4.9
3.3
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.
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Group financial statements | HomeServe plc Annual Report & Accounts 2020
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 prior 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 2019 the second one year
option was exercised to extend the facility to 2024. The financial covenants associated with the facility are ‘net debt to EBITDA of less
than 3.0 times’ (FY19: 3.0 times) and ‘interest cover greater than 4.0 times EBITDA’ (FY19: 4.0 times). Interest is charged at floating rates at
margins of between 1.05% and 1.15% (FY19: 1.05% and 1.15%) above the relevant reference rate, thus exposing the Group to cash flow and
interest rate risk. At 31 March 2020, the Group had available £146.6m (FY19: £357.8m) of undrawn committed borrowing facilities in respect
of which all conditions precedent had been met.
•
In FY20 the Group has secured a £50m revolving credit facility with one bank. This facility was taken out on 30 March 2020 with a
termination date of 15 July 2024. The financial covenants associated with the facility are the same as the £400m revolving credit facility.
Interest will initially be charged at a floating margin of 1.15% above the relevant reference rate, thus exposing the Group to cash flow and
interest rate risk. At 31 March 2020, the Group had available £50.0m of undrawn committed borrowing facilities in respect of which all
conditions precedent had been met.
• The Group has £110m of US Private Placements (FY19: £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 €12.5m/£11.1m (FY19: €25.0m/£21.5m) amortising term loan which was taken out on
13 September 2016 and has a term of 4 years. The financial covenants associated with this facility are the same as the £400m revolving
credit facility and interest is charged at floating rates at margins of 0.9% above the relevant reference rate, thus exposing the Group to cash
flow and interest rate risk.
• The Group renewed a £25m (FY19: £25m) short-term loan on 31 January 2020 which has a term of six months. The financial covenants
associated with the facility are ‘net debt to EBITDA of less than 2.0 times’ (FY19: 2.0 times) and ‘interest cover greater than 4.0 times EBITDA’
(FY19: 4.0 times). Interest is charged at floating rates at margins of 0.67% (FY19: 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 $0.2m/£0.2m (FY19: $1.9m / £1.5m) was drawn at 31 March 2020. The weighted average
interest rate was 1.5% (FY19: 1.5%).
The Group has complied with all covenant requirements in the current and prior year. Information about liquidity risk is presented in note 27.
160
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
25. Borrowings (continued)
Reconciliation of movements in liabilities arising from financing
Current liabilities
Non-current liabilities
Lease
liabilities
£m
Bank and
other loans
£m
Lease
liabilities
£m
Bank and
other loans
£m
0.4
256.7
Total
£m
295.6
174.2
(98.9)
(0.6)
(8.5)
(1.6)
174.2
(87.8)
—
(6.4)
(1.6)
78.4
64.6
4.8
7.2
0.1
(10.8)
4.7
11.5
0.9
—
336.4
377.3
206.6
(12.9)
—
(12.3)
(0.8)
180.6
—
9.9
13.1
—
—
11.8
(11.2)
206.6
(24.0)
(12.4)
(18.2)
(0.8)
151.2
52.6
11.3
19.2
14.7
(1.3)
15.2
—
540.6
640.2
—
—
—
—
—
—
0.1
—
0.8
(0.6)
0.7
—
—
—
—
—
—
41.1
0.6
1.0
11.5
(1.0)
2.6
(11.3)
45.2
At 1 April 2018
Proceeds from new loans and borrowings
Repayment of borrowings
Repayment of lease principal
Interest paid
Costs associated with new bank and other loans raised
0.5
—
—
(0.6)
—
—
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 1 April 2019
Proceeds from additional borrowings on existing facilities
Repayment of borrowings
Repayment of lease principal
Interest paid
Costs associated with new bank and other loans raised
Total changes from cash flows
Other changes
Transition on adoption of IFRS 16
Foreign exchange
Interest expense
Additions
Disposals
Acquisition of subsidiaries
Transfers to/(from)
At 31 March 2020
—
—
—
0.6
0.5
—
—
(12.4)
(1.5)
—
(0.2)
4.3
—
10.8
39.7
—
(11.1)
—
(4.4)
—
(13.9)
(15.5)
11.5
0.5
0.5
3.2
(0.3)
0.8
11.3
14.1
—
0.3
4.6
—
—
—
11.2
40.3
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Group financial statements | HomeServe plc Annual Report & Accounts 2020
26. Leasing
Year ended 31 March 2020 (presented under IFRS 16)
Information about leases for which the Group is a lessee is presented below.
Right of use assets
Cost
Additions on transition to IFRS 16
Transfers from property, plant and equipment on transition to IFRS 16
Additions
Disposals
Acquisition of subsidiaries
Exchange movements
At 31 March 2020
Accumulated depreciation
At 1 April 2019
Transfers from property, plant and equipment on transition to IFRS 16
Charge for the year
Disposals
Exchange movements
At 31 March 2020
Carrying amount
At 31 March 2020
Properties
£m
Motor vehicles
£m
Other
£m
43.3
—
6.7
(1.0)
3.2
1.4
53.6
—
—
8.5
—
0.1
8.6
7.6
4.9
8.0
(0.7)
0.2
0.3
20.3
—
3.2
5.6
(0.4)
0.2
8.6
0.2
—
—
—
—
—
0.2
—
—
0.1
—
—
0.1
Total
£m
51.1
4.9
14.7
(1.7)
3.4
1.7
74.1
—
3.2
14.2
(0.4)
0.3
17.3
45.0
11.7
0.1
56.8
Amounts recognised in the consolidated income statement are disclosed in notes 5 and 9 respectively. A maturity analysis of the contractual
undiscounted cash flows associated with lease liabilities is provided in note 27. The total cash outflow for leases for the year ended 31 March
2020 was £13.9m, representing £12.4m of principal repayments and £1.5m of interest charges on outstanding lease liabilities.
Year ended 31 March 2019 (presented under IAS 17)
Operating lease commitments
Within 12 months
In the second to fifth years inclusive
After five years
2019
£m
12.6
33.4
10.0
56.0
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.
162
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Notes to financial statements
Year ended 31 March 2020
26. Leasing (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
During FY19 certain motor vehicles were held under finance leases as classified by IAS 17. The average lease term was 4.5 years and the
average effective borrowing rate was 3.8%. Interest rates were 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.
27. 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
2020
£m
5.6
(0.9)
(10.5)
2019 1
£m
9.2
—
—
1 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 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 movement recorded on the Group’s investment in a smart thermostat manufacturer (see note 17).
164
Group financial statements | HomeServe plc Annual Report & Accounts 2020
The table below presents a reconciliation of recurring Level 3 fair value measurements:
Opening balance
Additions (note 16)
Payments
Unwinding of discount rate through the income statement
Exceptional fair value re-measurement gain (note 7)
Other fair value re-measurement gain
Extinguishment
Foreign exchange
2020
£m
—
13.2
(1.1)
0.2
—
(1.5)
—
0.6
11.4
2019
£m
20.6
0.1
(10.7)
0.2
(10.1)
—
(0.1)
—
—
During the period between acquisition on 25 July 2019 and 31 March 2020 a significant revenue generating contract of Somgas Hogar S.L.,
a Group company, ceased. In light of these circumstances the fair value of the contingent consideration associated with the acquisition of
Somgas was reduced by £1.5m.
