Final Results

HomeServe plc

Preliminary results for the year ended 31 March 2013

·; Financial summary

- Revenue £547m (2012: £535m)

- Adjusted operating profit1 £108m (2012: £128m):

o UK adjusted operating profit1 down £25m to £78m

o Established International businesses adjusted operating profit1 up 20% to £34m

- Free cash flow4 of £69m with net debt of £43m at 31 March 2013 (31 March 2012: £66m)

- Statutory profit before tax of £67m (2012: £138m) includes exceptional expenditure of:

o £4m relating to UK reorganisation costs

o £6m relating to the costs of the Financial Conduct Authority investigation, including a potential fine

o £15m write down of the carrying value of Société Francaise de Garantie

·; UK business is a more customer focused operation

- 2.3m customers in line with our target

- Retention has been improving in the second half of the year. The full year rate was 79%

- Improved customer satisfaction and service

- Improving sales and marketing effectiveness

- Financial Conduct Authority investigation progressing

·; International businesses now account for 53% of total customers

- Strong growth with customer numbers up 19% to 2.6m:

o USA customer numbers up 25% to 1.3m

o Spain customer numbers up 50% to 0.4m

- Retention rate remains strong at 83%:

o USA retention has increased from 79% to 80%

o Doméo in France has increased its retention rate from 88% to 89%

- Increasing number of International affinity partners:

o 10 new utility affinity partners in the USA across 10 states

o Long-term affinity partner agreement with Enel Energia enabling us to market to over 3.5m households in Italy

Richard Harpin, Chief Executive, commented:

"We have made very good progress in growing our International businesses over the past year and these now account for over 50% of our customers. We continue to increase the number of International affinity partners with 12 new agreements signed during the past year covering over 5m households.

Our UK business has enhanced its controls and governance and significantly improved its customer service over the past year. We have clear Sales and Marketing plans for increasing both customer acquisition and retention and expect UK customer numbers to stabilise at around 1.9m from March 2014.

We remain confident that our plans for stable UK customer numbers together with continued strong growth in our International businesses will allow the Group overall to return to modest growth in 2014/2015."

Enquiries

A presentation for analysts and investors will take place at 9am this morning at UBS, 1 Finsbury Avenue, London, EC2M 2PP.

There will be a listen-only conference call via +44 203 139 4830, pin code 54050844#, and also a live webcast available via www.homeserveplc.com.

1. Excluding amortisation of acquisition intangibles and exceptional expenditure and, in the prior period, joint venture taxation, see Financial review and note 3.

2. Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, joint venture taxation and the re-measurement of joint venture interest on acquisition of control, see Financial review.

3. Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, re-measurement of joint venture interest on acquisition of control, see Financial review and note 7.

4. See Cash flow statement in the Financial review.

CHAIRMAN'S STATEMENT

Over the past twelve months HomeServe has made progress in transitioning its UK business to a more customer focused operation and has grown its International businesses.

In the UK, having significantly improved our customer service over the past year, we are focusing on the effectiveness of our sales and marketing as we increase activity and enhance our existing sales channels. Our International businesses have delivered strong growth over the past year with customer numbers up 19% to 2.6m, and these now represent 53% of the Group's total 4.9m customers.

HomeServe's policies and services continue to free customers from the worry and inconvenience of home emergencies and repairs, with over 1.6m repairs carried out over the past twelve months.

Results

In the year, revenue was up 2% to £547m (2012: £535m) and adjusted profit before tax2 was £105.0m (2012: £126.0m). Lower profit in our UK business was partially offset by a £6m increase from our established International businesses. Adjusted earnings per share3 was 23.0p (2012: 28.0p). The Group continues to generate high levels of free cash flow4 with net debt at 31 March 2013 reduced to £43m (2012: £66m).

On a statutory basis, revenue was £547m (2012: £535m), profit before tax was £67m (2012: £138m) and earnings per share was 12.9p (2012: 35.4p). The reduction in profit before tax is principally due to lower UK earnings in FY2013 and the prior year £54.9m gain recognised on the on re-measurement of joint venture interest following the acquisition of full control of Doméo. The FY2013 statutory result includes exceptional expenditure of £25m relating to our UK business (£10m) and our French warranty business, Société Francaise de Garantie (SFG), (£15m). In the UK, the exceptional expenditure includes an estimate of a fine arising from the Financial Conduct Authority (FCA) investigation and associated costs, amounting to £6m, together with the costs relating to the reduction in the UK headcount announced in March 2013 of £4m. There remains uncertainty as to the nature or extent of the action that the FCA may seek to take following the conclusion of its investigation and accordingly any related financial effect. In respect of SFG, we have recorded a £15m charge related to the reduction in the carrying value of that business, reflecting the challenging conditions in the electrical retail market in France.

UK

In the UK, we have strengthened our controls and governance, enhanced our focus on the customer and have made good progress improving customer service and customer satisfaction, with 40% fewer complaints received over the financial year compared to the previous period. The UK business is now focusing on the effectiveness of its sales and marketing activity and we are starting to see better results. We have also identified areas for improved operational efficiency and are redesigning processes and systems, as well as ensuring that our resources are aligned with our customer numbers.

The UK management team maintains a positive and constructive day to day relationship with the FCA. We are making good progress in completing the business improvement initiatives; with our customer re-contact exercise on track and in line with our expectations. The FCA's investigation into our past issues is making progress and as a result we have now recorded exceptional expenditure of £6m, which is our estimate for the costs and fine arising from this investigation. We still expect the investigation to take a number of months to complete.

