Half Yearly Report

HomeServe plc

Interim results for the six months ended 30 September 2012

·; Half year summary

- Revenue up 8% to £229.6m

- Adjusted profit before tax1 up 9% principally as a result of full ownership of Doméo

- Adjusted earnings per share2 up 7% to 5.6p

- Interim dividend maintained at 3.63p per share

- Free cash flow3 of £10.3m (HY12: £2.3m)

- Net debt £78.1m (FY12: £66.0m, HY12: £36.6m)

·; Refocusing the UK business

- Customer numbers down to 2.5m (HY12: 3.0m, FY12: 2.7m)

- Retention rate 78% (HY12: 82%, FY12: 80%)

- Renewed two of our larger UK water affinity partners on long-term deals

- Increased customer satisfaction with 42% fewer customer complaints

- Testing the effectiveness of new marketing and products to give greater visibility on the future size of the business

- FSA investigation is ongoing

·; Continued growth in our international businesses

- Strong customer and policy growth

o USA customers up 20%, policy numbers up 25%

o Spain customers up 42%, policy numbers up 36%

- Retention remains strong in our established international markets

o 87% in Doméo

o 79% in the USA

- Strong financial performance in Doméo, with adjusted operating profit1 of £5.6m

- Five new affinity partners including a policy book acquisition in the USA

- In Italy, signed long-term agreements with Enel Energia, enabling us to market to 3.5m households and Veritas with over 200,000 marketable households

- Started our test marketing activity in Germany

1. Excluding amortisation of acquisition intangibles and joint venture taxation, see Financial Review and note 3.

2. Excluding amortisation of acquisition intangibles see Financial Review and note 6.

3. Free cash flow is defined on page 13

Richard Harpin, Chief Executive, commented:

"HomeServe is making progress in transitioning its UK business to a smaller, more customer focused operation and has delivered good growth in its International businesses in the first half of the year.

In the UK we are currently testing a number of new marketing and product propositions, the effectiveness of which will determine the future shape and size of our UK business. Our business improvement initiatives are delivering increased customer satisfaction, significantly reduced complaint numbers and strengthened governance and control processes in the UK. 

Our International businesses continue to grow with USA and Spain customer numbers up 20% and 42% respectively.

We expect our results for the full year to be in line with our expectations."

Enquiries

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

There will be a listen-only conference call via +44 203 140 0668, pin code 570841#, and also a live webcast available via www.homeserveplc.com.

CHAIRMAN'S STATEMENT

We have delivered a set of financial results in line with expectations in the first half of FY13. At 30 September 2012 we had over 4.8m customers holding 10.6m policies and retention rates remain high. Homeowners continue to value and use our policies and services with 680,000 jobs carried out in the first half of the year.

In the first half of the year our UK business has made progress in transitioning to a smaller, more customer focused operation and our International businesses have delivered good growth.

Results

In the first six months of the financial year revenue was up 8% to £229.6m (HY12: £213.1m) and adjusted operating profit1 was up by 12% to £27.1m (HY12: £24.3m). Adjusted profit before tax1 was £25.6m, up by 9%, and adjusted earnings per share2 increased by 7% to 5.6p (HY12: 5.2p).

Our balance sheet remains strong and the business continues to be cash generative. Net debt was £78.1m at 30 September 2012. The increase from £36.6m at 30 September 2011 was principally a result of the acquisition of full control of Doméo in December 2011 for £82m, partly offset by high levels of free cash flow.

On a statutory basis, profit before tax increased by 5% to £19.1m (HY12: £18.2m) and basic earnings per share was 4.2p (HY12: 4.2p).

UK

Our UK business is making progress in creating a smaller, more customer focused operation with customer satisfaction increasing and complaint numbers, in the first six months of the year, reducing by 42% compared to the same period last year. The business continues to work towards achieving its full year customer number target and has renewed two of its larger utility affinity partner relationships on long-term agreements. The current priorities are to more fully embed a customer focused culture, to test the effectiveness of new marketing and product propositions and to improve retention and operating efficiency.

