Financial review

Group statutory results

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

These financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the European Union.

The Group delivered 19% growth in profit before tax to £98.3m, an increase of £15.7m compared to FY16 (FY16: £82.6m). Statutory profit before tax is reported after the amortisation of acquisition intangibles. The individual financial performance of each business is considered in the business review.

Group income statement

£million 2017 2016
Total revenue 785.0 633.2
Operating profit 104.7 86.9
Net finance costs (6.4) (4.3)
Adjusted profit before tax 112.4 93.0
Amortisation of acquisition intangibles (14.1) (10.4)
Statutory profit before tax 98.3 82.6
Tax (23.9) (21.0)
Profit for the year 74.4 61.6
Attributable to:    
Equity holders of the parent 74.4 61.6
Non-controlling interests - -
  74.4 61.6

Amortisation of acquisition intangibles

The amortisation of acquisition intangibles of £14.1m (FY16: £10.4m) relates to customer and other contracts, held by businesses, which were acquired as part of business combinations and has increased this year principally due to the acquisition of USP in July 2016, where £34.8m acquired intangible assets were identified.

Tax strategy

The Group has a tax strategy that was approved by the Board during the year and which reflects our status as a plc, which requires strong governance and consideration of our reputation. Our tax strategy also reflects the regulated nature of our business which requires further compliance with local laws, regulations and guidance. We made the UK elements of our tax strategy document publicly available in April 2017 as required by UK legislation.

Our Group tax strategy covers the following matters: (i) how we maintain ongoing application of tax governance with strong internal controls in order to substantially reduce tax risk to materially acceptable levels; (ii) how we will not engage in artificial transactions the sole purpose of which is to reduce tax; (iii) our strategic aim to maintain the Group’s low UK tax risk rating as determined by the UK Tax Authorities Business Risk Review process; and (iv) to continue to work with all tax authorities in an open, honest and transparent manner.

Tax charge and effective tax rate

The Group’s tax charge in the financial year was £23.9m (FY16: £21.0m). The corporate income tax rates in the overseas countries in which we operate are currently higher than the UK corporate income tax rate of 20% (FY16: 20%), i.e. the US at 40% (FY16: 40%), France at 33% (FY16: 33%), Spain at 25% (FY16: 27%) and Italy at 28% (FY16: 28%). The UK corporation tax rate is 19% in FY18 and expected to remain at this level in FY19 and FY20, with a further reduction to 17% in FY21 onwards. To the extent our profits are more weighted towards our overseas countries we would expect the effective tax rate of 24% (FY16: 25%) to increase in future years.

Cash flow and financing

Our business model continues to be highly cash generative with cash generated by operations in FY17 amounting to £139.9m (FY16: £121.7m), representing a cash conversion ratio against adjusted operating profit of 118% (FY16: 125%).

Working capital increased by £21.1m in FY17 reflecting continued growth in all of our businesses. As the business grows further, we expect additional working capital absorption, though we continue to expect the cash conversion ratio to be in excess of 100%.

Group cash flow

£million 2017 2016
Adjusted operating profit 118.8 97.3
Amortisation of acquisition intangibles (14.1) (10.4)
Operating profit 104.7 86.9
Depreciation and amortisation 49.5 35.8
Non-cash items 6.8 5.1
Increase in working capital (21.1) (6.1)
Cash generated by operations 139.9 121.7
Net interest (6.4) (3.0)
Taxation (20.0) (17.3)
Capital expenditure (58.5) (63.7)
Repayment of finance leases (1.0) (0.5)
Free cash flow 54.0 37.2
Acquisition of associate (24.7) -
Acquisition of available for sale investments - (0.5)
Acquisition of subsidiaries (74.2) (5.3)
Disposal of subsidiary (1.7) -
Equity dividends paid (40.3) (137.0)
Issue of shares 0.9 1.8
Net movement in cash and bank borrowings (86.0) (103.8)
Impact of foreign exchange (6.3) (0.7)
Net debt acquired (0.4) -
Finance leases 0.8 (0.9)
Opening net debt (169.5) (64.1)
Closing net debt (261.4) (169.5)

During the year, we invested capital expenditure of £58.5m (FY16: £63.7m), which was £6.5m lower than planned principally due to the timing of partner payments, which we now expect to incur in FY18. Expenditure during FY17 included partner payments of £14.1m (FY16: £17.9m) in respect of the acquisition of customers that Endesa and Suez originated and payments to certain US partners.

Technology plays an increasingly important role throughout our business. We have continued to invest in the replacement of our core customer system, together with normal investment, principally technology-related, across all the businesses. As we roll out the core customer system in FY18, we are also planning to replace the claims handling and job deployment systems in the UK, improve the claims management systems in Spain and North America, while also investing in the development of our Home Experts platform. We expect these investments will make us more efficient, improve our customer service and will be an ‘enabler’ for our online on demand business. As a result of these investments, together with ongoing partner payments, we expect capital expenditure to be around £70m in FY18. Going forward we expect capital expenditure to normalise at around £35m.