International business development

We have continued to achieve strong growth in our established International businesses. HomeServe USA has increased its customer numbers by 25% over the past 12 months and now has 1.3m customers with over 2m policies. In Spain, Reparalia increased its customer numbers by 50% and policy numbers were up 43%, while in France, Doméo has increased its retention rate to 89%.

We are also continuing to invest in the development of new overseas businesses. In Italy, we are pleased to have signed long-term affinity partner agreements with Enel Energia and Veritas and are planning to significantly increase our marketing activity in FY2014. In Germany, we are focusing on developing affinity partnerships.

Dividend

The Board is proposing a final dividend of 7.67p per share bringing the total dividend for the year to 11.3p (2012: 11.3p).

Board changes

I would formally like to welcome Johnathan Ford to the Board. Johnathan joined the Group as Chief Financial Officer in September 2012 and was previously the Group Finance Director of NWF Group plc, an AIM listed specialist distribution group. He is already making a strong contribution to the business.

People

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

I would like to particularly note our UK employees' professionalism and commitment during a period of significant change, whilst in our International businesses our teams have again delivered strong growth.

Summary and outlook

HomeServe's products continue to meet clear customer needs and our business model continues to deliver long-term value. Our financial results in FY2013 are in line with expectations. While it remains a challenging time for HomeServe in the UK, we are confident that the actions we are implementing will deliver long-term value to all our stakeholders.

HomeServe continues to be a profitable business with a strong balance sheet and a cash generative business model.  We expect to stabilise UK customer numbers at around 1.9m by the end of FY2014 and are planning for continued strong growth in our International businesses.  While our performance in FY2014 is expected to reflect the impact of lower UK customer numbers, we remain confident that the plans we are implementing will allow the Group to return to modest growth in FY2015.

JM Barry Gibson

Chairman

21 May 2013

1. Excluding amortisation of acquisition intangibles and exceptional expenditure and, in the prior period, joint venture taxation, see Financial review and note 3.

2. Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, joint venture taxation and the re-measurement of joint venture interest on acquisition of control, see Financial review.

3. Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, re-measurement of joint venture interest on acquisition of control, see Financial review and note 7.

4. See Cash flow statement in the Financial review.

CHIEF EXECUTIVE'S REVIEW

HomeServe is an international business committed to providing a membership service which frees its customers from the worry and inconvenience of home emergencies and repairs. We have 4.9m members across our operations in the UK, USA, France, Spain, Italy and Germany. Our International businesses now account for over half of our customers, with 2.6m customers based in these markets.

In the UK we have continued to transition to a more customer focused business. Customer numbers have reduced, as expected, to 2.3m at 31 March 2013 and UK adjusted operating profit1 was £78m, down from £103m in FY2012.

Our International businesses' results have shown continued strong growth with customer numbers up 19% to 2.6m and profits1 from our established International businesses, in the USA, France and Spain, 20% higher at £34m (including the benefit of owning 100% of Doméo for the full reporting period).

The reduction in UK customer numbers and earnings has more than offset the strong growth in our International businesses with adjusted profit before tax2 for the Group reducing from £126.0m to £105.0m.

The table below shows our performance metrics on a global basis as at 31 March 2013:

*Income per customer is defined as policy revenue net of sales taxes and underwriting divided by the total number of customers.

We have reinforced a customer focused culture across all our operations. In particular, in the UK, customer satisfaction has increased and the number of complaints has reduced by 40%. We are also improving our cost efficiency by reducing complexity, sharing best practice and investing in new systems and technology. In the UK, for example, we have focused our affinity partnerships on utilities, manufacturers of installed appliances and financial services companies and we announced in March that we are going to invest in a new packaged IT system which will be implemented across the entire Group.

The following sections report on the performance of each of our business segments.

UK

·; Customer numbers of 2.3m at 31 March 2013, in line with our expectations

·; Full year retention rate 79%, and was over 80% in the final quarter

·; Plans to stabilise customer numbers at around 1.9m customers from March 2014

·; Improving our operational efficiency and sales and marketing effectiveness

UK revenue reduced by £45m to £309m (2012: £354m) reflecting the reduction in customer numbers and related repair income. Adjusted operating profit1 in the UK was £78m (2012: £103m) with the reduction in revenue being partially offset by lower costs. The lower costs are a result of a reduced headcount and lower marketing expenditure, partially offset by increased governance and control costs. UK statutory operating profit was £68m (2012: £78m) including exceptional expenditure of £10m, of which £6m is our estimate for the costs and fine arising from the FCA investigation, and the remaining £4m relates to the reduction of around 300 roles announced in March 2013.

Customer numbers in the UK have fallen to 2.3m, in line with our expectations (2012: 2.7m). The reduction is a result of the low level of marketing activity in FY2013, which was insufficient to replace those customers that did not renew in the ordinary course. As we increase our marketing activity we expect the number of new customers acquired to at least equal the number not renewing, which should enable us to stabilise the UK customer base at around 1.9m customers from March 2014.

Our UK gross new policy sales and customer and policy numbers have all reduced during the year as a result of lower marketing activity whilst we focused on the development and testing of new marketing materials, sales channel enhancements, new product development, the restructuring of our call centre operations and the implementation of improved governance and controls. Gross new customers in FY2013 were 0.1m (2012: 0.3m) and gross new policy sales were 0.2m (2012: 0.7m). Total policies at the end of March 2013 were 5.5m, a reduction of 18% on the prior year (2012: 6.7m), similar to the reduction in customer numbers.

