22nd May 2006 07:02
Homeserve Plc22 May 2006 Homeserve plc Preliminary Results for the year ended 31 March 2006 Highlights of the Year Continuing Operations 2006 2005 Increase Revenue £367m £221m 66%Operating Profit* £54.4m £42.2m 29%Profit before Tax* £53.6m £41.9m 28%Profit before Tax £50.0m £38.8m 29%Earnings Per Share* 59.2p 47.2p 25% Total Group - including discontinued operations 2006 2005 Revenue £369m £281mProfit for the year £34.4m £7.2mTotal Basic Earnings Per Share 55.1p 11.6p • Operating profit* increased by 29% to £54.4m • Cash generated from continuing operations of £55.6m • UK utility branded policy growth of 30% to 4.97m • International making good progress, signed fifth marketing agreement in US and agreed a test in Spain • Brought together comprehensive range of emergency trades into an integrated offering • Acquisitions of Chem-Dry and Improveline performing well. Acquired glazing division of Pilkington Building Products in April 2006 • Earnings per share* from continuing operations increased 25% to 59.2p • Dividend per share increased by 25% to 20.0p Brian Whitty, Executive Chairman, commented; "Homeserve has had another very successful year building upon its position as aninnovative market leader in Policy Membership and Emergency Repair. The PolicyMembership business has delivered outstanding growth and the Emergency Repairdivision has benefited from its unrivalled ability to combine repair networksacross multiple trades. Our existing businesses, both in the UK and internationally, are well positionedfor organic growth and we will continue to seek strategic acquisitions. We lookforward to the coming year with confidence." * excludes amortisation of acquisition intangibles of £3.6m (2005: £0.3m) andexceptional bad debt charge of £nil (2005: £2.8m) as set out in the FinancialReview and notes 2 and 4. CHAIRMAN'S STATEMENT Homeserve has had another very successful year, building upon its position as aninnovative market leader in both of its Policy Membership and Emergency Repairbusinesses. Within the Policy Membership division, the UK business has againdelivered outstanding policy growth. The Emergency Repair division has seen highlevels of activity and benefited from its unique ability to combine repairnetworks across most trades as a package for Household Insurers. Results Revenue from continuing operations increased by 66% to £367m (2005: £221m).Profit before tax* increased by 28% to £53.6m (2005: £41.9m) and earnings pershare* increased by 25% to 59.2p (2005: 47.2p). Profit before tax increased by 29% to £50.0m (2005: £38.8m) and total basicearnings per share increased to 55.1p (2005: 11.6p). The Board is proposing a final dividend of 13.9p per share to be paid on 7August 2006, which brings the full year dividend to 20.0p per share, a year onyear increase of 25%. Net debt at 31 March 2006 was £16.3m (2005: net cash £11.2m). Cash generated byoperations amounted to £55.6m which has principally been invested inacquisitions (£34.7m) and the purchase of shares by the Homeserve Employee Trustin respect of share incentive plans (£8.2m). Our results continue to be analysed between Policy Membership and EmergencyRepair, which is consistent with our internal reporting structure. Policy Membership The Policy Membership business increased revenue by 26% to £161m (2005: £128m),with operating profit* increasing by 9% to £41.3m (2005: £37.7m). Homeserve GB, the UK policy business, achieved an increase in policies andcustomers of 30% and 22% respectively, with the recent mailing campaignsperforming particularly well. Homeserve GB delivered strong growth of 20% inoperating profits, in part offset by increased investment in our internationalbusiness development and a loss in our Retail Warranties business. Investment in organic growth in our international operations increased by £1.5mto £2.6m during the year. Domeo, our French operation is performing well withour 49% share of the joint venture generating an operating profit of £0.8m andwith the number of policies increasing by 49% to 0.42m. The US operationincreased its policy base three fold to 0.13m and significantly strengthened itsmanagement team. We signed our fifth marketing agreement in the US in May 2006,with CEMC, a major energy utility based in Georgia, providing access to 0.4mhomes. We also agreed with our existing partner, Aqua America, to extend intothree more of their territories. This brings the total number of US householdsto which we have access to 1.4m. In April 2006, we reached agreement with amajor Spanish utility, to commence a test of our electrics policy in September2006. Our Retail Warranties business has continued to experience difficult tradingconditions in the furniture retail market and made an operating loss of £1.5m(2005: £1.4m profit). We have reduced the operating cost base of this businesswhich, combined with new retail clients, is now beginning to be reflected inimproved performance. Within Manufacturer Warranty, we have achieved strongpolicy growth. Emergency Repair The Emergency Repair business has increased revenue to £218m (2005: £100m) withoperating profit* increasing by 192% to £13.1m (2005: £4.5m). These results include revenue and operating profit of £64m and £3.9mrespectively, from acquisitions in the year, principally Chem-Dry, acquired inApril 2005, and Improveline acquired in December 2005. The year on year growthin revenue and operating profit* was 54% and 106% respectively, including a fullyear contribution from Homeserve Property Repairs, acquired in December 2004. The Glass, Locks, Plumbing and Drains business had an outstanding yearcompleting the turnaround programme. This will result in a final earn-outpayment of £13.7m, which is in line with our original estimate at the time ofacquisition in 2002. We completed the acquisition of the glazing division of Pilkington BuildingProducts in April 2006 at a cost of £6.5m. This business brings complementarycustomers and will be fully integrated into our existing glazing network. Over the last twelve months we have brought together a comprehensive range ofemergency trades into a unique integrated offering for Household Insurers,acquiring businesses in fire and flood, property repairs and glazing tocomplement our existing operations. Employees The commitment to our successful growth and the dedication of all of ouremployees has continued and I would like to thank them all for theircontribution to another outstanding year. Prospects Homeserve will continue to develop its innovative Home Emergency business whereeach of our chosen markets has significant potential for further growth. Our Policy Membership business is expected to continue to increase its marketpenetration in the UK and further develop its international operations,replicating the proven UK model for successful growth. Internationally, ourfocus will continue to be on signing new water and energy company partners inthe US and further developing our operations in France and Spain. Our Emergency Repair business is expected to build on its unique ability toprovide a fully integrated range of trades on behalf of Household Insurers. Weaim to achieve this by extending this model to other Household Insurers, wherewe believe there is a significant market opportunity, and by ensuring that eachof our operations provides market leading levels of efficiency and customersatisfaction. Homeserve looks forward to the coming year with confidence. Our existingbusinesses, both in the UK and internationally, are well positioned forcontinued organic growth in policy numbers and profits and we will continue toseek strategic acquisitions for Policy Membership and Emergency Repair. Brian WhittyExecutive Chairman22 May 2006 CHIEF EXECUTIVE'S REVIEW INTRODUCTION Our vision is to be "Your Home Emergency Service Worldwide" providing insuredrepair solutions to customers' homes via major