If discount rates on contingent consideration were higher/lower than the Group’s historical experience by 10%, the carrying amount would
decrease/increase by £0.3m (FY19: £nil). The undiscounted range of outcomes associated with the contingent consideration payments has
a floor of £1.8m (FY19: £nil). Payments above the floor vary based on a range of conditional performance metrics, for example a percentage
commission based on the future revenues associated with certain products of an acquired business over a defined period.
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 28, 29 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
2020
£m
635.7
131.2
580.9
2019
£m
613.4
72.6
376.1
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.
164
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Notes to financial statements
Year ended 31 March 2020
27. Financial instruments (continued)
Interest rate risk (continued)
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)
2020
10%
0.2
2019
10%
0.1
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.
The maturity profile of the Group’s financial liabilities based on contractual maturities is provided in the table below. Interest is payable on all
bank and other loans. All cash flows are presented on an undiscounted basis.
2020
Under 2 months
Between 2 and 12 months
Between 1 and 2 years
Between 2 and 5 years
After 5 years
Total
2019
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 and
contingent
consideration
£m
Lease
liabilities
£m
Obligations
under put
options
£m
2.5
49.7
16.1
404.2
213.4
685.9
98.0
57.5
—
—
—
27.5
130.2
0.6
0.1
1.0
0.8
5.8
6.4
8.3
9.0
155.5
159.4
30.3
2.0
12.9
12.4
26.2
9.8
63.3
—
—
23.8
18.9
—
42.7
Bank and
other loans
£m
Trade
payables
£m
Other
payables
£m
Deferred and
contingent
consideration
£m
Lease
liabilities
£m
Obligations
under put
options
£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
—
—
151.2
136.5
5.0
1.7
1.6
4.5
6.0
18.8
0.1
0.4
0.5
0.2
—
1.2
—
—
12.1
—
—
12.1
Total
£m
130.8
256.1
59.3
457.7
233.2
1,137.1
Total
£m
130.3
209.5
39.8
130.9
283.0
793.5
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.
28. Share capital
Issued and fully paid 334,634,278 ordinary shares of 2 9/13p each (FY19: 332,490,377)
2020
£m
9.0
2019
£m
9.0
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.
166
Group financial statements | HomeServe plc Annual Report & Accounts 2020 During the period from 1 April 2019 to 31 March 2020 the Company issued 2,143,901 shares with a nominal value of 2 9/13p creating share
capital and share premium with a combined value of £8.6m.
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 and share premium with a combined value of £9.0m.
29. 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 (FY19: 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 movement 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 2018 and 1 April 2019
Purchase of own shares
At 31 March 2020
Capital redemption
reserve
£m
1.2
—
1.2
Merger
reserve
£m
81.0
—
81.0
Own shares
reserve
£m
—
(3.0)
(3.0)
Total other
reserves
£m
82.2
(3.0)
79.2
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 own shares reserve represents the cost of shares in HomeServe plc purchased in the market and held by the HomeServe plc Employee
Benefit Trust. The shares are held to satisfy obligations under the Group’s share option schemes and are recognised at cost. During the year
249,975 (FY19: nil) shares were repurchased at a cost of £3.0m (FY19: £nil) to fulfil awards made under share incentive schemes. No shares
were transferred to individuals to satisfy awards (FY19: nil).
30. Non-controlling interests
Acquisition of subsidiary non-controlling interests – Habitissimo S.L.
On 18 June 2019 HomeServe International Limited, a Group company, executed its call option (written on 27 January 2017, the point at which
it acquired a 70% controlling interest in Habitissimo S.L.), to acquire the outstanding 30% non-controlling interests in Habitissimo S.L. for cash
consideration of €8.6m (£7.7m). The transaction increased HomeServe International Limited’s interest in Habitissimo S.L. to 100% of the issued
share capital and did not give rise to a change in control.
The transaction resulted in a gain in the consolidated income statement of £3.6m. This represents the difference between the consideration
paid and the value of the option liability, being the potential cash payment of the non-controlling interests' corresponding put option to
sell the remaining 30% of their shareholding, held on the balance sheet immediately prior to the transaction, net of directly attributable
transaction costs. The gain has been classified as exceptional in the consolidated income statement due to its size, nature and incidence.
166
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Year ended 31 March 2020
30. Non-controlling interests (continued)
Acquisition of eLocal USA Holdings LLC
On 26 November 2019, HomeServe USA Holdings Corp, a Group company, acquired 79% of the share capital and obtained control of eLocal
USA Holdings LLC (see note 16). eLocal is based in Philadelphia and operates across North America in the Group's Home Experts segment.
The proportion of ownership interests held by non-controlling interests is 21%.
Summarised financial information in respect of the Group’s non-controlling interests is set out below. In FY20 this relates to the 21% non-
controlling interest in eLocal USA Holdings LLC and in FY19 to the 30% non-controlling interest in Habitissimo S.L. 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
31. Notes to the cash flow statement
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of acquisition intangible assets
Amortisation of other intangible assets
Amortisation of contract costs
(Gain)/loss on disposal of property, plant and equipment, intangibles assets and contract costs
Non-exceptional impairment of goodwill and intangible assets
Fair value movement on contingent consideration
Share-based payments expense
Employee expenses associated with put options over non-controlling interests
Share of equity accounted investees results
Exceptional impairment charges
Other exceptional items
Operating cash flows before movements in working capital
Increase in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables and provisions
Net movement in working capital
Cash generated by operations
Income taxes paid
Interest paid (inclusive of payments on lease liabilities)
Net cash inflow from operating activities
168
2020
£m
8.6
64.9
(18.5)
(4.6)
50.4
10.6
2020
£m
158.6
9.3
14.2
35.5
38.3
11.8
(0.8)
1.2
(1.5)
7.2
1.0
2.1
14.3
(6.7)
284.5
(1.0)
(46.3)
3.2
(44.1)
240.4
(30.2)
(18.2)
192.0
2019
£m
1.4
4.8
(5.7)
—
0.5
0.2
2019
£m
152.6
9.1
—
26.8
23.1
14.9
0.6
—
—
9.8
—
0.3
—
(4.6)
232.6
(0.7)
104.0
(133.7)
(30.4)
202.2
(31.7)
(8.5)
162.0
Group financial statements | HomeServe plc Annual Report & Accounts 2020
32. Share-based payments
During the year ended 31 March 2020, the Group had four (FY19: 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) Special Value Creation Plan (‘SVCP’)
During the year a number of awards have been granted under the SVCP. This Plan provides for the grant of performance awards with
performance conditions related to particular business units. The performance conditions include metrics such as EBIT, EBITDA, or household
and customer targets. The vesting periods range from three and five years from the date of grant.
iii) 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 (FY19: nil) as the scheme is now closed.
iv) One Plan
One Plan is a share incentive scheme which is available to all employees. For every two partnership shares purchased, participants will receive
(or have the right to receive) one free matching share. Matching shares are held in trust for a period of up to three years.
