26th Nov 2007 07:01
Homeserve Plc26 November 2007 HOMESERVE PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 Highlights of the period Continuing operations 2007 2006 Increase/ (decrease)Revenue £247.5m £206.0m 20%Operating profit * £21.6m £17.3m 25%Profit before tax * £19.4m £16.2m 20%Profit before tax £12.9m £13.3m (3%)Earnings per share ** 22.4p 18.0p 25%Earnings per share 14.8p 14.7p 1% Financial highlights • Operating profit* increased by 25% to £21.6m• Profit before tax* increased by 20% to £19.4m• Earnings per share** increased by 25% to 22.4p• Interim dividend increased by 25% to 9.4p per share• Profit before tax, including the amortisation of acquisition intangibles and exceptional costs relating to the aborted acquisition of Domestic & General Group plc has decreased by 3% to £12.9m Operational highlights • UK utility branded gross new policy sales of 587,000 (2006: 575,000)• Two new partners in the US and extension of our agreement with FirstEnergy adds 1.8m households in the period• European development progressing well with over 1m policies in France and the acquisition of Reparalia in Spain• Continued development and integration of trades within Emergency Services - progressing the integrated solution to household insurers * Excluding amortisation of acquisition intangibles, joint venture taxation and£2.2m of exceptional operating costs relating to the aborted acquisition ofDomestic & General Group plc, see income statement and notes 3 & 4. ** Excluding amortisation of acquisition intangibles and £2.2m of exceptionaloperating costs relating to the aborted acquisition of Domestic & General Groupplc, see income statement and notes 4 & 6. Brian Whitty, Chairman, commented; "I am delighted to announce another excellent set of results for Homeserve. We have achieved a 25% increase in operating profit* and continued growth in ourUK policy business and Emergency Services network. We are committed tobroadening our UK customer base through product innovation and new routes tomarket. We are making good progress internationally with two new water company partnersin the US and our acquisition of a Spanish network in August significantlyexpands our European presence. Homeserve's proven policy membership business and established relationships withhousehold insurers continue to deliver strong recurring revenues and thereforegood visibility of future profits." 26 November 2007 Enquiries:Homeserve plc Brian Whitty, Executive Chairman Tel: 01922 427900Richard Harpin, Chief Executive Tel: 01922 659701Jonathan Simpson-Dent, Chief Financial Officer Tel: 01922 427903 Tulchan GroupAndrew Honnor Tel: 020 7353 4200Stephen Malthouse CHAIRMAN'S STATEMENT INTRODUCTION We are pleased to report another strong set of results, continuing our trackrecord of delivering operating profit growth across our businesses, combinedwith an increase in the number of new policies sold in the UK and overseas, andcontinued expansion of our Emergency Services network. We have made progress towards our main strategic goals by increasing the numberof US households covered by marketing agreements, expanding our Europeanoperations into the Spanish market and building the 'hub' solution for householdinsurers in the UK. HEADLINE RESULTS In the six months ended September 2007 revenue increased by 20% to £247.5m(September 2006: £206.0m). Operating profit* increased by 25% to £21.6m(September 2006: £17.3m). These results include revenue of £11.6m and operatingprofit* of £1.1m from acquisitions completed in the last year. Profit beforetax* has increased by 20% to £19.4m (September 2006: £16.2m). After deductingthe amortisation of acquisition intangibles, exceptional operating costs and thetax arising on our joint venture in France, profit before tax is £12.9m(September 2006: £13.3m). Earnings per share** increased by 25% to 22.4p (September 2006: 18.0p), whilebasic earnings per share increased to 14.8p from 14.7p. The Board has approved an interim dividend to be paid on 3 January 2008 of 9.4p(September 2006: 7.5p), an increase of 25%, providing an interim dividendpayment of £5.9m (September 2006: £4.7m). PROSPECTS Homeserve has made good progress in the first half of 2007, providing a solidfoundation as we move into our busiest period for marketing activity andemergency repairs. We expect our Policy Membership businesses to continue to progress in the secondhalf, with new product and partner offerings being further developed. We expectto see further growth in the number of policies, both in the UK and overseas,particularly in the US as we commence marketing activity with our new partners. Our Emergency Services business in the UK is continuing to develop its networkand realise the scale and efficiency benefits that such a proposition offers.In particular, the continued harmonisation and integration of the businesses,supported by leading edge technology solutions, provides an excellentopportunity for the development of long term partnership arrangements withhousehold insurers. Our Policy Membership model, combined with long term relationships with theinsurers continues to generate high levels of recurring revenues and thereforegood visibility of future profits. The financial year continues to develop in line with our expectations, with thefull year outlook remaining unchanged. OPERATING REVIEW POLICY MEMBERSHIP Revenue and operating profit* of the Policy Membership businesses both increasedby 24% to £91.8m and £16.2m respectively with continued policy growth in all ofour Policy Membership businesses. We have increased the first half investmentin developing our international operations by £1.5m to £3.7m, whilst ourWarranties business has improved its contribution by over £1m. We expect thesecond half result from Domeo, our French joint venture, to offset any furtherinvestment this year. The operating profit of the Policy Membership businessesafter the amortisation of acquisition intangibles and the tax on the jointventure in France is £15.9m (September 2006: £12.7m). We now have 7.4m policiesand 3.9m customers on a worldwide basis, an increase of 24% and 15% respectivelyover this time last year. UK Policy Membership Our UK utilities branded policy business has continued to combine strong growthin profits with gross new policy sales of 587,000 (September 2006: 575,000)bringing the total number of policies to 5.9m. Within our Warranty business,the number of manufacturer policies has increased to 199,000 (September 2006:156,000, March 2007: 190,000) with growth across all major accounts. Revenue inour UK Policy Membership business increased by 23% to £89.4m (September 2006:£72.6m). As at 30 September 2007, policy and customer performance metrics of our UKPolicy Membership business were: Sep-07 Mar-07 Sep-06Number of policies (000):- Plumbing & drains and water supply pipe 3,971 3,933 3,496- Electrical 753 766 770- Gas and gas supply pipe 557 560 458- Other, including housebuilder 648 530 482- Manufacturer warranties 199 190 156Total policies 6,128 5,979 5,362Total customers (000) 3,212 3,174 2,980Policies per customer 1.91 1.88 1.80 We continue to increase the number of customers and policies in the UK, withincreases of 8% and 14% respectively compared to last year. In our utilitybranded policy business retention rates remain high at 85% (September 2006: 87%,March 2007: 86%) and policies per customer have increased to 1.95 (September2006: 1.83, March 2007: 1.92). We firmly believe that providing a whole home product range to our customer baseprovides an exciting strategic opportunity. We are developing this propositionthrough the extension of our existing utility products and enhancements to ourwarranty offering. We continue to develop a pipeline of new products. In September we launched ourCombined Policies products, which provide customers with the opportunity tobundle a number of our individual policies into one single transaction.Combined Policies have been developed following consistent customer feedback onthe convenience of a single policy document and payment. Initial responses havebeen positive, with take-up rates and conversion exceeding our expectations. Inaddition, we are launching kitchen appliance cover through both utilities andboiler manufacturers in the coming weeks. We have recently signed agreements with a number of new partners, extending ourwhole home proposition. These include a trial of multi appliance, homeentertainment cover with BT, furniture warranties with Homebase and electricalwarranties for Bennetts Retail. As part of these developments, we are combining our two UK Policy Membershipbusinesses, Homeserve GB and Homeserve Warranties, in order to provide a fullyintegrated approach to our combined UK customer base. The integration is stillin its early stages and we are targeting completion by the end of the year, withthe operational benefits commencing next year. In September we signed a new agreement with Inter Partner Assistance (part ofAXA) whereby they take the full risk on new policy sales and we cease reinsuring49% of the risk through our captive insurer in Guernsey. This agreementsignificantly improves the underwriting terms for all of our UK PolicyMembership businesses, where we anticipate an increase in annualised profits ofapproximately £1.5m, including the benefits of improved working capital. International Policy Membership Our International businesses continue to make good progress. Revenue in thefirst six months, including our share of the joint venture in France, was £5.4m(September 2006: £3.2m) and the operating loss* was £3.6m (September 2006: £2.2mloss). The majority of our increased investment continues to be in the US,where significant developments have been made since March 2007. The totalnumber of international policies has increased to 1.3m (September 2006: 0.6m,March 2007: 1.1m). In the US, we have now extended our marketable household database to 6.7mhouseholds from 4.9m households in March 2007. Our European operations havemade excellent progress with our successful joint venture in France, reachingimportant milestones of 1m policies and 0.5m customers. In August we announced the addition of a further 1.1m available households inthe State of New Jersey, under an extension to our existing marketing agreementwith FirstEnergy. Today we are announcing the signing of two further USpartners, California Water, which is the largest publicly traded water companyin California, and includes the acquisition of 25,000 contracts, and LouisvilleWater, one of the largest municipal water companies in the US, togetherproviding access to 0.7m additional households. These agreements mean that wenow have access to 6.7m households in the US, compared to our UK total of 21.9m. Take up and retention rates remain strong in the US, where overall retentionrates for our policies run at around 79%. "Bill on the bill" policies tend toenjoy better retention rates at around 90%. We now have 291,000 policies in theUS (September 2006: 166,000, March 2007: 263,000). As at 30 September 2007,policy and customer performance metrics were: Sep-07 Mar-07 Sep-06Number of policies (000):- Plumbing & drains and water supply pipe 219 202 162- Electrical and other 72 61 4Total policies 291 263 166Total customers (000) 228 214 133Policies per customer 1.28 1.23 1.25 Domeo, our joint venture with Veolia in France now has more than 1m policies(September 2006: 480,000, March 2007: 863,000). In addition, retention rateshave remained stable at approximately 88%. The principal products supportingthis growth are Water Supply Pipe and Waterloss cover. As at 30 September 2007,policy and customer performance metrics were: Sep-07 Mar-07 Sep-06Number of policies (000):- Plumbing & drains, and water supply pipe 618 549 442- Electrical and other 397 314 38Total policies 1,015 863 480Total customers (000) 490 433 304Policies per customer 2.07 2.00 1.58 Testing with Endesa, the largest energy company in Spain with 8.5 milliondomestic customers, continues and the scope has been widened to include