Half Yearly Report

HomeServe plc

Interim results for the six months ended 30 September 2010

'ON TRACK TO DELIVER ANOTHER YEAR OF STRONG GROWTH'

·; Continued strong annual growth

- Access to 68.2m households, up 21% 

- 10.5m policies worldwide, up 14%

- 4.6m customers worldwide, up 11%

- Global retention rate remains high at 83.9% (HY10: 84.2%)

·; Very good half year financial results

- Revenue† increased by 19%

- Double-digit growth in profit before tax* (including £0.6m of integration costs in the US)

- Strong cash generation with free cash flow of £23.7m

·; Continued development of our UK and International businesses

- On track to achieve 3-4% UK customer growth target, and a UK retention rate of at least 82%

- Completed the acquisition of National Grid Energy Services (NGES) in the US

- US gross policy sales up 36% and customer numbers now over 0.8m

- Manufacturer warranty agreement signed with Indesit in France

- Expanded into Italy with a test marketing agreement signed with Enel Energia

Richard Harpin, Chief Executive, commented:

"HomeServe has delivered another period of double-digit earnings growth^ whilst continuing to invest in both its UK and International businesses. This good performance has been driven by strong customer and policy growth, with retention rates remaining at high levels across the business as customers continue to turn to HomeServe membership to protect themselves against unexpected and costly home emergencies, demonstrating the value of our business model.

We are making good progress towards achieving our goals for the year and remain on track to meet our target 3-4% customer increase in the UK. The significant International growth opportunity is exciting and it is particularly pleasing to have seen such strong policy sales in the US during the first half.

Whilst recognising the global economic uncertainties, all business areas continue to perform well and we remain confident of delivering another year of strong profits growth."

Enquiries

A presentation for analysts and investors will take place at 9am this morning at UBS, 1 Finsbury Avenue, London, EC2M 2PP. There will also be a live webcast available via www.homeserveplc.com.

† HY10 restated as per note 2. HY11 includes revenues related to repairs undertaken by UK sub-contract engineers. See Financial Review and notes 2 and 4.

* Excluding amortisation of acquisition intangibles, joint venture taxation and exceptional operating items, see Financial Review and notes 3 and 4.

^ Excluding amortisation of acquisition intangibles and exceptional operating items, see Financial Review and note 8.

CHAIRMAN'S STATEMENT

We are pleased to report that HomeServe has delivered another six months of double digit earnings growth with profit before tax* up 13% to £21.3m (HY10: £18.9m) and earnings per share^ up 10% to 4.7p (HY10: 4.3p). We continue to grow our global customer base with 4.6m customers now holding 10.5m policies and retention rates remaining high in all regions.

Results

In the first six months of the financial year revenues† were up 19% to £171.0m (HY10: £143.5m) and operating profit* up by 9% to £22.7m (HY10: £20.8m). Excluding the £0.6m of National Grid Energy Services (NGES) acquisition and integration costs incurred during the period, operating profit* increased by 12% to £23.3m and profit before tax* increased by 16% to £21.9m.

We remain on track to achieve the full year targets we set at the start of the year, which included 3-4% customer growth and a retention rate of at least 82% in the UK, as well as delivering £3m operating profit* from the NGES acquisition in the US.

Our balance sheet remains strong and the business continues to be highly cash generative. 

On a statutory basis, profit before tax has decreased by 32% to £17.8m and earnings per share has decreased by 31% to 4.0p, as a result of the inclusion in the prior period of exceptional revenue amounting to £10.2m as disclosed in note 4.

Business developments

HomeServe is delivering strong financial results whilst continuing to invest in growing both its UK and International businesses. We are now starting to see a return on our international investment with growing customer numbers and strong operating profit* growth. We plan to continue to invest in growing our international footprint as we roll out our marketing and sales activities and increase our international household penetration, while also driving the continued growth and development of our UK business.

