Final Results

HomeServe plc

Preliminary results for the year ended 31 March 2014

· Financial summary

- Revenue of £568.3m up 4% on prior year (2013: £546.5m)

- Adjusted operating profit of £86.9m (2013: £107.6m):

- UK adjusted operating profit of £53.4m (2013: £78.3m)

- Established International businesses adjusted operating profit of £39.2m (2013: £34.1m)

- Adjusted free cash flow of £92.6m (2013: £80.2m)with net debt of £42.3m at 31 March 2014 (2013: £42.9m)

- Statutory profit before tax of £24.4m (2013: £66.5m) includes exceptional expenditure of £46.7m in respect of the resolution of UK matters.

· Strategy and customer focus reaffirmed in the UK business

- 2.1m customers reflecting strong retention performance at 82% (2013: 79%)

- Further investment made to enhance products and service leading to continued improvement in customer satisfaction

- Effective multi-channel marketing acquired 0.2m customers in the year

- Financial Conduct Authority investigation completed and financial penalty paid in February 2014

- All customers included in the re-contact exercise have now been contacted and associated costs have been fully provided

· International businesses now account for 62% of total customers

- Strong profit growth in the USA (36%) and Spain (29%)

- 19% customer growth in the USA

- Signed 12 new affinity partnership agreements in the USA, including one with American Electric Power (AEP), a utility serving 3.7m households

- Customer numbers more than doubled in Spain

- Signed a new affinity partnership agreement with Aqualia, a water utility in Spain that serves 2.6m households

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Richard Harpin, Chief Executive, HomeServe plc, commented:

"We have made good progress in stabilising the UK business by focusing on improving customer service, increasing retention and delivering effective marketing. Strong customer growth in the USA and Spain has contributed to the growth in total customer numbers to 5.5m. I am delighted with the significant new affinity partner signings in the USA and Spain. The USA remains our greatest opportunity and during FY15 we intend to increase investment in marketing and business development to take advantage of this. All our businesses are progressing in line with our expectations and we are confident of making further progress in FY15."

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 expenditure and the amortisation of acquisition intangibles, as reconciled to their statutory equivalents in the Financial Review.

2. Adjusted free cash flow is cash generated by the businesses after payment of interest, tax and capital expenditure, before exceptional costs and movement on the exceptional provision as set out in the Financial Review.

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 38320385#, and also a live webcast available via www.homeserveplc.com.

CHIEF EXECUTIVE'S REVIEW

Our business is built on developing long-term relationships with our affinity partners and offering our customers home assistance in respect of water, gas and electrical related emergencies and repairs. We provide our services through the use of directly employed, franchised and sub-contract networks of engineers. We have 5.5m customers across our operations in the UK, USA, France, Spain, Italy and Germany and we are becoming ever more international as a business, with 62% of our customers based in overseas markets (2013: 54%).

We have successfully re-focused the UK business on providing a high level of service to our customers at each stage of the journey, from product design to repairing the customer's home, in order to create a sustainable business model. Our UK business closed the year with 2.1m customers and, in line with our expectations, delivered adjusted operating profit of £53.4m (2013: £78.3m).

Our International businesses' results have shown continued strong growth with customer numbers up 31% to 3.4m and adjusted operating profits from our established International businesses, in the USA, France and Spain, 15% higher than the prior year at £39.2m (2013: £34.1m). We signed 12 new affinity partnerships with water and energy utilities in the USA and a new partner in Spain, in total providing an opportunity to offer our products to 7m additional households.

The table below shows our performance metrics as at 31 March 2014:

We have reinforced a customer focused culture across all of our operations, documenting and adhering to a Customer Charter in each territory. Customer satisfaction has increased in all of our businesses and we have also strengthened the governance and control framework. For example in the UK, USA, France, Spain and Italy we have appointed independent non-executive directors to support the local Boards.