LTIP
SVCP
SAYE
One Plan
2020
Number
Outstanding at 1 April 2019
Granted
Lapsed
Forfeited
Exercised
Outstanding at 31 March 2020
Exercisable at 31 March 2020
Weighted average exercise price (£)
Outstanding at 1 April 2019
Granted
Lapsed
Forfeited
Exercised
Outstanding at 31 March 2020
Exercisable at 31 March 2020
4,822,728
—
956,713
1,246,661
(7,526)
(309,596)
(2,091,726)
—
—
—
3,370,593
1,246,661
7,967
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Exercise price of options outstanding at 31 March 2020
Weighted average remaining contractual life
Weighted average fair value of options granted
£0.00
2
£10.59
£0.00
4
£11.99
27,338
—
(1,879)
—
(25,459)
—
—
3.35
—
3.35
—
3.35
—
—
n/a
—
n/a
105,756
40,780
—
(14,432)
(27,913)
104,191
—
—
—
—
—
—
—
—
£0.00
2
£11.99
168
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Notes to financial statements
Year ended 31 March 2020
32. Share-based payments (continued)
2019
Number
Outstanding at 1 April 2018
Granted
Lapsed
Forfeited
Exercised
Outstanding at 31 March 2019
Exercisable at 31 March 2019
Weighted average exercise price (£)
Outstanding at 1 April 2018
Granted
Lapsed
Forfeited
Exercised
Outstanding at 31 March 2019
Exercisable at 31 March 2019
Range of exercise prices of options outstanding at 31 March 2019
£0.00
£3.00 to £3.99
Weighted average remaining contractual life
Weighted average fair value of options granted
LTIP
SAYE
One Plan
5,713,831
1,215,709
—
(87,557)
(2,019,255)
4,822,728
4,995
—
—
—
—
—
—
—
729,194
—
—
(30,659)
(671,197)
27,338
27,338
3.18
—
—
3.27
3.17
3.35
3.35
75,117
45,487
—
(10,800)
(4,048)
105,756
—
—
—
—
—
—
—
—
4,822,728
—
105,756
—
2
£9.12
27,338
1
—
n/a
2
£9.24
The weighted average share price at the date of exercise for share options exercised during the year was £11.72 (FY19: £9.13).
The estimated fair values are calculated by applying a Black-Scholes option pricing model for SVCP, 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% - 24%
Per scheme rules
Based on historic dividend yield
0.12% - 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 FY20 the Group
recognised an IFRS 2 charge of £7.2m (FY19: £9.8m) related to equity-settled share-based payment transactions.
170
Group financial statements | HomeServe plc Annual Report & Accounts 2020
33. 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 £6.9m (FY19: £6.7m) represents contributions payable to the schemes by the Group at rates specified in
the rules of the schemes. At 31 March 2020, contributions of £0.8m (FY19: £0.8m) 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. In FY19 an allowance was
made resulting in a past service cost of £0.1m being recorded. In FY20 there have been no updated assessments received regarding the
potential cost of the judgement and therefore the allowance included within the IAS 19 obligation remains unchanged.
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. Re-measurements 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
2020
2.5%
1.9%
2.9%
1.9%
1.9%
29.0yrs
27.6yrs
Valuation at
2019
2.4%
2.5%
3.5%
2.5%
2.5%
28.9yrs
27.5yrs
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.
The following table illustrates the sensitivity of the defined benefit obligation to some of the significant assumptions as at 31 March 2020, all
other things being equal:
Price inflation -0.5%
Price inflation +0.5%
Discount rate -0.5%
Discount rate +0.5%
Life expectancy -1 year
Life expectancy +1 year
£m
(2.4)
2.8
3.0
(2.6)
(0.9)
0.9
170
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HomeServe plc Annual Report & Accounts 2020 | Financial statements
Notes to financial statements
Year ended 31 March 2020
33.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
2020
£m
0.1
—
(0.2)
(0.1)
2019
£m
0.2
0.1
(0.2)
0.1
The actual return on scheme assets was a loss of £2.6m (FY19: gain of £0.8m). 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
2020
£m
(27.1)
37.4
10.3
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
2020
£m
31.1
0.1
0.7
(3.7)
—
(0.5)
(0.6)
—
27.1
2020
£m
37.5
0.9
(2.6)
2.2
(0.6)
37.4
2019
£m
(31.1)
37.5
6.4
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
The amount recognised outside the income statement in the statement of comprehensive income for FY20 is a gain of £1.6m (FY19: loss of
£0.4m). The cumulative amount recognised outside the income statement at 31 March 2020 is a loss of £4.0m (FY19: loss of £5.6m).
172
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
2020
£m
13.0
4.0
20.4
—
37.4
2019
£m
15.2
4.4
17.7
0.2
37.5
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 (FY20: actual
£2.2m) plus any Pension Protection Fund levy payable.
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 49 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 49).
Transactions with equity accounted investees
Sales to associates
Purchases from associates
Sales to joint ventures
Purchases from joint ventures
Amounts owed to joint ventures
2020
£m
0.1
0.3
0.4
0.3
0.1
2019
£m
0.3
—
—
—
—
Transactions and balances principally relate to salaries, consultancy, contractor costs and marketing services.
Other related party transactions
During the year Group companies purchased services amounting to £0.3m (FY19: £0.5m) from companies that are not members of the
Group but that are related parties as they are controlled by or connected to Richard Harpin, Chief Executive of the Group and a Director of
the parent company of the Group. These services related to the use by the Group of private aircraft, including the provision of pilots and all
related operating costs that are controlled by the related parties. The provision of such services were made at arm’s length prices, which were
approved by the Remuneration Committee.
The specific companies that were subject to the transactions were Harpin Limited (FY20: £0.2m, FY19: £0.2m), Pilot Services (GB) Limited
(FY20: £nil, FY19: £0.1m) and Centreline AV Limited (formerly Siro Limited) (FY20: £0.1m, FY19: £0.2m). Amounts outstanding to all these
companies on 31 March 2020 amounted to £nil (FY19: £0.1m). The amounts outstanding are unsecured and will be settled in cash. No
guarantees have been given or received.
In May 2020 HomeServe entered into a new structure to scale the French Home Experts business. The management team will now own 80%
with HomeServe taking a 20% stake with an option to increase this in the future, once the business has achieved national scale.
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 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
Except as noted above, there were no other transactions with Directors requiring disclosure.
2020
£m
8.4
0.3
5.6
—
14.3
2019
£m
5.2
0.3
6.6
0.2
12.3
172
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Company financial statements | HomeServe plc Annual Report & Accounts 2020
Company statement of comprehensive income
Year ended 31 March 2020
Profit for the year
Items that will not be reclassified subsequently to profit and loss:
Actuarial gain/(loss) on defined benefit pension scheme
Deferred tax (charge)/credit relating to actuarial re-measurements
Total other comprehensive income/(expense)
Total comprehensive income for the year
Notes
33
42
2020
£m
80.0
1.6
(0.3)
1.3
81.3
2019
£m
76.0
(0.4)
0.1
(0.3)
75.7
174
Company balance sheet
31 March 2020
Non-current assets
Other intangible assets
Property, plant and equipment
Right of use assets
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
Lease liabilities
Net current assets
Non-current liabilities
Bank and other loans
Lease liabilities
Deferred Tax liabilities
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
44
39
42
33
40
40
41
43
44
43
44
42
28
29
29
46
29
2020
£m
2.7
0.6
1.6
909.6
—
10.3
924.8
38.1
60.9
99.0
1,023.8
(11.0)
(3.3)
(40.1)
(0.4)
(54.8)
44.2
(540.3)
(1.1)
(0.1)
(541.5)
(596.3)
427.5
9.0
189.3
81.0
19.8
1.2
127.2
427.5
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
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 £80.0m (FY19: £76.0m).