outboundsales. EMERGENCY SERVICES UK Emergency Services Revenue and operating profit* of these businesses increased by 15% and 26% to£157.7m and £5.3m respectively. The acquisitions of Homeserve Contents ServicesLimited and Anglia (NW) Limited contributed revenue of £6.1m (September 2006:£nil) and operating profit* of £0.8m (September 2006: £nil). Excluding thecontribution from these acquisitions, the organic development of the businessincreased revenues and operating profits* by 10% and 7% respectively. Theoperating profit of these businesses after the amortisation of acquisitionintangibles is £1.5m (September 2006: £1.7m). The summer floods suffered across the UK gave rise to a significant number ofclaims in the Fire & Flood (Chem-Dry) and Property Repair businesses. Weestimate that we received an additional 20,000 claims from these storms. Thisseverely tested our network capacity which responded well with customer servicelevels maintained. Whilst the floods are generating significant drying out and property repairwork, we are experiencing two compensating factors in the market. Firstly, inan effort to manage their call handling capacity limitations during this surgein activity, many household insurers have opted to cash settle smaller claims inother trades. This has been particularly evident in our Glass & Locks andPlumbing & Drains businesses, where lead volumes have reduced. Secondly,excluding the impact of the summer floods, the overall level of claims acrossthe industry has declined, continuing the trend of recent years. Accordingly,and as previously indicated, on balance we do not expect the full year effect ofthe floods to be material. Over the past five years we have built a network of trades that is capable ofdelivering a complete solution to household insurers. Our focus is to achievesustained margin progression through the consolidation and harmonisation ofthese businesses and to leverage the capability that our network offers throughthe development of long term partnerships with household insurers. We continue to improve our operating model and have further developed ourdirectly employed capability, particularly within our buildings businesssupplemented by the acquisition of Anglia. As part of this development, we have disposed of our Servowarm gas business.This was a complex area in which to deliver an economic model for a high qualityservice. This capability will now be provided by a combination of specialistboiler manufacturers and subcontractors. We continue to review the operational structure of the business. This has seenthe closure of a number of sites as part of our on-going progress towardsimproving our efficiency. We are rolling-out our claims management and workflow management systems acrossthe division. The two systems are already live with Liverpool Victoria, ourfirst integrated multi-trade insurer client, and enable the seamless passing ofclaims across our trade network. We have signed 'Heads of Terms' with a leading household insurer for thedevelopment of our second hub partnership demonstrating that our claimsmanagement skills, network of tradesmen and enhanced systems capability providea compelling solution to household insurers to deliver greater efficiency ofclaims handling and completion, reduce costs and improve satisfaction levels. We are also in the final stages of contract negotiation with another householdinsurer for the provision of claims validation and fulfilment services relatingto household contents. International Emergency Services In August we completed the acquisition of Reparalia S.A., which is a leadingprovider of property repair services and emergency claims handling for some ofSpain's fastest growing home insurers. Operating through its network of 3,400contractors, it has a history of strong organic growth with revenues in 2006 of€33m, having been founded just seven years ago. This business significantlyincreases our presence in Spain and provides an established sub-contractornetwork and credible platform from which to replicate our proven utility brandedpolicy membership model. Revenue and operating profit* at Reparalia since acquisition amounts to £4.0mand £0.1m respectively (September 2006: £nil). FINANCIAL REVIEW In the six months ended September 2007 revenue increased by 20% to £247.5m(September 2006: £206.0m). Operating profit* increased by 25% to £21.6m(September 2006: £17.3m) and includes revenue of £11.6m and operating profit* of£1.1m from acquisitions completed in the past year. During the period we incurred £2.2m of one-off incremental costs resulting fromthe aborted acquisition of Domestic & General Group plc, which we have recordedas exceptional operating costs. After deducting these exceptional costs, together with increased interest andamortisation of intangibles arising on the acquisitions completed in the pastyear, profit before tax decreased by 3% to £12.9m (September 2006: £13.3m). The reported tax charge in the period (excluding tax on joint ventures) hasreduced to 28.5% of reported profit before tax (September 2006: 31.2%),principally as a result of the reduction in the UK corporation tax rate from 30%to 28% confirmed in June of this year, which will take effect in April 2008.While this reduction has no impact on the current tax charge in the period,deferred tax balances have been reduced to reflect the revised rate, with aone-off reduction to the Group's deferred tax charge amounting to £0.6m. Earnings per share** increased by 25% to 22.4p (September 2006: 18.0p), whilebasic earnings per share increased to 14.8p from 14.7p. Cash generated from operations was £15.5m (September 2006: £23.0m) following anet increase in working capital required of £11.1m (September 2006: reduction of£1.0m). The increased working capital required principally reflects timingchanges arising from our new underwriting deal with IPA and a general buildwithin Emergency Services due to the surge in activity following the floods,,which are expected to reverse by the year end. Net