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

UK

· Customer numbers closed at 2.1m (2013: 2.3m)

· Full year retention rate 82%, up from 79% last year

· Effective multi-channel marketing approach acquired 0.2m gross new customers

· Significant improvement in customer satisfaction reflecting improvements in products and service

· Financial Conduct Authority investigation completed and financial penalty paid in February 2014

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

The UK reported revenue of £288.5m (2013: £309.0m), a 7% reduction relative to the prior year, reflecting the reduction in customer numbers partially offset by higher repair income. Adjusted operating profit in the UK was £53.4m (2013: £78.3m).

UK customer numbers have reduced by 0.2m to 2.1m (2013: 2.3m), a smaller reduction than we anticipated a year ago due to improved retention. Marketing activity increased this year relative to the last two years, the results of which have been in line with our expectations. In total, gross new customers across all channels in FY14 were 0.2m (2013: 0.1m). We expect to stabilise the UK customer numbers in FY15 at at least 2.0m.

While direct mail remains our highest volume channel, we have increased the level of digital marketing, utilising a combination of brands including partner brands, the HomeServe website and comparison websites such as Money Supermarket and uSwitch and we continue to see customers buy multiple products when they purchase online. We will invest further in our digital channel during FY15. We continued to offer products through eight of our partners' call centres and have agreement to do so with an additional three partners in FY15.

The retention rate of 82%, increased three percentage points compared to the prior year. The increase reflects the improvements in customer service and product enhancements introduced over the past year.

Income per customer was £101 (2013: £106), reflecting a higher proportion of new customers who typically join at a discounted rate, the mix of policies sold and the higher cost to serve our plumbing and drains product since adding elements of maintenance cover to the product.

During the year, our network of 350 directly employed engineers and over 260 sub-contractors completed 0.6m repairs (2013: 0.7m). Over 85% of our water related repairs were completed by our directly employed engineers.

Our affinity partners continue to work with us in developing successful marketing campaigns and we are pleased to confirm that two of our larger partners have re-signed new long-term affinity agreements.

In January 2014, the FCA concluded its investigation into the past issues in the UK business and we paid the resulting financial penalty of £30.6m in February 2014. We have now re-contacted all of the customers who may have suffered detriment as a result of the way in which they initially purchased their policy or had a complaint handled. The cost of this re-contact exercise is fully provided.

United States of America

· 36% increase in adjusted operating profit to £12.9m (2013: £9.5m)

· 19% increase in customer numbers to 1.6m (2013: 1.3m)

· Signed an affinity partner agreement with American Electric Power (AEP) an electric utility that serves 3.7m households across 11 states

· In total, 12 new affinity partnerships providing services to 4.4m households

· Continued strong marketing performance

Revenue in the USA was £110.9m (2013: £100.8m) and adjusted operating profit was £12.9m (2013: £9.5m), 36% higher than the prior year principally reflecting an increase in renewals income in the year.

Customer numbers increased 19% to 1.6m (2013: 1.3m) with 0.5m gross new customers added in the year.

The direct mail channel continues to be the most significant channel and we also continue to develop our digital and partner channels. Our response rates and payback periods have continued to be attractive and in line with our expectations.

Retention performance has been good, increasing from 80% to 81% as we have focused on providing consistently good customer service throughout the customer journey, refining internal processes to enhance the customer experience and introducing product improvements. In addition we now have an "on-bill" billing arrangement for over half of all policies sold.

Income per customer was $104 (2013: $112) a reduction of 7%, reflecting the mix of products sold and the higher cost of the extra cover provided in our products which has resulted in increased usage.

Our network of 136 directly employed technicians and around 740 sub-contractors completed over 0.3m jobs during FY14 (2013: 0.3m).

During FY14 our business development team signed 12 new utility partnerships with a mix of gas, electric and water utilities across both public and municipal ownership. The new partnerships include a long-term on-bill marketing agreement with American Electric Power (AEP), one of the largest electric utilities in the USA. AEP, headquartered in Columbus, Ohio, serves 3.7m residential households across 11 states. 