The financial statements of HomeServe plc were approved by the Board of Directors and authorised for issue on 19 May 2020. They were
signed on its behalf by:
David Bower
Chief Financial Officer
19 May 2020
Registered in England No. 2648297
174
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Company financial statements | HomeServe plc Annual Report & Accounts 2020
Company statement of changes in equity
Year ended 31 March 2020
Balance at 1 April 2019
Profit for the year
Other comprehensive income
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 2020
Share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Share
incentive
reserve
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
Total
equity
£m
9.0
180.7
81.0
21.2
1.2
118.6
411.7
—
—
—
—
—
—
—
—
—
—
—
—
—
8.6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7.2
(8.6)
—
—
—
—
—
—
—
—
—
—
—
80.0
1.3
81.3
(73.5)
—
—
0.1
1.0
(0.3)
80.0
1.3
81.3
(73.5)
8.6
7.2
(8.5)
1.0
(0.3)
9.0
189.3
81.0
19.8
1.2
127.2
427.5
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
Share
capital
£m
Share
premium
account
£m
Merger
reserve
£m
Share
incentive
reserve
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
8.9
171.8
81.0
20.0
1.2
106.1
—
—
—
—
—
—
—
—
0.1
8.9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.8
(7.6)
—
—
—
—
—
—
—
—
—
—
—
Total
equity
£m
389.0
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
176
Notes
47
Company cash flow statement
Year ended 31 March 2020
Net cash inflow/(outflow) from operating activities
Investing activities
Interest received
Dividends received from subsidiary undertakings
Purchases of intangible assets
Purchases of tangible assets
Investment in subsidiary undertaking
Net cash (outflow)/inflow from investing activities
Financing activities
Dividends paid
Proceeds on issue of share capital
Repayment of lease principal
Purchase of own shares
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 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
40
2020
£m
419.2
14.1
114.0
(2.2)
(0.6)
(715.0)
(589.7)
(73.5)
0.1
(0.3)
(3.0)
—
(0.8)
193.3
115.8
(54.7)
117.4
(1.8)
60.9
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
176
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Company financial statements | HomeServe plc Annual Report & Accounts 2020
Notes to Company financial statements
Year ended 31 March 2020
Company only
The following notes 35 to 49 relate to the Company only position and performance for the year ended 31 March 2020.
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 £80.0m (FY19: £76.0m).
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. Furthermore,
included within amounts receivable from Group companies are amounts advanced to the HomeServe plc Employee Benefit Trust for the
purchase of shares. The shares are held in trust to satisfy obligations under share options schemes and are recognised at cost.
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:
UK (all administrative roles)
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs (note 33)
Audit fees
Fees payable to the Company’s auditor for the audit of the Company’s
financial statements
Total audit fees
2020
number
81
2020
£m
10.7
1.3
0.4
12.4
2020
£000
153
153
2019
number
75
2019
£m
11.0
1.3
0.2
12.5
2019
£000
72
72
178
37. Other intangible assets
Cost
At 1 April 2018
Additions
Transfer
At 1 April 2019
Additions
Disposals
Transfers
At 31 March 2020
Accumulated amortisation
At 1 April 2018
Charge for the year
At 1 April 2019
Charge for the year
Impairment
Disposals
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
Trademarks &
access rights
£m
Software
£m
Total
intangibles
£m
1.8
—
0.7
2.5
0.4
—
—
2.9
0.8
—
0.8
0.3
1.0
—
2.1
0.8
1.7
7.3
0.1
(0.7)
6.7
1.8
(3.2)
0.1
5.4
4.0
0.8
4.8
1.9
—
(3.2)
3.5
1.9
1.9
9.1
0.1
—
9.2
2.2
(3.2)
0.1
8.3
4.8
0.8
5.6
2.2
1.0
(3.2)
5.6
2.7
3.6
38. Property, plant and equipment
Leasehold
improvements
£m
Computer
equipment
£m
Motor
Vehicles
£m
Total
tangible assets
£m
Cost
At 1 April 2018
Additions
At 1 April 2019
Additions
Disposals
Transfers
At 31 March 2020
Accumulated depreciation
At 1 April 2018
Charge for the year
At 1 April 2019
Charge for the year
Disposals
At 31 March 2020
Carrying amount
At 31 March 2020
At 31 March 2019
0.3
—
0.3
0.4
(0.1)
—
0.6
0.2
—
0.2
0.1
(0.1)
0.2
0.4
0.1
0.2
0.2
0.4
0.1
(0.2)
(0.1)
0.2
0.2
0.1
0.3
—
(0.2)
0.1
0.1
0.1
—
—
—
0.1
—
—
0.1
—
—
—
—
—
—
0.1
—
0.5
0.2
0.7
0.6
(0.3)
(0.1)
0.9
0.4
0.1
0.5
0.1
(0.3)
0.3
0.6
0.2
178
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Notes to Company financial statements
Year ended 31 March 2020
39. Subsidiaries
Details of the Company’s subsidiaries at 31 March 2020, including the name, address, country of incorporation and proportion of ownership
interest is given in note 49.
Cost and net book value
At 1 April 2018 and 1 April 2019
Additions
At 31 March 2020
£m
194.6
715.0
909.6
The addition in the year of £715.0m (FY19: £nil) relates to a recapitalisation exercise that injected £715.0m into HomeServe Enterprises Limited.
At each balance sheet date the Company reviews the carrying amount of the investment in HomeServe Enterprises Limited to determine
whether there is any indication of an impairment loss. Given that HomeServe Enterprises Limited owns directly or indirectly all subsidiaries in
the HomeServe plc Group, a comparison is made between the carrying value of the investment in HomeServe Enterprises Limited and the
market capitalisation of HomeServe plc.
40. Financial assets
Trade and other receivables
Amounts receivable from Group companies (note 49)
Other receivables
Prepayments and accrued income
2020
£m
36.6
0.8
0.7
38.1
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. The reduction in receivables from
Group companies in the year is due to the recapitalisation exercise carried out in FY20.
Ageing of past due but not impaired receivables:
Current
At 31 March
2020
£m
36.6
36.6
2019
£m
479.1
479.1
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 £60.9m (FY19: £117.4m) 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.
180
41. Financial liabilities
Trade and other payables
Trade payables and accruals
Amounts payable to Group companies
Taxes and social security, excluding corporation tax
2020
£m
9.1
0.4
1.5
11.0
2019
£m
10.9
0.1
1.9
12.9
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period
taken for trade purchases is 9 days (FY19: 17 days).
The Directors consider that the carrying amount of trade payables approximates to their fair value.