In the UK, One Contact our 'pay on use' service is making good progress with a significant increase in both the number of jobs undertaken and the proportion of customers being converted to full policy membership. We are also continuing to enhance our customer acquisition channels in the UK through new partnerships with, for example, financial services and residential heating oil providers.

HomeServe continues to expand its international affinity partner household base with the completion during the period of marketing agreements with NGES and Southern California Gas, adding a total of 10.4m additional households in the US. The 44.8m of affinity partner households across our international operations is now almost double the 23.4m in the UK.

The US has achieved a 36% increase in gross policy sales in the period (excluding NGES) and following the completion of the NGES acquisition on 12 August 2010 now serves 828k customers, up 68% on a year ago. We continue to pursue a number of potential new affinity partners as well as further acquisitions of policy books in the US that can be efficiently integrated into our existing operations.

We were pleased to sign our first Continental European manufacturer warranty agreement with Indesit. This, combined with the warranty capabilities of our SFG business in France, provides us with an opportunity to replicate our successful UK manufacturer warranty business model internationally. In addition, we have launched our Italian business in Milan with a test marketing agreement with Enel Energia.

Shares and Dividend

The 5 for 1 sub division of the Company's share capital announced on 25 May 2010 was approved at the AGM on 30 July 2010 and implemented on 2 August 2010.

The Board is proposing an interim dividend of 3.3p per share (HY10: 2.3p).

Board changes

On 5 July 2010 we appointed Jonathan King, Chief Executive of HomeServe USA, to the Board as an Executive Director. Jonathan brings significant experience and knowledge of HomeServe's business model having managed the UK operation before taking responsibility for developing our US operations in 2005.

We are pleased to announce today the appointment of Stella David, Chief Executive Officer at William Grant & Sons, as a Non-Executive Director. Stella was previously Global Chief Marketing Officer at Bacardi Limited as well as a Non-Executive Director at Nationwide Building Society.

Outlook

Our customer acquisition activity and renewals are, as usual, heavily weighted towards the second half of the financial year and it is therefore pleasing to be able to report that our performance since the end of September indicates we remain on track to achieve our full year expectations.

Our focus on 'business to consumer' membership is delivering good results. Whilst recognising the global economic uncertainties, the continued growth of our International operations as well as the progress in the development of our UK customer growth initiatives gives us confidence that 2011 will be another year of strong growth for HomeServe.

JM Barry Gibson

Chairman

23 November 2010

CHIEF EXECUTIVE'S REVIEW

HomeServe is making good progress towards its vision of being the first place people turn to for home emergencies and repairs. We are achieving this by providing a membership service which frees our customers from the worry and inconvenience of home emergencies and repairs. 

Our business model of building long-term relationships with business partners, leveraging our product development expertise, producing leading sales and marketing materials and delivering excellent customer service continues to deliver strong returns for shareholders with double-digit growth in profit before tax*.

We are growing our business with a twin-track strategy of continuing to expand our UK customer base and income per customer whilst rolling out our model internationally. Our International business now has access to 44.8m households with 1.8m customers compared to 33.0m and 1.3m respectively a year ago. We are successfully replicating the UK utility partner membership business in the USA, Spain and, through our joint venture Doméo, in France. We are also investing in our New Markets where we are building our French manufacturer warranty business, Société Francaise de Garantie (SFG), as well as utility membership businesses in Belgium and Italy.

We have seen global customer numbers increase by 11% to 4.6m (HY10: 4.1m) with policies growing by 14% to 10.5m (HY10: 9.2m). Our International operations currently deliver a relatively small proportion of the Group's total operating profit*, but the 36% growth in the affinity partner households over the past 12 months gives us confidence that, through an increased penetration of these households, we can significantly increase International operating profits* in the medium term.

The table below shows our performance metrics on a global basis as at 30 September 2010.

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

UK

§ Strong retention performance, with a rate of 82.9%

§ On track to achieve 3-4% customer growth

§ Good progress with One Contact - conversion rate from job to member now up to 70% and a significant increase in the number of jobs completed

Our customer acquisition marketing activities continue to be weighted towards the second half of our financial year, and we remain confident of achieving our target of growing the UK customer base by 3-4% in 2011. UK customer numbers at the end of September 2010 were 2.84m (HY10: 2.83m).