The USA remains our most significant opportunity with 128m households, of which we now have affinity partner relationships with utilities that provide services to 26m of these households. To ensure we have the business development capacity to more effectively target the 1,445 identified utilities, during FY15 we plan to double the size of the business development team to 20 people. This will provide us with extended reach across the USA to drive accelerated new partner signings from FY16. This increase in resource together with the additional marketing will result in profits in the USA being broadly flat in FY15. This investment is expected to deliver incremental customer and profit growth in the medium-term.

France

· Continued strong financial performance with profits up 4%

· Strong retention rate at 89%

· Focus on developing new partner relationships

France reported £77.3m (2013: £73.8m) of revenue, up 5% on the prior year. Adjusted operating profit was up 4% to £22.3m (2013: £21.5m).

Customer numbers remained stable at 0.9m. The majority of our new customers in France are acquired through direct mail marketing. As in our other businesses, we are developing new sales channels, particularly the digital channel and utilising our partner's call centres to introduce our products. During the year we increased the proportion of sales generated through our partner's call centres in France.

During 2015, a French law is expected to be enacted which would give customers the ability to cancel insurance policies outside the normal renewal date. This could have a modest impact on the future retention rate, although, we would expect that retention in France would remain the highest in the Group.

Income per customer increased by 2% to €100 (2013: €98), reflecting the mix and price of policies held by customers.

All of our repairs in France are managed through our network of around 700 sub-contractors who completed 4% more repairs than the prior year.

The key to increasing customer growth remains the signing of a new partner and we continue to have active discussions with a number of utilities.

Spain

· Customer numbers doubled to 0.8m

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

· Signed a long-term affinity partnership with Aqualia that serves 2.6m water customers

As the Spanish policy base was relatively small, retention rate and income per customer were not reported prior to FY14

In Spain, revenue increased by 37% to £82.6m (2013: £60.5m) and adjusted operating profit increased by 29% to £4.0m (2013: £3.1m) principally reflecting higher customer numbers in our membership business and more repair jobs in our claims handling business.

Customer numbers continued to show strong growth, more than doubling to 0.8m (2013: 0.4m) and policy numbers passed the 1m milestone in January 2014.

The majority of customer acquisitions were in respect of our electrical assistance policy which is sold by Endesa through its sales channels, the cost of which is capitalised and amortised over the life of the affinity partner contract, currently 5 years. This product offers a free call out for any electrical emergency, two hours of labour and up to two electrical handyman services per annum. The product is sold by Endesa to new customers or when one of their customers switches their electricity tariff and it is billed on the utility bill.

Retention in the period was 75%. The rate is lower than the Group average retention rate of 83%, reflecting the higher proportion of year one customers in Spain this year.

Income per customer at €30 reflects the dominance of the electrical assistance product in the portfolio and the associated first year discount.

In February 2014, we signed a long-term affinity partnership agreement with Aqualia, the third largest water utility in Spain that provides water to 2.6m households and we expect to commence marketing water related products in the second half of FY15. Combined with our partner Agbar, we now have access to over 50% of the water market.

Our claims handling business in Spain continues to perform well with continued growth in the number of claims managed. Our network of 1,732 sub-contractors and the 161 Reparalia franchised engineers completed 0.6m repairs in the year (2013: 0.5m).

New Markets

· Continued strong relationship with Enel in Italy

· Marketing testing continues in Germany

· Sold Société Francaise de Garantie (SFG) the retail warranties business based in France

Our New Markets segment includes our developing businesses in Italy and Germany. Up to 5 March 2014, it also included SFG, our French retail warranty business.

The New Markets businesses reported revenue of £14.4m, up from £9.4m in the prior year reflecting higher sales in Italy. The adjusted operating loss of £5.7m (2013: £4.8m) principally reflects the additional investment in Italy over the past 12 months.

The business in Italy is making good progress. We increased the marketing investment and now have 0.1m customers, principally acquired by Enel through their sales channel. The customers pay for the product through an "on-bill" billing arrangement.

In Germany, we are focused on developing relationships with utilities and continue to invest in test activity.