debt at 30 Septemberamounted to £92.2m (September 2006: £44.5m, March 2007: £27.1m) and principallyreflects the consideration relating to acquisitions completed during the currentand previous periods of £41.6m and the purchase of shares by the EmployeeBenefit Trust to hedge our share scheme obligations of £7.3m. We continue to consider that profit before the amortisation of acquisitionintangibles and tax on our joint venture in France, represents an importantperformance measure for monitoring the business. In addition, in the currentperiod, the exceptional operating costs of £2.2m are excluded in calculatingthese pro-forma managerial measures. The reconciliations between thesestatutory and pro-forma measures are as follows: £million Sep-07 Sep-06Operating profit (statutory) 15.1 14.4Amortisation of acquisition intangibles 4.6 2.9Exceptional operating costs - aborted acquisition 2.2 -Tax on joint ventures (0.3) -Operating profit* 21.6 17.3 Profit before tax (statutory) 12.9 13.3Amortisation of acquisition intangibles 4.6 2.9Exceptional operating costs - aborted acquisition 2.2 -Tax on joint ventures (0.3) -Profit before tax* 19.4 16.2 Earnings per share (statutory) 14.8p 14.7pExceptional operating costs - aborted acquisition 2.4p -Amortisation of acquisition intangibles 5.2p 3.3pEarnings per share** 22.4p 18.0p RELATED PARTY TRANSACTIONS Related party transactions are disclosed in note 11 to the condensed set offinancial statements. There have been no material changes in the related partytransactions described in the last annual report. PRINCIPAL RISKS AND UNCERTAINTIES The Board keeps the risks and uncertainties facing the Group under regularreview and has set out those that the Board considers to have the mostsignificant potential impact below. Financial Risk As part of its ordinary activities, Homeserve is exposed to a number offinancial risks, principally liquidity risk and credit risk. The Group haspolicies and procedures on how these risks will be monitored and managed. Liquidity risk relates to the Group's ability to meet the cash flow requirementsof the operations, while avoiding excessive levels of debt. The Group'sborrowings are principally in the form of short and medium term revolving creditfacilities, which can be drawn down on demand, providing flexible access to debtwhen required. The amount of any committed undrawn facilities is closelymonitored by the Board on a regular basis. Credit risk principally relates to trade receivables from customers. Detailedpolicies and procedures for the assessment of all customers are in placeincluding reviewing credit history and setting appropriate credit limits beforetrading commences. Interest rate risk and foreign exchange rate risk are not considered torepresent significant risks at this time due to the low levels of net debt heldin the business and the absence of significant foreign currency transactions.However, these risks are kept under constant review and policies exist tomitigate them should they increase in significance. Other risks and uncertainties There are a number of other risks and uncertainties that could have a materialimpact on the Group's future performance. Commercial relationships: The Group has close commercial relationships with a number of utility companies,household insurers, household appliance manufacturers and furniture retailers.Many of these are long term contractual relationships; however, the loss ofthese relationships could have a significant effect on the Group's futureprofitability and cash flows. This risk is managed through regular reviews andcontact with the senior management of these customers in order to ensure that werespond to their needs and deliver the service that they expect. Competitor risk: There are a number of other businesses that provide services that are similar tothose of the Group and as such could compete in one or more of our chosenmarkets. In order to address this risk, a regular review of the market and ourposition is undertaken and the activities of the other participants are closelymonitored. The development of innovative products and solutions, addressing theneeds of our customers is seen as paramount to maintaining our competitiveadvantage. Acquisitions: The Group continues to expand through a combination of organic growth andacquisitions. The ability to effectively manage and integrate the acquiredbusinesses represents a particular risk. Prior to making any acquisitionapproach, a detailed assessment of the market and our existing position,together with that of the target, is undertaken. In addition, the ability tointegrate the acquisitions into the existing operation is considered at theoutset. We have a dedicated acquisitions team which involves and coordinatesfunctional managers from our existing businesses and draws on the services ofindependent advisers when necessary. Immediately post acquisition, a fullinternal controls benchmarking assessment is undertaken and the Group's internalcontrol standards are implemented as soon as practicable. The performance ofacquisitions is reported and reviewed by the Board on a monthly basis. CONCLUSION Homeserve has made excellent progress in the first half of 2007 and thefinancial year continues to develop in line with our expectations, with the fullyear outlook remaining unchanged. Brian WhittyExecutive Chairman 26 November 2007 * Excluding amortisation of acquisition intangibles, joint venture taxation and£2.2m of exceptional operating costs relating to the aborted acquisition ofDomestic & General Group plc, see income statement and notes 3 & 4. ** Excluding amortisation of acquisition intangibles and £2.2m of exceptionaloperating costs relating to the aborted acquisition of Domestic & General Groupplc, see income statement and notes 4 & 6. Responsibility statement We confirm that to the best of our knowledge: (a) the condensed set of financial statements has been prepared inaccordance with IAS34; (b) the interim management report includes a fair review of the