In the UK we achieved gross new policy sales of 0.7m (HY10: 0.6m), with total policy numbers increasing by 5% to 7.2m (HY10: 6.8m). We continue to strengthen our customer relationships with the number of policies per customer increasing to 2.52 (HY10: 2.41) and the number of combined policies, which enable customers to consolidate multiple policies into a single policy, continues to grow and now represent 19% (HY10: 15%) of UK customers.

The retention rate has remained high at 82.9% and is just 0.1ppts below the 83.0% achieved for the 12 months to 31 March 2010 and 0.5ppts below that of a year ago. This reflects ongoing enhancements to our products and communications to ensure that customers fully appreciate the benefits of being a HomeServe member, as well as a strong performance from our retention call centre.

Revenues† in the UK increased by 21% to £132.3m (HY10: £109.4m) principally reflecting high levels of renewals with operating profit* increasing by 9% to £24.1m (HY10: £22.1m).

The table below shows the UK performance metrics as at 30 September 2010.

All our UK KPIs are reported on a Core Renewable basis as stated on page 28 of our 2010 Report & Accounts

Water utilities continue to be key partners to our UK business and we are delighted that we have extended our existing agreements as they fall due. As a result, the majority of our 14 water utility partners are now on contracts that extend to at least 2014.

Our manufacturer warranty business is a key part of our UK business with core renewable warranty policies (where we have a direct ongoing relationship with the customer) increasing by 37% to 434k. Manufacturer warranties are similar to our core home emergency products and contribute around 10% of the UK's operating profit*.

During the first half of this year we have started marketing and administrating Dyson's manufacturer warranty scheme in the UK, which we expect to contribute to the continued strong growth in manufacturer warranties over the next few years.

The number of emergencies repaired through One Contact, our 'pay on use' service, during the first half of the year was more than the number carried out in the whole of the previous 12 months, with the proportion of customers converted into full policy members currently over 70%. The increase in repair jobs has been driven by a combination of initiatives including enhancing the use of the internet and 'directories' as well as improving our operational performance following the integration of Reactfast into our Walsall based call centre. To assist us in achieving our vision of 'being the first place people turn to for home emergencies and repairs' we have introduced a new easy to remember freephone telephone number for customers in the UK - 0800 247 999 - capturing the emergency nature of our business.

We are making good progress in developing new customer acquisition initiatives in the UK. These initiatives include heating oil distributors, financial services companies, flat owners and landlords:

- There are over 1m households in the UK who use oil as their main source of fuel. Following the signing of an affinity partner agreement with GB Oils in March 2010 we have now signed an agreement with NWF Fuels giving us access to a significant proportion of this market. Our test marketing campaigns with GB Oils have been successful, and we are now launching a full oil boiler breakdown cover campaign over the winter period. We are also continuing discussions with a number of other regional heating oil providers.

- We have proven, via testing with Santander and a UK credit card company, the potential to distribute our home assistance membership policies via financial services companies. Marketing is primarily via telesales activity and this represents a cost effective form of customer acquisition. We have recently signed an agreement with Northern Rock to further increase our penetration in this sector.

- Our landlord and flat policies are continuing to grow through a mix of marketing activity including outbound telephony and direct advertising under the HomeServe brand.

The capability and efficiency of our repair network in the UK continues to improve. In the last six months we have serviced 82% of plumbing related claims through our directly employed network of plumbing and drainage engineers, with 90% of jobs completed at the first visit. In addition, 65% of claims relating to gas and electrical repairs are performed by our network of franchisees, resulting in 74% of all claims now being repaired by a HomeServe branded engineer.