The Financial Services Authority's (FSA) investigation, which is focused on certain historic issues, is continuing and is expected to take a number of months to complete. At this time, the FSA is continuing to gather and review information and we have not had any discussions with them regarding any potential findings. Therefore, at this stage no provisions have been made for a fine, should one arise, or the costs of the FSA investigation. We expect the costs of the actions we are taking to address the sales and marketing, controls and governance and complaints handling issues in our UK business to remain in line with our previous expectations.

International business developments

We have a profitable International business in which we are continuing to invest for further growth in the future. In the first half of the year we have delivered strong growth in customer and policy numbers in the USA and Spain and a good financial performance in Doméo.

We are continuing to increase the number of International partners with five new affinity partnerships signed in the USA and two in Italy. We are pleased to announce today the proposed acquisition in the USA of Montana Dakota Utilities' Combined Gas & Electrical Contract business (MDU). MDU serves 260,000 households and has 26,000 home services customers with 52,000 policies. This acquisition is expected to complete in March 2013.

In our New Markets segment we are continuing to increase the scale of our operation in Italy with new long-term agreements with the energy utility Enel Energia and with Veritas, a water utility serving the Veneto region. We have also started test marketing in Germany.

Dividend

The Board is proposing an interim dividend of 3.63p per share (HY12: 3.63p).

Board changes

Johnathan Ford was appointed as Chief Financial Officer (CFO) on 27 September 2012. Johnathan was previously the Group Finance Director of NWF Group plc, an AIM listed specialist agricultural and distribution group. Prior to joining NWF in March 2009 he spent four years at HomeServe, firstly as Group Commercial Director and later as Finance Director of the Emergency Services Division.

I would like to welcome Johnathan back to HomeServe and thank David Bower for stepping into the CFO role over the past nine months.

Summary

Our products and services meet clear customer needs and we are confident that our business model continues to deliver long-term value.

The transition to a smaller, more customer focused UK business will take time to complete. The test marketing currently underway will give us greater visibility over the future shape and size of the UK business and in our International operations we have delivered good growth in customer numbers and profit. We expect our results for the full year to be in line with our expectations.

JM Barry Gibson

Chairman

20 November 2012

1. Excluding amortisation of acquisition intangibles and joint venture taxation, see Financial Review and note 3.

2. Excluding amortisation of acquisition intangibles see Financial Review and note 6.

CHIEF EXECUTIVE'S REVIEW

HomeServe remains committed to its vision 'To be the first place people turn to for home emergencies and repairs' and to achieving this through its affinity branded membership business model.

Across all our operations we are:

·; embedding and reinforcing a customer focused culture;

·; focusing our affinity partnerships on utilities, manufacturers of installed appliances and financial services companies;

·; seeking to accelerate new affinity partner signings through the development of new propositions which meet the needs of partners and customers as well as creating value for HomeServe; 

·; improving our cost efficiency by reducing complexity, sharing best practice and investing in new systems and technology.

In the UK, we are making progress in refocusing the business on a smaller, higher quality customer base and at 30 September 2012 customer numbers were 2.5m (HY12: 3.0m) with policy numbers of 6.0m (HY12: 7.5m). In our International businesses, customer numbers are up by 14% to 2.3m and policy numbers 12% higher at 4.6m. Across all our operations, customers total 4.8m (HY12: 5.1m) with 10.6m (HY12: 11.6m) policies.

Globally, income per customer has increased by 8% to £89 (HY12: £82) with adjusted profit before tax1 growing by 9% to £25.6m (HY12: £23.5m).

The table below shows our performance metrics on a global basis as at 30 September 2012.

During the first six months of the financial year, we have continued to invest in the development of our information systems as we aim to improve our operational efficiency. In the first half of the year we have commenced the implementation of a new group-wide financial management system as well as completing work on the UK's network transformation project, which gives customers increased flexibility when booking appointments and improves our ability to monitor the progress of jobs. During the second half of the year we will also be evaluating a number of options for the redevelopment of our core operational systems.

We are making good progress in all our businesses embedding and reinforcing a customer focused culture with increasing customer satisfaction and lower customer complaints. Customer complaints in the first six months of the year have reduced, with the number in the UK down by 42% demonstrating the success of our renewed customer focus.

