HomeServe plc Interim results for the six months ended 30 September Revenue 404.3m 366.0m +10% Statutory operating profit 24.6m 27.

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1 HomeServe plc Interim results for the six months ended 30 September 2018 Six months ended Six months ended 30 September September 2017 Change¹ Revenue 404.3m 366.0m +10% Statutory operating profit 24.6m 27.5m -11% Statutory profit before tax 19.3m 21.2m -9% Basic earnings per share 4.6p 5.1p -10% EBITDA 60.5m 56.1m +8% Adjusted² operating profit 37.1m 35.3m +5% Adjusted² profit before tax 31.8m 29.0m +10% Adjusted² earnings per share 7.5p 6.8p +10% Ordinary dividend per share 5.2p 4.7p +11% Net debt 291.9m 304.0m -4% Total customers 8.3m 7.8m +5% Strong operational performance and good progress on growth initiatives across the business Adjusted PBT up 10% in the seasonally quieter first half to 31.8m; statutory PBT down 9%, reflecting straight-line amortisation charges linked to prior period acquisitions Improved performance in the UK, with adjusted operating profit up 11% to 10.2m and three new energy partners signed Continued strong growth in North America, with adjusted operating profit up 28% to $18.9m Good progress with business development in France, with a new long-term contract signed with Veolia Adjusted operating profit in Spain up 9% to 9.8m, in line with expectations Excellent progress in Home Experts, with Trades subscribers up 17% to 54k and website visits up 17% to 51.7m, indicating increased consumer engagement Strong financial position: over 200m headroom against total debt facilities at 30 September 2018; additional 174.2m arranged via a US private placement on 25 October 2018 Interim dividend up 11% to 5.2p Richard Harpin, Founder and Group Chief Executive, HomeServe plc, commented: We have delivered a strong first half and remain confident in our growth prospects for the full year. Business performance has been good in all our geographies and we have made progress on strategic initiatives in all four of our global business lines. HomeServe has just celebrated its 25 th anniversary. I am as excited as ever by the opportunities to continue to build our business so that we can help homeowners with every job, in every home. ¹ Percentage movements throughout this announcement are based on full underlying results, not the rounded figures in the tables ²HomeServe uses a number of alternative performance measures (APMs) to assess the performance of the Group and its individual segments. APMs used in this announcement are non-gaap measures which address profitability, leverage and liquidity and together with operational KPIs give an indication of the current health and future prospects of the Group. Definitions of APMs and the rationale for their usage are included in the Glossary at the end of this announcement with a reconciliation, where applicable, back to the equivalent statutory measure. 1

2 Results presentation A presentation for analysts and investors will take place at 10am this morning at UBS, 5 Broadgate, London EC2M 2QS. There will be an audio webcast with a facility to ask questions, available via This is accompanied by a listen-only conference call with details as follows; - United Kingdom Toll-Free PIN: # - United Kingdom Toll PIN: # Enquiries HomeServe Miriam McKay Group Communications and IR Director Miriam.McKay@homeserve.com Simon Lewis Head of Investor Relations Simon.Lewis@homeserve.com Tulchan Group Martin Robinson Lisa Jarrett-Kerr homeserve@tulchangroup.com About HomeServe HomeServe is an international home repairs and improvements business which provides people with access to tradespeople and technology to run their homes more easily. HomeServe is listed on the London Stock Exchange, with a market capitalisation of c. 3.1 billion. 2

3 Performance metrics for the six months ended 30 September Affinity partner households (m) Customer numbers (m) Policy retention rate UK % 80% North America % 82% France % 89% Spain % 78% New Markets Group % 82% Financial performance for the six months ended 30 September Revenue Statutory operating profit/(loss) Adjusted operating profit/(loss) UK North America France Spain New Markets (5.7) (2.7) (3.2) (2.5) Inter-segment (2.7) (2.9) Group Inter-segment revenue principally includes royalty charges between the UK and international businesses. Strategic update In the course of the first half, HomeServe made good progress expanding its four global, recurring revenue business lines - Membership, HVAC, Home Experts and Smart Home. The Membership business under Tom Rusin s leadership is looking to accelerate growing its utility partners, particularly amongst municipalities and energy companies. In HVAC, the Group s buy and build strategy is off to a good start, with acquisitions of small, well-established local installation specialists in France, Spain and the US. In Smart Home, there has been further progress in developing a subscription-based business model for LeakBot, with a test partnership now in place with UK insurer Hiscox and small scale testing under way in the US. In Home Experts, the Checkatrade management team has been strengthened with the arrival of Mike Fairman, previously CEO of giffgaff, in October. Total web visitors to Checkatrade and Habitissimo have increased by 17% to 51.7m, the total number of subscription paying Trades has increased by 17% to 54k and underlying revenue in Checkatrade increased by 30%. Financing and leverage Net debt at 30 September was 291.9m (HY18: 304.0m). Headroom against the Group s total debt facilities was over 200m and leverage of 1.4x was within the Group s target range of 1.0x to 2.0x net debt: EBITDA. After the half year on 25 October 2018, HomeServe arranged an additional 174.2m of funding via a US Private Placement. This expands the Group s existing facilities, locks in a proportion of its interest charge at fixed rates and creates a balanced maturity profile. Dividend The interim dividend of 5.2p per share (HY18: 4.7p), an increase of 11%, will be paid on 7 January 2019 to shareholders on the register on 7 December