Doméo

§ Strong customer and policy growth of 9% and 17%

§ Maiden first half of the year operating profit* of £1.1m

§ High retention rate of 88.2% maintained

Doméo, our joint venture in France with Veolia, has reported strong growth in both customer and policy numbers over the past 12 months. The total number of customers has increased by 9% to 784k (HY10: 718k) with policies increasing by 17% to 2,014k (HY10: 1,717k) over the same period. The retention rate remains high at 88.2% (HY10: 88.0%) and the average number of policies per customer has continued to increase from 2.39 to 2.57. Doméo has achieved its maiden first half of the year operating profit* at £1.1m, representing our 49% share (HY10: operating loss* of £0.6m) due to the volume of renewals in the period.

The table below shows the Doméo performance metrics as at 30 September 2010.

Doméo has successfully continued to sell its core water related products with gross new policy sales of 164k (HY10: 230k). Doméo's customer and policy acquisition marketing campaigns in the current year are weighted towards the second half and will reflect the work undertaken in the first half of the year to develop new campaigns and increased activity between Doméo and our affinity partners.

Spain

§ Doubling of customer and policy numbers

§ Increased investment following commencement of marketing to Agbar's households

In Spain we continue to increase the scale of our marketing with both Endesa and Agbar, the country's largest energy and water utilities respectively. We have seen strong growth in both customer and policy numbers with these more than doubling to 107k and 135k respectively, whilst gross new policy sales in the first six months of the year were 45k (HY10: 12k). The ongoing investment in growing the membership business has resulted in an operating loss* of £0.8m (HY10: operating loss* of £0.3m) in the first half of the year.

The table below shows the Spanish performance metrics as at 30 September 2010.

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

During the first six months of the year we have been running a number of campaigns targeted at the Endesa customer base with good take-up rates both in terms of customer acquisition and cross-sales. We have also undertaken a number of marketing campaigns to Agbar customers with the largest mailing to date taking place during September. Initial take-up results from this mailing are in line with our expectations and we expect to rollout our marketing with Agbar over the coming months.

To date, the majority of our marketing activity in Spain has focussed on direct mail. We are however seeing good results from the development of our outbound telesales operation and we expect to expand this channel in the second half of the year.

United States of America

§ Gross new policy sales (excluding NGES) up 36% to 179k

§ Successful integration of NGES business

§ Revenue increased by 73% to £15.1m

Customer numbers increased by 68% to 828k (HY10: 492k), reflecting a strong increase in new customers as well as the 183,000 customers acquired from NGES. Gross policy sales (excluding policies acquired with NGES) were 179k an increase of 36% (HY10: 132k).The number of policies per customer has increased to 1.44 (HY10: 1.28) reflecting the success of our cross-selling campaigns as well as the higher than average 1.81 policies per customer within the acquired NGES business.

Our retention rate remains high at 82.5% (HY10: 81.4%) with 39% of policies paid on their utility bill and a further 29% paying by another electronic payment method such as credit card or E-Z pay (a form of direct debit).

Revenues in the US were £15.1m, 73% higher than a year ago (HY10: £8.7m) reflecting the strong growth in customer and policy numbers. The US reported an operating loss* of £1.2m (HY10: loss of £0.8m) after incurring £0.6m of NGES acquisition and integration costs.

The table below shows the US performance metrics as at 30 September 2010.

We successfully completed the acquisition of NGES on 12 August and the 183,000 customers and their policies have been migrated onto HomeServe's systems. Test marketing campaigns to the National Grid households have already taken place and a full marketing programme is planned for the winter months.

During the first half of the year we have also been preparing to start marketing to the 5m affinity partner households acquired through the deal with Southern California Gas announced in April 2010. Our first full campaign to Southern California Gas customers is expected to be launched during the final quarter of our financial year.

We continue to invest in both the infrastructure and people of our US operations, including the development of our second call centre in Chattanooga, Tennessee, which opened earlier this month. This facility will give us capacity for a further 140 telephone agents to manage our growing customer base as well as providing us with a back up for our existing call centre in Miami.