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

United Kingdom

§ Continue to expect customer numbers to reduce to between 2.2 and 2.4m in FY13

§ Renewed two of our larger water affinity partners on long term agreements

§ Increased customer satisfaction with complaint numbers reduced by 42%

§ Testing the effectiveness of product enhancements and new marketing materials

§ FSA investigation is ongoing

In the UK, revenue reduced by 11% to £134.5m (HY12: £150.9m) reflecting the reduction in customer numbers and related repair income. Adjusted operating profit1 was £26.0m (HY12: £25.8m) with the reduction in revenue being offset by good cost control. The lower costs are a result of a reduced headcount and lower marketing expenditure partially offset by increased governance and control costs. Our customers continue to use our services with over 300,000 jobs completed in the UK during the first half of the year.

Customer numbers at 30 September 2012 were 2.5m, which was in line with our expectations (FY12: 2.7m, HY12: 3.0m). The reduction reflects the low level of new customer acquisition marketing activity in the first half of the current financial year. Retention was in line with our expectations. Our target for customer numbers of between 2.2m and 2.4m at 31 March 2013 remains unchanged.

Gross new policy sales in the first half of the financial year were 67,000 (HY12: 0.6m), reflecting the limited marketing activity in the first half of the year as we focused on the development of new marketing test materials and product enhancements and the restructuring of our call centre operations. Total policies at the end of September 2012 were 6.0m, a 19% reduction on the prior year (HY12: 7.5m), similar to the reduction in customer numbers.

Income per customer increased by 14% to £105 (HY12: £92) reflecting the benefit from price rises in September 2011, as well as the reduction in the number of customers on highly discounted first year policies. 

The policy retention rate in the first half of the year was 78% (HY12: 82%). We expect this to increase in the second half of the year as there is a significant reduction in the number of first year policies, which have a lower retention rate, and a number of ongoing retention initiatives.

Our affinity partners continue to remain supportive of our plans and actions and we are pleased to confirm that two of our larger water utilities have signed new long-term agreements. The majority of our UK utility partnerships are now not due for renewal until 2014 or beyond.

During the first half of the year we have significantly restructured our call centre and customer administration operations, with around 400 less roles as a result of the reduction in customer numbers and our decision, in the UK, to stop acquiring new customers through the outbound telephony channel. Our new customer acquisition marketing activity is now focused on the direct mail, inbound telephony and online channels with outbound telephony focusing on cross sell activity. During the first half of the year our telephony activity has slowly gained momentum as our call centre agents completed their training programmes and became more familiar with the new scripts and procedures. During the past six months the majority of our policy sales have been via the mail or inbound telephony channels. We are also looking at opportunities to enhance our internet and digital channels.

We are currently testing a number of new marketing designs and product enhancements including increased affinity partner branding on mailings, lower discounts and alternative pricing structures together with an enhanced plumbing and drainage product which, as part of the current test, includes cover for non-emergency items such as dripping taps and leaking overflows. The effectiveness of our marketing campaigns and our retention rate are the key drivers that will determine the future shape and size of the UK business.

In November 2011 we commenced a number of business improvement initiatives, which were consistent with the feedback received from our Supervisory team at the Financial Services Authority (FSA). These initiatives focus on our sales and marketing, controls and governance and complaints handling issues. We are making good progress in implementing these initiatives. The FSA's investigation is continuing and is expected to take a number of months to complete.

Our revised sales and marketing processes, including new product terms and conditions, together with the introduction of our customer charter and a new customer complaint handling process have all contributed to increasing customer satisfaction levels.

We have made many improvements to our controls and governance within the UK business over the past year. These included strengthening the HomeServe Membership Limited Board with the appointment of David Bennett as Non-Executive Chairman and the appointment of a new Marketing Director who has significant experience in affinity partner and internet marketing in the UK financial services sector.

We have revised our employment and remuneration terms and conditions across the business. Our call centre agent incentive schemes are now increasingly linked to the quality of a sales call, further aligning them with our customer focused culture.

We are also making progress in completing our customer re-contact exercises and have made good progress in reviewing the complaints that were received during winter 2010 when our procedures may not always have operated correctly. We have also completed a pilot exercise for those customers who may have suffered detriment as a result of the way in which they were sold their policy and, having reviewed the results, are finalising the process that will be rolled out in 2013.