In recent years SFG has been impacted by the weak French retail appliance market and during the year we took the decision to sell the business and the sale was completed in March 2014.

IT investment

As outlined previously we are investing in upgrading our core customer IT system. In the UK the new system will improve our marketing effectiveness and retention by providing better customer insight and flexibility around the products and offers we can provide our customers. The new system will improve the speed and access our call centre agents have to customer data thus improving the customer experience and providing efficiencies. In the USA the new system will also help us to more easily link into new partners' systems allowing us to increase the speed and efficiency of new partner integrations. To date activity has focused on planning, design and selecting the most appropriate partners. I am pleased that we have recently selected Pega Systems Inc, a business with extensive transformational experience, to provide the software and build our new system. Going forward, we expect to invest around £30m in respect of this system upgrade.

Dividend

The Board is proposing a final dividend of 7.67p per share bringing the total dividend for the year to 11.3p (2013: 11.3p).

Capital structure

Against the background of the Group's relatively low leverage and strong cash flow, and the Board's confidence in the business, the Board intends to conduct a review of its capital structure policy during the course of the year.

Board changes

As announced in October 2013 Jonathan King stepped down as Chief Executive Officer of the UK business and from the PLC Board. On behalf of my colleagues and the Board I would like to thank Jonathan for his outstanding contribution to the development of the Group over the past 13 years, during which time he has played a significant part in the development of our businesses both in the UK and the USA. Martin Bennett was appointed Chief Executive Officer of the UK business in January 2014. Martin is a key member of HomeServe's executive team and in his most recent role as Group Chief Operating Officer worked closely with Jonathan to refocus our UK operations and improve customer service.

People

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

Outlook

All of our businesses are progressing in line with our expectations and we continue to expect the Group to deliver modest growth in FY15.

· UK

In FY15 we expect to acquire 0.3m gross new customers with an increased proportion of new sales coming from our partner and digital channels. We expect to maintain the current retention rate despite the higher proportion of first year customers. This will enable us to stabilise customer numbers at at least 2.0m.

· International

We are confident of delivering strong growth in customer numbers in our International businesses. We intend to increase investment in marketing and business development resource in the USA and therefore we expect operating profits in the USA in FY15 to be broadly in line with FY14, with higher customer and profit growth in future years. In France, we will continue to target new affinity relationships while still maintaining a strong profit performance. In Spain, we now expect profits to increase given the continued success of our relationship with Endesa which will also give rise to continued growth in customer numbers. In FY15, we plan to continue to invest up to £6m in New Markets.

Richard Harpin

Chief Executive

20 May 2014

FINANCIAL REVIEW

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

Segmental Results

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, Germany and, up to 5 March 2014, SFG in France. The revenue and adjusted operating profit for each of these segments are set out in the table below.

4 The operating segment France was formerly known as Domeo.

Group revenue was 4% higher than the prior year at £568.3m (2013: £546.5m). Revenue growth generated by the International businesses more than offset a reduction in UK reported revenue. Adjusted operating profit reduced to £86.9m (2013: £107.6m) with lower profits in the UK partially offset by growth in our established International businesses.

The Group adjusted operating margin (adjusted operating profit/(loss) divided by revenue) was 15%, a reduction of 5 percentage points, principally as a result of the reduction in the UK operating margin.

UK

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

Our UK business reported revenue of £288.5m (2013: £309.0m), a reduction of £20.5m. Revenue in the UK business can be analysed as 'net income' (income per customer multiplied by the number of customers) of £213.2m (2013: £240.9m), with the remaining income of £75.3m (2013: £68.1m) representing £65.8m of repair network revenue (2013: £55.1m) and other income of £9.5m (2013: £13.0m), which includes third party claims handling revenue and revenue from transactions with other Group companies.

Net income decreased by 11% to £213.2m principally reflecting the reduction in customer numbers, a higher cost to service the customers and a higher proportion of year one customers.

Repair revenue was £10.7m higher as a result of higher average job costs.

Total costs were 2% above the prior year as we increased marketing expenditure, incurred higher repair network costs and incurred costs in respect of digital and connected home technology. This increased expenditure was partially offset by lower employment costs reflecting lower headcount in FY14.

Adjusted operating profit of £53.4m was £24.9m lower than the prior year of £78.3m principally reflecting lower customer numbers and higher service delivery costs, which was in line with our expectations.

USA

In the USA, revenue increased by 10% to £110.9m (2013: £100.8m) driven by the growth in renewals income partially offset by higher claims frequencies and costs to service claims. The improvement in service contributed to the increased retention rate, now at 81%. Adjusted operating profit increased by 36% from £9.5m to £12.9m with a 3 percentage point improvement in the adjusted operating profit margin to 12%, reflecting some economies of scale. As we continue to invest both in additional marketing and business development resource we expect the USA adjusted operating margin to be at the lower end of the 10% to 15% range.

France

France contributed revenue of £77.3m compared to £73.8m in the previous year and adjusted operating profit was £22.3m, up 4% compared to the prior year (2013: £21.5m). The adjusted operating margin was 29%, in line with the prior year.

Spain

In Spain, revenue was £82.6m, £22.1m higher than in the prior year. Membership revenue almost doubled to £19.9m (2013: £10.0m) as a result of the strong growth in customer and policy numbers. The volume of jobs increased in the claims handling business resulting in a 22% increase in revenues.

The cost of acquiring the electrical assistance customers originated by Endesa, is capitalised and held as an intangible asset and amortised over five years, the term of our contract with Endesa. During FY14 we invested £22.2m (2013: £4.6m) in respect of the customers acquired by Endesa and as at 31 March 2014 the intangible asset in relation to these customers was £21.9m (2013: £4.4m).

The increase in operating costs principally related to increased costs in the claims business, marketing activity and £4.2m of amortisation (2013: £0.2m) in respect of the cost of acquiring electrical assistance policies that were originated by Endesa.

Total adjusted operating profit was £4.0m, £0.9m higher than in the previous year (2013: £3.1m). Spain reported an adjusted operating margin of 5.0% in line with the prior year.

New Markets

Our New Markets businesses reported revenue of £14.4m (2013: £9.4m) and an adjusted operating loss of £5.7m (2013: £4.8m). Revenue increased by £5.0m, principally due to higher sales in Italy. Up to the point of selling SFG on 5 March 2014, it generated £9.2m revenue and broke even from a profit perspective. There was no gain or loss on the sale.

Group statutory results

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

Statutory profit before tax was £24.4m, £42.1m lower than FY13 (2013: £66.5m). Statutory profit before tax is reported after the amortisation of acquisition intangibles and exceptional expenditure.

Amortisation of acquisition intangibles

The amortisation of acquisition intangibles of £13.0m (2013: £13.4m) principally relates to customer and other contracts, held by businesses, which were acquired as part of the acquisitions.

Exceptional expenditure

Exceptional expenditure of £46.7m was incurred during the year (2013: £25.1m) which related to additional costs associated with the FCA investigation and the UK customer re-contact exercise. The FCA financial penalty was finalised at £30.6m which required a £27.7m increase in the provision in FY14. The fine was paid in February 2014. During the year, an additional £19.0m provision was made in respect of the customer re-contact exercise. While the population of customers being re-contacted remained unchanged, with greater visibility of the numbers requesting a review and the value of the reimbursements being made, the cost of the exercise was higher than originally anticipated thus resulting in the increased provision. All customers that needed to be re-contacted have now been contacted and the provision at the year end remains appropriate.

Cash flow and financing

Our business model continues to be highly cash generative with cash generated by operations in FY14 amounting to £91.9m (2013: £128.2m), representing a cash conversion ratio against adjusted operating profit of 106% (2013: 119%).

Working capital (excluding the exceptional provision) decreased by £37.9m in FY14, compared to £8.7m in FY13. The reduction was principally a result of the timing of payments to our partners and lower revenue in the UK. The exceptional provision decreased by £12.4m in FY14, reflecting expenditure that addressed the UK matters.

During the year we incurred capital expenditure of £33.6m. This expenditure included payments of £14.4m to Endesa in Spain in respect of the acquisition of customers that Endesa originated, investment in a financial management system and upgrading our core customer IT system.

We expect to maintain a higher than usual level of capital expenditure over the next two years (FY15 and FY16) as we implement the new system and work with Endesa to acquire customers in Spain.

Free cash flow during the period was £33.5m (2013: £69.0m) and adjusted free cash flow was £92.6m (2013: £80.2m). Adjusted free cash flow is cash flow before exceptional costs of £46.7m (2013: £10.3m) and related provision movements of £12.4m (2013: £0.9m).

Net debt and finance costs

Net debt at 31 March 2014 was £42.3m (2013: £42.9m), significantly within our facility of £250m, which is committed through to July 2016. Net debt was lower than expected principally due to the timing of commission payments to partners which will now fall into FY15. Year end net debt to EBITDA was 0.4 times. Against the background of the Group's relatively low leverage and strong cash flow, and the Board's confidence in the business, the Board intends to conduct a review of its capital structure during the course of the year.

The Group's net finance costs were £2.8m, £0.2m higher than in FY13.

Taxation

The tax charge in the financial year was £14.4m (2013: £24.6m).

In order to calculate an effective tax rate that reflects the ongoing tax burden of the Group, it is necessary to exclude an element of the exceptional expenditure resulting in an adjusted effective tax rate of 28.3% (2013: 28.8%).

We expect the adjusted effective tax rate to remain broadly the same going forward, as the expected reduction in the UK tax rate is offset by higher profits from our international businesses, which are subject to higher rates of tax.

Earnings per share

Adjusted earnings per share for the period decreased from 23.0p to 18.6p. The average number of shares in issue increased from 324m to 325m. On a statutory basis, earnings per share decreased from 12.9p to 3.1p.

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 (2013: 11.3p). The final dividend, subject to shareholder approval, will be paid on 1 August 2014 to shareholders on the register on 4 July 2014.

Foreign exchange impact

The impact of changes in the € and $ exchange rates between FY14 and FY13 has resulted in the reported revenue of our International businesses increasing by £3.0m and adjusted operating profit decreasing by £0.3m. The impact of foreign exchange rate movements on the individual businesses is summarised in the table below.

The current US$ exchange rate is $1.68. If the average FY14 US$ exchange rate had been at this level rather than $1.60, revenue would have been £6.9m lower and operating profit would have been £0.8m lower than reported.

Acquisitions

Acquisition spend during the year totalled £2.4m (2013: £5.8m) which principally related to deferred consideration relating to acquisitions completed in prior periods.

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 expenditure 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 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 Chief Executive's review and the financial review.

The Directors have reviewed the Group's budgets, forecasts, cash flows and the financial impact of the conclusion of the FCA investigation and UK matters, 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

20 May 2014

Responsibility statement

The responsibility statement below has been prepared in connection with the Company's full annual report for the year ending 31 March 2014. 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 20 May 2014 and is signed on its behalf by:

Richard Harpin

Chief Executive

Johnathan Ford

Chief Financial Officer

Group Income Statement

Year ended 31 March 2014

Group Balance Sheet

31 March 2014

Group Statement of Comprehensive Income

Year ended 31 March 2014

Group Statement of Changes in Equity

Year ended 31 March 2014

Year ended 31 March 2013

Group Cash Flow Statement

Year ended 31 March 2014

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 2014.

The financial information set out above does not constitute the Company's statutory financial statements for the years ended 31 March 2014 or 31 March 2013, but is derived from those financial statements. Statutory financial statements for 2013 prepared under IFRSs have been delivered to the Registrar of Companies and those for 2014 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 20 May 2014.

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 31 March 2013 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:

IAS1 (amended) has impacted the presentation of the Statement of Comprehensive Income, separating those items that cannot be subsequently classified to the profit and loss from those that may be subsequently classified. IFRS13 has introduced certain additional disclosure requirements.

All other accounting standards listed above have been adopted but their adoption has not had any material impact on the amounts reported in this condensed set of 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 Chief Executive, to allocate resources to the segments and to assess their performance. The operating segment France was formerly known as Doméo.

4. Exceptional expenditure

Exceptional expenditure of £46.7m was incurred during the year which related to additional costs associated with the FCA investigation and the UK customer re-contact exercise. The FCA financial penalty was finalised at £30.6m which required a £27.7m increase in the provision in FY14. The fine was paid in February 2014. During the year, an additional £19.0m provision was made in respect of the customer re-contact exercise. While the population of customers being re-contacted remained unchanged, with greater visibility of the numbers requesting a review and the value of the reimbursements being made, the cost of the exercise was higher than originally anticipated thus resulting in the increased provision. 

The exceptional expenditure in FY13 related to the £14.8m impairment of goodwill in respect of Société Française de Garantie S.A., together with £10.0m of costs related to the FCA investigation and UK re-organisation, and £0.3m of other costs.

5. Tax

UK corporation tax is calculated at 23% (2013: 24%) 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 (2013: 3.63p per share amounting to £11.8m) was paid on 3 January 2014.

The proposed final dividend for the year ended 31 March 2014 of 7.67p per share amounting to £25.0m (2013: 7.67p per share amounting to £24.9m) will be paid on 1 August 2014 to the shareholders on the register at the close of business on 4 July 2014. 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.

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 expenditure 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

During the year, an additional £19.0m provision was made in respect of the customer re-contact exercise. While the population of customers being re-contacted remained unchanged, with greater visibility of the numbers requesting a review and the value of the reimbursements being made, the cost of the exercise was higher than originally anticipated thus resulting in the increased provision. The provision of £7.2m (2013: £11.5m) in respect of the cost of addressing UK matters relates to the finalisation of reimbursement payments to customers who have responded to the re-contact exercise and other costs associated with completing the UK issues. 

An additional provision of £27.7m (2013: £6.0m) was made in respect of the costs associated with the FCA investigation. During FY14, a fine of £30.6m was paid together with costs of £1.2m in relation to managing the investigation.

The Group implemented its plans to reduce the number of roles in the UK, utilising the majority of the provision relating to reorganisation costs created in FY13.

All of the above provisions are expected to be utilised within the next 12 months.

10. Share capital

During the year, the Company issued 211,539 (2013: 140,847) shares with a nominal value of 2.5p creating share capital of £5,288 (2013: £3,521) and share premium of £350,750 (2013: £214,025).

11. Business combinations and disposals

The Group has incurred a net cash outflow in respect of acquisitions and disposals of £2.4m in the year. This principally relates to deferred consideration on prior period acquisitions. In the prior year, the net cash outflow relating to acquisitions was £5.8m.

Société Française de Garantie S.A. (SFG) was disposed of on 5 March 2014, the Directors consider the disposal of SFG to be immaterial to the HomeServe plc Group due to the nature and size of its operations.

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. FY14 related party transactions were similar in nature to those in FY13 and amounted to £0.2m (2013: £0.2m). Full details of the Group's related party transactions are included in the Annual Report and Accounts 2014.

13. Events after the balance sheet date

There were no post balance sheet events between the balance sheet date and the signing of the financial statements.

14. Other information

The Annual Report and Accounts for the year ended 31 March 2014 was approved by the Board on 20 May 2014 and will be made available on the Company's website and posted to those shareholders who have requested it in June 2014. Copies will be available from the registered office at Cable Drive, Walsall, WS2 7BN.

Forward Looking Statements

This report contains certain forward looking statements, which have been made in good faith, with respect to the financial condition, results of operations, and businesses of HomeServe plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements have been made with reference to forecast price changes, economic conditions, the current regulatory environment and the current interpretations of IFRS applicable to past, current and future periods. Nothing in this announcement should be construed as a profit forecast.