4 Change in directors responsibilities In a separate announcement this morning, HomeServe confirmed that Johnathan Ford, Group COO, will step down from the Board and leave the business on 31 December Chris Havemann will step down as a Non-Executive Director at the end of his three year term on 1 December Outlook HomeServe re-iterates its outlook from its Preliminary Results in May HomeServe has good prospects for growth in FY19 with attractive opportunities in all its geographies. 4

5 UK UK results HY19 HY18 Change Revenue Net policy income % Repair network % Membership % Other % Total revenue % Adjusted operating costs (145.5) (133.7) +9% Adjusted operating profit % Adjusted operating margin 7% 6% +1ppt UK Membership KPIs HY19 HY18 Change Affinity partner households m % Customers m % Income per customer % Policies m % Policy retention rate % ppt Financial performance Total revenue increased by 9% to 155.7m, with increases in all income streams. Net policy income increased by 3% to 86.5m due to a 12 increase in income per customer to 109 as customers built their coverage and moved off introductory pricing. Repair revenue increased 11% to 51.7m as a result of an 8% increase in completed jobs and an increased mix of higher value HVAC repairs, as customers continued to use their products more often and to benefit from their increased coverage. Other income was up 41% to 17.5m principally due to a full six months of revenue from Help-Link, an HVAC business acquired in August Adjusted operating costs increased 9% to 145.5m as a result of a full six months of Help-Link as well as the costs associated with higher repair volumes. The cost of HomeServe s directly employed engineer network is carried throughout the quieter first half of the year but becomes increasingly efficient as claims volumes rise over the winter. Adjusted operating profit of 10.2m was 11% higher than HY18 due mostly to the decision taken in March 2018 to reduce headcount as part of an ongoing drive to reduce complexity and introduce further efficiency into the UK operations. Adjusted operating margin of 7% was as expected, due to the seasonality of the business where the majority of profits are earned in the second half of the year. Operational performance Total customers were 2.1m (HY18: 2.2m). The UK customer base has been stable at 2.1m for a number of years and had grown to 2.2m with complementary M&A such as the AA and npower policy books. Small policy books that reside with utilities and other home assistance providers continue to be appraised as further potential inorganic opportunities. HomeServe s UK customers are choosing more cover with the total number of policies increasing 5% to 5.8m. The resultant increase in policies per customer, combined with customers maturing through the introductory pricing journey and renewing on to full priced products, drove income per customer up 13% to 109. Customers choosing HomeServe s products are also using them more, with claims completed by 5

6 HomeServe s network of 1,035 engineers and 249 subcontractors (HY18: 903 and 249 respectively) up 8% on the prior period to 0.5m. The retention rate of 79% (HY18: 80%) was in line with the last year end. The business signed three new affinity partnerships in the energy sector with Green Star Energy, SO Energy and Tonik Energy. All three of these new partners are challenger brands in the retail energy space with a particular focus on providing energy from renewable sources. With consumer awareness and demand growing in this area, the new partnerships offer an interesting opportunity to develop a new channel by marketing HomeServe s products to the partners existing customers and as part of their switching initiatives to attract new customers. Last year s HVAC acquisition, Help-Link, has been integrated into the UK business and completed 5k installations in the first half. Private installations were up 7% year on year and there was a step up in BER (Beyond Economic Repair) work completed for the UK Membership customer base. Sharing the marketing capabilities of the Membership business and selling new boilers to HomeServe s existing customer base will be key to achieving the volumes that will enable Help-Link to grow its market share and profitability. In Smart Home, progress continues towards creating a subscription-based commercial model with home insurers, with a new test agreement signed with Hiscox. There are now 10 active insurer partnerships which the LeakBot team is seeking to expand into larger deals. Initial testing has also begun in the US. On 31 October 2018 the Financial Conduct authority (FCA) set out the issues it will focus on as part of a market study into how general insurance firms charge their customers for home and motor insurance. HomeServe is focussed on achieving the right customer outcome and fair pricing policies. Due to its comprehensive pricing disclosures whereby, after completing introductory offers, customers pay the same underlying premium regardless of their tenure, HomeServe considers any potential impact on its UK business to be immaterial but will continue to monitor the FCA s study closely. 6