business partners. This serviceis provided by selling policies to cover home emergencies and carrying out highquality repairs. We operate networks covering a full range of trades, whichcompleted over 1.1m repairs in the year. Our strategy is to be the leading provider of home emergency services in the UKand to replicate this internationally. We have made good progress both in Franceand the US on policy sales and have developed our own claims managementoperations. In April 2006, we signed a marketing agreement to commence testingin Spain. Our Policy Membership business in the UK and International includingManufacturer Warranty, has grown by 34% to a total of 5.7m policies in the year(2005: 4.2m). We provide underwritten cover for a broad range of domesticemergencies branded to our business partners in the utilities, appliancemanufacturing and retail sectors. Our policies include cover for plumbing anddrains and water supply pipes, electrical wiring, gas central heating andappliances, gas supply pipe cover, electrical appliances and furniture. Our Emergency Repair business is a market leader providing a comprehensive rangeof domestic emergency repair trades to homeowners via Household Insurers forrepairs following break-ins, storm and water damage as well as claims by our ownpolicyholders. The acquisitions of Chem-Dry and Improveline during the year,together with the glazing repair division of Pilkington Building Products inApril 2006, have significantly enhanced our repair capabilities and extended ourrelationships with Household Insurer business partners. Homeserve is nowuniquely positioned to provide a national fully integrated repair service acrossall of these trades and in November 2005 we commenced our first groundbreakingoutsourced multi trade contract with Liverpool Victoria. In addition to employing almost 1,000 of our own engineers, we operatesubcontract and franchise networks of almost 4,000 engineers. Whilst thesenetworks are highly complementary, our strategy is to increase the proportion ofwork we do using our own Homeserve branded directly employed operatives,delivering increased productivity, quality and customer service through moredirect control. We plan to do this both organically and through acquisition. Our recent acquisitions are performing well and we have again achievedoutstanding levels of policy growth resulting in revenue of £367m and operatingprofit* of £54.4m. POLICY MEMBERSHIP Revenue and operating profit* from these businesses increased by 26% and 9% to£161m and £41.3m respectively. The underlying growth in Homeserve GB operatingprofit was 20%. Homeserve GB This has been another record year for the utilities branded policy businesswhich provides plumbing and drainage cover together with a range of otheremergency policies to customers of water and energy companies and other affinitypartners. We combined the highest ever levels for new customer and policynumbers with excellent profits growth. We have continued to increase ourpenetration in the UK market where policies increased by 30% from 3.82m to 4.97mover the year: - 3.35m in plumbing and drains and water supply pipe (2005: 2.76m) - 0.76m in electrical (2005: 0.60m) - 0.86m in other including gas supply pipe and housebuilder (2005: 0.46m) The total number of new policies sold during the year in the UK set a new recordat 1.63m (2005: 1.3m). The number of customers increased by 22% to 2.79m (2005:2.29m) achieving 1.78 policies per customer compared to 1.66 in March 2005 and1.73 in September 2005. The final quarter mailing campaigns incorporated all of our relevant learning todate on direct mail and performed exceptionally well both for new customeracquisition and cross sell. We have continued to support our direct mail campaigns with the use of costeffective outbound telesales for cross sell activity. The total number of callcentre agents including outbound, has increased to 497 from 436 last year, andour outbound agents achieved policy sales of 0.45m (2005: 0.4m). Averageacquisition costs per policy have remained stable. Underlying retention rates for the majority of customers in their second andsubsequent year of membership on our standard plumbing and drains policiesremains in excess of 88%. However, overall retention rates decreased from 88% to87% reflecting the increased level of innovative new offers and promotions,which have achieved excellent response rates but with slightly reduced renewalrates for new customers at their first renewal. The proportion of customersusing continuous payment methods such as direct debit increased to 89% (2005:85%). Our 48 hour call backs to customers who have made a claim enable us to directlymeasure customer satisfaction following a repair and to monitor and improve theperformance of our repair networks. Customer satisfaction for the core plumbingand drains product remains at a high level of 96% and importantly, theproportion of customers rating our service as outstanding has increased from 15%to 20%. International We are making good progress in the development of our existing internationalbusiness where revenue increased by 92% to £6.3m (2005: £3.3m). The operatingloss for the international businesses of £2.6m (2005: £1.1m loss) reflects theincreased investment in management resource, primarily in the USA, partly offsetby a profit from our French joint venture. The number of international policiesincreased by 75% to 0.55m during the year. Our strategy remains one ofreplicating the proven UK model of water and energy company branded,underwritten emergency policies offered via direct marketing and outboundtelesales. Domeo, our 49% owned joint venture in France with Veolia performed particularlywell and is now reaching critical mass. The company achieved turnover andoperating profit of £8.8m and £1.6m respectively, of which our share amounts to£4.3m and £0.8m respectively. The number of policies increased by 49% from 0.28mto 0.42m during the year bringing policies per customer to 1.5 (2005:1.4).Retention rates of 87% are in line with those achieved in the UK. Domeo nowemploys 85 staff (2005: 49), including 18 outbound telesales agents. There are approximately 12m owner occupied houses in France of which Veoliaprovides water to 4.5m. During the year we sent out over 16.8m (2005: 11.0m)door to door and solus mailings, marketing to over 9m households. In February2006 we took the important step of bringing claims management in house. Ourobjective is to replicate our proven approach in the UK of direct management ofour repair networks, which will improve service delivery and reduce repaircosts. The US business has achieved strong policy growth with its existing affinitypartners and now has 0.13m policies (2005: 0.03m). In particular, we have grownthe United Water LeakGuard policy base, acquired in May 2005, by almost 80% in12 months from 41,000 to 73,000 demonstrating that we can add significant valueto acquired policy bases both through new customer acquisition and cross sellingother products. In May 2006 we signed a five year marketing agreement with our fifth businesspartner, CEMC, based in Georgia. CEMC, an electricity and gas utility withaccess to 0.4m households provides significant potential given the limitedmarketing activity to date. This is an exciting opportunity particularly sinceit is our first energy company agreement. We will market our policies using theCEMC brand. We have also recently secured agreement with one of our existingpartners, Aqua America, to market our policies to their customers in Texas andNorth Carolina from July 2006 and Illinois from February 2007, amounting to 0.2mhouseholds. This brings the total number of households served by our fivepartners to approximately 1.4m. There are over 70m owner occupied houses in the US and our experience to date isthat our policies sell well once we have an affinity partner agreement in