Final Results

HomeServe plc

Preliminary results for the year ended 31 March 2015

Group delivered profit growth whilst significantly increasing marketing investment in the USA

UK business with 2.1m customers and profits of £56.4m

- Gross new customers increased as expected to 0.3m (2014: 0.2m)

- Retention rate increased to 83% (2014: 82%)

- Continued investment in technology

Good strategic progress and strong customer growth in the USA

- Increased marketing investment driving customer growth of 26% (2014: 19%)

- Retention rate increased to 82% (2014: 81%)

- Partner pipeline remains strong, with 2.5m utility households added in year

- Test marketing with AARP performing in line with our expectations

Momentum in France with announcement of new partner

- Affinity partnership agreed with Lyonnaise des Eaux, serving 5.3m households

Significant customer and profit growth in Spain

- Customer numbers up 37% to 1.1m (2014: 0.8m)

- Adjusted operating profit increased by 87% to £7.5m (2014: £4.0m)

Special dividend of 30p per share (£97m) to be paid to shareholders in July 2015

______________________________________________________________________________________________

Richard Harpin, Chief Executive, HomeServe plc, commented:

"This has been a very good year for HomeServe, with customer numbers increasing from 5.5m to 6.3m. We have grown our profit, whilst at the same time significantly increasing marketing investment in the USA. In the UK we have delivered on our plans and have a strong business with 2.1m customers. Customer satisfaction and retention are increasing and we will continue to invest in technology to deliver even better service levels and efficiencies. The USA continues to be our most significant opportunity. During the year we have seen strong customer growth and we continue to have an excellent partner pipeline. In France we have agreed a long term affinity partnership with Lyonnaise des Eaux, which enhances our long-term growth prospects. We expect good growth in 2016 and the Board's decision to pay a special dividend of 30 pence per share in July 2015 reflects confidence in our future prospects."

1. All references to adjusted EBITDA, adjusted operating profit or loss, adjusted profit before tax and adjusted earnings per share throughout the announcement exclude exceptional items and the amortisation of acquisition intangibles, as reconciled to their statutory equivalents in the Financial Review.

Enquiries

A presentation for analysts and investors will take place at 9am this morning at JPMC offices at 60 Victoria Embankment, London EC4Y 0JP (1 John Carpenter Street Entrance).

There will be a listen-only conference call via +44 203 139 4830, pin code 79921571#, and also a live webcast available via www.homeserveplc.com.

BUSINESS REVIEW

Our business is built on developing long-term relationships with our affinity partners. We provide our customers a membership proposition to deliver heating, plumbing and electrical repairs and services, through the use of directly employed, franchised and sub-contract networks of engineers. We have 6.3m customers, an increase of 15% compared to a year ago, with 67% of our customers now outside the UK.

The Group has five operating segments: UK, USA, France, Spain and New Markets. The New Markets division combines the results of our businesses in Italy and Germany, together with investment in innovation including HomeServe Alliance and global digital initiatives.

During the year, the positive Group performance enabled increased marketing and business development investment in the USA, whilst still delivering adjusted operating profit of £87.8m (2014: £86.9m). Our UK business ended the year with 2.1m customers and reported £56.4m of adjusted operating profit, up £3.0m relative to the prior year. Our international businesses continued to grow, with an increase in affinity partner households and a 25% increase in customer numbers to 4.2m. Our established international businesses reported adjusted operating profit of £37.3m, £1.9m lower than the prior year, principally reflecting additional investment in the USA and the impact of currency translation in relation to our European businesses. In the USA, as planned, we increased our investment in marketing and business development by £12.0m with a resulting reduction in reported adjusted operating profit to £6.4m (2014: £12.9m). This increased investment has delivered strong customer growth in the year, with customer numbers up 26% to 2.0m. We also invested £5.9m in our New Markets segment, broadly in line with the prior year.

Financial performance for the year ended 31 March

Adjusted operating margin is adjusted operating profit divided by total revenue.

Performance metrics for the year ended 31 March

The following sections report on the operational and financial performance of each of our operating segments.