42. Deferred tax
The following are the major deferred tax assets/(liabilities) recognised by the Company and movements thereon:
At 1 April 2018
(Charge)/credit to income
Credit to equity
Credit to comprehensive income
At 1 April 2019
Charge to income
Charge to equity
Charge to comprehensive income
At 31 March 2020
43. Bank and other loans
Bank loans
Due within one year
Bank and other loans
Due after one year
Total bank and other loans
Retirement benefit
obligations
£m
Share
schemes
£m
Timing
differences
£m
(0.9)
(0.4)
—
0.1
(1.2)
(0.4)
—
(0.3)
(1.9)
1.9
—
0.1
—
2.0
(0.1)
(0.3)
—
1.6
(0.6)
0.8
—
—
0.2
—
—
—
0.2
2020
£m
40.1
40.1
540.3
540.3
580.4
Total
£m
0.4
0.4
0.1
0.1
1.0
(0.5)
(0.3)
(0.3)
(0.1)
2019
£m
39.7
39.7
334.9
334.9
374.6
Bank loans due in less than one year of £40.1m (FY19: £39.7m) include the short-term loan of £25m and £11.2m of the €25m 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 drawn loans from the revolving credit facility and the US Private
Placements. 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
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Notes to Company financial statements
Year ended 31 March 2020
43. Bank and other loans (continued)
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 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 1 April 2019
Proceeds from additional borrowings on existing facilities
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 2020
44. Leasing
37.6
—
(10.7)
(2.1)
—
(12.8)
(0.2)
4.3
10.8
39.7
—
(11.0)
(4.3)
—
24.4
0.2
4.5
11.0
40.1
255.2
174.2
(87.9)
(6.1)
(1.6)
78.6
5.0
6.9
(10.8)
334.9
204.3
—
(11.6)
(0.8)
526.8
12.1
12.4
(11.0)
540.3
Total
£m
292.8
174.2
(98.6)
(8.2)
(1.6)
65.8
4.8
11.2
—
374.6
204.3
(11.0)
(15.9)
(0.8)
551.2
12.3
16.9
—
580.4
The following disclosures about leases, for which the Company is a lessee, are presented in accordance with IFRS 16 for the year ended 31
March 2020.
Right of use assets
Cost
Additions on transition to IFRS 16
Additions
At 31 March 2020
Accumulated depreciation
At 1 April 2019
Charge for the year
At 31 March 2020
Carrying amount
At 31 March 2020
Properties
£m
Motor vehicles
£m
0.1
1.7
1.8
—
0.3
0.3
1.5
—
0.1
0.1
—
—
—
0.1
Total
£m
0.1
1.8
1.9
—
0.3
0.3
1.6
182
Lease liabilities
Leases
Due within one year
Leases
Due after one year
Total lease liabilities
2020
£m
0.4
0.4
1.1
1.1
1.5
2019
£m
—
—
—
—
—
A maturity analysis of the contractual undiscounted cash flows associated with lease liabilities is provided in note 45. The total cash outflow
for leases for the year ended 31 March 2020 was £0.3m, representing £0.3m of principal repayments and £nil of interest charges on
outstanding lease liabilities.
45. 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 loans, revolving credit facilities and Private Placements
trade receivables
other receivables
trade payables
other payables.
2020
£m
98.3
2020
£m
591.4
2019
£m
597.4
2019
£m
385.6
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 28, 29 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
2020
£m
427.5
60.9
580.4
2019
£m
411.7
117.4
374.6
Financial risk management objectives
The Company’s principal financial instruments comprise bank and other loans 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.
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Notes to Company financial statements
Year ended 31 March 2020
45. Financial instruments (continued)
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
2020
£m
16.8
9.8
2019
£m
—
186.3
2020
£m
(43.3)
(269.4)
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.
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)
2020
10%
19.1
19.1
10%
1.9
1.9
2019
10%
(5.1)
(5.1)
10%
2.1
2.1
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.
2020
Under 2 months
Between 2 and 12 months
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Total
2019
Under 2 months
Between 2 and 12 months
Between 1 and 2 years
Between 2 and 5 years
Over 5 years
Total
Lease liabilities
£m
Bank and
other loans
£m
Trade, other and group
payables
£m
2.5
49.5
15.8
404.3
213.4
685.5
3.5
5.8
—
—
—
9.3
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
—
0.4
0.4
0.8
—
1.6
184
Total
£m
6.0
55.7
16.2
405.1
213.4
696.4
Total
£m
5.3
53.6
22.7
125.4
276.0
483.0
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)
46. Share incentive reserve
At 1 April 2018
Share-based payment charges in the year
Share options exercised in year
At 1 April 2019
Share-based payment charges in the year
Share options exercised in year
At 31 March 2020
47. Notes to the cash flow statement
Operating loss
Adjustments for:
Amortisation of intangible assets
Depreciation of property, plant and equipment
Depreciation of right of use assets
Exceptional impairment charge
Amounts received from subsidiary undertakings for share incentive schemes
and other items
Share-based payment expense
Operating cash flows before movements in working capital
Decrease/(Increase) in receivables
Decrease in payables
Movements in working capital
Cash used in operations
Income taxes received
Interest paid
Net cash inflow/(outflow) from operating activities
2020
10%
0.2
2020
£m
(24.0)
2.2
0.1
0.3
1.0
6.2
2.4
(11.8)
441.6
(0.7)
440.9
429.1
6.0
(15.9)
419.2
2019
10%
0.1
£m
20.0
8.8
(7.6)
21.2
7.2
(8.6)
19.8
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)
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Notes to Company financial statements
Year ended 31 March 2020
48. Share-based payments
During the year ended 31 March 2020, the Company had three (FY19: three) share-based payment arrangements, which are described in
note 32.
LTIP
SVCP
One Plan
2020
Number
Outstanding at 1 April 2019
Granted
Transfer
Lapsed
Forfeited
Exercised
Outstanding at 31 March 2020
Exercisable at 31 March 2020
Weighted average exercise price (£)
Outstanding at 1 April 2019
Transfer
Forfeited
Exercised
Outstanding at 31 March 2020
Exercisable at 31 March 2020
Range of exercise price of options outstanding at 31 March 2020
£2.00 to £2.99
£3.00 to £3.99
Weighted average remaining contractual life
1,790,863
331,926
—
(3,216)
(160,880)
(740,233)
—
233,332
—
—
—
—
1,218,460
233,332
3,864
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
4
7,341
2,146
1,339
—
(511)
(3,303)
7,012
—
—
—
—
—
—
—
—
—
1
Weighted average fair value of options granted in 2020
£10.58
£12.47
£11.99
186
LTIP
SAYE
One Plan
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
The weighted average share price at the date of exercise for share options exercised during the year was £11.77 (FY19: £9.01).
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 32.
In FY20 the Company recognised an IFRS 2 charge of £2.4m (FY19: £3.6m) related to equity-settled share-based payment transactions.
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Notes to Company financial statements
Year ended 31 March 2020
49. Related party transactions
During the year the Company purchased services amounting to £0.3m (FY19: £0.5m) from companies that are not members of the Group
but that are related parties as they are controlled by or connected to Richard Harpin, Chief Executive of the Group and a Director of the
parent company of the Group. These services related to the use by the Group of private aircraft, including the provision of pilots and all
related operating costs that are controlled by the related parties. The provision of such services were made at arm’s length prices, which were
approved by the Remuneration Committee.
The specific companies that were subject to the transactions were Harpin Limited (FY20: £0.2m, FY19: £0.2m), Pilot Services (GB) Limited
(FY20: £nil, FY19: £0.1m) and Centreline AV Limited (formerly Siro Limited) (FY20: £0.1m, FY19: £0.2m). Amounts outstanding to all these
companies on 31 March 2020 amounted to £nil (FY19: £0.1m). The amounts outstanding are unsecured and will be settled in cash. No
guarantees have been given or received.