Jonathan King and his management team are making progress in transitioning the UK to a smaller more customer focused business, but as we have said before, this transition will take time to complete.

United States of America

§ Customers up 20% and policy numbers up 25%

§ Acquiring Montana Dakota Utilities' Combined Gas & Electrical Contract business

§ Five new affinity partners with over 400,000 marketable households

§ More than doubled the number of marketing mailings, with continued good take-ups

Revenue in the USA was £39.3m (HY12: £30.2m), 30% higher than a year ago, principally due to the strong growth in customer and policy numbers over the past 12 months.

The USA reported an adjusted operating loss1 of £2.0m (HY12: loss of £0.8m). This result includes a doubling of marketing expenditure in the first half of the year, as well as the usual seasonality of the business. The increased marketing investment has enabled us to accelerate the rate of growth in the USA customer number.

Retention in the USA remains high at 79% (HY12: 80%) despite significant growth in 'own brand' policies which typically have a lower retention rate than utility branded policies and high levels of year one customers. Retention remains highest, at 89%, for those policies paid via a customer's utility bill and we therefore continue to look for opportunities to convert other partners onto this billing arrangement.

We are making progress in developing our cross-selling activity in the USA with the average number of policies per customer at 1.62. Income per customer has increased by 12% to $114 principally as a result of the mix of policies held.

We have continued to make progress in increasing our affinity partner households in the USA and are pleased to announce today the acquisition of Montana Dakota Utilities' Combined Gas & Electrical Contract business (MDU).

HomeServe USA is acquiring the home assistance policies of MDU, a gas and electric utility serving 260,000 households in the states of North and South Dakota, Montana and Wyoming. MDU has 52,000 home assistance policies providing protection for a property's primary heating appliance and water heater across 26,000 customers. These policies will transfer to HomeServe on completion, which is expected in March 2013. As part of the acquisition, HomeServe USA has also entered into a long term marketing agreement with MDU.

In addition to the partnership announced in July with Alameda County Water District, a municipal water utility, which serves 80,000 households in California, we are also announcing today that we have signed three new affinity partner agreements. These agreements are with City of Pensacola, a gas utility in Florida serving 50,000 households; West Bay Sanitary District, a water utility serving 17,000 households in California; and Bethpage, our first municipal water partner in New York with 9,000 households.

We are now licensed to operate in all 50 USA States and have significantly increased our 'own brand' marketing in the first half of this year, through increased activity within existing States as well as mailing into new regions. 

Direct mail continues to be our primary sales channel in the USA and over the past six months we have more than doubled the number of mailings compared to the same period last year. Despite the significant growth in our direct marketing activity, response rates and payback periods have continued to be attractive and in line with our expectations. 

There remain significant opportunities for growth in the USA and Canada and we are therefore continuing to evaluate opportunities to increase marketing further in the second half of the year, subject to it meeting our usual payback criteria. We are not only investing in increased marketing but also in additional resources and infrastructure to accelerate our growth. Over the past six months, we have further increased the size of our business development team and strengthened our senior management team with a number of new positions. In parallel with this investment, we are focusing on maintaining and improving our efficiency and have, for example, outsourced the processing of postal policy applications to a third party specialist.

We continue to fix our customers' emergencies through our 136 directly employed technicians in the New York and Massachusetts territories and our network of over 550 high quality sub-contractors. In the first half of FY13 we completed 7% more repair jobs than in the same period last year.

Doméo

§ Good financial performance with adjusted operating profit1 of £5.6m

§ Retention remains high at 87%

§ Increased focus and resource allocated to new partner development

Doméo revenue was £26.6m (HY12: £12.5m), with the increase principally reflecting full ownership of the business (49% in the prior period) as well as an 8% increase in income per customer (on a local currency basis), partially offset by a weaker exchange rate. The growth in revenue, together with good cost control and lower marketing activity than in prior periods, has resulted in an adjusted operating profit1 of £5.6m (HY12: £1.3m). 