Investment in associates

On 13 December 2016 the Group acquired a 40% stake in Sherrington Mews Limited, the holding company of the Checkatrade Group, for cash consideration of £24.0m. There is further contingent consideration of £4.0m that is payable subject to financial performance conditions being met by the business, the present value of which is £2.7m. There were also legal costs associated with the transaction that were added to the cost of the investment amounting to £0.7m.

On 9 March 2017 the Group disposed of 51% of Assistenza Casa Srl, a wholly owned Group company. The remaining 49% has been accounted for as an associate using the equity method. The Group realised a gain of £0.1m as a result of this transaction.


The Group has incurred a net cash outflow in respect of business combinations of £74.2m in the year.

There were three material acquisitions in the year ended 31 March 2017.

On 1 July 2016 Homeserve USA Corp, a Group company, acquired 100% of the issued share capital and obtained control of Utility Service Partners Inc (USP).

On 1 December 2016 HomeServe Membership Limited, a Group company, purchased npower’s ‘domestic care and maintenance’ contracts business. The acquisition included 76 heating engineers.

On 27 January 2017 HomeServe International Limited, a Group company, acquired 70% of the issued share capital and obtained control of Habitissimo S.L., a specialist online lead generation business operating across Southern Europe and South America.

In addition to the net cash outflow on the acquisitions above of £71.8m, deferred consideration was paid relating to prior period business combinations of £3.1m (FY16: £1.1m) and net cash was acquired as part of an immaterial acquisition in Spain of £0.7m.

Earnings per share

Earnings per share for the year increased from 19.6p to 24.0p, an increase of 22%. On an adjusted basis, earnings per share increased 24% from 21.8p to 27.0p. The weighted average number of shares decreased from 313.9m to 309.9m due to the impact of the share consolidation in the prior year, offset in part by new shares issued in fulfilment of a number of share schemes in the year.


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 11.2p per share (FY16: 8.9p) to be paid on 3 August 2017 to shareholders on the register on 7 July 2017.

Together with the interim dividend declared in November 2016 of 4.1p (November 2015: 3.8p), this represents a 20% increase in the total ordinary dividend payment for the year of 15.3p (FY16: 12.7p), which is 1.76x covered by the FY17 adjusted earnings per share compared to 1.72x cover in FY16. As previously indicated, the Board intends to adopt a progressive dividend policy and targets a dividend cover in the range 1.75x - 2x over the medium-term.

In the prior year, in July 2015, a special dividend of £99.4m was also 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 EBITDA, measured at 31 March each year. With net debt of £261.4m and EBITDA of £154.2m, the Group was outside this range at 1.7x.

As previously stated, we are prepared to see leverage increase for reasonable periods of time if circumstances warrant this. The opportunity to acquire USP in North America in July 2016 together with our other investments, principally relating to the investment in Checkatrade and acquisition of Habitissimo, which we expect to accelerate our Home Experts proposition, represented such circumstances. Absent the M&A activity which took place in the year, we would have been at the lower end of our target range, while the range itself remains subject to periodic review.

During the year, the Group obtained €50m medium-term funding in the form of a term loan due for repayment by instalments through to 2020. In addition, during March 2017, the Group obtained a further £60m medium-term funding in the form of a Private Placement due for repayment in 2024.

The Group’s net interest paid was £6.4m with an interest accrual of £1.1m as at 31 March 2017, of which £0.8m was subsequently paid in April 2017. Cash finance costs in the prior year were £3.0m with an interest accrual of £0.9m as at 31 March 2016.

Foreign exchange impact

HomeServe is well-positioned to meet the challenges of the UK’s exit from the European Union and our growth prospects remain strong. Our businesses each operate in their own territories, buying goods and services from local businesses and supplying local consumers within those territories, almost exclusively in local currencies. Our businesses have also proved resilient to economic turmoil over a number of years.

The depreciation of sterling against the US Dollar and Euro following the UK’s decision to leave the European Union has, however, had a significant impact on our reported results due to the impact of translating the results of our overseas businesses.

Specifically, changes in the US Dollar and Euro exchange rates between FY16 and FY17 have resulted in the reported revenue of our international businesses increasing by £63.3m and adjusted operating profit increasing by £10.3m as summarised in the table below.

In addition, as the Group holds certain of its cash, bank and other loans in foreign currencies, the depreciation of sterling resulted in an increase in the reported net debt of the Group of £0.2m in relation to Euro-denominated net debt, and £6.5m in relation to US Dollar-denominated net debt.

  Effect on (£m)
Average exchange rate Revenue Adjusted
operating profit
2017 2016 Change 2017 2017
North America $ 1.31 1.51 (13%) 32.3 3.6
France 1.19 1.37 (13%) 12.0 3.7
Spain 1.19 1.37 (13%) 16.9 2.2
New Markets 1.19 1.37 (13%) 2.1 0.8
Total international 63.3 10.3