Following the NGES acquisition we now have 122 employed technicians who are focused on the servicing and repair of National Grid's existing customers' HVAC units. Across the rest of the US business our sub-contract repair network continues to work effectively.

We continue to see significant opportunities for both organic and acquisitive growth in the US and have increased the size of our business development teams. We are progressing discussions and proposals with a number of potential new affinity partners where no programme currently exists as well as looking at further acquisitions of policy books that can be efficiently integrated into our existing operations.

Our US business remains on track to double its 2010 operating profit* and report a further £3m operating profit* from the acquired NGES business.

New Markets

§ First manufacturer warranty partnership agreed in France

§ Test marketing agreement signed with Enel in Italy

We are currently investing in the development of new businesses in Belgium, France (via our warranty business Société Francaise de Garantie (SFG)) and Italy. Our New Markets reported revenues of £4.3m (HY10: £4.0m) and an operating loss* of £0.5m (HY10: operating profit* £0.4m).

In Belgium we are making good progress with potential affinity partners.

SFG, our wholly owned warranty business based in France, has made good progress with two new partnerships being agreed. In July we announced that we had signed an agreement with Indesit, and we have since extended our agreement with 'mistergoodeal' a leading French online retailer. These agreements enable us to start to roll out our successful UK manufacturer warranty model internationally, where we believe there is a big opportunity for HomeServe in the future. The initial marketing is already showing positive results.

In Italy we have opened our Milan office and agreed a 15 month test marketing agreement with Enel Energia, part of the Enel group, Italy's largest energy company. Under the agreement we intend to test mail up to 1m households.

Summary

HomeServe has delivered another period of double-digit earnings^ growth whilst continuing to invest in both its UK and International operations. Over the past five years we have been increasing our investment in International business development and are confident that the footprint we have now established will deliver significant shareholder value in the medium term.

We will continue to invest in the development of our business both organically and where appropriate through acquisition, especially of existing schemes already operated by prospective partners. HomeServe's business model is capital efficient with the majority of investment being funded through earnings rather than capital expenditure projects.

The second half of the financial year is, as usual, the most significant in terms of customer acquisition and retention for HomeServe in each of our countries and we enter this period confident of achieving our full year targets and plans for the 2011 financial year.

Richard Harpin

Chief Executive

23 November 2010

FINANCIAL REVIEW

These financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) and the accounting policies used are consistent with those at 31 March 2010, except for the implementation of IFRS3 "Business Combinations" (Revised 2008), as set out in note 2.

Reported Divisional Results

The Group has five operating segments - UK, Doméo, Spain, US and New Markets. The New Markets division reflects the results of our businesses in Belgium and Italy together with SFG in France. The revenue† and operating profit* for these segments are set out in the table below.

The Group continues to believe that operating profit* and profit before tax*, which both exclude the amortisation of acquisition intangibles, tax on joint ventures and exceptional items, are important performance indicators for monitoring the business.

2009 restated to reflect the change in accounting policy for the treatment of partner commissions, reported in our 2010 preliminary results announcement, increasing both revenue and operating costs by £8.5m

Revenue† has increased by 19% to £171.0m (HY10: £143.5m) and operating profit* by 9% to £22.7m (HY10: £20.8m).

Our UK business reported revenue† of £132.3m, an increase of 21%, driven by a strong performance in renewal income and the continued high level of gross policy sales. The UK business continues to deliver strong operating profit growth with operating profit* increasing by 9% to £24.1m (HY10: £22.1m).

From 1 April 2010 our UK financial results include the revenue and costs of repair jobs undertaken by sub-contract engineers reflecting a change in HomeServe's commercial relationship with its underwriter and sub-contractors where we now provide a full repair service for our underwriter instead of the previous administration service. This change has increased both revenue and costs by £7.9m in the current reporting period, only affects the UK and there is no impact on profits. Excluding the impact of this revenue, Group revenue increased by 14%.

Our share in the French joint venture Doméo, has generated revenue of £10.9m, an increase of 14% reflecting the 17% increase in the policy book over the past 12 months and contributed an operating profit* of £1.1m (HY10: operating loss* of £0.6m). This is the first time Doméo has achieved an operating profit* in the first six months of a year.

In Spain revenue was £20.2m, £1.1m lower than last year with the growth in policy revenues being more than offset by lower claims handling revenues. Claims handling revenues have reduced during the first half of the year as the average value of claims has decreased through improved network management, the margin benefits of which we expect to see in the future. The operating loss* of £0.8m is slightly higher than in the same period last year (HY10: operating loss* £0.3m), reflecting the increased marketing investment through our Endesa and Agbar partnerships.

In the US the strong growth in customer and policy numbers as well as the high retention rate has resulted in revenues increasing by 73% to £15.1m. The US reported an operating loss* of £1.2m (HY10: operating loss* £0.8m) after including £0.6m of costs relating to the acquisition of NGES.

Our New Markets reported revenue of £4.3m (HY10: £4.0m) and an operating loss* of £0.5m (HY10: operating profit* £0.4m). This result reflects the continued investment in the development of our Belgian operation, the investment in the opening of our Italian office, as well as the development of our European manufacturer warranty business.

The UK operating margin* has reduced from 20.2% in the first half of 2010 to 18.2% in the first half of 2011, with the main driver being the inclusion of £7.9m of revenue and operating costs relating to the jobs undertaken by our UK sub-contract workforce (HY10: nil).

The total Group margin* has reduced from 14.5% to 13.3%. If the impact of the change in sub-contract revenue in the UK and the contribution from NGES is excluded, the Group margin in the first six months of the year would have been in line with the same period a year ago.

Group statutory results

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

2009 restated to reflect the change in accounting policy for the treatment of partner commissions, reported in our 2010 preliminary results announcement, the impact of which is to increase revenue and operating costs by £8.5m.

Statutory operating profit, after the amortisation of acquisition intangibles, tax on joint ventures and exceptional items was £19.2m (HY10: £27.9m). The reduction is primarily a result of £10.2m of exceptional income received in HY10 not being repeated in the current reporting period. Statutory operating profit includes the amortisation of acquisition intangibles of £3.4m (HY10: £3.3m) which principally relates to customer and other contracts held by the acquired entities at the date of acquisition. The increase compared to the comparative period reflects the impact of the NGES acquisitions.

For Doméo, our joint venture in France, the operating result is defined under IFRS as profit after tax and therefore a charge of £0.1m (HY10: credit £0.2m) of joint venture tax is reported within statutory operating profit and statutory profit before tax.

Finance costs

The Group's net interest charge in the first six months of the financial year was £1.4m (HY10: £1.9m), £0.5m lower than in the same period last year. The reduction reflects both a lower level of debt throughout the period and a lower average interest rate.

Taxation

The tax charge in the first half of the financial year was £5.0m (HY10: £7.5m).

The effective rate of corporation tax is 28.2% (HY10: 29.1%). The slight reduction in the rate compared to the same period last year reflects the availability of brought forward tax losses in our International businesses, which we can utilise as these businesses report profits.

The earnings of our Doméo joint venture are shown net of tax within statutory profit before tax (in the above table). Adjusting the tax rate to show the tax relating to joint ventures on a gross basis (an adjusted tax charge of £5.1m), the joint venture adjusted tax rate is 28.7% (HY10: 28.5%) and represents the estimated tax rate for the full year.

We anticipate that the expected reduction in the headline rate of UK Corporation tax will offset the impact of higher effective tax rates on our increasing International profits resulting in a stable joint venture adjusted tax rate over the medium term.

Earnings per share

Earnings per share^ for the period increased by 10% from 4.3p to 4.7p. The increase in earnings per share is slightly lower than the 13% increase in profit before tax* reflecting an increase in the average number of shares in issue from 316m to 320m and an increase to 33% in the tax rate applied to the amortisation of acquisition intangibles due to the increasing profitability of our US business.

On a statutory basis, earnings per share decreased by 31% to 4.0p, as a result of the inclusion in the prior period of exceptional revenue amounting to £10.2m.

Statutory and pro-forma reconciliations

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

Cash flow and financing

Net debt at 30 September 2010 was £61.5m (HY10: £71.6m, FY10: £52.9m), a reduction of £10.1m over the 12 month period. Free cash flow during the period was £23.7m (HY10: £4.4m). The main reason for the increase in net debt since 31 March 2010 was the payment of the final 2010 dividend and the completion of the NGES acquisition in August offset by the trading result for the period.

Dividend

The interim dividend of 3.3p per share (HY10: 2.3p) will be paid on 4 January 2011 to shareholders on the register on 3 December 2010.

Foreign exchange impact

The total reported operating profit of our international businesses was reduced by £0.1m and revenue was £0.6m lower due the changes in the € and $ exchange rates compared to the same period 12 months ago.

Acquisitions

These financial results reflect a combination of organic growth and acquisitions. Acquisition spend during the period totalled £11.7m (HY10: £24.5m), which reflects the purchase of NGES (£9.7m) and £2.0m of deferred consideration in relation to acquisitions completed in prior periods.

The table below shows the impact of the NGES acquisition during the period on our US financial and performance metrics.

Risk and Uncertainties

The primary risks and uncertainties that could have an impact on HomeServe's performance during the remaining six months of the financial year are summarised below.

Financial risk

As part of its ordinary activities, HomeServe is exposed to a number of financial risks, principally liquidity risk and credit risk. The Group has policies and procedures on how these risks will be monitored and managed.

Liquidity risk relates to the Group's ability to meet the cash flow requirements of the operations, while avoiding excessive levels of debt. The Group's borrowings are principally in the form of short and medium term revolving credit facilities, which can be drawn down on demand, providing flexible access to debt when required. The total amount available under the facility is £150m and the renewal date is December 2012. The amount of any committed undrawn facilities is closely monitored by the Board on a regular basis.

The business is not exposed to significant foreign currency risk in relation to overseas transactions. However, as our International businesses grow, its exposure to risks relating to the translation of overseas profits increases. These risks are kept under constant review and policies exist to mitigate them should they increase in significance.

Credit risk principally relates to trade receivables from customers. Detailed policies and procedures for the assessment of all customers are in place including reviewing credit history and setting appropriate credit limits before trading commences. The majority of our trade receivable balances relate to policy holders who pay their premium on a monthly or quarterly basis through continuous payment methods, such as direct debit.

Interest rate risk

The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long term debt requirements with floating interest rates. The Group's policy is to manage its interest cost using a mix of fixed and variable rate debts. To manage this, the Group may enter into interest rate swaps for certain periods, in which the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed upon notional principal amount. 

Commercial relationships

Underpinning the success in our chosen markets are close commercial relationships with utility companies, household insurers and household appliance manufacturers. The loss of one of these relationships could impact the Group's future customer and policy growth plans. The risk of losing a relationship is mitigated by having long term contracts in place with all affinity partners as well as having regular reviews and contact with their senior management to ensure that we continue to respond to their needs and deliver the service that they expect.

Competition

There are a number of businesses that provide services that are similar to those of the Group and could therefore compete in one or more of our chosen markets. To mitigate this risk we regularly review the marketplace and the activities of other participants to ensure that HomeServe's products and services continue to meet the needs of our customers and retain their competitive advantage.

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 Chairman's Statement and Chief Executive's Review. This financial review also includes the headline financial results, cash flow and financing information as well as details on the principal risks and uncertainties.

The Directors confirm that, after reviewing the Group's budget and cash flows, 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.

Martin Bennett

Chief Financial Officer

23 November 2010

† HY10 restated as per note 2. HY11 includes revenues related to repairs undertaken by UK sub-contract engineers. See Financial Review and notes 2 and 4.

* Excluding amortisation of acquisition intangibles, joint venture taxation and exceptional operating items, see Financial Review and notes 3 and 4.