7 North America North America results US$million HY19 HY18 Change Revenue Net policy income % Repair network % Membership % Other % Total revenue % Adjusted operating costs (154.8) (137.6) +13% Adjusted operating profit % Adjusted operating margin 11% 10% +1ppt North America results HY19 HY18 Change Revenue Net policy income % Repair network % Membership % Other % Total revenue % Adjusted operating costs (116.5) (106.4) +10% Adjusted operating profit % Adjusted operating margin 11% 10% +1ppt North America Membership KPIs HY19 HY18 Change Affinity partner households m % Customers m % Income per customer US$ % Policies m % Policy retention rate % ppt Financial performance Total revenue increased 14% to $173.7m. Membership revenue increased 12% driven by higher customer numbers and offset slightly by an expected reduction in income per customer. Other income increased by 51% to $10.1m due to the continued growth of the HVAC business and a higher number of installations. HomeServe continues to invest in business development and marketing to grow the customer base. Other investments made in recent years in, for example, claims and network management systems, a new Chattanooga call centre and a strong support team are now resulting in increased operating leverage. Adjusted operating profit increased by 28% to $18.9m with a resultant one percentage point increase in first half margin to 11%. HomeServe remains committed and on course to achieve a future target margin of 20%. Operational performance North America has enjoyed another successful six months as the business continued its very strong progress. Total customers increased by 19% to 3.7m, with 10% of this growth being organic and 9% (0.3m customers) acquired with tranche 1 of Dominion Products and Services Inc. (DPS), which completed in December Successful business development activities continued with 74 new partners added to take total partners in North America to over 600. Total households increased by 2m to 55m. 7

8 Tranche 2 of the acquisition of the DPS policy book completed after the half year on 26 October 2018, resulting in a c.$56m cash outflow and will add another 0.2m customers and 3m households. As with tranche 1, the second tranche is being integrated quickly and effectively and at minimal additional cost to the business. Marketing to tranche 2 customers is expected to commence in late November. Income per customer was $93 (HY18: $97) due to the dilutive effect of recent M&A with USP and DPS. The medium term target of $100 remains achievable with the underlying income per customer excluding the customers of USP and DPS already at $101. The functionality to book jobs via Interactive Voice Response (Smart IVR) over the phone without agent intervention went live in the first half and the launch of online claims will go live in the second half of the year. Smart IVR offers an efficient way to automate the booking process and together with online functionality will further improve the efficiency of the claims and network operations. In June the North American business acquired Gregg Mechanical, a HVAC company based in the New York area. Gregg Mechanical is a well run HVAC business with a strong local reputation and represents HomeServe s latest step in capturing a piece of the estimated $29 billion annual HVAC business opportunity in the US. 8

9 France France results million HY19 HY18 Change Revenue Net policy income % Repair network % Membership % Other Total revenue % Adjusted operating costs (33.0) (29.8) +11% Adjusted operating profit % Adjusted operating margin 21% 26% -5ppts France results HY19 HY18 Change Revenue Net policy income % Repair network % Membership % Other Total revenue % Adjusted operating costs (29.3) (25.9) +13% Adjusted operating profit % Adjusted operating margin 20% 27% -7ppts France Membership KPIs HY19 HY18 Change Affinity partner households m Customers m % Income per customer % Policies m % Policy retention rate % ppt Financial performance Total revenue increased by 4% to 41.6m as a result of 1.9m other income principally generated by Electrogaz, which was not owned in the prior interim period. Net policy income was 39.5m (HY18: 39.9m). The benefit of higher customer numbers and an increase in income per customer will be mostly realised in the second half as customers reach their renewal dates. Adjusted operating costs rose by 11% to 33.0m (HY18: 29.8m) principally due to the consolidation of Electrogaz and further investment to grow the HVAC business. Additional marketing and business development costs are expected to drive customer acquisition and revenue in the second half. Adjusted operating margin was 21% (HY18: 26%) as a result of these investments but is expected to remain the highest in the Group at around 30% for the full year. Operational performance Customers increased by 1% to 1.1m and retention remained the highest in the Group at 88% (HY18: 89%). The growth of the French business over the past 17 years has been founded on the strength of the partnership with Veolia, and this has now been extended until The deal not only secures the current shape of the affinity partner agreement, with Veolia providing its support for direct mail and 9