UK

· Year end customer numbers of 2.1m (2014: 2.1m)

· Full year retention rate of 83%, up from 82% last year

· Effective multi-channel marketing approach acquired 0.3m gross new customers (2014: 0.2m)

· Continued investment in technology to deliver customer service benefits and efficiencies

Net policy income is defined as policy revenue net of sales taxes and underwriting

Income per customer is calculated by dividing net policy income by the number of customers

"Other" principally includes pest, keycare, heating services and appliance related policies.

Operational performance

The UK business ended the year with 2.1m customers (2014: 2.1m), reflecting our marketing activity and a good retention performance. In 2015, our integrated marketing channels delivered 0.3m gross new customers compared to 0.2m in the prior year, with pleasing direct mail results and continued growth in our digital and partner sales channels.

Direct mail is an important channel and continues to perform in line with our expectations. Our digital channels include a combination of partner, HomeServe branded and third party websites including Amazon, eBay and Quidco. We continue to see customers buy multiple products when they purchase online, with one third of our new policy sales now generated through a digital channel. Our partner channels continue to perform in line with our expectations, with new policy sales through this channel more than double that of a year ago.

The retention rate of 83% increased one percentage point compared to the prior year, reflecting the continued focus on product enhancements and delivering high levels of customer service.

To improve the customer experience we are increasingly providing our customers with self-serve options, from policy administration through to making a claim online. We also encourage our customers to leave real time online feedback about their experience through Reevoo, Trust Pilot and Rant & Rave.

During the year, our network of 444 directly employed engineers and over 216 sub-contractors completed 16% more jobs (0.7m repairs) than a year ago (2014: 0.6m). Customers are benefiting from the enhanced levels of cover in our products and as a result are using them more than in the past. Whilst this has increased repair costs, it has delivered improved customer service and a higher retention rate.

We continue to have good relationships with our partners and we are pleased to confirm that during the year we renewed all three of the utility partnerships that were due to be renewed. Our partners continue to work with us in developing successful marketing campaigns, with increasing acquisition activity coming through our partners' call centres.

We are pleased with the investment and progress we are making in the implementation of our new core Pega Customer Management System. This investment will deliver significant benefits for our customers as well as allowing us to improve our efficiency and marketing effectiveness. We will continue to look for ways to invest in technology to help us deliver customer service and efficiency improvements.

In developing our connected home strategy, we commenced distribution and installation of the tado° and Nest branded smart thermostat devices. Through our relationship with tado°, technology has been developed to detect boiler faults, notify the homeowner in real time and enable them to book a repair via their smartphone. Technology is also being developed to enable the customer to buy a heating policy at the point of fault notification. We will continue to invest in this type of technology, providing customers with more opportunities to engage with us digitally.

Financial performance

Our UK business reported revenue of £285.5m (2014: £288.5m), a reduction of £3.0m. Revenue in the UK business is analysed as 'net income' (income per customer multiplied by the number of customers) of £198.3m (2014: £213.2m), with the remaining income representing £76.8m of repair network revenue (2014: £65.8m) and other income of £10.4m (2014: £9.5m), which includes revenue in respect of pay on use repairs, third party claims handling revenue, and transactions with other Group companies. During 2016, we will cease third party claims handling services with a resulting reduction in other income.

As expected, net income decreased by 7% to £198.3m (2014: £213.2m), reflecting a lower income per customer of £93 (2014: £101). This was principally due to a higher proportion of new customers who typically join on an introductory offer, and the higher repair cost of our plumbing and drains product since adding elements of maintenance cover to the product. Going forward we expect net income per customer to increase slightly as we see the benefits of digital sales and pricing initiatives.

Total operating costs were £6.0m lower than the prior year, with indirect cost savings more than offsetting an increase in direct costs and marketing investment. Adjusted operating profit was £56.4m, £3m higher than the prior year (2014: £53.4m) resulting in a sustainable 20% profit margin, one percentage point higher than 2014.