Income per customer increased to £106 (2012: £99), reflecting the benefit from price rises and the mix of policies.

The policy retention rate increased from 78% in the first half of the year to 79% for the full year (2012: 80%) and was above 80% in the final quarter. The increase in the second half of the year is a result of the high levels of customer satisfaction across all our touch points and the implementation of a number of ongoing retention initiatives as well as a reduction in the number of first year policies, which have a lower retention rate.

During the year, our network of 289 directly employed engineers and over 450 sub-contractors completed 0.7m repairs. 80% of our plumbing and drains repairs were completed by our directly employed engineers, who typically received the highest levels of customer satisfaction.

Our affinity partners continue to remain supportive of our plans and actions and we are pleased to confirm that two of our larger water utilities have signed new long-term agreements.

During the second half of FY2013, the UK business saw improvements in the effectiveness of its sales and marketing activity. We are now planning to significantly increase the scale of our marketing activity in FY2014 as we aim to double the number of new customers to around 0.2m, up from 0.1m in FY2013, but compared to 0.6m in FY2011.

Direct mail marketing activity is expected to more than double in FY2014 and we are also planning to increase sales through our partner call centres and continue the development of our internet and digital sales channels. We have, during FY2013, recommenced policy sales through our partner call centres and during FY2014 we expect to increase the number of partners who operate this sales channel and to build on the call conversion rates achieved during the final quarter of FY2013.

We are increasing our investment in internet and digital channels. We have already recruited and have in place a new team who have significant experience and expertise in internet and digital marketing activity. During FY2014, we will be refocusing our internet site on customer acquisition, improving our search engine optimisation and enhancing the HomeServe pages within our affinity partners' websites. We will continue to use the outbound telephony channel primarily for selling to existing customers.

The planned increase in new customer acquisition volumes and retention will also be supported by the roll-out of new products, including an improved Plumbing and Drainage product, which includes cover for non-emergency items such as dripping taps and leaking overflows.

As customer numbers have reduced in the UK we have taken action to reduce our operating costs and improve our operating efficiency. The average number of UK employees has reduced by 377 over the past year and we announced a further reduction of 300 roles in March 2013 reflecting the expected reduction in customer numbers from 3m in September 2011 to around 1.9m by March 2014. We have also started a number of process re-engineering projects to simplify processes to further improve the customer experience and improve efficiency.

In November 2011, we commenced a number of business improvement initiatives, which were consistent with the feedback received from our Supervisory team at the FCA. These initiatives focused on our sales and marketing, controls and governance and complaints handling issues. Our customer re-contact exercise is the only initiative still to be completed and this is progressing as planned.

We are now close to completing the review of the complaints that were received during winter 2010 and we are also making progress in contacting customers who may have suffered detriment as a result of the way in which they were sold their policy. This exercise is expected to be completed by March 2014.

The FCA investigation into our past issues in the UK business is ongoing and is expected to take a number of months to complete.

United States of America

·; 25% increase in customer numbers to 1.3m

·; 10 new affinity partnerships across 10 states

·; Step change in marketing activity with the number of mailings more than doubled

Revenue in the USA was £101m (2012: £82m), 22% higher than a year ago driven by a 25% increase in customer numbers. Adjusted operating profit1 was £9.5m (2012: £9.0m).

We are a national business, working with 35 partners in the USA and Canada. Over the past year we have signed ten new utility affinity partnerships in ten states with a mix of gas, electric and water utilities across both public and municipality ownership.

The new partnerships include a long-term marketing agreement with Montana Dakota Utilities (MDU), which serves 260k households in the states of North and South Dakota, Montana and Wyoming. This agreement was part of the acquisition of MDU's policy book, which was completed in March 2013. MDU's 52k home assistance policies, which provided protection for a property's primary heating appliance and water heater across 26k customers, have now transferred to HomeServe.

Gross new policy sales (excluding acquired policies) during the year were 0.7m (2012: 0.6m). This growth, together with a good retention performance, has resulted in customer numbers increasing by 25% to 1.3m (2012: 1.1m) and policy numbers also increasing by 25% to 2.1m (2012: 1.7m).

We are making good progress in broadening the range of sales channels used in North America. Direct mail remains the main channel for new customer acquisition although during the year we have significantly increased the number of partners who either use their call centres to sell our policies or transfer potential sales calls to our agents. We have also commenced online policy sales via our HomeServe USA website. We expect to increase sales through our partners' call centres in the future as well as significantly grow sales via our USA internet and digital channels.

Over the past 12 months we have more than doubled the number of marketing mailings as a result of the increase in the number of affinity partners and our own brand marketing activity. Despite the significant growth in direct mail activity, our response rates and payback periods have continued to be attractive and in line with our expectations.

Raising the awareness of homeowners' responsibilities for the pipes and wires in and around their home is key to the continued strong growth in customer numbers. We were therefore pleased to announce in February 2013 an association with Giuliani Partners and former New York City Mayor Rudy Giuliani. Giuliani Partners and Mayor Giuliani will advise us on increasing awareness of the need for water and sewer infrastructure investment and consumer protection across the USA.

The USA retention rate has increased to 80% (2012: 79%). In the USA, we continue to achieve retention rates of around 90% where we bill the customer via their utility bill and therefore we are planning to increase the number of partners who use 'on bill' payment collection for our products in FY2014. A key benefit from the system improvements being planned across the Group will be the ability to more quickly integrate our billing processes with those of utilities in the future.