In the first half of the year, we have undertaken less marketing activity than in previous periods as well as rotating the type of campaigns undertaken. Our marketing and retention activity has resulted in 0.9m customers at 30 September 2012 (HY12: 0.9m) with 2.3m policies (HY12: 2.3m). During the second half of the year we are planning to increase our marketing activity with plans for a number of product enhancements and new marketing materials currently being developed.

The retention rate in Doméo has remained high at 87% (HY12: 88%). This high rate reflects the proportion of customers using a continuous payment method to buy their policy, a consistently high level of customer satisfaction and a low level of customer complaints.

We continue to develop our existing partnership with Veolia with an increasing number of their call centres now transferring potential sales calls to our own sales teams. We are also looking at opportunities for our two French businesses, Doméo and SFG, to work more closely together.

One of the benefits of acquiring 100% control of Doméo in December 2011 was the opportunity to broaden our range of affinity partners in France. Over the past six months we have reorganised the business to increase the focus and resource allocated to new partner development, and have started early stage discussions with a number of utilities. 

In France, customers' repairs are completed by our network of sub-contract engineers who completed 12% more jobs in the first half of the current financial year compared to the prior period.

Spain

§ Customers up 42% and policy numbers up 36%

§ Adjusted operating loss1 reduced to £0.1m (HY12: £1.0m)

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

In Spain, the reduced adjusted operating loss1 of £0.1m (HY12: £1.0m) reflects the growth in membership revenue and the improved operating efficiency of our claims handling operation. On a local currency basis, membership revenue increased from €3.2m to €4.7m, reflecting the strong growth in customer and policy numbers, whilst claims handling revenue reduced by €0.5m to €27.5m as a result of a reduction in the average claim value. Reported revenue reduced by 6% to £25.8m (HY12: £27.5m) as a result of a weaker exchange rate.

We continue to achieve strong growth, with customer numbers increasing by 42% to 0.28m (HY12: 0.20m) and policy numbers up 36% to 0.36m (HY12: 0.26m). We have seen good growth in sales of water supply pipe, electrics and our 'Club' products during the period.

Telephony channels continue to be a good source of new business in Spain. We have seen strong growth in sales via our outsourced outbound telephony operation as well as a growing proportion of sales being generated via calls from both the Endesa and Agbar call centres. In the second half of the year we are planning to increase our marketing activity with both Endesa and Agbar as we look to continue to increase customer and policy numbers.

Our claims handling business in Spain continues to perform well with growth in the number of claims managed. In Spain, our network of 1,450 sub-contract and Reparalia franchised engineers have completed over 200,000 repairs over the past six months, a 5% increase compared to the same period last year.

New Markets

§ New long term agreement with Enel Energia enabling us to market to 3.5m households

§ Started test marketing in Germany

Our New Markets segment includes our developing businesses in Italy and Germany and SFG in France. These businesses reported revenue of £4.6m (HY12: £6.0m) and an adjusted operating loss1 of £2.4m (HY12: £1.0m). The higher operating loss reflects the increased investment in Italy and Germany and a lower contribution from retail warranties as we continue to invest in our point of sale and manufacturer warranty operation in SFG. The results for the prior period also included £0.9m of revenue and a £0.2m adjusted operating profit1 from our Belgian businesses which were sold in March 2012.

In Italy we have now signed a long-term agreement with the energy utility Enel Energia, enabling us to market to 3.5m households. As part of the agreement we are also able to bill the customer on their utility bill which we know from our experience in the USA provides the best results in terms of renewal and retention rates. We have also recently signed an affinity partnership with Veritas, a water utility serving over 200,000 marketable households in the Veneto region of Italy.

In Germany we have started our test marketing with BS Energy and are also discussing potential affinity partnerships with a number of other utilities.

In SFG, we continue to develop our post point of sale and manufacturer warranty operation.

Summary and outlook

In the first half of the year we have made progress in making improvements to our UK business, and have continued to grow our International businesses. 

In the UK the transition to a smaller, more customer focused business will take time to complete and the effectiveness of our marketing campaigns and our retention rate are the key drivers that will determine the future shape and size of the business. 

In our International business we are planning for continued growth in affinity partners, customers and profit.

We expect our results for the full year to be in line with our expectations.