place.Over the last 12 months we have significantly increased the level of seniormanagement resource dedicated to new business development and our pipeline ofpotential partners continues to develop. Our original target of water companieshas been extended to include electricity and gas companies, where the largest 50companies supply 49m households compared to the largest 50 water companies,which supply 8m households. In April 2006 we successfully reached agreement with one of Spain's largestutility companies, to trial our policies with up to 0.1m households. Thisrepresents a significant market opportunity. In the meantime, we are continuingto progress our discussions with a number of other leading water and energycompanies in Spain. Retail and Manufacturer Warranties Our retail and manufacturer warranty businesses were fully integrated during theyear under the new management team. This has enabled the combined operation todevelop and share common operating practices and systems and to share economiesof scale and best practice. We have grown our manufacturer warranty policies by 60% to 144,000 (2005:90,000). Our client base includes The Vaillant Group, Rangemaster (part of theAGA Foodservice Group), Ideal Boilers, Mira Showers, Creda Heating, SimeBoilers, Redring and Xpelair, all of which have experienced good policy growth. We have been successful in driving policy growth through improved directmarketing which has increased warranty card registration rates and the take uprates of these registered customers to fully paid warranties and related servicepolices. These warranty and policy sales are generally on products with longlifecycles (eg boilers) and therefore have a good renewal income stream therebycreating an attractive business model. We have also started to cross sell ourother Home Assistance policies to these customers. Our furniture warranty business, which provides fully underwritten furniturecover operates in the furniture retail market, which remains difficult. However,we have successfully secured several new accounts including Floors-2-Go, Reids,Debenhams, Halfords and over 20 independent regional retailers. During the yearwe have reduced the cost base of the business and focused on improving theefficiency of the upholstery repair network, implementing improved schedulingand routing systems, which have already enabled us to achieve an increase in thenumber of jobs completed per day of over 25%. Despite the difficult tradingconditions, we believe that the business under the new management team isrecovering and we expect it will generate satisfactory returns in the mediumterm. EMERGENCY REPAIR DIVISION Revenue from these businesses increased by 118% to £218m and operating profit*increased by 192% to £13.1m. The acquisitions of Chem-Dry in April 2005 andImproveline in December 2005 contributed revenue and operating profit* of £64mand £3.9m respectively. Homeserve Property Repairs, acquired in December 2004,contributed its first full year revenues of £54m (2005: £13m) and operatingprofit* of £1.5m (2005: £0.1m). Homeserve Emergency Services continues to be an innovative market leader. Theacquisitions have brought complementary trades, networks and customers, ensuringthat we are able to provide an integrated range of emergency repair trades tohomeowners via their Household Insurers, as well as to our own policy members. We commenced a groundbreaking multi trade outsourced contract with LiverpoolVictoria in November 2005 with estimated sales in excess of £66m over threeyears. Liverpool Victoria has outsourced the management, negotiation andsettlement of all of its building claims with a high level of delegatedauthority per claim. This operating model enables us to achieve significantefficiencies and cost savings for Household Insurers. There is also improvedcustomer satisfaction through reduced claims lead times. Our intention is to roll this model out with other insurers, using ourcomplement of trades to manage a claim from initial fire or flood through to apermanent building repair. This is a unique offering in a market which is highlyfragmented with many repairs still being performed by local builders. We have achieved a significant enhancement in performance in our Glass, Locks,Plumbing and Drains business. The investment in operational and systemenhancements that have enabled us to achieve a market leading performance aredirectly transferable to our other networks and will ensure that we share thesame systems, best practices and operating models in order to deliver the bestpossible service. We opened our first multi trade depot in February 2006, in St Albans, which willact as a blue print for other major locations. This is the first depot of itskind and is designed to improve communication and efficiency and the passing ofclaims from one trade to the next. The branch incorporates a comprehensivetraining and assessment facility for our engineers where we continue to investin skills development and service orientation. Our business model continues tobe one of employing high quality branch managers controlling an average of 12engineers for a single national trade to achieve consistent quality andefficiency. Glass, Locks, Plumbing and Drains The business delivered an outstanding performance during the year completing theturnaround programme. Despite reduced claims due to mild weather conditions, thebusiness has benefited from the introduction of a more efficient workflowmanagement system which has enhanced engineer productivity together with thesuccessful implementation of new IT systems reducing central and branchadministration costs. The Fitter Package, our engineer incentive scheme, is nowoperating in all of our Glass and Locks branches following successful trialsduring the year and is delivering improvements in service delivery andproductivity of up to 20% combined with a marked reduction in engineer labourturnover from 50% to 25%. The directly employed Glass and Locks network comprises over 300 employedengineers covering repair and replacement of glass, frames, locks, garage doors,greenhouses and conservatories, and operates from 36 branches nationally. Theoperational improvements achieved in this business have enabled the conversionof insurance leads to sales to be increased from 85% to 90%, a key measure ofour efficiency. The acquisition of the glazing division of Pilkington Building Products in April2006 brings a complementary Household Insurance customer base together with anadditional 44 directly employed glaziers supported by a national subcontractnetwork. The network includes a glazing capability for small and medium sizedenterprises which is an important step in providing full support to a number ofour insurance partners in relation to landlord premises and small shops. Theexisting seven branches will be integrated within our network over the comingmonths and build on what is now a highly efficient business. The national directly employed Plumbing and Drainage network works for a rangeof leading Household Insurers in addition to completing approximately 25% of therepairs for our own policy base. The directly employed model enables us to moreeffectively manage high quality service delivery for both the initial emergencyrepair and in many cases a more permanent second fix repair. This will befurther enhanced by the rollout of the Fitter Package to this network over thecoming year following its successful implementation in Glass and Locks. The expansion of this business together with the Glass and Locks operation hasbeen significant and in October 2006 we will move to a new purpose built callcentre in Norwich with capacity for over 280 employees. Permanent Repair Homeserve Property Repairs Homeserve Property Repairs, which was acquired in December 2004, is one of theUK's leading permanent repair networks working for Household Insurers, providingpermanent