United States of America

· Customer numbers up 26% to 2.0m (2014: 1.6m)

· Record customer acquisition with 0.7m gross new customers in the year (2014: 0.5m)

· 12 new utility partnerships and extension of an existing one (2.5m households in total)

· Test marketing underway with significant new partner AARP (22m households)

Affinity partner households does not include AARP households

HVAC includes water heater and gas line policies

Operational performance

The USA remains our most significant opportunity with 128m households, of which we now have affinity partner relationships with utilities that provide services to 29m. During the year we signed 12 new utility affinity partnerships and extended our relationship with one of our current partners, adding a total of 2.5m households. In addition, in November 2014, we also signed an affinity agreement with AARP, a membership organisation, providing services to 22m households in the USA. We have commenced direct mail marketing, offering a combination of water, electrical and gas line products. Our first test mailing was delivered in early January 2015 with initial results demonstrating, as expected, returns that are higher than from our own brand mailing. While it is still early days, we expect AARP to become one of our largest partners in the USA.

During the year we doubled the size of the business development team to 20 people and we expect to continue to increase this further next year. The larger team provides extended reach to cover the 1,445 prospective utilities in our target market. During the year our team participated in a number of competitive tenders and won the majority of those awarded. Our pipeline of potential new partnerships is strong, with negotiations at all stages of the process.

Customer numbers increased 26% to 2.0m (2014: 1.6m) with 0.7m gross new customers added in the year (2014: 0.5m), an increase of 42% compared to the prior year.

Direct mail continues to be the most significant channel, and we also continue to develop our digital and partner channels. During the year, we have grown our water, electrical, gas line and water heater policy numbers and maintained our HVAC policy numbers. Our response rates and payback periods have continued to be attractive and in line with our expectations.

Retention performance has been good, increasing from 81% to 82%, despite the continued increase in new customers, who typically have a lower year one retention rate. This principally reflects our focus on delivering high quality customer service at each customer touch point and a more proactive approach to retaining our customers. We continue to increase the number of customers that choose to pay by a continuous payment method.

Our network of 149 directly employed technicians and 959 sub-contractors completed over 12% more jobs in 2015 than the prior year (2014: 0.3m). We also commenced installation of heating, ventilation and air conditioning units thereby providing customers with a solution to their emergency. Despite the USA seeing one of the coldest and snowiest winters on record in some of our service territories, emergency response times improved, as did customer satisfaction.

Financial performance

Currency movements had a beneficial impact on adjusted operating profit in the USA. Revenue in local currency increased by 13% to $199.8m (2014: $177.3m), reflecting higher renewals income and acquisition activity. In sterling terms, revenue was £125.3m (2014: £110.9m) an increase of £14.4m compared to the prior year. At constant currency relative to the prior year, operating profit in the USA would have been £0.7m lower than that reported.

Income per customer was $94, a $10 reduction, principally reflecting the higher number of new customers with just one product, the product mix, which included a higher proportion of water, gas line and water heater products that typically sell at a lower price than a combined heating, ventilation, air conditioning (HVAC) product, and a higher repair cost as we expand product coverage and therefore respond to more claims. Going forward we expect net income per customer to be broadly stable.

Operating costs in the USA were £118.9m, up from £98.0m in the prior year, principally reflecting the increase in customer numbers and our increased investment in marketing and business development in the year (£12.0m). As a result of this incremental investment, adjusted operating profit was lower than the prior year at £6.4m (2014: £12.9m) with a resulting 5% profit margin.

France

· Good profit growth, up 11% in local currency

· Signed a new affinity partnership agreement with Lyonnaise des Eaux with 5.3m households

· Customer numbers increased 3% to close at 0.9m

· Continued high retention rate at 89%

Affinity partner households includes all partner households including flats (2014: all households, excluding flats).

Operational performance

In March 2015, we signed a long-term affinity partnership with Lyonnaise des Eaux (LDE), the second largest water provider in France, serving 5.3m households. Together with LDE, we have developed a leading water product range, branded Dolce Ô, LDE's home services brand. Similar to our other partnerships, we will adopt a multi channel marketing approach. LDE has already commenced selling our policies in its call centre, which is performing as expected. As with our relationship with Endesa in Spain, the amounts paid to LDE in relation to customers acquired on our behalf by LDE will be capitalised and amortised going forward. In 2016, we expect the LDE deal to result in a net investment cost of £2m.