In respect of transactions with subsidiaries of the Group, the Company provided goods of £nil (FY19: £nil), provided services of £6.8m (FY19:
£6.2m), lent monies to of £40.2m (FY19: £43.7m) and borrowed monies from of £nil (FY19: £nil). Amounts due to subsidiary companies total
£0.4m (FY19: £0.1m). Amounts owed by subsidiary companies total £36.6m (FY19: £479.1m) which principally relate to intercompany loans
receivable. The Company provided services of £0.1m (FY19:£0.3m) to associates during the year and £0.4m (FY19:£nil) to joint ventures during
the year. The Company purchased services of £0.3m (FY19: £nil) from joint ventures during the year. There are no amounts outstanding in
either year with associates and £0.1m outstanding (FY19: £nil) with joint ventures.
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
2020
£m
3.4
0.2
2.8
—
6.4
2019
£m
3.6
0.3
3.6
0.1
7.6
Except as noted above there were no other transactions with Directors requiring disclosure.
Interests held in related companies
All interests in the companies listed below are owned by HomeServe plc and all interests held are in the ordinary share capital. All companies
operate principally in their country of incorporation.
Name of legal entity
Activity
Directly held entities of HomeServe plc:
Place of
incorporation
ownership (or
registration)
and operation
Proportion
of voting
interest
and
power %
Registered address
HomeServe Enterprises Limited
Trading
England
100
Cable Drive, Walsall, WS2 7BN
Indirectly held entities of HomeServe plc:
Holding Companies
HomeServe Assistance Limited
Trading
England
HomeServe International Limited
Trading
England
HomeServe GB Limited (No. 5536994) 1
Dormant
England
HomeServe France Holding SAS
Trading
France
HomeServe Energy Services SAS
Trading
France
HomeServe USA Holdings Corp
Trading
USA
HomeServe Beteiligungs GmbH
Trading
Germany
Sherrington Mews Limited
Trading
England
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
Building 2000, Lakeside North Harbour, Western Road,
Portsmouth, PO6 3EN
188
Place of
incorporation
ownership (or
registration)
and operation
Proportion
of voting
interest
and
power %
Name of legal entity
UK & Ireland
HomeServe Membership Limited
HomeServe Servowarm Limited (No. 560810) 1
Activity
Trading
Non-
Trading
England
England
HomeServe At Home Limited (No. 4186398) 1
Dormant
England
Vetted Limited
247999 Limited (No. 7183505) 1
Home Energy Services Limited (No. 8419975) 4
Trading
England
Dormant
England
Non-
Trading
England
HomeServe Manufacturer Warranties Limited (No. 4079068) 1 Dormant
England
HomeServe Heating Services Limited (No. 3468609) 4
Non-
Trading
England
HomeServe Trustees Limited (No. 3349817) 1
Dormant
England
HomeServe France Limited (No. 9469168) 4
Trading
England
HomeServe USA Limited (No. 9468635) 4
HomeServe Europe Limited
HomeServe America Limited
Trading
Non-
Trading
Non-
Trading
England
Ireland
Ireland
HomeServe Gas Limited (No. 2248585) 1
Dormant
England
Home Service (GB) Limited (No. 3546370) 1
Dormant
England
Fastfix Plumbing and Heating Limited (No. 3120932) 1
Dormant
England
HomeServe Care Solutions Limited (No. 3228902) 1
Dormant
England
HomeServe Warranties Limited (No. 3156861) 1
Dormant
England
Multimaster Limited (No. 3670180) 1
Dormant
England
HomeServe Labs Limited 6
Help-Link UK Limited
Trading
England
Trading
England
Energy Insurance Services Limited
Trading
England
Continental Europe
HomeServe SAS
Electro Gaz Service SA
ID Energies SAS 5
Sylvain Brun Froid SAS 5
Trading
France
Trading
France
Trading
France
Trading
France
HomeServe On Demand SAS
Trading
France
HomeServe Home Experts SAS
Trading
France
Societe V.B. Gaz
Trading
France
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
Trading
Trading
Trading
Trading
Trading
Trading
Spain
Spain
Spain
Spain
Spain
Spain
189
188
Registered address
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Cable Drive, Walsall, WS2 7BN
Building 2000, Lakeside North Harbour, Western Road,
Portsmouth, PO6 3EN
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
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
ZA d’Armanville, route de la brique, 50700 Valognes
Les Bonnets, 73160 Saint-Cassin
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
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
100
100
100
100
100
100
100
100
100
Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Company financial statements | HomeServe plc Annual Report & Accounts 2020
Notes to Company financial statements
Year ended 31 March 2020
49. Related party transactions (continued)
Interests held in related companies (continued)
Place of
incorporation
ownership (or
registration)
and operation
Proportion
of voting
interest
and
power %
Activity
Registered address
Trading
Spain
100
Paseo Can Feu Num14, 08205 Sabadell, Barcelona
Trading
Spain
100
Polig. Las Labradas, C. Estella S/N. 31500 Tudela, Navarra
Name of legal entity
Somgas Hogar S.L. 5
Linacal S.L. 5
Tecno Arasat Servicios de Mantenimiento S.L. 5
Servicios Tecnicos Sate S.L. 5
North America
HomeServe USA Corp
HomeServe USA Repair Management Corp
HomeServe USA Repair Management (Florida)
Leakguard Inc
Leakguard Repair Services Inc
Trading
Trading
Spain
Spain
Trading
Trading
Trading
Dormant
Dormant
HomeServe USA Repair Management Corp (Iowa)
Dormant
HomeServe USA Repair Management Corp (California)
Dormant
HomeServe USA Repair Management Corp (Virginia)
Dormant
HomeServe USA Repair Management Corp (Wisconsin)
Trading
HomeServe USA Energy Services LLC
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.
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
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
190
100
100
100
100
100
100
100
100
100
100
100
100
100
49
49
90
Calle Barón de eroles num. 31, 2400 Monzón, Huesca
Calle Anselmo Pie Sopena 1-Local 4, Esquina Avenida
Monegros No 31, Huesca
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
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
100
4000 Town Center Blvd, Suite 400, Canonsburg, PA 15317
Name of legal entity
HomeServe HVAC LLC
Gregg Mechanical Corp.
Geisel Heating and Air Conditioning Inc.
Activity
Trading
Trading
Trading
Cropp-Metcalfe Air Conditioning and Heating Company
Trading
Centriq Technology Inc. 3
American Home Guardian Inc 5
Nations Preferred Home Warranty Inc 5
Fab Electric Inc 5
Newcore Inc 5
Crawford Services, Inc. 5
eLocal Holdings LLC 5
eLocal USA LLC 5
CityGrid Media LLC 5
Asia
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Trading
Place of
incorporation
ownership (or
registration)
and operation
Proportion
of voting
interest
and
power %
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
100
100
100
100
20
100
100
100
100
100
79
79
79
Registered address
601 Merritt 7, Norwalk, CT 06851
198 Pulaski Avenue, Staten Island, New York 10303
633 Broad Street, Elyria, Ohio 44035
8421 Hilltop Road, Fairfax, VA 22031
180 Sutter St, San Francisco, CA 94104, USA
1839 S Alma School Rd, Mesa, AZ 85210
3530 Forest Lane, Dallas, TX 75234
25-B Chestnut St. Gaithersburg, MD 20877
6236 Brynwood Dr, Medina, OH 44256
1405 Avenue T. Grand Prairie, TX 75050
1100 East Hector Street, Suite 101,
Conshohocken, PA 19428
1100 East Hector Street, Suite 101,
Conshohocken, PA 19428
1100 East Hector Street, Suite 101,
Conshohocken, PA 19428
HomeServe Japan Corporation 3
Trading
Japan
50
MH-KIYA BLDG. 12-1, Mikuracho Kanda, Chiyoda-ku, Tokyo
101-0038 Japan
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 The Group includes equity accounted investments; please refer to note 18 for full details.