There remain significant opportunities for growth in North America and we are therefore continuing to invest in people and infrastructure as well as additional marketing activity. Over the past year, we have strengthened our business development team, increased our IT and digital expertise as well as enhanced our senior management team with a number of new positions. As we grow the number of customers and policies, we also need to ensure we maintain and improve our operational efficiency and have, for example, outsourced the processing of postal policy applications to a specialist and have recently announced the closure of our Miami administration centre. The work currently undertaken in Miami will be transferred to our other USA locations, in Stamford and Chattanooga, and a third party specialist outsourcer.

Our 134 directly employed technicians and network of around 700 high quality sub-contractors completed 0.27m jobs during FY2013.

Doméo

·; Retention rate up to 89%

·; Launched a new range of water policies with positive customer feedback

·; Increased focus on signing new affinity partnerships

In its first full year of 100% HomeServe ownership, Doméo contributed revenue of £74m in FY2013 compared to £52m in the previous year (when it was 49% owned by HomeServe for the first 8 months of the year and 100% for the final 4 months). Adjusted operating profit1 was £22m (2012: £17m). On a like for like basis, revenues increased by 1% and adjusted operating profit1 by 8% reflecting good cost control and less outbound marketing activity.

French customers continue to remain very loyal, with the policy retention rate increasing to 89% (2012: 88%). This high rate reflects the proportion of customers using a monthly continuous payment method to pay for their policy, a consistently high level of customer satisfaction and a low level of customer complaints.

Doméo achieved gross new policy sales of 0.3m (2012: 0.4m) with total customer numbers increasing by 2% to 0.91m (2012: 0.89m) during the year. Policy numbers grew 0.01m to 2.34m (2012: 2.33m).

Income per customer increased by 2% to €98 (2012: €96), reflecting the mix and price of policies held by customers.

The majority of our new customers in France are acquired through direct mail marketing. We are however developing new sales channels in Doméo to enable us to increase customer growth in the future. Over the past year we have increased the proportion of sales generated through Veolia's call centres as a result of improving the call conversion rate as well as increasing the number of Veolia call centres transferring calls to our sales teams.

During the second half of FY2013, we developed and tested new plumbing emergency and drainage products in France with favourable customer feedback. We are therefore planning to focus our new customer acquisition campaigns on these products in FY2014. We are also developing a revised water loss product in France, which will be principally used in cross-sell activity.

Acquiring 100% control of Doméo in December 2011 has given us an opportunity to broaden our range of affinity partners in France and we have reorganised the business to increase the focus and resource allocated to new partner development. We have, over the past year, started early stage discussions with a number of energy and water utilities.

All of our repairs in France are managed through our network of 950 sub-contractors who completed a similar number of repairs compared to the previous year.

Spain

·; Customer numbers up 50% to 0.4m, policy numbers up 43% to 0.5m

·; Over 50% of gross new customers acquired through Endesa's sales channels

·; Started charging Endesa's customers via their utility bill

As the Spanish policy base is still relatively small and growing quickly we do not currently report the retention rate and income per customer metrics

In Spain, revenue was £61m (2012: £60m) and adjusted operating profit1 was £3.1m (2012: £2.8m). The growth in adjusted operating profit1 reflects the increase in customer and policy numbers and the benefit of higher claims handling volumes and margins, partially offset by increased sales and marketing activity in the membership business.

Customer and policy numbers continue to show strong growth. Customer numbers increased by 50% to 0.4m (2012: 0.3m) and policy numbers were up 43% to 0.5m (2012: 0.3m).

Gross new policy sales were 0.3m, up from 0.2m in FY2012, as we increased our marketing activity with both our affinity partners; Endesa and Agbar. During FY2013, we continued to increase the proportion of sales generated through our partners' call centres and the outbound telephony channel. Sales through our partners' call centres accounted for 56% of gross new policy sales (2012: 14%).

Sales of our Electrical Assistance policy by Endesa's call centre agents have proven very successful over the past 12 months. Over 68% of new customers in FY2013 were acquired through this sales channel and we expect this to increase in FY2014. Our Electrical Assistance product covers the cost of the call out for any electrical emergency and two hours of labour together with two electrical handyman services per annum, each of two hours. The product, which is offered at a 50% discount in the first year, is sold by Endesa to customers when they switch their electricity tariff and is billed via the utility bill.

Our claims handling business in Spain continues to perform well with continued growth in the number of claims managed and a higher margin. Our network of 2,100 sub-contractors and the 147 Reparalia franchised engineers completed 0.5m repairs over the past twelve months.

New Markets

·; Long-term agreement with Enel Energia enabling us to market to 3.5m households in Italy

·; Focusing on the development of affinity partnerships in Germany

Our New Markets segment includes our developing businesses in Italy and Germany as well as Société Francaise de Garantie (SFG), our French warranty business.

The New Markets businesses reported revenue of £9.4m, lower than the £11.6m in the prior year, primarily as a result of the sale of our Belgian businesses in March 2012. The increased adjusted operating loss1 of £4.8m (2012: £3.4m) reflects the additional investment in Italy and Germany over the past 12 months as well as lower earnings from SFG.

In Italy, we have signed a long-term agreement with the energy utility Enel Energia, enabling us to market to 3.5m households and have recently completed the systems development to enable us to bill Italian customers on their utility bill. During FY2014, we will be significantly increasing our marketing activity to Enel Energia customers and our Italian water utility partner Veritas, as well as targeting the development of other affinity partnerships.

In Germany, we completed a test marketing campaign with BS Energy (part of the Veolia group) and will be focusing on developing additional affinity partnerships in FY2014.