Richard Harpin

Chief Executive

20 November 2012

1. Excluding amortisation of acquisition intangibles and joint venture taxation, see Financial Review and note 3.

2. Excluding amortisation of acquisition intangibles see Financial Review and note 6.

FINANCIAL REVIEW

These financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) and the accounting policies used are consistent with those at 31 March 2012.

Segmental Results

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

Group revenue has increased by 8% to £229.6m (HY12: £213.1m), and adjusted operating profit1 by 12% to £27.1m (HY12: £24.3m) in the first half of the financial year. The increase in both revenue and profit is principally due to growth in our International businesses.

The Group adjusted operating margin (adjusted operating profit/(loss)1 divided by revenue) has remained broadly stable at 11.8% (HY12: 11.4%), with increased margins in the UK and Doméo being offset by increased investment in our USA and New Market businesses.

UK

Our UK business reported revenue of £134.5m (HY12: £150.9m) which can be analysed as 'net income' (income per customer multiplied by the number of customers) of £101m (HY12: £110m), with the remaining income of £34m (HY12: £41m), representing £28m of repair network revenue (HY12: £34m) and other income of £6m (HY12: £7m). 

UK operating costs have reduced by £17m in the first half of the year with the increased costs of governance and controls being more than offset by lower marketing expenditure and lower staff numbers.

Adjusted operating profit1 was £26.0m, in line with the prior period (HY12: £25.8m). In the second half of the year, we will be increasing our test marketing activity and this, together with the expected reduction in customer numbers, will result in the UK operating profit for the full year being lower than in FY12.

International

In our International businesses, revenue in the USA has increased as a result of the strong growth in customer numbers and Doméo's results reflect full ownership of the business and a strong

retention performance. Reported revenue in our European businesses has been impacted by a weaker euro exchange rate as shown in the table below.

Doméo's adjusted operating profit1 was £5.6m (HY12: £1.3m) as a result of increased revenue, lower marketing expenditure and good cost control, partially offset by the effect of a weaker exchange rate. The adjusted operating loss1 in Spain has reduced to £0.1m (HY12: £1.0m) as a result of the strong growth in the membership business and improved efficiency in our claims handling operation. Adjusted operating losses1 in the USA and New Markets segments are higher than in the prior period as a result of increased marketing and continued investment in people and infrastructure. New Markets' HY12 result also included £0.9m of revenue and £0.2m of operating profit1 from our former Belgian businesses, which were sold in March 2012.

Foreign exchange impact

The impact of changes in the € and $ exchange rates for the relevant periods has resulted in the reported revenue and adjusted operating profit1 of our International businesses reducing by £4.7m and £0.3m respectively. The impact of the foreign exchange rate movements on the individual businesses is summarised in the table below.

Cash flow and financing

Our business model continues to be cash generative. Cash generated by operations in the first six months of FY13 amounted to £42.7m (HY12: £21.1m).

The working capital inflow principally reflects the reduction in the size of the UK business, partially offset by the growth in our International businesses and £6.3m of expenditure related to addressing the UK issues.

During the first six months of the financial year, we incurred capital expenditure of £19.1m (HY12: £5.8m). Capital expenditure in respect of the development of information systems included commencing the implementation of a new group-wide financial management system as well as completing work on the network transformation project in the UK. Capital expenditure also includes payments made to affinity partners for the long term provision of exclusive database access and branding rights. In the second half of the year we expect capital expenditure to remain higher than in previous periods as we continue the implementation of our group-wide finance system and re-engineer processes in our UK business. We will also be evaluating a number of options for the redevelopment of our core operational systems in future periods.

Free cashflow in the first half of the year was £10.3m. This is higher than the £2.3m achieved in HY12 due to the working capital decrease, lower taxation and interest payments partially offset by the higher capital expenditure noted above.

At 31 March 2012, we had a balance sheet provision of £21.0m in respect of expenditure relating to addressing the issues in the UK, including the estimated cost of re-contacting and, if appropriate, compensating customers who may have suffered any detriment as a result of the way in which complaints had been handled or their policy purchased. During the period, expenditure of £6.3m has been incurred in respect of addressing the UK issues, resulting in a provision of £14.7m at 30 September 2012.