informationrequired by DTR 4.2.7R (indication of important events during the first sixmonths and description of principal risks and uncertainties for the remainingsix months of the year); and (c) the interim management report includes a fair review of theinformation required by DTR 4.2.8R (disclosure of related party transactions andchanges therein). By order of the Board Brian WhittyJonathan Simpson-Dent 26 November 2007 Homeserve plcCondensed Consolidated Income Statementfor the six months ended 30 September 2007 Six months Six months Year ended ended ended 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000 Note (Unaudited) (Unaudited) (Audited)Continuing Operations Revenue 3 247,526 205,975 477,362Operating costs: Amortisation on acquisition intangibles (4,621) (2,898) (6,451) Exceptional operating costs# 4 (2,154) - - Other operating costs (224,944) (188,416) (407,822)Operating costs (231,719) (191,314) (414,273)Share of results of joint ventures (637) (268) 555Other operating expensesShare of results in joint ventures Operating profit 15,170 14,393 63,644 Investment income 551 576 1,030Finance costs (2,788) (1,660) (3,596) Profit before tax, amortisation of acquisition 19,383 16,207 67,683intangibles, exceptional operating costs# and tax onjoint ventures Tax on joint ventures 5 325 - (154)Exceptional operating costs# 4 (2,154) - -Amortisation of acquisition intangibles (4,621) (2,898) (6,451) Profit before tax 12,933 13,309 61,078 Tax 5 (3,692) (4,156) (19,118) Profit for the period, being attributable to equity 9,241 9,153 41,960holders of the parent Dividends per share 7 9.4p 7.5p 25.0p Earnings per share 6 Basic 14.8p 14.7p 67.3p Diluted 14.2p 14.2p 64.8p # relates to exceptional operating costs relating to the aborted acquisition ofDomestic & General Group plc, see note 4 Condensed Consolidated Statement of Recognised Income and Expensefor the six months ended 30 September 2007 Six months Six months Year ended ended ended 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000 Note (Unaudited) (Unaudited) (Audited) Exchange differences on translation of foreign 9 40 (60) (56)operationsActuarial gains/(losses) on defined benefit pension 551 (186) 654schemeCurrent tax on additional pension contribution - 132 132Deferred tax on items taken directly to equity (607) (46) (32)Net (expense)/income recognised directly in equity (16) (160) 698 Profit for the period 9,241 9,153 41,960 Total recognised income and expense for the period 9 9,225 8,993 42,658attributable to equity holders of the parent Condensed Consolidated Balance Sheet30 September 2007 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000 Note (Unaudited) (Unaudited) (Audited)Non-current assetsGoodwill 224,304 189,263 191,722Other intangible assets 57,085 37,168 42,072Property, plant and equipment 43,125 32,363 38,020Interests in joint ventures 1,110 924 1,747Deferred tax assets - - 211 325,624 259,718 273,772Current assetsInventories 7,926 6,852 7,236Trade and other receivables 160,096 115,296 158,692Cash and cash equivalents 18,729 21,824 14,885 186,751 143,972 180,813 Total assets 512,375 403,690 454,585 Current liabilitiesTrade and other payables (158,922) (126,053) (161,435)Current tax liabilities (7,644) (7,269) (11,523)Obligations under finance leases (20) - -Bank overdrafts and loans (110,816) (66,280) (42,026) (277,402) (199,602) (214,984) Net current liabilities (90,651) (55,630) (34,171) Non-current liabilitiesOther financial liabilities (7,658) (3,542) (8,506)Retirement benefit obligation - (983) (647)Obligations under finance leases (46) - -Deferred tax liabilities (1,512) (2,006) - (9,216) (6,531) (9,153) Total liabilities (286,618) (206,133) (224,137) Net assets 225,757 197,557 230,448 EquityShare capital 8,122 8,108 8,119Share premium account 31,481 30,925 31,379Merger reserve 70,992 70,992 70,992Own shares reserve (30,769) (24,226) (25,047)Share incentive reserve 5,341 2,989 4,727Capital redemption reserve 1,200 1,200 1,200Currency translation reserve 104 60 64Retained earnings 139,286 107,509 139,014Total equity 9 225,757 197,557 230,448 Condensed Consolidated Cash Flow Statementfor the six months ended 30 September 2007 Six months Six months Year ended ended ended 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000 Note (Unaudited) (Unaudited) (Audited)Operating profit 15,170 14,393 63,644Adjustments for:Depreciation of property, plant and equipment 3,110 2,301 5,169Amortisation of acquisition intangibles 4,621 2,898 6,451Amortisation of other intangible assets 913 880 1,738Share based payments expense 2,009 1,541 3,361Share of results of joint ventures 637 268 (555)Loss/(gain) on disposal of property, plant and equipment 44 (300) (308)and software licencesOperating cash flows before movements in working capital 26,504 21,981 79,500 Decrease/(increase) in inventories 1,530 (1,078) (1,363)Decrease/(increase) in receivables 5,269 14,891 (28,453)(Decrease)/increase in payables (17,850) (12,794) 23,957Net movement in working capital (11,051) 1,019 (5,859) Cash generated by operations 15,453 23,000 73,641Income taxes paid (10,130) (7,167) (17,313)Interest paid (2,594) (1,799) (3,790)Net cash from operating activities 2,729 14,034 52,538 Investing activitiesInterest received 551 576 1,030Proceeds on disposal of property, plant and equipment 2,102 553 611Purchases of intangible assets (4,701) (629) (4,519)Purchases of property, plant and equipment (7,211) (4,060) (12,609)Net cash outflow on acquisitions 10 (41,592) (12,406) (30,171)Net cash used in investing activities (50,851) (15,966) (45,658) Financing activitiesDividends paid (11,010) (8,668) (13,367)Repayments of obligations under finance leases (12) - -Purchase of own shares (7,331) (7,558) (8,379)Issue of shares from the employee share option trust 1,427 - -Proceeds on issue of share capital 105 960 1,425Increase in bank overdrafts 68,787 21,941 11,245Net cash from/(used in) financing activities 51,966 6,675 (9,076) Net increase/(decrease) in cash and cash equivalents 3,844 4,743 (2,196)Cash and cash equivalents at beginning of period 14,885 17,081 17,081Cash and cash equivalents at end of period 18,729 21,824 14,885 Notes to the condensed set of financial statements 1. General information The information for the year ended 31 March 2007 does not constitute statutoryaccounts as defined in section 240 of the Companies Act 1985. A copy of thestatutory accounts for that year has been delivered to the Registrar ofCompanies. The auditors' report on those accounts was not qualified and did notcontain statements under Sections 237(2) or 237(3) of the Companies Act 1985.The condensed set of financial statements for 30 September 2007 are unaudited,but have been reviewed by the auditors and their report to the Company is setout below. This condensed set of financial statements were approved by the Board ofDirectors on 26 November 2007. 2. Accounting policies The condensed set of financial statements has been prepared using accountingpolicies consistent with International Financial Reporting Standards (IFRSs) andin accordance with IAS34 'Interim Financial Reporting'. The same accountingpolicies, presentation and methods of computation are followed in the condensedset of financial statements as applied in the Group's latest audited financialstatements. The Group's annual financial statements are prepared in accordancewith IFRSs, adopted by the European Union and therefore comply with Article 4 ofthe EU IAS regulation. Change in accounting policies In the current financial year, the Group will adopt International FinancialReporting Standard 7 'Financial Instruments: Disclosures' (IFRS 7) for the firsttime. As IFRS 7 is a disclosure standard, there is no impact of that change inaccounting policy on the condensed set of interim financial statements. Fulldetails of the change will be disclosed in the annual financial statements forthe year ended 31 March 2008. 3. Segmental analysis For management purposes, the Group is currently organised into two operatingdivisions: Policy Membership and Emergency Services. These divisions are thebasis on which the Group reports its primary segment information. Segment information about these businesses is presented below: Policy Emergency Consolidated Membership Services 2007 2007 2007 £000 £000 £000RevenueTotal revenue 91,753 163,725 255,478Intra-segment sales - (1,983) (1,983) 91,753 161,742 253,495Inter-segment sales (5,969)External sales 247,526Intra-Group sales are charged at prevailingmarket prices.ResultSegment result before joint (note 4) 17,176 5,406 22,582ventures, amortisation ofacquisition intangibles andexceptional operating costsShare of pre tax results of (962) - (962)joint ventures 16,214 5,406 21,620Tax on joint ventures 325 - 325Amortisation of acquisition (614) (4,007) (4,621)intangiblesOperating profit before exceptional operating 15,925 1,399 17,324costs (note 4)Exceptional operating costs (2,154)(note 4)Operating profit 15,170Investment income 551Finance costs (2,788)Profit before tax 12,933Tax (3,692)Profit for the period being attributable to 9,241equity holders of the parent Policy Emergency Consolidated Membership Services 2006 2006 2006 £000 £000 £000Total revenue 73,767 139,116 212,883Intra-segment sales - (1,551) (1,551) 73,767 137,565 211,332Inter-segment sales (5,357)External sales 205,975Intra-Group sales are charged at prevailingmarket prices.ResultSegment result before joint ventures and amortisation of 13,318 4,241 17,559acquisition intangiblesShare of results of joint (268) - (268)ventures 13,050 4,241 17,291Amortisation of acquisition (350) (2,548) (2,898)intangiblesOperating profit 12,700 1,693 14,393Investment income 576Finance costs (1,660)Profit before tax 13,309Tax (4,156)Profit for the period being attributable to 9,153equity holders of the parent 4. Exceptional operating costs The exceptional operating costs of £2,154,000 represent costs relating to theaborted acquisition of Domestic & General Group plc (six months ended 30September 2006: £nil, year ended 31 March 2007: £nil). 5. Taxation The tax charge is based on the expected effective tax rate, calculated on profitbefore tax, amortisation of acquisition intangibles, exceptional operating costsand tax on joint ventures for the full year to 31 March 2008 of 31.0% (sixmonths ended 30 September 2006: 31.0%, year ended 31 March 2007: 31.3%),including deferred tax. The following table provides a reconciliation between the expected effective taxrate of 31.0% and the reported charge at 28.5%. Six months ended 30 September 2007 (Unaudited) £000 Tax rate £000Profit before tax, amortisation of acquisition intangibles, exceptional operating 19,383 31.0% (6,009)costs (note 4) and tax on joint venturesExceptional operating costs (note 4) (2,154) 30.0% 646Amortisation of acquisition intangibles (4,621) 30.0% 1,386 12,608 31.5% (3,977)Tax on joint ventures (325) (4,302)Impact of rate change on deferred tax 610Reported tax charge (3,692) Profit before tax 12,933 28.5% (3,692) 6. 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 in the financial period by the weighted averagenumber of ordinary shares in issue during the period. Adjusted earnings pershare is calculated excluding amortisation of acquisition intangibles andexceptional operating costs (note 4). This is considered to be a betterindicator of the performance of the Group. As profit for the period andadjusted profit for the period are stated after tax, it is not considerednecessary to include in the reconciliation below the impact of the adjustmentfor the tax credit on joint ventures of £325,000 (six months ended 30 September2006: £nil, year ended 31 March 2007: charge of £154,000). Diluted earnings pershare includes the impact of dilutive share options in issue throughout theperiod. Six months ended Six months ended Year ended 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000 (Unaudited) (Unaudited) (Audited) Profit for the period 9,241 9,153 41,960Amortisation of acquisition intangibles 4,621 2,898 6,451Exceptional operating costs (note 4) 2,154 - -Tax impact arising on amortisation acquisition (2,032) (869) (1,875)intangibles and exceptional operating costs (note 4)Adjusted profit for the period 13,984 11,182 46,536 Weighted average number of shares (000's)Basic 62,522 62,259 62,303Dilutive impact of share options 2,485 2,254 2,412Diluted 65,007 64,513 64,715 Adjusted basic 22.4p 18.0p 74.7pAdjusted diluted 21.5p 17.3p 71.9p 7. Dividends per share Six months Six months ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000 (Unaudited) (Unaudited) (Audited)Amounts recognised as distributions to equity holders inthe period: Final dividend for the year ended 31 March 2007 of 17.5p 11,010 8,668 8,668(2006:13.9p) per shareInterim dividend for the year ended 31 March 2007 of 7.5p 4,699per share 13,367 Proposed interim dividend for the year ended 31 March 2008 5,900 4,678of 9.4p (2007: 7.5p) per shareProposed final dividend for the year ended 31 March 2007 10,900of 17.5p per share The proposed interim dividend of 9.4p amounting to £5,900,000 (30 September2006: 7.5p per share amounting to £4,678,000) was approved by the Board on 26November 2007 and has not been included as a liability as at 30 September 2007.The dividend will be payable on 3 January 2008 to shareholders on the registerat the close of business on 7 December 2007. The ex dividend date is 5 December2007. 8. Analysis of total net debt 30 September 30 September 31 March 2007 2006 2007 £000 £000 £000 (Unaudited) (Unaudited) (Audited) Bank overdraft, net of cash at bank and in hand 91,597 30,411 26,654Finance leases 66 - - Loan notes 490 14,045 487 Net debt 92,153 44,456 27,141 9. Reconciliation of movements in equity Share Own Share Capital Currency Share premium Merger shares incentive redemption translation Retained Total capital account reserve reserve reserve reserve reserve earnings Equity £000 £000 £000 £000 £000 £000 £000 £000 £000 At 1 April 2007 8,119 31,379 70,992 (25,047) 4,727 1,200 64 139,014 230,448 Total statement of recognised - - - - - - 40 9,185 9,225income and expenseDividends paid - - - - - - - (11,010) (11,010) Issue of share capital 3 102 - - - - - - 105Purchase of own shares - - - (7,331) - - - - (7,331)Issue of trust shares - - - 1,609 - - - (182) 1,427Share based payments - - - - 2,009 - - - 2,009Share options exercised - - - - (1,395) - - 1,395 -Tax on exercised share options - - - - - - - 884 884At 30 September 2007 8,122 31,481 70,992 (30,769) 5,341 1,200 104 139,286 225,757 10. Acquisitions On 30 April 2007, the Group acquired 100% of the share capital of MultimasterLimited, a leading furniture warranty and service provider. On 21 May 2007, the Group acquired 100% of the share capital of Anglia (NW)Limited, one of the UK's leading home insurance repairers providing propertyrepair services to many of the UK's leading household insurers. On 2 August 2007, the Group acquired 100% of the share capital of ReparaliaS.A., one of Spain's leading providers of property repair services and emergencyclaims handling for some of Spain's fastest growing home insurers. All of these transactions have been accounted for by the purchase method ofaccounting. Total fair value adjustments of £518,000 were made on theacquisition of Multimaster Limited to reflect the fair value of certainreceivables and acquired property. Fair value adjustments of £461,000 were madeon the acquisition of Reparalia to reflect the fair value of certain trade andother receivables. There were no fair value adjustments on the otheracquisitions completed during the period. Subsequent to period end, on 10 October 2007, the Group acquired certain of thetrade and assets of Maintenance Xtra, a provider of plumbing and drainageservices. On 22 November 2007, the Group acquired certain of the trade andassets of Damand, a provider of plumbing and drainage services. On 23 November2007, the Group acquired 25,000 water service policies from California Water andsimultaneously signed a marketing agreement with California Water providingaccess to up to 0.5m households. The provisional fair value of the identifiable assets and liabilities of theacquisitions were: Multimaster Anglia Reparalia Post period end Ltd (NW) Ltd S.A. Total acquisitions £000 £000 £000 £000 £000Net assets acquired:Property, plant and equipment 1,380 1,189 75 2,644 -Intangible assets - - 461 461 -Goodwill - 60 - 60 -Inventories 218 1,833 - 2,051 -Trade and other receivables 1,033 1,126 4,008 6,167 -Cash and cash equivalents 410 1,642 510 2,562 -Trade and other payables (2,708) (2,209) (4,363) (9,280) -Deferred tax liability (308) (2,408) (343) (3,059) (1,793) 25 1,233 348 1,606 (1,793) Intangible assets identified on 720 7,701 6,544 14,965 6,402acquisitionGoodwill 3,976 17,261 11,018 32,255 1,793Total consideration 4,721 26,195 17,910 48,826 6,402 Satisfied by:Cash 4,349 17,599 17,231 39,179 2,034Contingent consideration - 8,314 - 8,314 4,202Directly attributable costs 372 282 679 1,333 166 4,721 26,195 17,910 48,826 6,402 Net cash outflow arising onacquisition:Cash consideration and directly 4,721 17,881 17,910 40,512 2,200attributable costsCash and cash equivalents acquired (410) (1,642) (510) (2,562) - 4,311 16,239 17,400 37,950 2,200 Intangible assets on all of the above acquisitions represent the director'sestimate of the value of the customer relationships at acquisition, the expectedvalue of trade names associated with the businesses or the value of acquiredcustomer policy databases. Goodwill represents future cross sell opportunities,efficiency savings and synergies from these acquisitions. In addition to the net cash outflow arising on acquisition above of £37,950,000,contingent consideration of £1,896,000 was paid relating to the prior yearacquisitions of Recommend Limited (trading as Improveline), Homeserve EmergencyServices Limited (formerly Highway Emergency Services Limited) and FirstEnergy.There were further cash outflows in respect of the purchase of a number ofindividually immaterial acquisitions amounting to £1,746,000 resulting in£1,088,000 of tangible assets, £390,000 of intangible assets and £268,000 ofgoodwill being recognised. If all the acquisitions had been completed on the first day of the financialperiod, Group revenues would have been £257,793,000 and operating profit£15,183,000. The post acquisition operating result from these acquisitions inthe six months ended 30 September 2007 was a profit of £184,000 from MultimasterLimited, a profit of £1,163,000 from Anglia (NW) Limited and a profit of £63,000from Reparalia S.A. The maximum potential contingent consideration payable on the acquisition ofAnglia (NW) Limited, before discounting, is £19,000,000. 11. Related party transactions Transactions between the Company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. Transactions between the Group and its other related parties aredisclosed below. Trading transactions During the year, Group companies entered into the following transactions withrelated parties who are not members of the Group. Provision Purchases of Accounts owed Amounts owed of goods services by related to related parties parties £000 £000 £000 £000 Six months ended 30 September 2007Harpin Limited 1 127 - -Pilot Services (GB) Limited - 23 - -Joint ventures 606 - 1,710 - 607 150 1,710 - Six months ended 30 September 2006Harpin Limited - 52 - -Pilot Services (GB) Limited - 7 - -Joint ventures 76 - 1,114 - 76 59 1,114 - Year ended 31 March 2007Harpin Limited 2 174 - -Pilot Services (GB) Limited - 23 - -Joint ventures 859 - 724 - 861 197 724 - Harpin Limited and Pilot Services (GB) Limited are related parties of the Groupbecause they are controlled by Richard Harpin, a director of Homeserve plc. Provision of services to and the purchase of services from related parties weremade at arms length prices. The amounts outstanding are unsecured and will besettled in cash. No guarantees have been given or received. No provisions havebeen made for doubtful debts in respect of the amounts owed by related parties. 12. Other information This report is being sent to shareholders and further copies will be availablefrom the registered office at Cable Drive, Walsall, WS2 7BN. INDEPENDENT REVIEW REPORT TO HOMESERVE PLC We have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 30September 2007 which comprises the consolidated income statement, theconsolidated statement of recognised income and expense, the consolidatedbalance sheet, the consolidated cash flow statement and related notes 1 to 12.We have read the other information contained in the half-yearly financial reportand considered whether it contains any apparent misstatements or materialinconsistencies with the information in the condensed set of financialstatements. This report is made solely to the company in accordance with InternationalStandard on Review Engagements 2410 issued by the Auditing Practices Board. Ourwork has been undertaken so that we might state to the company those matters weare required to state to them in an independent review report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company, for our review work, for thisreport, or for the conclusions we have formed. Directors' responsibilities The half-yearly financial report is the responsibility of, and has been approvedby, the directors. The directors are responsible for preparing the half-yearlyfinancial report in accordance with the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. As disclosed in note 2, the annual financial statements of the group areprepared in accordance with IFRSs as adopted by the European Union. Thecondensed set of financial statements included in this half-yearly financialreport has been prepared in accordance with International Accounting Standard34, "Interim Financial Reporting" as adopted by the European Union. Our responsibility Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview. Scope of Review We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410, "Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity", issued by the AuditingPractices Board for use in the United Kingdom. A review of interim financialinformation consists of making inquiries, primarily of persons responsible forfinancial and accounting matters, and applying analytical and other reviewprocedures. A review is substantially less in scope than an audit conducted inaccordance with International Standards on Auditing (UK and Ireland) andconsequently does not enable us to obtain assurance that we would become awareof all significant matters that might be identified in an audit. Accordingly,we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the half-yearly financialreport for the six months ended 30 September 2007 is not prepared, in allmaterial respects, in accordance with International Accounting Standard 34 asadopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority. Deloitte & Touche LLPChartered Accountants and Registered Auditor26 November 2007Birmingham, UK FORWARD LOOKING STATEMENTS AND OTHER INFORMATION This interim management report has been prepared solely to provide additionalinformation to shareholders as a body to assess the Company's strategies and thepotential for those strategies to succeed. This report contains certain forwardlooking statements, which have been made in good faith, with respect to thefinancial condition, results of operations, and businesses of Homeserve plc.These statements and forecasts involve risk and uncertainty because they relateto events and depend upon circumstances that will occur in the future. Thereare a number of factors which could cause actual results or developments todiffer materially from those expressed or implied by these forward lookingstatements and forecasts. The statements have been made with reference toforecast price changes, economic conditions, the current regulatory environmentand the current interpretations of IFRS applicable to past, current and futureperiods. Nothing in this announcement should be construed as a profit forecast. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
HSV.L