Earnings from our SFG retail warranty business have been impacted by the reduction in retail sales of electrical goods in France together with the full year impact of the loss of one of our larger retailers following a take-over by a retailer who manages warranties in-house.

Outlook

Our business model continues to deliver value for customers, affinity partners and shareholders, and remains very cash generative. We expect to stabilise our UK customer numbers at around 1.9m by 31 March 2014, and are confident that we can continue to grow our International businesses, enabling the Group overall to return to modest growth from FY2015.

UK

In FY2014 we are planning to recruit around 0.2m new customers in the UK, double the number recruited in FY2013, as we develop and increase the scale of our marketing activity. By FY2015 we are planning to recruit around 0.3m new customers a year enabling us to stabilise the UK customer base at around 1.9m customers. The planned increase in new customer acquisition volumes will be supported by the roll-out of new products as well as more support from our water affinity partners, with an increasing proportion of sales coming from their call centres, and the development of our internet and digital sales channels.

We continue to expect the full year UK underlying retention rate (excluding losses from the run-off of non-core manufacturer warranties and customer re-contact exercise) to increase to around 80% in FY2014 and would expect it to increase further in future years as we benefit from the roll-out of new products and increasing customer satisfaction.

In FY2014, the reduction in the number of customers renewing will result in around £35m of lower contribution (compared to FY2013), which is expected to be partially offset by headcount savings of around £10m.

UK revenue in FY2015 is expected to reduce further by around £20m (compared to FY2014) as a result of a lower number of renewing customers and the continued marketing and roll-out of new enhanced products. This reduction will be partially offset by full year savings in direct costs and further operating efficiencies. 

International

In our International businesses we are confident that we will continue to deliver strong and sustainable growth in customers and earnings. As a result, we expect our established International businesses to deliver over 50% of the Group's operating profit in FY2015.

Our USA business provides our most significant growth opportunity and in FY2014 we expect it to significantly benefit from the 25% increase in customer numbers in FY2013 and to continue to deliver a high customer growth rate in the future. In France, we expect customer numbers to increase although the rate of customer and profit growth is likely to be modest until we sign another major utility affinity partner. In Spain, we are planning for continued strong growth in customer and policy numbers in our membership business as we continue to invest in our marketing activity and grow our renewal revenue. As our businesses in Italy and Germany invest in growing their customer numbers we expect our New Markets segment to report an operating loss of around £6m per annum.

System developments

To support our growth plans and improve our operational efficiency, we are investing in a new packaged IT system which will be implemented across the entire Group. This investment, amounting to around £30m over the next three years (FY2014 - FY2016), will start to deliver operational benefits in FY2015 with financial benefits starting to accrue from FY2016.

In the UK, the new system will improve our marketing effectiveness, reduce our costs and improve our compliance and control processes. In our US business, it will enable us to on-board affinity partners and integrate our charging processes into their billing systems more quickly. Across the Group, the system will provide call centre agents in all parts of the business with a single view of the customer.

Summary

The financial impact of the reduction in UK customer numbers has unfortunately more than offset the strong growth in our International businesses in FY2013. We are however implementing plans to stabilise UK customer numbers at around 1.9m by the end of March 2014, which will then enable customer numbers across the Group to grow again. UK earnings are expected to be negatively impacted in both FY2014 and FY2015, but we expect the growth in our International business to enable the Group overall to return to modest growth in FY2015.

We are confident that we can stabilise UK customer numbers as well as grow our established overseas businesses. We are therefore continuing to invest in the development of our new businesses in Italy and Germany as well as implementing a new group-wide IT system.

Our products and services continue to meet clear customer needs and we are confident that our business model can continue to deliver long-term value for all stakeholders.

Richard Harpin

Chief Executive

21 May 2013

1. Excluding amortisation of acquisition intangibles and exceptional expenditure and, in the prior period, joint venture taxation, see Financial review and note 3.

2. Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, joint venture taxation and the re-measurement of joint venture interest on acquisition of control, see Financial review.

3. Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, re-measurement of joint venture interest on acquisition of control, see Financial review and note 7.

4. See Cash flow statement in the Financial review.

FINANCIAL REVIEW

These financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) and the accounting policies used are consistent with those at 31 March 2012. This announcement does not itself contain sufficient information to comply with IFRSs. Full financial statements that comply with IFRSs will be published in June 2013.

Segmental Results

The Group has five operating segments - UK, USA, Doméo, Spain, and New Markets. The New Markets division combines the results of our businesses in Italy, Germany and SFG in France. The revenue and adjusted operating profit1 for each of these segments are set out in the table below.

Group revenue has increased by 2% to £546.5m (2012: £534.7m), with growth in our established International businesses offsetting a reduction in the UK. Adjusted operating profit1 reduced to £107.6m (2012: £128.2m) with lower profits in the UK partially offset by growth in our established International businesses.

UK revenue has reduced by £44.5m to £309.0m, due principally to the 16% reduction in customer numbers. The growth in our International revenues and profits reflects higher customer numbers together with the benefit of owning 100% of Doméo for the full reporting period.

The Group adjusted operating margin (adjusted operating profit/(loss)1 divided by revenue) has reduced from 24.0% to 19.7% principally as a result of the reduction in the UK operating margin and the increased investment in our New Markets businesses.

UK

*Net income is calculated by multiplying income per customer by the number of customers

Our UK business reported revenue of £309.0m (2012: £353.5m), a reduction of £44.5m and adjusted operating profit1 of £78.3m (2012: £103.1m), a reduction of £24.8m compared to the

prior year. The lower revenue and profit1 is principally a result of the reduction in customer numbers from 2.7m at 31 March 2012 to 2.3m at 31 March 2013.