10 renewal activities; but also introduces new channels and opportunities to drive further growth through Veolia s HomeFriend subsidiary. HomeFriend is Veolia s initiative to transform its operations by improving customer experience and accelerating the use of digital and AI (Artificial Intelligence) tools. The partnership enables HomeServe to drive new customer acquisition not only by direct mail but also telephony and digital channels with HomeFriend s agents selling HomeServe products directly in its own call centre. Such sales will drive similar partner payments within capital expenditure as seen with Suez (also in France) and previously with Endesa (in Spain). The affinity partner pipeline remains strong and new initiatives have also begun to open up the municipal water market. Small / mid-size municipals provide water to over 4m French households and HomeServe is now applying the experience and approach used for the municipal water market in the US to France. Electrogaz, the French HVAC business acquired in December 2017, has delivered incremental revenue and is combining well with the core Membership business to add value to its existing operations through cross selling plumbing and electrical products to its heating customers, and by marketing heating products and installations to the Membership customer base. The French HVAC strategy took another step forward on 1 October with a small asset purchase from a business based close to Electrogaz, extending Electrogaz s local reach. 10

11 Spain Spain results million HY19 HY18 Change Revenue Net policy income % Repair network % Membership % Other Total revenue % Adjusted operating costs (64.6) (67.9) -5% Adjusted operating profit % Adjusted operating margin 13% 12% +1ppt Spain results HY19 HY18 Change Revenue Net policy income % Repair network % Membership % Other Total revenue % Adjusted operating costs (57.2) (59.7) -4% Adjusted operating profit % Adjusted operating margin 13% 12% +1ppt Spain Membership KPIs HY19 HY18 Change Affinity partner households m % Customers m % Income per customer % Policies m % Policy retention rate % ppts Financial performance Net policy income of 30.0m (HY18: 29.8m) was in line with the prior period as reduced customer numbers were offset by a greater number of renewals and higher income per customer. Claims revenue of 43.6m (HY18: 47.1m) was 7% lower due to a lower average income per job caused by the mix of claims completed. Adjusted operating costs of 64.6m were 5% lower as a result of an expected reduction in marketing costs from the cessation of activity with Endesa. HomeServe continues to expect no change to profit estimates for Spain for the next two years following the end of the Endesa contract. Operational performance Discussions are ongoing with Endesa to agree the future terms for the existing customer book following the end of the affinity partner agreement in May The retention rate rose from 78% to 80% and, without the dilution of newly acquired customers who renew at a lower rate, is expected to remain at this level going forward. The end of the contract with Endesa removed the exclusivity agreement that was in place and has freed HomeServe to speak to other partners in the energy industry. Discussions are only at a very early stage but contact has already been made with a number of prospects and a small test agreement has been signed with a new challenger energy brand. 11

12 A significant proportion of the water supply in Spain is provided by local municipals and there is the opportunity to apply the experience and lessons from the approach to municipal partners in North America to agree new partnerships in Spain. HomeServe is also in discussion with potential partners in the telecommunications industry. The Claims business completed 0.4m jobs (HY18: 0.4m) and has an active pipeline of potential partners. In July, Spain made its first move into HVAC with the acquisition of Oscagas for 5.8m, a business located in North Eastern Spain with a strong reputation for domestic installations of boilers and heating and air conditioning systems. 12