domestic repairs including plastering and decorating arising from theescape of water, storm, fire and accidental damage. The network comprises over290 independent contractors managing approximately 6,000 claims per month.Operating from a new call centre near Nottingham, this business has continued todeliver operational excellence and in particular has continued to reduce theaverage claims cycle from 61 to 39 days, compared to a market average of over 90days. As a result, the inconvenience caused to householders following a majoremergency and the cost to the Household Insurer are significantly reduced. A testament to this success was the commencement of a groundbreaking multi tradeoutsource contract for Liverpool Victoria in November 2005 for the management,negotiation and settlement for all building claims with a high level ofdelegated authority. This service is fully personalised to Liverpool Victoriawith 30 dedicated employees. We are now completing over 2,000 claims per monthacross all trades with 5% of these claims generating fire and flood work forChem-Dry. Acting as a single point of contact for Liverpool Victoria throughoutthe claims process has reduced the administration costs and life cycleassociated with a claim and increased customer satisfaction which is running at97%. This contract is estimated to generate revenues of over £66m over threeyears. Improveline The acquisition of Improveline in December 2005 represented a furthersignificant step in the development of our permanent repair networks. Theacquisition extended our relationships with five leading Household Insurersacross the building repair trades and brought the knowledge and experienceassociated with managing a directly employed network of permanent repairoperatives. Since its acquisition we have increased the number of branches from four toeight and the number of directly employed engineers has increased from 155 to187. Prior to acquisition, Improveline successfully developed and implementedleading mobile data technology for on site survey, job costing and management,automatically updating the workflow management system to ensure maximumefficiency. This technology has the ability to keep the Household Insurerconstantly up to date with our progress during the claims cycle and will bedirectly transferable to a number of our other businesses. Improveline wasrecently awarded a pilot test of 500 claims under delegated authority for allproperty repairs for a major Household Insurer operating a building repair modelsimilar to that used for Liverpool Victoria. Fire and Flood Restoration Chem-Dry, acquired in April 2005, provides a fire and flood restoration serviceon behalf of Household Insurers together with carpet and upholstery cleaningservices. This business often provides the first repair service into a homefollowing a disaster, placing us in a unique position to offer a fullyintegrated service through to a permanent building repair. The business, which operates a national network of over 230 franchisees, hasperformed well in the year. As part of our strategy to increase the proportionof work we complete using our own directly employed operatives, we acquired twofranchises during the year and one in April 2006, to complement the existingthree company owned franchises. These acquisitions are being integrated and weplan to make further acquisitions over the coming year using the sameintegration model. During the year we have successfully developed and introduced innovativetechnology to extract water from the air, reducing drying time by up to 75%, andreducing claim costs and duration. We are currently developing remote monitoringof this drying process to reduce engineer visits and further enhance ourproductivity. Chem-Dry recently launched a trial of carpet inspection, cleaning andreplacement on behalf of one Household Insurer, and has two further trials dueto start shortly. Carpet replacement is estimated to cost insurers over £200mper annum and we are well placed to significantly reduce this by providing ahigh quality clean as a cost effective alternative to replacement, or where thatis not possible, ensuring that the replacement is like for like and costeffective. Claims Management Homeserve Claims Management provides claims handling for our own policy holdersand a home assistance helpline for emergency repairs for Household Insurers andother customers in the financial sector. It operates a national subcontractnetwork which covers a broad range of trades, complemented by our directlyemployed networks for plumbing and drains, gas and permanent repairs. We managed650,000 repairs during the year (2005: 520,000) and received over 2.4m inboundcalls (2005: 2m). During the year we awarded our 40 best performing plumbing and drainagecontractors Premier Contractor status. In return for greater repair volumes,Premier Contractors are expected to invest in systems to accept electronicdeployment and job management in order to speed up contractor arrival times andprovide full visibility of a claim from start to finish so that the process canbe more effectively managed at the same time as improving customer satisfactionlevels. 80% of our plumbing and drainage repairs are electronically deployed atpre-agreed authority levels by type of repair. During this coming year we planto trial the use of hand held devices for individual contractor's engineers tofurther improve efficiency and service. We also expect to trial Homeserve's redvehicle liveries with a number of selected Premier Contractors over the comingmonths. In November and December 2005 Royal and Sun Alliance and DAS respectivelyoutsourced their domestic emergency claims handling, contractor networkmanagement and some out of hours support to Homeserve. These are expected togenerate additional revenues of up to £0.9m. OVERVIEW This has been another exceptional year for Homeserve both for Policy Membership,which achieved record levels of new policies in the UK and internationally, andEmergency Repair where our comprehensive range of trades have been broughttogether into a single offering working on behalf of Household Insurers. We will continue to focus on increasing market penetration for our PolicyMembership business in the UK and internationally, where we believe there is asignificant market opportunity. Our Emergency Repair offering is unique in themarket and we plan to strengthen our position as a leading provider byincreasing the proportion of repairs we perform using directly employedoperatives and seeking to secure further outsourced multi trade contracts fromHousehold Insurers. Richard HarpinChief Executive22 May 2006 * excludes amortisation of acquisition intangibles of £3.6m (2005: £0.3m) andexceptional bad debt charge of £nil (2005: £2.8m) as set out in the FinancialReview and notes 2 and 4. FINANCIAL REVIEW These results have been prepared in accordance with International FinancialReporting Standards (IFRS), with the prior year comparatives restated from thosepreviously reported under United Kingdom Generally Accepted Accounting Policies. Group Results £'million 2006 2005 Revenue 367.0 220.7 Operating profit* 54.4 42.2Amortisation of acquisition intangibles (3.6) (0.3)Exceptional bad debt charge - (2.8)------------------------------------------------------------------------------- Operating profit 50.8 39.1Interest (0.8) (0.3)--------------------------------------------------------------------------------Profit before tax 50.0 38.8------------------------------------------------------------------------------- Total revenue has increased by 66% to £367.0m (2005: £220.7m) reflectingcontinued growth across our businesses with acquisitions contributing £65m. Operating profit* has increased by 29% to £54.4m (2005: £42.2m). Operatingprofit* excluding the contribution from the acquisitions in the year of £3.8m,is £50.6m (2005: £42.1m), representing