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 2020. Please refer to note 16 for full details.
6 This company has a 30 September year end due to local management requirements.
190
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Company financial statements | HomeServe plc Annual Report & Accounts 2020
Five year summary
Continuing operations
Unaudited
External revenue
UK
North America
France
Spain
New Markets
Home Experts
External sales
Profit/(loss)
UK
North America
France
Spain
New Markets
Home Experts
Amortisation of acquisition intangibles
Exceptional items
Operating profit
Net interest
Profit before tax
2020
£m
2019
£m
2018
£m
2017
£m
2016
£m
365.1
429.5
111.8
154.1
—
71.8
384.4
333.4
104.6
140.8
—
40.4
1,132.3
1,003.6
81.0
85.4
33.8
20.1
(4.7)
(13.9)
201.7
(35.5)
(7.6)
158.6
(20.7)
137.9
66.0
67.6
33.3
17.7
(2.4)
(7.4)
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
(1.6)
(2.8)
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
192
Glossary
HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments.
APMs used in this announcement address profitability, leverage and liquidity and together with operational KPIs give an indication of the
current health and future prospects of the Group.
Definitions of APMs and the rationale for their usage are included below with a reconciliation, where applicable, back to the equivalent
statutory measure.
Profitability
The Group uses adjusted operating profit, adjusted EBITDA, adjusted profit before tax and adjusted earnings per share as its primary profit
performance measures. These are non-IFRS measures which exclude the impact of the amortisation of acquisition intangible assets and
exceptional items.
Exceptional items are those items that, in the judgement of the Directors, need to be disclosed separately by virtue of their size, nature or
incidence.
Acquisition intangible assets are calculated using the estimated and discounted incremental future cash flows resulting from the affinity
relationship or future policy renewals as appropriate, which will include the impact of the past actions of the former owners. These past
actions will include historic marketing and business development activity, including but not limited to, the staff and operational costs of the
business. In addition the specific construct of the policy terms and conditions and the current and expected future profitability to be derived
from the acquired business or asset is also a factor in determining the valuation of acquisition intangible assets.
The on-going service and operating costs incurred by the Group in managing the acquired businesses or assets, including but not limited
to print, postage, telephony, claims costs and overheads are recognised as operating costs within these adjusted measures in the reporting
period in which they are incurred.
Accordingly, by excluding the amortisation of acquisition intangibles from the adjusted performance measures reported by the Group in each
specific reporting period ensures that these measures only reflect the revenue attributable to, and costs incurred by, the Group in managing
and operating those businesses and assets at that time in each reporting period and do not include the impact of the historic costs of the
vendor or considerations of the future profits to be derived from the acquired business or assets.
Reconciliations of statutory to adjusted profit measures
Total group
£million
Operating profit (statutory)
Exceptional items
Amortisation of acquisition intangibles
Adjusted operating profit
Operating profit (statutory)
Exceptional items
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Amortisation of acquisition intangibles
Amortisation of other intangible assets
Amortisation of contract costs
Adjusted EBITDA
Profit before tax (statutory)
Exceptional items
Amortisation of acquisition intangibles
Adjusted profit before tax
Pence per share
Earnings per share (statutory)
Exceptional items (net of tax)
Amortisation of acquisition intangibles (net of tax)
Adjusted earnings per share
2020
158.6
7.6
35.5
201.7
2019
152.6
(4.6)
26.8
174.8
158.6
152.6
7.6
9.3
14.2
35.5
38.3
11.8
(4.6)
9.1
—
26.8
23.1
14.9
275.3
221.9
137.9
7.6
35.5
181.0
31.7
1.8
7.8
41.3
139.5
(4.6)
26.8
161.7
32.7
(1.3)
6.1
37.5
192
193
Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Glossary | HomeServe plc Annual Report & Accounts 2020
Glossary
Segmental
2020
£million
Revenue
Statutory operating profit/(loss)
Operating margin %
Adjusting items
Exceptional items
Amortisation of acquisition intangibles
Total adjusting items
Effect on operating margin (ppts)
Adjusted operating profit/(loss)
Adjusted operating margin %
2019
£million
Revenue
Statutory operating profit/(loss)
Operating margin %
Adjusting items
Exceptional items
Amortisation of acquisition intangibles
Total adjusting items
Effect on operating margin (ppts)
Adjusted operating profit/(loss)
Adjusted operating margin %
UK
372.9
62.8
17%
15.0
3.2
18.2
5%
81.0
22%
UK
391.7
68.4
North
America
429.5
67.6
16%
—
17.8
17.8
4%
85.4
20%
North
America
333.4
54.7
France
111.8
26.9
24%
—
6.9
6.9
6%
33.8
30%
France
104.6
26.8
17%
16%
26%
(4.6)
2.2
(2.4)
—
66.0
—
12.9
12.9
4%
67.6
—
6.5
6.5
6%
33.3
17%
20%
32%
Spain
New Markets Home Experts
154.1
19.6
13%
—
0.5
0.5
—
20.1
13%
—
(0.9)
—
(3.8)
—
(3.8)
—
(4.7)
—
71.8
(17.4)
—
(3.6)
7.1
3.5
—
(13.9)
—
Spain
New Markets Home Experts
140.8
17.5
12%
—
0.2
0.2
1%
—
(2.4)
—
—
—
—
—
17.7
13%
(2.4)
—
40.4
(12.4)
—
—
5.0
5.0
—
(7.4)
—
194
2020
Local currency million
Revenue
Statutory operating profit/(loss)
Operating margin %
Adjusting items
Exceptional items
Amortisation of acquisition intangibles
Total adjusting items
Effect on operating margin (ppts)
Adjusted operating profit/(loss)
Adjusted operating margin %
2019
Local currency million
Revenue
Statutory operating profit/(loss)
Operating margin %
Adjusting items
Exceptional items
Amortisation of acquisition intangibles
Total adjusting items
Effect on operating margin (ppts)
Adjusted operating profit/(loss)
Adjusted operating margin %
UK
£
372.9
62.8
17%
15.0
3.2
18.2
5%
81.0
22%
UK
£
391.7
68.4
17%
(4.6)
2.2
(2.4)
North
America
$
546.1
86.1
16%
—
22.5
22.5
4%
108.6
20%
North
America
$
436.2
71.3
16%
—
16.8
16.8
—
4%
66.0
88.1
17%
20%
France
€
128.4
31.2
24%
—
7.8
7.8
6%
39.0
30%
France
€
118.7
30.4
26%
—
7.4
7.4
6%
37.8
32%
Spain
€
New Markets
£
Home Experts
£
176.6
22.5
13%
—
0.6
0.6
—
23.1
13%
—
(0.9)
—
(3.8)
—
(3.8)
—
(4.7)
—
71.8
(17.4)
—
(3.6)
7.1
3.5
—
(13.9)
—
Spain
€
New Markets
£
Home Experts
£
159.7
19.6
12%
—
0.2
0.2
—
—
(2.4)
—
—
—
—
—
19.8
12%
(2.4)
—
40.4
(12.4)
—
—
5.0
5.0
—
(7.4)
—
194
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020
Glossary | HomeServe plc Annual Report & Accounts 2020
Glossary
Leverage
The Group targets net debt in the range of 1.0 to 2.0x adjusted EBITDA measured at the year end. The range reflects HomeServe’s relatively
low risk appetite. Due to the seasonality of the business and depending on M&A opportunities, HomeServe is able to operate outside 1.0 to
2.0x for periods of time but with a highly cash generative business model HomeServe will seek to return to its target range. The leverage ratio
is also important as it factors into the Group’s banking covenants and the rolling 12 month rate at each half year period influences the future
interest rates payable on the Group’s Revolving Credit Facility.