^ Excluding amortisation of acquisition intangibles and exceptional operating items, see Financial Review and note 8.

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS34

"Interim Financial Reporting";

(b) the interim management report includes a fair review of the information required by

DTR 4.2.7R (indication of important events during the first six months and description of

principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR

4.2.8R (disclosure of related party transactions and changes therein).

CONDENSED Consolidated Income Statement

for the six months ended 30 September 2010

# In the prior period, exceptional revenue of £10,195,000 relates to income arising from the successful recovery of the years' Insurance Premium Tax.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 September 2010

CONDENSED Consolidated Statement of Changes in Equity

for the six months ended 30 September 2010

for the six months ended 30 September 2009

for the year ended 31 March 2010

CONDENSED Consolidated Balance Sheet

30 September 2010

CONDENSED Consolidated Cash Flow Statement

for the six months ended 30 September 2010

Notes to the condensed set of financial statements

for the six months ended 30 September 2010

1. General information

HomeServe Plc is a Company incorporated in the United Kingdom and its shares are listed on the London Stock Exchange. The address of the registered office is Cable Drive, Walsall, WS2 7BN.

The information for the year ended 31 March 2010 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts, the report was not qualified, did not draw attention to any matters by way of emphasis and did not contain statements under Section 498 (2) or (3) of the Companies Act 2006. The condensed set of financial statements for the six months ended 30 September 2010 are unaudited, but have been reviewed by the auditors and their report to the Company is set out below.

This condensed set of financial statements was approved by the Board of Directors on 23 November 2010.

2. Accounting policies

Basis of preparation

The condensed set of financial statements has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRSs) and in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting'. The Group's annual financial statements are prepared in accordance with IFRSs, adopted by the European Union and therefore comply with Article 4 of the EU IAS regulation.

As described in the Financial Review, after making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed financial statements.

Changes in accounting policy

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

In the current financial year, the Group has adopted IFRS 3 'Business Combinations' (revised 2008) and IAS 27 'Consolidated and Separate Financial Statements' (revised 2008). The most significant changes to the Group's previous accounting policies for business combinations are that acquisition related costs, which previously would have been included in the cost of a business combination, are included in other operating costs as they are incurred.

The revised standards have been applied to the acquisition of National Grid Energy Services as described in note 11.

Any adjustments to contingent consideration for acquisitions made prior to 31 March 2010 which result in an adjustment to goodwill continue to be accounted for under IFRS 3(2004) and IAS 27(2005), for which the accounting policies can be found in the Group's latest annual audited financial statements.

Restatement of six months to 30 September 2009

As previously disclosed in the Annual Report & Accounts 2010, the closure of HomeServe Property Repairs Limited and Anglia (NW) Limited (together the 'Property Repairs' business) was completed during the year ended 31 March 2010. In the six months to 30 September 2009 the results were originally treated as non-core and have now been re-presented as discontinued operations in that comparative period.

During the second half of the year ended 31 March 2010, the Directors concluded that commissions payable to third parties should be shown gross within revenue and operating costs. This change in accounting policy has resulted in an increase in both revenue and operating costs of £8,484,000 in the six months to 30 September 2009.

3. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

IFRS 8 'Operating Segments' requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance.

The internal reporting of the Group has changed during the year such that all established businesses are reviewed individually, and all other new operations are reviewed collectively as 'New Markets'. Prior year presentation has been restated to reflect this new segmental analysis.

There has been no change in the basis of measurement of segment profit or loss in the period. The accounting policies of the reportable segments are the same as the Group's accounting policies which are described in the Group's latest annual financial statements, except for the application of new accounting standards as noted above. Inter-segment sales are charged at prevailing market prices.

The sale and renewal of policies across our businesses are more heavily weighted towards the second half of our financial year.

for the six months ended 30 September 2010

for the six months ended 30 September 2009 (RESTATED)

for the year ended 31 march 2010 (RESTATED)