growth of 20%. The impact of recordingthe fair value of share scheme awards has reduced operating profit by £2.1m(2005: £1.0m), and remains well within our guidance of 5% of operating profit. The amortisation of intangible assets on acquisitions amounts to £3.6m (2005:£0.3m) and principally relates to customer and other contracts held by theacquired entities at the time of acquisition. In 2005, an exceptional bad debtcharge of £2.8m was incurred following the appointment of an administrator toCourts plc in November 2004. There are no exceptional charges in 2006. Operating profit has increased by 30% to £50.8m (2005: £39.1m). The net interest charge for the year amounts to £0.8m (2005: £0.3m), which wascovered 70 times by operating profit*. The effective rate of tax for 2006 is 31.1% (2005: 30.4%) and has increasedprincipally as a result of the additional investment in our internationaloperations. Earnings per share* for continuing operations is 59.2p (2005: 47.2p), anincrease of 25%. Total basic earnings per share, including discontinued operations in 2005,amounts to 55.1p (2005: 11.6p). Segmental Analysis Homeserve reports its results under two primary segments: Policy Membership andEmergency Repair. £'million 2006 2005 Revenue- Policy Membership 161.4 128.2- Emergency Repair 218.1 100.2- Elimination of intra-group revenue (12.5) (7.7)-------------------------------------------------------------------------------- 367.0 220.7------------------------------------------------------------------------------- Operating profit*- Policy Membership 41.3 37.7- Emergency Repair 13.1 4.5------------------------------------------------------------------------------- 54.4 42.2------------------------------------------------------------------------------- The Policy Membership business achieved an operating profit* of £41.3m (2005:£37.7m), an increase of 9%. This is after International investment of £2.6m(2005: £1.1m) and an operating loss of £1.5m (2005: £1.4m profit) in RetailWarranties. Homeserve GB increased its operating profit* by 20%. The Emergency Repair businesses achieved an operating profit* of £13.1m (2005:£4.5m), an increase of 192%, including £3.9m from acquisitions made during theyear and the full year contribution from acquisitions made in the previous year. Glass, Locks, Plumbing and Drains, originally called Highway and acquired in2002, achieved an operating profit* which will result in a final earn-outpayment of £13.7m. This is in line with our original estimate at the time ofacquisition but is ahead of that provided at 31 March 2005 of £4.1m, reflectingthe strong performance in the year. Operating margins* have decreased during the year to 15% (2005: 19%) as a resultof the increased investment in our International businesses, the operating lossat Retail Warranties and higher proportion of Emergency Repair revenue, wheremargins are lower. Within Policy Membership, operating margin* decreased to 25%(2005: 29%). The Emergency Repair businesses increased operating margin* to 6%(2005: 4%), where operating improvements in Glass, Locks, Plumbing and Drainshave more than compensated for the impact of the growth in our subcontract andfranchise operations where margins are typically lower. The adjustment necessary to eliminate intra-group revenue has increased to£12.5m (2005: £7.7m) reflecting the increased activity undertaken by our repairtrades on behalf of Policy Membership customers. Dividends The Board is proposing a final dividend of 13.9p per share. This, combined withthe Group's interim dividend of 6.1p per share brings the total for the year to20.0p per share, an increase of 25%. The final dividend if approved, will bepaid on 7 August 2006 to members on the register on 2 June 2006. Key Performance Indicators In order to assist in the management of the business and to provide evidence ofachieving its strategies, the Board regularly reviews a number of key financialand non-financial performance indicators. These are as follows: 2006 2005Group-wideProfit before tax* £53.6m £41.9mEarnings per share* 59.2p 47.2p Policy MembershipPolicy numbers (total) 5.7m 4.2mRetention rates 87% 88% Emergency RepairCompleted repairs 1.1m 0.9mOperating margin* 6% 4% Acquisitions Homeserve has completed a number of acquisitions during the year, investing£34.7m, net of cash acquired of £4.7m with estimated deferred consideration of£4.0m. Chem-Dry UK Limited and its related businesses were acquired for cashconsideration of £16.1m, net of cash acquired of £2.6m on 14 April 2005.Chem-Dry is a group of companies involved in fire and flood restoration andupholstery cleaning and operates through a national network of franchisees anddirectly employed engineers. Goodwill amounting to £6.8m arose as a result ofthis acquisition. United Water LeakGuard Inc, trading as LeakGuard, was acquired for cashconsideration of £1.2m on 19 May 2005. LeakGuard markets policies in the USAunder the brand name United Water in a similar way to those sold by Homeserve GBin the UK. No goodwill arose on this acquisition. National Property Solutions Limited (NPS) was acquired for consideration of£2.6m, of which £0.5m was cash consideration, on 2 August 2005. The remainingconsideration, which comprised loan notes is expected to be paid during the yearending 31 March 2007. NPS manages insured home assistance policies on behalf ofthird party insurers. Goodwill of £2.2m arose on the acquisition. Recommend Limited, trading as Improveline, was acquired on 16 December 2005 forinitial cash consideration of £15.9m, net of cash acquired of £2.0m. Furtherconsideration, up to a maximum of £4.0m is payable in the period to 31 March2008, dependent upon the future performance of the business. Improvelineprovides permanent repairs to households on behalf of Household Insurers througha network of directly employed and subcontract engineers. Goodwill of £9.1marose on this acquisition. In addition, during the year a number of smaller acquisitions have beencompleted relating to trades and assets for a combined consideration of £0.9m.Goodwill of £0.2m arose on these acquisitions. All of the above acquisitions have performed well following their acquisition,exceeding our original acquisition performance expectations. The trading performance of Glass, Locks, Plumbing and Drains (formerly HighwayEmergency Services Limited) has been such that additional consideration is nowdue to certain of its vendors amounting to £13.7m. This additional paymentincreases the total cost of this acquisition to £47.6m, with a correspondingincrease to goodwill and is in line with the original estimate made atacquisition in July 2002. After the year end, the business and assets of the glazing division ofPilkington Building Products were acquired for cash consideration of £6.5m on adebt and cash free basis. Cash Flow £'million 2006 2005 Continuing Operations:Cash generated by operations 55.6 42.9Interest, tax, dividends (25.3) (19.4)Net capital expenditure (15.7) (7.8)Acquisitions / disposals (36.0) (1.2)Share purchases (8.2) (8.4)Financing 3.5 6.2-------------------------------------------------------------------------------Total Continuing Operations (26.1) 12.3 Discontinued operations, net cash flow 1.4 (3.0)--------------------------------------------------------------------------------Net movement in cash and bank borrowings (24.7) 9.3------------------------------------------------------------------------------- Homeserve generated cash from operations of £55.6m. This represents a cash flowconversion rate of 103% (2005: 102%). Overall there was a net movement in cashand bank borrowings of £24.7m outflow (2005: £9.3m inflow) after interest, taxand dividends of £25.3m, net capital expenditure of £15.7m, acquisitions anddisposals of £36.0m, purchase of shares by the Homeserve Employee Trust of£8.2m, other financing inflows of £3.5m and inflows of £1.4m