Revenue in the UK business can be analysed as 'net income' (income per customer multiplied by the number of customers) of £240.9m (2012: £267.5m), with the remaining income of £68.1m (2012: £86.0m) representing £55.1m of repair network revenue (2012: £70.9m) and other income of £13.0m (2012: £15.1m), which includes third party claims handling revenue as well as revenue from transactions with other Group companies.

Income per customer has increased to £106 (2012: £99), principally reflecting the benefit from price rises and the mix of policies.

Operating costs within the UK business reduced by £19.7m compared to the previous year. This reduction was driven by lower staff numbers following the redundancy programmes in February and May 2012, lower repair network costs reflecting the reduction in customer numbers and reduced marketing expenditure as we focused on testing new sales and marketing initiatives. These savings were partially offset by the increased costs of additional compliance and quality checking and improved governance and control processes.

The UK adjusted operating margin was 25.3% (2012: 29.2%).

USA

In the USA, revenue has increased by 22% to £100.8m (2012: £82.3m) driven by the 25% growth in customer and policy numbers. Adjusted operating profit1 increased from £9.0m to £9.5m. The growth in profit is slower than the growth in revenue as a result of an 84% increase in marketing expenditure during the year as well as the ongoing investment in people and infrastructure.

We expect the strong growth in customer numbers in FY2013 to benefit our performance in FY2014 as these customers' policies renew and the rate of growth in marketing and sales costs is reduced.

The increased investment in marketing has resulted in the adjusted operating margin reducing from 11.0% to 9.5%. As we continue to target strong growth in customer numbers, we expect the USA adjusted operating margin to remain in the 10% to 15% range.

Doméo

Doméo contributed revenue of £73.8m compared to £51.8m in the previous year (when it was 49% owned by HomeServe for the first 8 months of the year and 100% for the final 4 months). Adjusted operating profit1 was £21.5m (2012: £16.7m).

On a like for like basis, revenue was 1% higher compared to the prior period whilst adjusted operating profit1 increased by 8%, reflecting good cost control and less outbound marketing activity.

The adjusted operating margin was 29.2% (2012: 32.2%). On a like for like basis, the margin increased by 2ppts as a result of improved efficiency.

Spain

In Spain, revenue was £60.5m, £0.3m higher than in the prior year. Membership revenue increased by 16% to £10.0m (2012: £8.6m) as a result of the strong growth in customer and policy numbers.

Total adjusted operating profit1 was £3.1m, £0.3m higher than in the previous year (2012: £2.8m). Increased sales and marketing costs within the Membership business were more than offset by improved operational efficiency in the Claims Handling business.

Spain has reported an adjusted operating margin of 5.0% up from 4.7% in the prior year reflecting the improved efficiency in the claims business.

New Markets

Our New Markets businesses reported revenue of £9.4m (2012: £11.6m) and an adjusted operating loss1 of £4.8m (2012: £3.4m).

Revenue from our New Markets businesses reduced by £2.2m over the past 12 months principally due to the sale of our Belgian businesses in March 2012 and lower revenues from SFG. The Belgian businesses contributed £1.9m of revenue in FY2012.

The higher adjusted operating loss1 reflects increased investment in Italy and Germany, lower earnings from SFG and the impact of the sale of our Belgian businesses which contributed £0.5m of adjusted operating profit1 in FY2012.

Cash flow and financing

Our business model continues to be highly cash generative with cash generated by operations in FY2013 amounting to £128.2m (2012: £114.3m), representing a cash conversion ratio against adjusted operating profit1 of 119% (2012: 89%).

Working capital decreased by £7.8m in FY2013, compared to an increase of £1.2m in FY2012. Working capital increased in the UK as a result of the expenditure related to addressing the sales and marketing issues provided for in March 2012 and also in our International businesses as a result of the strong growth in customer and policy numbers. These increases were however more than offset by a reduction in working capital as a result of the lower number of UK customers and policies and the FY2013 exceptional expenditure of £10m.

During the year, we incurred net capital expenditure of £29.9m (2012: £16.9m). This expenditure related to the implementation of a new group-wide financial management system, completing work on the network transformation project in the UK with a new contractor appointment booking system as well as the costs of re-engineering processes in our UK business. Capital expenditure also includes payments made to affinity partners for the long-term provision of exclusive database access and branding rights.

We expect to maintain a higher than usual level of capital expenditure over the next 3 years (FY2014 - FY2016) as we implement a new packaged IT system across the entire Group. The new system which will support both our growth plans and improve our operational efficiency, will start to deliver operational benefits in FY2015 with financial benefits starting to accrue from FY2016.

Free cash flow during the period was £69.0m (2012: £64.4m).

At 31 March 2012, we had a balance sheet provision of £21.0m in respect of expenditure related to addressing the issues in the UK including, where appropriate, compensating customers. Over the past 12 months we have incurred £9.5m of actual expenditure and the balance sheet provision at 31 March 2013 has reduced to £11.5m and is expected to be spent over the next 12 months. The expected cost of re-contacting customers and the extent of any compensation due is based on our experience to date and represents our estimate. It is possible that our assumptions regarding the number of customers, level of compensation payable, response rate and the upheld rate could be different to those currently assumed. At this stage, however, we believe that the provision is sufficient to cover the costs of the remaining customer re-contact exercise, including customer compensation.