Customer numbers were up 3%, closing with 0.9m customers. The majority of customers in France continue to be acquired through the direct mail channel, although during the year we increased the proportion of sales generated via our partner's call centres, with more than four times as many policy sales added through this channel than in the prior year.

Our retention rate remains strong at 89% (2014: 89%). Following final legislation, the proposed change to the law (Hamon Law) allowing customers to cancel policies mid term will now not apply to our business.

All of our repairs in France are managed through our network of around 700 sub-contractors, who broadly completed the same number of repairs as the prior year.

Financial performance

During the year the Euro weakened relative to sterling with an average rate of €1.27 (2014: €1.19), closing at €1.37 on 31 March 2015. As a result, currency movements had a significant impact on reported French revenue and profit in the year. Revenue in France in local currency was €96.1m, 4% higher than the prior year (2014: €92.0m). In sterling terms, reported revenue was 3% lower than the prior year at £74.9m (2014: £77.3m), reflecting the impact of exchange rates in the period. At constant exchange rates, revenue would have been £5.9m higher and operating profit would have been £1.9m higher than that reported.

Income per customer increased by 1% to €101 (2014: €100), principally reflecting an increase in policy prices, which in part was offset by the number of new customers acquired on an introductory offer.

Adjusted operating profit was £23.4m, an increase of £1.1m compared to the prior period (2014: £22.3m), principally due to the benefit of higher customer numbers, pricing, more effective marketing and direct cost savings resulting in an improved operating profit margin.

Spain

· Significant profit growth, up 96% in local currency

· Customer numbers up 37% to 1.1m (2014: 0.8m)

· Majority of new customers acquired through Endesa's sales channels

· Further activity with Endesa now planned for 2016

Operational performance

Endesa, our largest partner in Spain, continues to offer our products though its sales channels and we have now agreed to extend the programme into 2016. During the year marketing activity with our water partner Aqualia was slower than expected due to delays, which are expected to continue until after the local elections in May 2015, although the impact on 2016 is not expected to be material.

Customer numbers were up 37% to 1.1m at the end of March 2015. The majority of new customers continued to be acquired through Endesa with an electrical assistance product.

Retention in the period was 79%, up from 75% in 2014. Although this remains lower than the Group average of 83%, it is improving as the policy book matures.

Our claims handling business in Spain continues to perform well, completing 0.1m more jobs than in the prior year. Our network of around 1,800 sub-contractors and the 112 Reparalia franchised engineers completed 0.7m repairs in the year (2014: 0.6m).

Financial performance

Currency movements had a material impact on Spanish reported revenue and profit in the year. Revenue in Spain in local currency increased by 18% to €115.9m (2014: €98.1m) due to increased customer numbers and a 56% increase in membership revenues to €36.9m. In sterling terms, reported revenue was £90.9m (2014:£82.6m), an increase of 10%, reflecting the impact of exchange rates. At constant exchange rates, total revenue would have been £6.8m higher and operating profit would have been £0.7m higher than that reported.

The increase in reported revenue was due to higher revenue in the Membership business (£9.0m), in part offset by lower reported revenue in the Claims business. Reported claims handling revenue was £0.7m lower than the prior year as the benefit of a higher number of jobs was offset by currency movements in the period.

Income per customer increased by €4 to €34 which reflects the higher mix of renewing customers, partially offset by new customers that typically join with a first year discount.

The increase in operating costs principally related to higher customer numbers in the Membership business and greater volumes in the Claims business.

In Spain, the cost of acquiring policies originated by Endesa is capitalised, held as an intangible asset, amortised over the life of the affinity partner agreement and charged as an operating cost. During 2015 we paid £16.1m (2014: £22.2m) in respect of customers acquired by Endesa and as at 31 March 2015, the total intangible asset amounted to £26.2m (2014: £21.9m). As expected, amortisation in 2015 at £5.9m was higher than in the prior year (2014: £4.2m) and is expected to be around £8m going forward.