relating to theformer Commercial Outsourcing businesses. Net Debt Net debt at the year end was £16.3m (2005: net cash of £11.2m). Homeservemanages its liquidity principally through a combination of overdrafts and shortand medium term revolving credit facilities. Substantially all of the Group'sborrowings and undrawn facilities are at floating rates linked to LIBOR. At 31March 2006, the Group had undrawn, committed facilities amounting to £74.2m. Consolidated Balance Sheet The net assets of the Group have increased to £201m (2005: £177m). Pensions The actuarial deficit on the defined benefit pension scheme is now included onthe Group's balance sheet. At the year end, the deficit amounted to £1.2m (2005:£2.6m). During the year, an additional contribution was made by the Groupamounting to £2.0m in order to reduce the deficit in the scheme. This payment isnot recognised in the income statement, but rather reduces the deficit recordedon the balance sheet. In addition, the Group has agreed to increase itscontribution rate to 20% (2005: 16.3%) of active members' pensionable pay tofurther improve the funding position. Due to the limited number of activemembers in the scheme, this does not significantly increase the Group's chargeand will not have a significant impact on the income statement in future years. Financial Reporting Policies Listed companies in the UK are now required to present their financialstatements in accordance with International Financial Reporting Standards.Accordingly, the accounts for the year ended 31 March 2006 have been prepared inaccordance with IFRS and the comparatives have been restated. Full details ofthe impact of the transition to IFRS is available on our website. Other than in respect of the transition to IFRS, no other accounting policieshave been changed during the year. Andrew BelkGroup Finance Director22 May 2006 GROUP INCOME STATEMENT For the year ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 Notes £'000 £'000 (Audited) (Audited) Continuing Operations Revenue 2 367,001 220,711Operating costs:- Amortisation of intangible assets on acquisition (3,658) (310)- Exceptional operating costs # - (2,787)- Other operating costs (312,919) (178,472)--------------------------------------------------------------------------------Operating costs (316,577) (181,569)Share of results of joint ventures 2 328 --------------------------------------------------------------------------------Operating profit 2 50,752 39,142 Investment income 702 536Finance costs (1,478) (856)-------------------------------------------------------------------------------- Profit before tax, exceptional operatingcosts# and amortisation of intangibleassets on acquisition Continuing Operations 53,634 41,919Amortisation of intangible assets onacquisition (3,658) (310)Exceptional operating costs# - (2,787) Profit before tax 49,976 38,822Tax 3 (15,527) (11,818)-------------------------------------------------------------------------------- Profit for the year from continuing 34,449 27,004operations Discontinued OperationsLoss for the year from discontinuedoperations 2 - (19,803)--------------------------------------------------------------------------------Profit for the year being attributableto equity holders of the parent 34,449 7,201------------------------------------------------------------------------------- Dividends per share (interim paid andfinal proposed) 5 20.0p 16.0p Earnings per share 4From continuing operationsBasic 55.1p 43.5pDiluted 53.6p 42.7p From continuing and discontinuedoperationsBasic 55.1p 11.6pDiluted 53.6p 11.4p # Relates to exceptional bad debt charge in the prior year as detailed in note 9 GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 Notes £'000 £'000 (Audited) (Audited)Exchange differences on translation offoreign operations 7 120 -Actuarial loss on defined benefitpension 7 (422) (372)schemeCurrent tax on additional pension 468 -contributionsDeferred tax on items taken directly to equity (415) 151 -------------------------------------------------------------------------------- Net expense recognised directly in (249) (221)equity Profit for the year 34,449 7,201------------------------------------------------------------------------------- Total recognised income and expense for the year attributable to equity holders of the parent 34,200 6,980------------------------------------------------------------------------------- GROUP BALANCE SHEET As at 31 March 2006 31 March 31 March 2006 2005 Notes £'000 £'000 (Audited) (Audited)Non-current assetsGoodwill 187,022 159,262Other intangible assets 31,824 7,661Property, plant and equipment 30,727 18,717Interests in joint ventures 1,192 864Deferred tax asset - 613------------------------------------------------------------------------------- 250,765 187,117------------------------------------------------------------------------------- Current assetsInventories 5,708 1,985Trade and other receivables 127,913 88,556Cash and cash equivalents 17,081 14,753------------------------------------------------------------------------------- 150,702 105,294-------------------------------------------------------------------------------Total assets 401,467 292,411------------------------------------------------------------------------------- Current liabilitiesTrade and other payables (133,339) (80,911)Tax liabilities (10,164) (8,990)Obligations under finance leases - (30)Bank overdrafts and loans (33,411) (3,507)-------------------------------------------------------------------------------- (176,914) (93,438)--------------------------------------------------------------------------------Net current (liabilities)/assets (26,212) 11,856------------------------------------------------------------------------------- Non-current liabilitiesOther financial liabilities (18,785) (19,530)Retirement benefit obligation (1,156) (2,578)Deferred tax liabilities (3,503) -------------------------------------------------------------------------------- (23,444) (22,108)--------------------------------------------------------------------------------Total liabilities (200,358) (115,546)-------------------------------------------------------------------------------- Net assets 201,109 176,865------------------------------------------------------------------------------ EquityShare capital 8,075 7,987Share premium 29,998 26,576Merger reserve 70,992 70,992Capital redemption reserve 1,200 1,200Share incentive reserve 1,626 1,200Own shares reserve (16,668) (8,447)Currency translation reserve 120 -Retained earnings 105,766 77,357-------------------------------------------------------------------------------Equity attributable to equity holders of the parent 7 201,109 176,865------------------------------------------------------------------------------- Total equity 201,109 176,865-------------------------------------------------------------------------------- GROUP CASH FLOW STATEMENT For the year ended 31 March 2006 Year ended Year ended 31 March 2006 31 March 2005 Notes £'000 £'000 (Audited) (Audited) Profit from operations 50,752 39,142Depreciation 4,115 3,732Loss on disposal of property, plant and 128 384equipmentAmortisation of intangible assets on 3,658 310acquisitionShare of result in joint ventures (328) -Amortisation of other intangible 1,468 1,007assetsShare based payments expense 2,058 964Additional pension contribution (2,000) -Exceptional operating costs - bad debt charge - 2,787 --------------------------------------------------------------------------------Operating cash flows before movements in 59,851 48,326working capital Increase in inventories (513) (796)Increase in receivables (27,786) (17,827)Increase in payables 24,077 13,220--------------------------------------------------------------------------------Net movement in working capital (4,222) (5,403) Cash generated by operations 55,629 42,923Income taxes paid (13,871) (10,247)Interest paid (1,478) (386)--------------------------------------------------------------------------------Net cash flow from continuing operating 40,280 32,290activitiesNet cash flow from/(used in)discontinued operating activities 766 (776)--------------------------------------------------------------------------------Net cash from operating activities 41,046 31,514-------------------------------------------------------------------------------- Investing activitiesInterest received 702 536Proceeds on disposal of property, plant 301 458and equipmentPurchases of intangible assets (1,572) (2,161)Purchases of property, plant and (14,468) (6,086)equipmentIncrease in investment in joint ventures - (864)Acquisition of subsidiary undertakings 8 (34,674) (19,389)Disposal of subsidiary undertakings (1,342) 19,031Net cash flow from/(used in)discontinued investing activities 669 (1,084)--------------------------------------------------------------------------------Net cash used in investing activities (50,384) (9,559)-------------------------------------------------------------------------------- Financing activitiesDividends paid (10,688) (9,318)Share capital issued 3,510 7,744Purchase of own shares (8,221) (8,447)Repayments of borrowings (2) (1,180)Repayments of obligations under financeleases (30) (335)Increase/(decrease) in bank overdrafts 27,097 (5,082)Net cash flow from discontinuedfinancing activities - (1,081)--------------------------------------------------------------------------------Net cash from/(used in) financingactivities 11,666 (17,699)-------------------------------------------------------------------------------- Net increase in cash and cash 2,328 4,256equivalentsCash and cash equivalents at beginning of year 14,753 10,497 --------------------------------------------------------------------------------Cash and cash equivalents at end of year 17,081 14,753 -------------------------------------------------------------------------------- Notes to the financial statements 1. General Information The Group's principal accounting policies as set out in the Group's announcementof 28 November 2005, which is available on the Company's website (www.homeserve.com), have been applied consistently. While the financialinformation included in this preliminary announcement has been computed inaccordance with International Financial Reporting Standards (IFRSs), thisannouncement does not itself contain sufficient information to comply withIFRSs. The Company will publish full financial statements that comply with IFRSson 9 June 2006. The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 March 2006 or 2005, but is derivedfrom those accounts. Statutory accounts for 2005 prepared under United KingdomGenerally Accepted Accounting Principles have been delivered to the Registrar ofCompanies and those for 2006 will be delivered following the Company's annualgeneral meeting. The auditors have reported on those accounts; their reportswere unqualified and did not contain statements under s. 237(2) or (3) CompaniesAct 1985. These financial statements were approved by the Board of Directors on 22 May2006. 2. Segmental analysis For management purposes, the Group is organised into two operating divisions,Policy Membership and Emergency Repair. In addition, the Group was previouslyinvolved in Commercial Outsourcing, which was discontinued in 2005. Segment information about these businesses is presented below. 2006 Policy Emergency Consolidated Membership Repair 2006 2006 2006 £'000 £'000 £'000RevenueTotal revenue 161,394 218,106 379,500Intra-segment sales - (128) (128)-------------------------------------------------------------------------------- 161,394 217,978 379,372Inter-segment sales (12,371)--------------------------------------------------------------------------------External sales 367,001--------------------------------------------------------------------------------Intra-group sales are charged atprevailing market prices.ResultSegment result beforeshare of results ofjoint ventures andamortisation ofintangible assets onacquisition 41,005 13,077 54,082Share of results ofjoint ventures 328 - 328-------------------------------------------------------------------------------- 41,333 13,077 54,410Amortisation ofintangible assets onacquisition (422) (3,236) (3,658)--------------------------------------------------------------------------------Operating profit 40,911 9,841 50,752Investment income 702Finance costs (1,478)-------------------------------------------------------------------------------- Profit before tax 49,976Tax (15,527)Result of discontinued operations ---------------------------------------------------------------------------------Profit after tax anddiscontinued operations 34,449-------------------------------------------------------------------------------- Policy Emergency Commercial Discontinued Consolidated Membership Repair Outsourcing Operations 2005 2005 2005 2005 20052005 £'000 £'000 £'000 £'000 £'000Revenue Total revenue 128,197 100,243 60,673 (60,673) 228,440Intra-segmentsales - - (494) 494 ------------------------------------------------------------------------------------------ 128,197 100,243 60,179 (60,179) 228,440Inter-segmentsales (7,729)-----------------------------------------------------------------------------------------External sales 220,711-----------------------------------------------------------------------------------------Intra-group sales are charged at prevailing market prices. ResultSegment resultbeforeexceptionalbad debtcharge andamortisationof intangibleassets onacquisition 37,766 4,473 1,844 (1,844) 42,239 Exceptionalbad debtcharge (2,787) - - - (2,787) Amortisationof intangibleassets onacquisition (297) (13) - - (310)-----------------------------------------------------------------------------------------Operatingprofit 34,682 4,460 1,844 (1,844) 39,142 Investment income 536Finance costs (856)----------------------------------------------------------------------------------------- Profit before tax 38,822Tax (11,818) Result ofdiscontinuedoperations (19,803)-----------------------------------------------------------------------------------------Profit aftertax anddiscontinuedoperations 7,201---------------------------------------------------------------------------------------- 3. Taxation The overall rate of tax for the Group, including deferred tax, based on theprofit before tax, was 31.1%. The corresponding rate for the continuing Group in2005 was 30.4%. 4. Earnings per share Basic and diluted earnings per ordinary share have been calculated in accordancewith IAS 33 'Earnings Per Share'. Basic earnings per share is calculated bydividing the profit or loss for the financial year by the weighted averagenumber of ordinary shares in issue during the year. Diluted earnings per share includes the impact of dilutive share options in issue throughout the year. Adjusted earnings per share is calculated excluding amortisation of intangibleassets on acquisition and exceptional operating costs (note 9). This is considered to be a better indicator of the underlying performance of the Group. Year ended Year ended 31 March 2006 31 March 2005 Continuing Continuing Operations Total Operations Total £'000 £'000 £'000 £'000 Profit for the year 34,449 34,449 27,004 7,201 Amortisation of intangible assets on acquisition 3,658 3,658 310 310 Exceptional operating costs - bad debt charge - - 2,787 2,787 Loss on disposal of discontinued operations - - - 21,005 Tax impact arising on exceptional operating costsand amortisation (1,097) (1,097) (836) (836)------------------------------------------------------------------------------------------------------------------Adjusted profit for the year 37,010 37,010 29,265 30,467------------------------------------------------------------------------------------------------------------------ Weighted average number ofshares (000's)Basic 62,474 62,062Dilutive impact of share options 1,741 1,175 ------ ------Diluted 64,215 63,237 -------- ------ Year ended Year ended 31 March 2006 31 March 2005 From continuing operationsAdjusted Basic 59.2p 47.2pAdjusted Diluted 57.6p 46.3p From continuing and discontinuedoperationsAdjusted Basic 59.2p 49.1pAdjusted Diluted 57.6p 48.2p From discontinued operationsBasic loss per share - (31.9p)Diluted loss per share - (31.9p) In 2005, the exercise of share options was non-dilutive for loss per share fromdiscontinued operations calculated for statutory purposes. 5. Dividends per share A final dividend of 13.9p per share amounting to £8,744,000 (2005: 10.9p pershare amounting to £6,830,000) is proposed and will be paid on 7 August 2006 toshareholders on the register at the close of business on 2 June 2006. An interimdividend of 6.1p per share amounting to £3,858,000 (2005: 5.1p per shareamounting to £3,203,000) was paid during the year. 6. Analysis of total net (debt)/funds 31 March 31 March 2006 2005 £'000 £'000 Revolving credit facilities,net of cash at bank and cashequivalents (13,213) 11,556Obligations underfinance - (30)leasesLoan notes (3,117) (310)-------------------------------------------------------------------------------------Net (debt)/funds (16,330) 11,216------------------------------------------------------------------------------------- 7. Reconciliation of movements in equity Capital Share Own Currency Share Share Merger redemption incentive shares translation Retained Total capital premium reserve reserve reserve reserve reserve earnings equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 April2005 7,987 26,576 70,992 1,200 1,200 (8,447) - 77,357 176,865Dividends paid - - - - - - - (10,688) (10,688)Issue of share 88 3,422 - - - - - - 3,510capitalPurchase ofown shares - - - - - (8,221) - - (8,221)Exercise ofshare options - - - - (1,632) - - 1,632 -Totalstatementof recognisedincome andexpense - - - - - - 120 34,080 34,200Share based - - - - 2,058 - - - 2,058paymentsTax on itemstaken directlyto equity - - - - - - - 3,385 3,385-----------------------------------------------------------------------------------------------------------------------At 31 March2006 8,075 29,998 70,992 1,200 1,626 (16,668) 120 105,766 201,109----------------------------------------------------------------------------------------------------------------------- 8. Acquisitions On 14 April 2005, the Group acquired 100% of the share capital of Chem-Dry UKLimited, Chem-Dry Northern & Southern Limited and Chem-Dry Midlands and LondonLimited (together "Chem-Dry") for cash consideration of £16.1m, net of cashacquired of £2.6m. Chem-Dry is a group of companies involved in fire and floodrestoration and upholstery cleaning. On 19 May 2005, the Group acquired a number of policies in the USA through theacquisition of 100% of the share capital of LeakGuard Inc. On 2 August 2005, the Group acquired 100% of the share capital of NationalProperty Solutions Limited (NPS Ltd), a company which manages insured homeassistance policies. On 16 December 2005, the Group acquired 100% of the share capital of RecommendLimited, trading as Improveline, for initial cash consideration of £15.9m, netof cash acquired of £2.0m with deferred consideration of up to £4.0m.Improveline provides domestic property repair and improvement services forproperty owners, insurers and managers. All these transactions have been accounted for by the purchase method ofaccounting. Subsequent to the year end on 21 April 2006, the Group acquired certain of thetrade and assets from Pilkington United Kingdom Limited relating to the glazingdivision of Pilkington Building Products. The consideration paid was £6.5m incash. The business undertakes glazing repairs on a nationwide basis. The fair value of the identifiable assets and liabilities of the acquisitionswere: Date acquired: 14 April 2005 19 May 2005 16 December 2005 2 August 2005 Acquired by: Homeserve Home Service Homeserve Homeserve GB Assistance Ltd USA Corp Assistance Ltd Ltd £'000 £'000 £'000 £'000 £'000 Chem-Dry United Water Recommend Ltd NPS Ltd Total LeakGuard Inc (Improveline)Net assetsacquired: Property, plant and 2,339 - 281 - 2,620equipment Other 88 - 10 69 167intangibleassets Inventories 614 - 2,596 - 3,210 Trade and other 8,244 - 4,154 418 12,816receivables Cash and cash 2,637 19 1,992 50 4,698equivalents Trade andother payables (12,114) (16) (3,552) (1,690) (17,372) Deferred taxliability (2,916) - (3,137) (656) (6,709)------------------------------------------------------------------------------------------------------------------------ (1,108) 3 2,344 (1,809) (570) Intangible assets 13,072 1,265 10,459 2,185 26,981identified onacquisitionGoodwill 6,774 - 9,093 2,199 18,066------------------------------------------------------------------------------------------------------------------------ Total consideration 18,738 1,268 21,896 2,575 44,477------------------------------------------------------------------------------------------------------------------------ Satisfied by:Cash 18,438 1,136 17,674 551 37,799Deferred consideration - - 4,000 - 4,000Loan notes - - - 1,980 1,980Directly attributable costs 300 132 222 44 698------------------------------------------------------------------------------------------------------------------------ 18,738 1,268 21,896 2,575 44,477------------------------------------------------------------------------------------------------------------------------ Net cash outflowarising onacquisition:Cash consideration 18,738 1,268 17,896 595 38,497Cash and cashequivalents acquired (2,637) (19) (1,992) (50) (4,698)------------------------------------------------------------------------------------------------------------------------ 16,101 1,249 15,904 545 33,799----------------------------------------------------------------------------------------------------------------------- Fair value adjustments of £171,000 were made on the acquisition of NationalProperty Solutions reducing the net assets to align accounting policies and reflect the fair value of certain non current assets and current assets. Therewere no fair value adjustments in respect of the other acquisitions completedduring the year. In addition to the net cash outflow arising on acquisition above of £33,799,000,there were further cash outflows in respect of the acquisition of a number ofindividually immaterial acquisitions amounting to £875,000 and resulted in therecognition of intangible assets of £572,000 and goodwill of £154,000. Intangible assets identified on the acquisition of Chem-Dry represents thedirectors' estimate of the inherent value of the customer relationships andfranchise network at acquisition. Intangible assets identified on theacquisition of Recommend Limited represent the directors' estimate of thecustomer relationships. The intangible assets recognised on the acquisition ofUnited Water LeakGuard Inc and National Property Solutions Limited reflect thedirectors' estimate of the value of acquired customer database lists. Goodwill represents future cross sell opportunities, efficiency savings andsynergies and potential new client wins from these acquisitions. 9. Exceptional operating costs The exceptional operating costs in the prior year of £2,787,000 relates toprovisions made against amounts owing from Courts plc. 10. Other information An analysts presentation will be held at 11.00am on Monday 22 May 2006 at 30 OldBroad Street, London, EC2N 1HQ and the presentation will be available on ourwebsite at that time. The Annual Report and Accounts for the year ended 31 March2006 were approved by the Board on 22 May 2006 and will be posted toshareholders on 9 June 2006. Further copies will be available from theregistered office at Cable Drive, Walsall, WS2 7BN. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
HSV.L