In FY2013 we incurred exceptional expenditure of £10.0m relating to the reorganisation of the UK business, announced in March 2013, and the FCA investigation. At the end of FY2013, we had incurred £1.7m of actual expenditure and had a balance sheet provision of £8.3m.

Despite a reduction in operating profit, the cash generative nature of the business resulted in net debt reducing by £23.1m over the 12 month period. Net debt at 31 March 2013 was £42.9m (2012: £66.0m), significantly within our facility limit of £250m, which is committed through to July 2016.

Group statutory results

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

Statutory profit before tax was £66.5m, £71.5m lower than in FY2012 (2012: £138.0m). Statutory profit before tax is after the amortisation of acquisition intangibles and exceptional expenditure and in the prior period, a gain on the re-measurement of our joint venture interest following the acquisition of the remaining 51% shareholding and tax on the earnings from Doméo during the period in which it was a joint venture.

Amortisation of acquisition intangibles

The amortisation of acquisition intangibles of £13.4m (2012: £10.4m) principally relates to customer and other contracts held by the acquired entities at the date of acquisition. The £3m increase in the amortisation charge principally reflects a full 12 month impact from the acquisition of the 51% shareholding in Doméo in December 2011.

Exceptional expenditure

The exceptional expenditure of £25.1m includes costs related to reorganising the UK business and the FCA investigation, as well as a reduction in the carrying value of the assets of our French warranty business, SFG. In the prior year there was exceptional expenditure of £31.1m, full details are set out in note 4.

·; FY2013 UK exceptional expenditure

The £10m charge relates to the reorganisation of the UK business announced in March 2013 and the FCA investigation.

In March 2013 we announced plans to reduce the number of roles in our UK business by around 300, reflecting the planned reduction in customer numbers over the next 12 months. This reorganisation will incur costs of £4m and generate savings of around £10m in FY2014.

The FCA investigation has progressed, and having taken advice and reviewed internal and external available information, the Board has decided to record exceptional expenditure of £6m in relation to the anticipated costs of managing the investigation and a fine which represents our estimate. There remains uncertainty as to the nature or extent of the action that the FCA may seek to take following the conclusion of its investigation and accordingly any related financial effect.

·; Société Francaise de Garantie (SFG) asset values

The exceptional expenditure also includes a £15.1m charge related to the write down of the carrying value of SFG, our French warranty business. This write down reflects the challenging conditions in the electrical retail market in France.

Finance costs

The Group's net finance costs were £2.6m, £0.4m higher than in FY2012 reflecting a higher level of net debt in the first six months of the year compared to the prior period.

Taxation

The tax charge in the financial year was £24.6m (2012: £23.7m).

In order to calculate an effective tax rate that reflects the ongoing tax burden of the Group, it is necessary to exclude the £15.1m exceptional expenditure relating to the write-down of the carrying value of SFG, which is not tax deductible and the £6m of exceptional expenditure in the UK related to the FCA investigation. Excluding these items the adjusted effective tax rate is 28.8%, which is comparable to the underlying joint venture adjusted tax rate of 28.4% in FY2012.

We expect the tax rate to gradually increase in future years as our International businesses, all of which are based in countries with a higher corporation tax rate than the UK, contribute an increasing proportion of profits.

Earnings per share

Adjusted earnings per share3 for the period decreased from 28.0p to 23.0p. The average number of shares in issue increased from 322m to 324m.

On a statutory basis, earnings per share decreased from 35.4p to 12.9p.

Dividend

The proposed final dividend of 7.67p per share together with the payment of the interim dividend of 3.63p per share brings the total dividend for the year to 11.3p (2012: 11.3p). The final dividend, subject to shareholder approval, will be paid on 1 August 2013 to shareholders on the register on 5 July 2013.

Foreign exchange impact

The impact of changes in the € and $ exchange rates between FY2013 and FY2012 has resulted in the reported revenue of our International businesses reducing by £5.7m and adjusted operating profit1 reducing by £0.1m. The impact of foreign exchange rate movements on the individual businesses is summarised in the table below.

Acquisitions

Acquisition spend during the year totalled £5.8m (2012: £87.8m). This expenditure relates to a number of individually small acquisitions including Montana Dakota Utilities' Combined Gas & Electrical Contract Business in the USA, which completed in March 2013, acquisitions to support the continued development of our directly employed network of plumbers in the UK and deferred consideration relating to acquisitions completed in prior periods.

Statutory and pro-forma reconciliations

The Group believes that adjusted operating profit1 and adjusted profit before tax2, which exclude the amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, tax on joint ventures and the gain on the re-measurement of the joint venture interest on acquisition of control, 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 Chief Executive's and Financial reviews. 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 and asset impairment

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's statement and Chief Executive's review. This Financial review also includes the headline financial results, cash flow and financing information as well as details on the principal risks and uncertainties.

The Directors have reviewed the Group's budgets, forecasts and cash flows, including reviewing a number of scenarios in connection with the future financial performance of the UK business, and 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.

In addition, the Directors have considered the carrying value of goodwill and other assets in the UK business and have concluded that there is no impairment of these assets.

Johnathan Ford

Chief Financial Officer

21 May 2013

1. Excluding amortisation of acquisition intangibles and exceptional expenditure and, in the prior period, joint venture taxation, see Financial review and note 3.

2. Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, joint venture taxation and the re-measurement of joint venture interest on acquisition of control, see Financial review.

3. Excluding amortisation of acquisition intangibles, exceptional expenditure and, in the prior period, re-measurement of joint venture interest on acquisition of control, see Financial review and note 7.