Adjusted operating profit was £7.5m, £3.5m higher than the prior year (2014: £4.0m), reflecting higher revenue in the Membership business, partially offset by the expected increase in amortisation in the period. Spain reported an adjusted operating margin of 8%, three percentage points higher than the prior year, reflecting the increase in Membership profits.

New Markets (including innovation initiatives)

· Continued momentum in Italy with 0.2m customers

· Plan to exit Germany

· Increased investment in innovation

Our New Markets segment consists of our developing businesses in Italy, Germany and our investment in innovation including HomeServe Alliance and global digital initiatives.

In Italy, we have 0.2m customers through our test agreement with Enel, who were principally acquired through their doorstep sales channel. We are also in active discussions with other potential partners.

During the year we continued test marketing in Germany using sales agents to target the energy switching market. Initial results indicate that it is likely to take longer to establish a sizeable business than we consider acceptable. As a result, we have decided to exit our German business, focusing instead on building our business in Italy and investing in HomeServe Alliance and other areas of innovation.

We set up HomeServe Alliance last year to establish a network of local independent heating installation and repair businesses through a franchised model, with potential to offer home emergency cover alongside a boiler installation. While still at an early stage, we have developed a franchised network and a lead generation model for boiler installations and repairs. We now plan to roll this model out in our UK business creating a combined heating installation and repair business. We have also established a digital hub, based in London, to provide a common platform to accelerate our move towards self-serve for each of our customer touchpoints including claims and customer acquisition.

Financial performance

Our New Markets businesses reported revenue of £13.8m (2014: £14.4m) and an adjusted operating loss of £5.9m (2014: £5.7m). Our investment in New Markets will continue to be in the range of around £6.0m per annum, such that the performance in Italy will be offset by investment in HomeServe Alliance and other innovation including investment in our digital hub activity. The costs of ceasing activity in Germany are not material.

Capital investment

Technology investment

We are making progress with our plans to upgrade our IT systems. Our intention is to replace our core customer IT system and invest in new technology that allows us to improve the products and service we offer our customers and to increase our efficiency. Our attention has initially been focused on our UK business, where we have now implemented a limited version of the replacement Pega Systems software, which is operating as expected. Having now worked with the new software we are confident that we have the right technology solution to allow us to significantly improve how we interact with our customers and reduce our cost to serve. We expect to have completed the replacement of our UK system within the next twelve months, and, having done this successfully, we intend to roll out the new system to our business in the USA.

We also continue to look for further opportunities to invest in technology to allow us to drive greater revenue, improved efficiency and customer service. As a result, during the year we have identified opportunities to invest in new data warehouse technology, digital document composition, digital asset management solutions and customer self service tools for our businesses in the UK and USA. We also plan to upgrade the IT system for our Spanish Claims handling business. As a result of these additional investments, our capital investment will increase in 2016 before normalising at around £25m in 2018.

Partner payments

Payments made to affinity partners in respect of the acquisition of customers originated by those partners are capitalised. During 2015 we invested £17.6m in respect of payments to Endesa in Spain and new partners in the USA. During 2016 we expect to invest around £20m in partner payments with Endesa in Spain, LDE in France and new partners in the USA. 

Dividend

Given the improved performance of the Group and the Boards confidence in its future prospects, the Board is proposing a 2.5% increase in the final dividend to 7.87p per share, bringing the total ordinary dividend for the year to 11.5p (2014: 11.3p).

As previously announced, the Board wishes to adjust the Group's capital structure in order to achieve year end leverage in the range of 1.0-1.5x adjusted EBITDA and is therefore proposing a special dividend of 30p per share, totalling £97m to be paid in July 2015.

Outlook

Our established businesses are progressing in line with our expectations and we expect the Group to deliver good growth in 2016. In the UK we expect our business to be stable, with growth being driven by our international businesses. Increased customer acquisition investment and a weaker Euro are expected to reduce profits in France, however this will be more than offset by strong growth in the USA and Spain. We plan to invest around £6m in New Markets, principally in relation to innovation initiatives.

Board changes

As announced in March 2015, Ian Chippendale retired as a Non Executive Director. On behalf of my colleagues and the Board I would like to thank Ian for his outstanding contribution to the development of the Group.