13 New Markets New Markets results - m HY19 HY18 Change Total revenue % Adjusted operating costs (21.4) (7.9) +171% Adjusted operating loss (3.2) (2.5) +28% Home Experts KPIs HY19 HY18¹ Change Checkatrade Trades k % Habitissimo Trades k % Checkatrade website visits m % Habitissimo website visits m % ¹ Checkatrade became a subsidiary on 17 November KPIs provided as a comparative. Financial Performance HomeServe s New Markets segment contains the results of its Italian operations, activities associated with prospecting new countries, and the results of Habitissimo and Checkatrade, its two Home Experts businesses. Total revenue increased due to the full consolidation of Checkatrade s results after HomeServe acquired 100% and took full control on 17 November On an underlying basis, revenue increased by 30% due to higher Trades numbers and new pricing initiatives. HomeServe accounts for its Italian operations as an associate, therefore there is no revenue recorded and the net result for the period is included within adjusted operating costs. Operational performance Marketing activity continued with Edison Energia in Italy, with HomeServe s products sold as part of an energy bundle for new customers switching to Edison being the most successful channel. Prospecting efforts in new countries have been reinvigorated with a new International Development team. Discussions continue in countries identified for creating possible joint ventures with established utilities and efforts have also recently been undertaken to uncover HomeServe lookalikes in prospective countries with a dozen possibilities identified to date. The first half of FY19 saw very good progress on a number of strategic initiatives for Home Experts. In Checkatrade the priority on the supply side is to increase the number of trades on the platform in the Midlands, North and Scotland where coverage is currently limited. On the demand side the focus is on increasing consumer usage of the service. A fresh approach to Trades acquisition since taking 100% control in November 2017 saw total Trades increase by 19% vs. the prior interim period to 31k. Plans to step change Trades growth further through outbound telesales are up and running and dedicated new teams have been created to support new Trades on-boarding and ongoing retention, ensuring all Trades are aware of the benefits of their membership and how to get the best value from the platform. New pricing bands have been rolled out, linking subscriptions to the value of work generated by being on the platform. Monthly payment options have been introduced to help Trades with their own cash flow and the new Buying Club offers procurement discounts across a number of areas including fuel, insurance and vans, aimed at helping Trades make savings that amount to a significant proportion of their annual fee. Additional revenue created by Trades growth and pricing initiatives is being reinvested into TV and radio advertising as well as sponsorship deals to drive up consumer awareness of Checkatrade and to encourage greater usage of Checkatrade.com. Expanding the coverage of the Checkatrade local directory leaflets across the country is another key focus in order to match the high Trades density that currently exists in the South across the rest of the UK. 13

14 Brand new product initiatives are also in development including Checkatrade Now, which allows consumers to receive a speedy response from an available Trade to deal with emergency job requests. Initial feedback has been excellent, so the next stage is to expand to other areas and Trades. In October, Checkatrade took the decision to relocate its main office location from Selsey to Portsmouth Harbour with effect from April 2019 in order to improve facilities for staff, to open up a wider employment pool and to accommodate increased headcount to manage the planned growth. Retaining existing employees and recruiting new talent will be pivotal to the future expansion of the business and the new, larger offices will enable this. A new management team with experience in fast growing digital businesses headed by Mike Fairman, formerly CEO of giffgaff who began as Checkatrade CEO on 8 October 2018, is nearly complete. Habitissimo continues to grow its Trades base and to test a number of new initiatives. Total Trades increased by 15% to 23k and the South American footprint was expanded with a launch in Peru. Website visits grew 18% in the period to 42.7m with broad content and home improvement stories continuing to drive traffic to the site. A test of the Checkatrade model outside the UK is underway with a project launching in Lyon, France next year. Habitissimo will support the Lyon test by developing the technology to run the project. Richard Harpin Founder and Group Chief Executive 20 November

15 FINANCIAL REVIEW These financial results have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Group statutory results The headline statutory financial results for the Group are presented below. Six months ended Six months ended 30 September September 2017 Total revenue Operating profit Net finance costs (5.3) (6.3) Adjusted profit before tax Amortisation of acquisition intangibles (12.5) (7.8) Statutory profit before tax Tax (4.6) (5.3) Profit for the period Attributable to: Equity holders of the parent Non-controlling interests (0.6) (0.1) Statutory profit before tax was 19.3m, 1.9m lower than the prior period (HY18: 21.2m) due principally to higher straight-line amortisation charges as a result of the investments made in FY18. Statutory profit before tax is reported after the amortisation of acquisition intangibles as detailed below. Amortisation of acquisition intangibles The amortisation of acquisition intangibles of 12.5m (HY18: 7.8m) increased due to the acquisitions in the prior period of Checkatrade in the UK and the first tranche of the policy book of Dominion Products and Services (DPS) in North America. Taxation The tax charge in the period was 4.6m (HY18: 5.3m). The adjusted effective tax rate was 24% (HY18: 25%). UK corporation tax is calculated at 19% in FY19 and FY20, reducing 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. 15