Certain of the Group’s segmental bonus measures relate to net cash. Net cash is defined and calculated in the same way as net debt but
returns a positive closing balance.
Note 25 provides a full reconciliation of the movements in liabilities arising from borrowings and lease liabilities.
The closing balances at 31 March were as follows:
Current liabilities from borrowing and lease liabilities
Lease liabilities
Banks and other loans
Non-current liabilities from borrowings and lease liabilities
Lease liabilities
Bank and other loans
Total liabilities from borrowings and lease liabilities
Cash and cash equivalents
Net debt
Adjusted EBITDA
Leverage
2020
£m
14.1
40.3
54.4
45.2
540.6
585.8
640.2
2019
£m
0.5
39.7
40.2
0.7
336.4
337.1
377.3
(131.2)
(72.6)
509.0
275.3
304.7
221.9
1.8x
1.4x
196
Liquidity
Cash conversion % is defined as cash generated by operations divided by adjusted operating profit. The measure demonstrates the cash
generative nature of the ordinary trading operations of HomeServe’s business model and the ability to produce positive cash flows that can
be invested for future growth initiatives or in capital projects to maintain customer service initiatives, digital enhancements or efficiencies that
benefit the long-term health of the business.
Free cash flow is stated after tax 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 are used for capital investment including funds that might be made available to
pursue M&A activities and to pay dividends.
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 borrowing costs
Repayment of lease principal
Taxation
Capital expenditure - ordinary
Capital expenditure - acquisitions of policy books
Free cash flow
£million
Adjusted operating profit
Cash generated by operations
Cash conversion
2020
£m
201.7
(7.6)
(35.5)
158.6
7.6
109.1
9.2
(44.1)
240.4
(18.5)
(12.4)
(30.2)
(79.0)
(6.9)
93.4
2020
201.7
240.4
119%
2019
£m
174.8
4.6
(26.8)
152.6
(4.6)
73.9
10.7
(30.4)
202.2
(9.9)
(0.6)
(31.7)
(66.9)
(48.8)
44.3
2019
174.8
202.2
116%
IFRS 16 – Leases
HomeServe has adopted IFRS 16 using the modified retrospective approach with a date of initial application of 1 April 2019. Comparative
information provided in this announcement has not been restated. The effect of IFRS 16 on the income statement is to remove operating
lease charges previously shown within ‘operating costs’, replacing them with depreciation and interest charges that now result from the
capitalisation of “Right of Use Assets” and the recording of “Lease Liabilities” in the consolidated balance sheet (see Note 2 Accounting
Policies).
IFRS 16 – Impact on reported profits
There is no material impact on FY20 PBTA as a result of adopting IFRS 16. The effect on adjusted operating profit at a Group level is £0.2m
with the segmental breakdown shown in the table below;
196
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Glossary
2020 £million
Adjusted operating profit (IAS 17)
Operating lease charge (IAS 17)
Depreciation on right of use assets (IFRS 16)
Adjusted operating profit (IFRS 16)
Interest charge on lease liabilities outstanding (IFRS 16)
Adjusted operating profit post IFRS 16 interest charges
North
America
UK
81.0
85.5
5.9
(5.9)
81.0
(0.5)
80.5
3.2
(3.3)
85.4
(0.6)
84.8
France
33.8
1.6
(1.6)
33.8
(0.1)
33.7
Spain
20.0
2.0
(1.9)
20.1
(0.1)
20.0
New
Markets
(4.7)
—
—
Home
Experts
(13.7)
0.8
(1.0)
Total
201.9
13.5
(13.7)
(4.7)
(13.9)
201.7
—
(0.2)
(1.5)
(4.7)
(14.1)
200.2
IFRS 16 – Impact on net debt and leverage
The additional depreciation and interest charges incurred due to the adoption of IFRS 16 have resulted in an increase to FY20 adjusted EBITDA
of £13.5m. Total lease liabilities outstanding at 31 March have increased net debt by £59.3m.
The overall effect on leverage is an increase of 0.1x.
Adjusted EBITDA (IAS 17)
Operating lease rentals (IAS 17)
Adjusted EBITDA (IFRS 16)
Net debt (IAS 17)
IFRS 16 lease liabilities
Net debt (post IFRS 16)
2020
£m
261.8
13.5
275.3
2020
£m
449.7
59.3
509.0
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.
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Customers
IFRS15 defines a customer as ‘a party that has contracted with an entity to obtain goods or services’. In the Membership businesses where
the Group acts as an intermediary selling contracts and insurance policies to end consumers, the ‘IFRS 15 customer’ is considered to be the
underwriter with which the Group has contracted to sell policies.
This is different, however, from how the Group markets and communicates the value of its products and services to end consumers. Here,
the businesses strategy and communications (both internally and externally) refer to the end consumer as the customer. As a result, for the
purposes of describing the strategy and operational performance of the business, the Business review and the Group’s KPIs refer to the end
consumer as the customer of the Group, rather than the underwriter. However, for the purposes of preparing the financial statements, the
accounting transactions are recorded in accordance with IFRS 15 where the customer is the underwriter.
For all other sources of revenue, it is the party that has contracted with the Group to obtain goods and services that is classified as the
customer. The following table summarises this position:
Revenue Stream
IFRS 15 ‘contracted’ customer
Customer as referred to in the
Strategic Report
Policy Income – insurance intermediary commissions
Underwriters
End user of the service
Policy Income – repairs
Underwriters or other B2B contracted parties
Policy Income – home assistance
Home Experts
HVAC
Other
End user of the service
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Strategic reportGovernanceFinancial statementsHomeServe plc Annual Report & Accounts 2020 Company financial statements | HomeServe plc Annual Report & Accounts 2020
Shareholder information
Financial calendar
2020
17 July
3 August
Annual General Meeting
Final dividend for the year ended 31 March 2020
17 November
Interim results for the six months ending 30 September 2020
2021
January
May
June
Interim dividend for the year ending 31 March 2021
Preliminary results for the year ending 31 March 2021
2021 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.
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HomeServe plc
Registered Office:
Cable Drive, Walsall, WS2 7BN
Registered in England No. 2648297
Tel: 01922 426262
homeserveplc.com