4. See Cash flow statement in the Financial review.

Responsibility statement

The responsibility statement below has been prepared in connection with the Company's full annual report for the year ending 31 March 2013. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

·; the financial statements, prepared in accordance with IFRSs 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; and

·; the management report, which is incorporated into the Directors' 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.

This responsibility statement was approved by the Board of Directors on 21 May 2013 and is signed on its behalf by:

Richard Harpin

Chief Executive

Johnathan Ford

Chief Financial Officer

Group Income Statement

Year ended 31 March 2013

Group Balance Sheet

31 March 2013

Group Statement of Comprehensive Income

Year ended 31 March 2013

Group Statement of Changes in Equity

Year ended 31 March 2013

Year ended 31 March 2012

Group Cash Flow Statement

Year ended 31 March 2013

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 2013.

The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 March 2013 or 31 March 2012, but is derived from those financial statements. Statutory financial statements for 2012 prepared under IFRSs have been delivered to the Registrar of Companies and those for 2013 will be delivered following the Company's Annual General Meeting. The auditors, Deloitte LLP, have reported on those financial statements; their 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 21 May 2013.

2. 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 latest audited financial statements, except as described below.

Adoption of new or revised standards and accounting policies

 'Improvements to IFRSs (2011)' have been adopted in the year but their adoption has not had any significant impact on the amounts reported in these financial statements.

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 Group Chief Executive, to allocate resources to the segments and to assess their performance.

3. Segmental analysis (continued)

4. Exceptional expenditure

Year ended 31 March 2013

Exceptional expenditure of £25.1m has been incurred in the following areas:

·; UK

As a result of the lower customer numbers in the UK and the change programme which is being implemented, a charge of £4.0m has been provided for redundancy and reorganisation costs.

The FCA investigation has progressed, and having taken advice and reviewed internal and external available information, the Board has decided to record exceptional expenditure of £6.0m in relation to the anticipated costs of managing the investigation and a fine. There remains uncertainty as to the nature or extent of the action that the FCA may seek to take following the conclusion of its investigation and accordingly any related financial effect.

·; New Markets

A charge of £15.1m has been recorded of which £14.8m is in relation to an impairment of goodwill in respect of Société Francaise de Garantie S.A. This write down reflects the challenging conditions in the electrical retail market in France and lower than expected levels of new partner business.

Year ended 31 March 2012

The Group recognised a gain of £54.9m, which related to the deemed disposal of the former joint venture interest, as a result of the acquisition of the remaining 51% equity interest in Doméo (and its subsidiary Doméo Assistance) in December 2011.

The Group also recognised exceptional expenditure of £31.1m as follows:

·; £24.2m in the UK related to: 

(i) re-organisation and redundancy costs as a result of the extensive change programme that was implemented in the UK business;

(ii) additional third party support costs in relation to reviewing scripts, policy documentation terms and conditions and call monitoring;

4. Exceptional expenditure (continued)

(iii) costs in relation to the re-contacting of customers including, where appropriate, compensation payments; and

(iv) the Ofcom regulatory fine imposed in April 2012.

·; £3.9m related to the loss incurred on the disposal of the Belgian operations; and

·; £3.0m related to the acquisition costs of the Doméo business.

5. Tax

UK corporation tax is calculated at 24% (2012: 26%) 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 (2012: 3.63p per share amounting to £11.7m) was paid on 3 January 2013.

The proposed final dividend for the year ended 31 March 2013 of 7.67p per share amounting to £24.9m (2012: 7.67p per share amounting to £24.8m) will be paid on 1 August 2013 to the shareholders on the register at the close of business on 5 July 2013, subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

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

The provision for the cost of addressing the UK matters represents management's estimate of the Group's liability relating to the UK issues identified in FY2012. The remaining provision is expected to be utilised with the next 12 months and principally relates to the cost of re-contacting customers and potential compensation. The provision has been based on management's forecasts which include initial pilot re-contact exercises. The assumptions used relating to the number of customers, level of compensation, response rate and upheld rate require the use of judgement and estimation.

The FCA investigation has progressed, and having take advice and reviewed internal and external available information, the Board has decided to record exceptional expenditure of £6.0m in relation to the anticipated costs of managing the investigation and a fine. There remains uncertainty as to the nature or extent of the action that the FCA may seek to take following the conclusion of its investigation and accordingly any related financial effect.

In March 2013, the Group announced plans to reduce the number of roles in the UK by around 300. The costs of this reorganisation have been estimated at £4.0m and these have been provided for at 31 March 2013.

10. Share capital

During the year, the Company issued 141,000 shares with a nominal value of 2.5p creating share capital of £3,500 and share premium of £214,000. In the prior year, the Company issued 898,000 shares with a nominal value of 2.5p creating share capital of £22,000 and share premium of £1,382,000.

11. Business combinations

The Group has incurred a cash outflow in respect of acquisitions totalling £5.8m in the year. Of this amount, £4.0m relates to current year acquisitions and £1.8m in relation to contingent and deferred consideration on prior period acquisitions. As a result, £3.4m of acquired customer databases, £0.1m of acquired access rights and £0.6m of goodwill have been recognised in the current year. None of these acquisitions were considered to be significant on an individual basis. A further cash outflow of £1.8m was incurred in relation to contingent and deferred consideration on prior period acquisitions.

In the prior year, the net cash outflow relating to acquisitions was £87.8m, of which £82.9m related to the acquisition of full control of Doméo.

12 Related party transactions

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its other related parties are disclosed below.

Trading transactions

During the year, Group companies entered into the following transactions with related parties which are not members of the Group: