Financial review

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

Group statutory results

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

£million 2016 2015
Total revenue 633.2 584.2
Operating profit 86.9 79.1
Net finance costs (4.3) (2.4)
Adjusted profit before tax 93.0 85.4
Exceptional items - 1.7
Amortisation of acquisition intangibles (10.4) (10.4)
Statutory profit before tax 82.6 76.7
Tax (21.0) (20.6)
Profit for the year, being attributable to equity holders of the parent 61.6 56.1

Statutory profit before tax was £82.6m, £5.9m higher than FY15 (FY15: £76.7m). Statutory profit before tax is reported after the amortisation of acquisition intangibles and exceptional items as detailed below.

Amortisation of acquisition intangibles

The amortisation of acquisition intangibles of £10.4m (FY15: £10.4m) principally relates to customer and other contracts, held by businesses, which were acquired as part of business combinations.

Exceptional items

In the prior year, exceptional items amounted to a net income of £1.7m, of which £2.9m related to the reimbursement of certain costs by our insurers associated with historical UK matters and £1.7m related to the release of surplus provisions. These were partially offset by the cost of a transaction the Group decided not to pursue.


The tax charge in the financial year was £21.0m (FY15: £20.6m). The adjusted effective tax rate was 25% (FY15: 27%) primarily reflecting changes in tax rates in the UK and Spain. UK corporation tax is calculated at 20% decreasing to 19% in FY18, FY19 and FY20 with a proposed reduction to 17% in FY21. Taxation for other jurisdictions is calculated at the rates prevailing in the respective countries, all of which are higher than the UK rate.

Cash flow and financing

Our business model continues to be highly cash generative with cash generated by operations in FY16 amounting to £121.7m (FY15: £94.6m), representing a cash conversion ratio against adjusted operating profit of 125% (FY15: 108%).

£million 2016 2015
Adjusted operating profit 97.3 87.8
Exceptional items - 1.7
Amortisation of acquisition intangibles (10.4) (10.4)
Operating profit 86.9 79.1
Depreciation and amortisation 35.8 32.0
Non-cash items 5.1 4.4
Decrease in exceptional provision - (7.7)
Increase in working capital (6.1) (13.2)
Cash generated by operations 121.7 94.6
Net interest (3.0) (4.1)
Taxation (17.3) (22.8)
Capital expenditure (63.7) (52.8)
Repayment of finance leases (0.5) (0.3)
Free cash flow 37.2 14.6
Purchase of investment (0.5) (4.8)
Acquisitions (5.3) (1.1)
Equity dividends paid (137.0) (36.9)
Issue of shares 1.8 3.8
Net movement in cash and bank borrowings (103.8) (24.4)
Impact of foreign exchange (0.7) 2.3
Finance leases (0.9) 0.3
Opening net debt (64.1) (42.3)
Closing net debt (169.5) (64.1)

Working capital increased by £6.1m in FY16 reflecting continued growth, particularly in the USA and Spain. As the business grows, we expect further working capital absorption, though we do anticipate the cash conversion ratio to continue to be in excess of 100%. In the prior year, the exceptional provision related to historical UK matters.

During the year we invested capital expenditure of £63.7m (FY15: £52.8m) which was £6.3m lower than planned due to the timing of certain technology investment, which we now expect to incur in FY17. Expenditure during FY16 included payments of £17.9m (FY15: £16.1m) in respect of the acquisition of customers that Endesa and LDE originated, payments to US partners and investment in the replacement of our core customer system, together with normal investment, principally technology related, across the businesses.

We expect to maintain a higher than usual level of capital expenditure for the next two years, as we continue to invest in our core customer system and invest further in digital and technology solutions to make us more efficient and improve our customer service. We also now plan to upgrade our claims handling and contractor deployment technology to improve the claims process for our customers giving them better visibility over the progress of their claim and their engineer. As a result in FY17 we expect total capital expenditure to be around £55m made up of £35m in systems and technology and £20m in respect of partner payments in Spain, France and the USA. Total capital expenditure is expected to decrease to around £30m in FY18 before normalising at £25m from FY19.


The acquisition investment of £5.3m principally related to the purchase of Home Energy Services Limited, a heating services business in the UK (£3.2m), £1.1m deferred consideration in respect of acquisitions completed in prior periods (FY15: £1.1m) and £1.0m paid in relation to the acquisition of a small policy book in the USA.

On 31 March 2016 we agreed to acquire Utility Service Partners Inc. (USP) for a consideration of $75m which will be funded from existing facilities on completion of the transaction, which is anticipated in the first half of FY17, following ordinary course regulatory approvals.

Earnings per share

Adjusted earnings per share for the year increased 15% from 19.0p to 21.8p. The weighted average number of shares decreased from 326.7m to 313.9m due to the impact of the share consolidation. On a statutory basis, earnings per share increased from 17.2p to 19.6p.


Given the Group’s good performance and the Board’s confidence in its future prospects, the Board is proposing to increase the final dividend to 8.9p per share (FY15: 7.87p) to be paid on 1 August 2016 to shareholders on the register on 8 July 2016.

Together with the interim dividend declared in November 2015 of 3.8p (November 2014: 3.63p), this represents a 10% increase in the dividend payment of 12.7p (FY15: 11.5p) which is 1.72x covered by the FY16 adjusted earnings per share compared to 1.65x cover in FY15. As previously indicated, the Board intends to adopt a progressive dividend policy and expects to target a dividend cover in the range 1.75x - 2x over the medium term.

In July 2015, a special dividend of £99.4m was paid to shareholders, which was followed by a share consolidation.

Net debt and finance costs

The Group targets net debt in the range of 1.0-1.5x adjusted EBITDA, measured at 31 March each year. With net debt of £169.5m and adjusted EBITDA of £122.7m the Group was within this range at 1.4x. As previously stated, we will be prepared to see leverage outside that range for reasonable periods of time if circumstances warrant that, and the range itself will be subject to periodic review.

During October 2015 the Group secured £50m medium-term funding in the form of a Private Placement due for repayment in 2022.

The Group’s net interest paid was £3.0m with an interest accrual of £0.9m as at 31 March 2016, which was subsequently paid in April 2016. Cash finance costs in the prior year were £4.1m and included the arrangement fees payable in respect of the Group’s £300m revolving credit facility that was signed in July 2014.

Foreign exchange impact

The impact of changes in the € and $ exchange rates between FY15 and FY16 has resulted in the reported revenue of our international businesses decreasing by £2.9m and adjusted operating profit decreasing by £2.2m.

The impact of foreign exchange rate movements on the individual businesses is summarised in the table below.

  Effect on (£m)
Average exchange rate Revenue Adjusted
operating profit
2016 2015 Change 2016 2016
USA $ 1.51 1.61 -7% 9.5 0.6
France 1.37 1.27 +7% (4.5) (1.4)
Spain 1.37 1.27 +7% (6.7) (1.2)
New Markets 1.37 1.27 +7% (1.2) (0.2)
Total international (2.9) (2.2)

Statutory and pro-forma reconciliations

The Group believes that adjusted EBITDA, adjusted operating profit, adjusted profit before tax and adjusted earnings per share, all of which excludes the amortisation of acquisition intangibles and exceptional items are important performance indicators for monitoring the business.

This report uses a number of adjusted measures to highlight the Group’s results excluding the above amounts. The table below provides a reconciliation between the statutory and adjusted items.

£million 2016 2015
Operating profit (statutory) 86.9 79.1
Depreciation 5.4 4.6
Amortisation 20.0 17.0
Amortisation of acquisition intangibles 10.4 10.4
Exceptional items - (1.7)
Adjusted EBITDA 122.7 109.4
Operating profit (statutory) 86.9 79.1
Amortisation of acquisition intangibles 10.4 10.4
Exceptional items - (1.7)
Adjusted operating profit 97.3 87.8
Profit before tax (statutory) 82.6 76.7
Amortisation of acquisition intangibles 10.4 10.4
Exceptional items - (1.7)
Adjusted profit before tax 93.0 85.4

Pence per share 2016 2015
Earnings per share (statutory) 19.6 17.2
Amortisation of acquisition intangibles 2.2 2.1
Exceptional items - (0.3)
Adjusted earnings per share 21.8 19.0