People

On behalf of the Board, I would like to thank all our employees for their contribution over the past year.

Richard Harpin

Chief Executive

19 May 2015

FINANCIAL REVIEW

These financial results have been prepared in accordance with International Financial Reporting Standards (IFRS).

Group statutory results

The headline statutory financial results for the Group are presented below.

Statutory profit before tax was £76.7m, £52.3m higher than 2014 (2014: £24.4m). Statutory profit before tax is reported after the amortisation of acquisition intangibles and exceptional items as detailed below.

Amortisation of acquisition intangibles

The amortisation of acquisition intangibles of £10.4m (2014: £13.0m) principally relates to customer and other contracts, held by businesses, which were acquired as part of business combinations.

Exceptional items

Exceptional items amounted to a net income of £1.7m in the year, of which £2.9m relates to the reimbursement of certain costs by our insurers associated with historical UK matters and £1.7m relates to the release of surplus provisions originally created in 2012 and 2014. These were partially offset by the cost of a transaction the Group decided not to pursue. In the prior year, exceptional expenditure of £46.7m was incurred which related to costs associated with the FCA investigation of the UK business, the UK customer re-contact exercise and the FCA penalty.

Cash flow and financing

Our business model continues to be highly cash generative with cash generated by operations in 2015 amounting to £94.6m (2014: £91.9m), representing a cash conversion ratio against adjusted operating profit of 108% (2014: 106%).

Working capital increased by £13.2m in 2015 reflecting growth across the USA, France, Spain and New Markets. In the prior year working capital decreased by £37.9m principally due to non recurring matters including the timing of £15m of payments to certain partners which were paid in 2015 and the reduction in UK reported revenue.

The exceptional provision relating to the UK matters was in part utilised (£6.0m) and the surplus provision was released (£1.7m).

During the year we invested capital expenditure of £52.8m (2014: £33.6m). This expenditure included payments of £16.1m (2014:£14.4m) to Endesa in Spain in respect of the acquisition of customers that Endesa originated, investment in the replacement of our core customer system, together with normal investment, principally technology related, across the businesses.

We expect to maintain a higher than usual level of capital expenditure in 2016 and 2017 as we invest in our core customer system, additional technology solutions that are expected to deliver customer service and efficiency benefits, and continue to make payments to partners in respect of the acquisition of customers originated by the partner. As a result, in 2016, we expect to invest a total of £50m in systems and technology and £20m in respect of partner payments. Total investment is expected to decrease to around £35m in 2017 before normalising at £25m from 2018.

The purchase of investment related to an investment in respect of our connected home strategy.

Acquisitions

Acquisition spend of £1.1m principally related to deferred consideration in respect of acquisitions completed in prior periods (2014: £2.4m).

Net debt and finance costs

Net debt at 31 March 2015 was £64.1m (2014: £42.3m), well within our facility of £300m, which is committed through to 2019. Year end net debt to EBITDA was 0.6 times. The Group's net cash finance costs were £4.1m, £1.3m higher than in the prior year reflecting refinancing fees in part offset by lower interest payments.

Taxation

The tax charge in the financial year was £20.6m (2014: £14.4m). The adjusted effective tax rate was 27%, which we expect to remain broadly the same going forward. UK corporation tax is calculated at 21%. Taxation for other jurisdictions is calculated at the rates prevailing in the respective countries which are higher than the UK rate.

Earnings per share

Adjusted earnings per share for the period increased from 18.6p to 19.0p. The weighted average number of shares increased from 325.0m to 326.7m. On a statutory basis, earnings per share increased from 3.1p to 17.2p.

Dividend

Given the improved performance of the Group and the Board's confidence in its future prospects, the Board is proposing a final dividend of 7.87p per share (2014: 7.67p) to be paid on 3 August 2015 to shareholders on the register on 3 July 2015. Together with the interim dividend declared in November 2014 of 3.63p (2014: 3.63p), this represents a payment of 11.5p (2014: 11.3p). This amount is 1.65x covered by the 2015 adjusted earnings per share (2014 dividend cover: 1.65x), representing growth of 2% in line with earnings. The Board intends to adopt a progressive dividend policy and expects to target a dividend cover in the range 1.75x - 2x over the medium term.

As previously announced, the Board wishes to adjust the Group's capital structure in order to achieve year end leverage broadly in the range of 1.0-1.5x adjusted EBITDA, measured at 31 March each year. Accordingly, the Board is today proposing a special dividend of 30p per share, totalling £97 million, to be paid in July 2015. On a pro forma basis and taking account of the Group's normal seasonality, this would have resulted in leverage at the upper end of the range at March 2015. As a result of the payment of the special dividend and the increase in net debt, we expect our annual interest cost to increase by around £2m.

The Board reaffirms its statement, made in November 2014, that it believes that year end leverage in the range of 1.0-1.5x adjusted EBITDA (currently 0.6x) appropriately balances our objectives of an efficient capital structure, good risk management, and the ability to grow the business both organically and by acquisition. As previously stated, we will be prepared to see leverage outside that range for reasonable periods of time if circumstances warrant that, and the range itself will be subject to periodic review.

As is common when an amount representing a significant proportion of the market capitalisation of a company is returned to shareholders, the Board is recommending that the special dividend is combined with a share consolidation. The share consolidation is intended, so far as possible, to maintain the comparability of the Company's share price before and after the special dividend.

Foreign exchange impact

The impact of changes in the € and $ exchange rates between 2014 and 2015 has resulted in the reported revenue of our international businesses decreasing by £13.3m and adjusted operating profit decreasing by £1.5m. The impact of foreign exchange rate movements on the individual businesses is summarised in the table below.

The current € exchange rate is €1.38. If this rate had prevailed throughout 2015, revenue would have been £26.2m lower and operating profit would have been £4.5m lower than at constant currency.

Statutory and pro-forma reconciliations

The Group believes that adjusted EBITDA, adjusted operating profit, adjusted profit before tax and adjusted earnings per share, all of which excludes the amortisation of acquisition intangibles and exceptional items are important performance indicators for monitoring the business.

This report uses a number of pro-forma measures to highlight the Group's results excluding the above amounts. The table below provides a reconciliation between the statutory and pro-forma items.

Principal risks and uncertainties

HomeServe has a risk management process which provides a structured and consistent framework for identifying, assessing and responding to risks. These risks are assessed in relation to the Group's strategy, business performance and financial condition and a formal risk mitigation plan is agreed with clear ownership and accountability. Risk management operates at all levels throughout the Group, across geographies and business lines.

Risks to HomeServe's business are either specific to HomeServe's business model, such as affinity partner relationships and underwriting, or more general, such as the impact of competition and regulatory compliance.

The table below sets out what the Board believes to be the principal risks and uncertainties facing the Group, the mitigating actions for each, and an update on any change in the profile of each risk during the past year. These should be read in conjunction with the Business Review and the Financial Review. Additional risks and uncertainties of which we are not currently aware or which we currently believe are not significant may also adversely affect our strategy, business performance or financial condition in the future.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the business review and the financial review.

The Directors have reviewed the Group's budgets, forecasts, cash flows and established that the businesses are progressing in line with their expectations for growth in 2016. As a result 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.

This statement was approved by the Board of Directors on 19 May 2015 and is signed on its behalf by:

Johnathan Ford

Chief Financial Officer

19 May 2015

Responsibility statement

The responsibility statement below has been prepared in connection with the Company's full annual report for the year ending 31 March 2015. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

· the Group financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

· the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face and

· the annual report and financial statements taken as a whole, are fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.

This responsibility statement was approved by the Board of Directors on 19 May 2015 and is signed on its behalf by

Richard Harpin

Chief Executive Officer

Johnathan Ford

Chief Financial Officer

Group Income Statement

Year ended 31 March 2015

Group Balance Sheet

31 March 2015

Group Statement of Comprehensive Income

Year ended 31 March 2015

Group Statement of Changes in Equity

Year ended 31 March 2015

Year ended 31 March 2014

Group Cash Flow Statement

Year ended 31 March 2015

Notes to the condensed set of financial statements

1. General information

While the financial information included in this preliminary announcement has been computed in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs) adopted for use by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs, this announcement does not itself contain sufficient information to comply with IFRSs. The Company will publish full financial statements that comply with IFRSs in June 2015.

The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 March 2015 or 31 March 2014, but is derived from those financial statements. Statutory financial statements for 2014 prepared under IFRSs have been delivered to the Registrar of Companies and those for 2015 will be delivered following the Company's Annual General Meeting. The auditor, Deloitte LLP, has reported on those financial statements; its reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s498 (2) or (3) Companies Act 2006. These financial statements were approved by the Board of Directors on 19 May 2015.

Accounting policies

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's 31 March 2014 audited financial statements, except as described below.

Adoption of new or revised standards and accounting policies

The following accounting standards have been adopted in the year:

Amendments to IAS32 Offsetting financial assets and liabilities

Amendments to IAS36 Impairment disclosures

Amendments to IAS39 Novation of derivatives and continuation of hedge accounting

The adoption of these standards has not had any significant impact on the amounts reported in the preliminary announcement.

Standards in issue but not yet effective

At the date of authorisation of these financial statements the following Standards and Interpretations, which have not been applied in these financial statements, were in issue but not yet effective (not all of which have been endorsed by the EU):

IFRS9 Financial Instruments

IFRS14 Regulatory Deferral Accounts

IFRS15 Revenue from Contracts with Customers

Amendment to IAS19 Defined Benefit Plans: Employee Contributions

IFRIC21 Levies

Amendments to IAS 27 Equity method in Separate Financial Statements

Amendments to IAS16 & IAS41 Agriculture: Bearer Plants

Amendments to IAS16 & IAS38 Clarification of Acceptable Methods of Depreciation and Amortisation

Amendments to IFRS11 Accounting for Acquisitions of Interest in Joint Operations

Improvements to IFRSs (2013)

Improvements to IFRSs (2014)

The implementation of IFRS9 will impact both the measurement and disclosures of Financial Instruments. The Directors do not expect that the adoption of the other Standards and Interpretations listed above will have a material impact on the financial statements of the Group in the future years.

3. Segmental analysis

IFRS8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker, who is considered to be the Chief Executive, to allocate resources to the segments and to assess their performance.

4. Exceptional items

Exceptional items amounted to a net income of £1.7m in the year, of which £2.9m relates to the reimbursement of certain costs by our insurers associated with historical UK matters and £1.7m relates to the release of surplus provisions originally created in 2012 and 2014. These were partially offset by the cost of a transaction the Group decided not to pursue. In the prior year, exceptional expenditure of £46.7m was incurred which related to costs associated with the FCA investigation of the UK business, the UK customer re-contact exercise and the FCA penalty.

5. Tax

UK corporation tax is calculated at 21% (2014: 23%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

6. Dividends per share

An interim dividend of 3.63p per share amounting to £11.8m (2014: 3.63p per share amounting to £11.8m) was paid on 3 January 2015.

The proposed final dividend for the year ended 31 March 2015 of 7.87p per share amounting to £25.7m (2014: 7.67p per share amounting to £25.1m) will be paid on 03 August 2015 to the shareholders on the register at the close of business on 3 July 2015. 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 proposed special dividend of 30p per share referenced in the Business Review and Financial Review has not been included as a liability in these financial statements as it was not proposed by the Directors at 31 March 2015.

7. Earnings per share

Basic and diluted earnings per ordinary share have been calculated in accordance with IAS33 Earnings Per Share. Basic earnings per share is calculated by dividing the profit or loss in the financial year by the weighted average number of ordinary shares in issue during the period. Adjusted earnings per share is calculated excluding exceptional items (note 4) and amortisation of acquisition intangibles. This is considered to be a better indicator of the performance of the Group. Diluted earnings per share includes the impact of dilutive share options in issue throughout the period.

The calculation of the basic and diluted earnings per share is based on the following data:

7. Earnings per share (continued)

8. Analysis of net debt

9. Provisions