Net debt at 30 September 2012 was £78.1m (HY12: £36.6m), an increase of £41.5m over the 12 month period principally due to the £82m spent acquiring full control of our French subsidiary Doméo in December 2011, offset by continued strong free cash flow. Net debt increased from £66.0m at 31 March 2012 principally as a result of the payment of the FY12 final dividend in August.

Group statutory results

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

Statutory operating profit, after the amortisation of acquisition intangibles and tax on joint ventures (in the prior period) was £20.6m (HY12: £19.0m). Statutory profit before tax includes the amortisation of acquisition intangibles of £6.5m (HY12: £4.9m) which principally relates to customer and other contracts held by the acquired entities at the date of acquisition. The increase in the amortisation of acquisition intangibles reflects the acquisition of the 51% shareholding in Doméo in December 2011. Statutory profit before tax was up £0.9m to £19.1m (HY12: £18.2m) as a result of higher operating profit and no joint venture tax charge, partially offset by higher finance and amortisation charges.

There are no exceptional costs in the period, with the cost of the actions to address the issues in our UK business remaining in line with our previous provision. As stated in our 2012 preliminary results announcement there remains no certainty as to the nature or extent of any actions that the Financial Services Authority (FSA) may seek to take once their investigation is concluded. At this time the FSA is continuing to gather and review information and we have not had any discussions with them regarding any potential findings. Therefore at this stage no provisions have been made for a fine, should one arise, or the costs of the FSA investigation.

Earnings per share

Adjusted earnings per share2 for the period increased by 7% from 5.2p to 5.6p. The increase in adjusted earnings per share is lower than the 9% increase in adjusted profit before tax1 reflecting a higher tax rate and an increase in the average number of shares in issue from 322m to 324m.

On a statutory basis, earnings per share was 4.2p (HY12: 4.2p).

Finance costs

The Group's net finance costs in the first six months of the financial year were £1.5m (HY12: £0.8m), £0.7m higher than in the same period last year. The increased charge reflects the higher level of debt during the period following the acquisition of full control of Doméo in December 2011.

Taxation

The tax charge in the first half of the financial year was £5.4m (HY12: £4.7m).

The effective tax rate was 28.5% which is comparable to the 28.4% underlying joint venture adjusted tax rate reported for FY12.

We continue to expect the tax rate to increase in future years as our overseas businesses, which are based in countries which have a higher tax rate than the UK, represent a higher proportion of our earnings.

The effective rate in the first half of the year represents the estimated tax rate for the full year.

Dividend

The interim dividend of 3.63p per share (HY12: 3.63p) will be paid on 3 January 2013 to shareholders on the register on 7 December 2012.

Acquisitions

Acquisition spend during the period totalled £0.8m (HY12: £3.0m) the majority of which reflects a small acquisition to support the continued development of our directly employed network of plumbers in UK.

The acquisition of Montana Dakota Utilities' (MDU) Combined Gas & Electrical Contract business in the USA is expected to complete in March 2013.

Statutory and pro-forma reconciliations

The Group continues to believe that adjusted operating profit1 and adjusted profit before tax1, which exclude the amortisation of acquisition intangibles and tax on joint ventures (in prior periods), are important performance indicators for monitoring the business.

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

Principal risks and uncertainties

The principal risks and uncertainties, together with the mitigating activities, detailed on pages 34 - 39 of the Group's 2012 Annual Report and Financial Statements, continue to have the potential to impact the Group's performance and are as follows:

·; The financial cost of customer re-contact exercises

·; The potential loss of a commercial relationship

·; Ability to implement an updated strategy successfully within the UK business

·; The impact of competition

·; A change in customer loyalty and retention

·; Our marketing effectiveness

·; Exposure to legislation or regulatory requirements

·; Availability of underwriters

·; The quality of customer service

·; Recruitment and retention of skilled personnel

·; Exposure to country and regional risks

·; Financial and treasury risks including credit risk.

Our marketing effectiveness is a key area of focus in our UK business in the second half of FY13 as we complete our current test marketing activity. The success of these tests, together with our ability to stabilise or increase our customer loyalty and policy retention rate, will determine the number of UK customers and policies which are key drivers of the UK financial performance.

The FSA's investigation is ongoing and therefore as stated in our 2012 preliminary results announcement there remains no certainty as to the nature or extent of any actions that they may seek to take once their investigation is concluded. At this time the FSA is continuing to gather and review information and we have not had any discussions with them regarding any potential findings. Therefore at this stage no provisions have been made for a fine, should one arise, or the costs of the FSA investigation.

Information on financial risk management is also set out on pages 147-148 of the Annual Report, a copy of which is available on the Group's website www.HomeServeplc.com.

Going concern and asset impairment

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

The Directors have reviewed the Group's forecasts and cash flows, including reviewing a number of scenarios in connection with the future financial performance of the UK business, and have concluded that they have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

In addition, the Directors have considered the issues facing the UK business at this time in relation to the carrying value of goodwill and other assets and have concluded that there is no impairment of these assets.

Johnathan Ford

Chief Financial Officer

20 November 2012

1. Excluding amortisation of acquisition intangibles and joint venture taxation, see Financial Review and note 3.

2. Excluding amortisation of acquisition intangibles see Financial Review and note 6.

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 "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).

By order of the Board

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE

INCOME

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011

FOR THE YEAR ENDED 31 MARCH 2012

CONDENSED CONSOLIDATED BALANCE SHEET

30 SEPTEMBER 2012

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

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 2012 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 2012 are unaudited, but have been reviewed by the auditors and their report to the Company is set out on page 29.

This condensed set of financial statements was approved by the Board of Directors on 20 November 2012.

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 Standards (IAS) 34 "Interim Financial Reporting" as adopted by The European Union. The Group's annual financial statements are prepared in accordance with International Financial Reporting Standards as 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.

3. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker, who is considered to be the Chief Executive, to allocate resources to the segments and to assess their performance. Performance is reviewed individually for all established businesses, and all other new operations are reviewed collectively as 'New Markets'.

There has been no change in the basis of segmentation or in the basis of measurement of segment profit or loss in the period. The sale and renewal of policies across our business are more heavily weighted towards the second half of our financial year.

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012 (UNAUDITED)

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2011 (UNAUDITED)

FOR THE YEAR ENDED 31 MARCH (AUDITED)

4. TAX

The overall tax rate for the six months ended 30 September 2012 is 28.5% (Six months ended 30 September 2011: 25.5%; year ended 31 March 2012: 17.2%).

5. DIVIDENDS

The proposed interim dividend of 3.63p per share amounting to £11.8m was approved by the Board on 20 November 2012 and has not been recorded as a liability at 30 September 2012. The dividend will be payable on 3 January 2013 to shareholders on the register at the close of business on 7 December 2012. The ex dividend date is 5 December 2012.

6. EARNINGS PER SHARE

Basic and diluted earnings per ordinary share have been calculated in accordance with IAS 33 'Earnings Per Share'. Basic earnings per share are calculated by dividing the profit or loss for the financial period by the weighted average number of ordinary shares in issue during the period. Adjusted earnings per share are calculated excluding amortisation of acquisition intangibles. This is considered to be a better indicator of the performance of the Group. As profit for the period and adjusted profit for the period are stated after tax, it is not considered necessary to include in the reconciliation below the impact of the adjustment for the tax charge on joint ventures of £nil (six months ended 30 September 2011: £0.4m, year ended 31 March 2012: £1.4m). Diluted earnings per share include the impact of dilutive share options in issue throughout the period.

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

7. ANALYSIS OF NET DEBT

8. PROVISIONS AND CONTINGENT LIABILITIES

Provisions

The above provision represents management's best estimate of the Group's liability in relation to addressing the issues identified in our UK business during FY12. Progress in addressing these issues is reported in the Chairman's statement, Chief Executive's review and Financial review. The provision is expected to be utilised within the next 12 months and is comprised of one-off costs relating to re-organisation, redundancy, additional third party support, re-contacting of customers and compensation. The assumptions used relating to the number of customers, level of compensation, response rate and upheld rate require the use of judgement and estimation.

During the period payments of £6.3m were made, principally relating to the Ofcom fine, redundancy payments and third party adviser costs.