16 Cash flow and financing Cash generated by operations in the period to 30 September 2018 was 60.5m (HY18: 52.7m). Six months ended 30 September 2018 Six months ended 30 September 2017 Adjusted operating profit Amortisation of acquisition intangibles (12.5) (7.8) Operating profit Depreciation and amortisation Other non cash items Increase in working capital (4.3) (6.7) Cash generated by operations Net interest (5.1) (6.0) Taxation (11.3) (9.4) Capital expenditure (30.4) (37.7) Repayment of finance leases (0.1) (0.3) Free cash flow 13.6 (0.7) Acquisition of subsidiaries (17.6) (9.6) Equity dividends paid (47.8) (35.0) Issue of shares Net movement in cash and bank borrowings (51.5) (45.2) Impact of foreign exchange (2.7) 2.3 Finance leases Opening net debt (237.8) (261.4) Closing net debt (291.9) (304.0) During the period 1 April to 30 September 2018, net debt increased by 54.1m to 291.9m. Net working capital increased by 4.3m in the period (HY18: 6.7m) reflecting the continued growth of the Group and the introduction of a monthly payment option for Trades in Checkatrade. During the period capital expenditure was 30.4m, 7.3m lower than HY18, reflecting a reduction in partner payments made in Spain following the end of the Endesa partnership and lower spend on claims and network management software projects in North America which were largely completed last in the prior period. Full year capital expenditure is expected to reduce slightly from 71.1m in the prior full year. The acquisition outflow of 17.6m (HY18: 9.6m) included a net outflow of 5.4m in relation to HVAC investments to acquire Oscagas in Spain and Gregg Mechanical in North America. Deferred and contingent consideration was also paid relating to previous business combinations and asset purchases of 12.2m. The 9.6m in the prior period principally related to the acquisition of Help-Link Limited in the UK. The Group remains highly cash generative and full year cash conversion is expected to be in excess of 100% (FY18: 107%). Earnings per share Adjusted earnings per share of 7.5p was 10% up on the prior period (HY18: 6.8p). The weighted average number of shares increased from 312.0m to 331.2m as a result of the equity raise completed in October On a statutory basis, earnings per share decreased from 5.1p to 4.6p principally due to the higher acquisition amortisation charges and the higher weighted average number of shares. Net debt and finance costs Net debt at 30 September 2018 was 291.9m (FY18: 237.8m; HY18: 304.0m), well within the Group s total financial facilities of c. 500m at the half year. On 25 October 2018 HomeServe arranged a further 174.2m funding via a US Private Placement, with a number of notes totalling $125.0m and 80.0m and with maturity dates in the range of 7 to 12 years. 16

17 The Group targets leverage in the range of 1.0 to 2.0x adjusted EBITDA, measured at 31 March each year. At the half year the Group was in the middle of this range with net debt to last twelve months EBITDA of 1.4x (HY18: 1.9x). Following completion of the second tranche of the Dominion Products and Services (DPS) policy book acquisition on 26 October 2018, HomeServe expects to remain within its target leverage range at the year end before any further inorganic investment. The Group s net interest paid was 5.1m, 0.9m lower than HY18, principally due to non recurring costs in the prior period in relation to the new RCF. Foreign exchange impact The impact of changes in the Euro and USD exchange rates between HY18 and HY19 has resulted in a 3.3m reduction in reported revenue and a 0.5m reduction in adjusted operating profit of the international businesses as summarised in the table below. Effect on ( m) Average exchange rate Revenue Adjusted operating profit HY19 HY18 Change HY19 HY19 North America US$ % (3.9) (0.6) France (1%) Spain (1%) New Markets (1%) - - Total International (3.3) (0.5) Due to the seasonality of the business and the weighting of profit to the second half, the full year translation impact of sterling being weaker than prior year is estimated to benefit adjusted operating profit by around 1.8m at current rates. A ten cent movement from current rates in the USD and the Euro would have approximately a 4.0m and 3.5m impact respectively on full year adjusted operating profit. Brexit HomeServe continues to believe the impact of the EU Referendum and subsequent decision to leave the EU on the underlying performance of the Group will be limited. All of HomeServe s businesses trade exclusively within their own borders and HomeServe is not exposed to any cross border transactional currency risk. The Group has a strong balance sheet and retains a range of financing facilities with medium to long term maturities, which provide access to additional resources across a range of currencies. The Group remains subject to translation risk on the presentation of results in Sterling however this is within the ordinary course of business. Principal risks and uncertainties The principal risks and uncertainties, together with the mitigating activities, detailed on pages of the Group's 2018 Annual Report & Accounts, continue to have the potential to impact the Group's performance and are as follows: Strategic Risks 1. Market disruption 2. Commercial Partnerships 3. International Development 4. M&A Strategy 5. HVAC Integration Operational Risks 6. IT & Cyber Security 7. Underwriting Capacity and Concentration 8. Regulation and Customer Focus 17

18 9. Recruitment and Talent 10. IT Investment 11. Digital and Innovation Financial Risk (including interest rate, credit, liquidity and foreign exchange risks) Information on financial risk management is also set out on pages of the Annual Report, a copy of which is available on the Group's website 18

19 Condensed consolidated income statement For the six months ended 30 September 2018 Six months ended 30 September 2018 Six months ended 30 September 2017 * Year ended 31 March 2018 (Audited)* Note Continuing operations Revenue Operating costs (380.0) (339.2) (765.7) Share of results of associates Operating profit Investment income Finance costs (5.3) (6.4) (11.8) Profit before tax and amortisation of acquisition intangibles Amortisation of acquisition intangibles (12.5) (7.8) (18.4) Profit before tax Tax 4 (4.6) (5.3) (27.4) Profit for the period Attributable to: Equity holders of the parent Non-controlling interests (0.6) (0.1) (0.4) Dividends per share 5 5.2p 4.7p 19.1p Earnings per share Basic 6 4.6p 5.1p 30.2p Diluted 6 4.6p 5.0p 29.7p * The Group s results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2. 19

20 Condensed consolidated statement of comprehensive income For the six months ended 30 September 2018 Six months ended 30 September 2018 Six months ended 30 September 2017 * Year ended 31 March 2018 (Audited)* Profit for the period Items that will not be reclassified subsequently to profit and loss: Actuarial gain on defined benefit pension scheme Deferred tax charge relating to actuarial remeasurements (0.3) (0.1) (0.4) Fair value gain on FVTOCI investment in equity instruments Deferred tax charge relating to fair value gain on FVTOCI investment in equity instruments (0.1) Items that may be reclassified subsequently to profit and loss: Exchange movements on translation of foreign operations 14.5 (1.7) (10.2) Fair value losses on cash flow hedges - - (0.5) 14.5 (1.7) (10.7) Total other comprehensive income/(expense) 16.4 (1.3) (9.0) Total comprehensive income for the period Attributable to: Equity holders of the parent Non-controlling interests (0.6) (0.1) (0.4) * The Group s results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2. 20

21 Condensed consolidated balance sheet As at 30 September September September 2017 * 31 March 2018 (Audited)* Note Non-current assets Goodwill Intangible assets Contract costs Property, plant and equipment Interests in associates Other investments Deferred tax assets Retirement benefit assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets 1, , ,414.8 Current liabilities Trade and other payables (465.7) (381.9) (508.5) Current tax liabilities (0.9) (5.1) (10.4) Obligation under finance leases (0.5) (0.5) (0.5) Bank and other loans (36.3) (38.0) (38.0) (503.4) (425.5) (557.4) Net current assets Non-current liabilities Bank and other loans (310.3) (328.6) (256.7) Other financial liabilities (22.2) (22.7) (23.4) Deferred tax liabilities (25.7) (22.5) (25.5) Obligations under finance leases (0.3) (0.7) (0.4) (358.5) (374.5) (306.0) Total liabilities (861.9) (800.0) (863.4) Net assets Equity Share capital Share premium account Share incentive reserve Currency translation reserve Investment revaluation reserve Other reserves Retained earnings Attributable to equity holders of the parent Non-controlling interests (0.2) Total equity * The Group s results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2. 21

22 Condensed consolidated statement of changes in equity For the six months ended 30 September 2018 Profit for the period (0.6) 14.7 Other comprehensive income for the period Total comprehensive income for the period (0.6) 31.1 Dividends paid (47.8) (47.8) - (47.8) Issue of share capital Share-based payments Share options exercised - - (6.9) (6.8) - (6.8) Basis adjustments on hedges items Tax on exercised share options Deferred tax on share options Balance at 30 September (0.2) For the six months ended 30 September 2017 * Share premium account Share incentive reserve Currency translation reserve Investment revaluation reserve 2 Attributable to equity holders Share capital Other reserves¹ Retained earnings Total equity Balance at 1 April Profit for the period (0.1) 15.9 Other comprehensive expense for the period (1.7) (1.3) - (1.3) Total comprehensive income for the period (1.7) (0.1) 14.6 Dividends paid (35.0) (35.0) - (35.0) Issue of share capital Share-based payments Share options exercised - - (3.4) (3.3) - (3.3) Tax on exercised share options Deferred tax on share options Balance at 30 September For the year ended 31 March 2018 (Audited)* Share premium account Share incentive reserve Currency translation reserve Investment revaluation reserve 2 Attributable to equity holders Share capital Share premium account Share incentive reserve Currency translation reserve Investment revaluation reserve 2 Other reserves¹ Retained earnings Attributable to equity holders Noncontrolling interest Total equity Balance at 1 April Opening adjustment for the impact of IFRS 15 (note 2) (2.1) (2.1) - (2.1) Noncontrolling interest Noncontrolling interest Share capital Other reserves¹ Retained earnings Total equity Balance at 1 April Profit for the year (0.4) 95.9 Other comprehensive expense for the year (10.2) - (0.5) 1.7 (9.0) - (9.0) Total comprehensive income for the year (10.2) - (0.5) (0.4) 86.9 Dividends paid (50.4) (50.4) - (50.4) Issue of share capital Share-based payments Share options exercised - - (4.3) (3.3) - (3.3) Basis adjustments on hedged items Tax on exercised share options Deferred tax on share options Balance at 31 March 2018 (Audited) ¹Other reserves comprise the Merger, Own Shares, Capital redemption and Hedging reserves. 2 The available for sale reserve was renamed the investment revaluation reserve upon adoption of IFRS 9 on 1 April * The Group s results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2. 22

23 Condensed consolidated cash flow statement For the six months ended 30 September 2018 Six months ended 30 September 2018 Six months ended 30 September 2017 * Year ended 31 March 2018 (Audited)* Operating profit Adjustments for: Depreciation of property, plant and equipment Amortisation of acquisition intangible assets Amortisation of other intangible assets Amortisation of contract costs Share-based payments expenses Share of profit of associates (0.3) (0.7) (1.0) Loss on disposal of property, plant and equipment and software Gain on re-measurement of associate on acquisition on control - - (0.9) Decrease in other financial liabilities - (0.3) (0.3) Operating cash flows before movements in working capital Increase in inventories (0.6) (0.8) (1.4) Decrease/(increase) in receivables (60.7) (Decrease)/increase in payables (50.3) (76.2) 19.7 Net movement in working capital (4.3) (6.7) (42.4) Cash generated by operations Incomes taxes paid (11.3) (9.4) (27.2) Interest paid (5.1) (6.1) (7.5) Net cash inflow from operating activities Investing activities Interest received Proceeds on disposal of fixed assets Purchases of intangible assets (22.8) (33.7) (114.3) Contract costs (3.6) - - Purchases of property, plant and equipment (4.0) (4.0) (11.0) Dividend received from associate Acquisition of subsidiaries (8.3) (9.6) (50.3) Net cash used in investing activities (38.7) (47.2) (174.5) Financing activities Dividends paid (47.8) (35.0) (50.4) Repayment of finance leases (0.1) (0.3) (0.6) Acquisition of subsidiaries (9.3) - (3.9) Proceeds on issue of share capital Costs associated with issue of share capital - - (0.8) New bank and other loans raised Costs associated with new bank and other loans raised - - (3.1) Increase/(Decrease) in bank and other loans 46.8 (157.7) (226.5) Net cash (used in)/from financing activities (10.1) Net (decrease)/increase in cash and cash equivalents (4.7) Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes 2.4 (0.5) (3.2) Cash and cash equivalents at end of period * The Group s results are being reported under IFRS9 and IFRS15 for the first time in 2018 following the mandatory adoption of the standards from 1 April In accordance with the transitional provisions of the standards, comparatives have not been restated. See Note 2. 23

24 Notes to the condensed set of financial statements For the six months ended 30 September 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 2018 does not constitute statutory accounts as defined in Section 434 of the Companies Act A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor 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 The condensed set of financial statements for the six months ended 30 September 2018 is unaudited, but has been reviewed by the auditor and their report to the Company is at the end of this statement. This condensed set of financial statements was approved by the Board of Directors on 20 November 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. 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, with the exception of standards, amendments and interpretations effective as of 1 April The nature and effect of these changes are disclosed below: a) IFRS 15 (and Clarifications to IFRS 15) Revenue from Contracts with Customers IFRS 15 replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Group has adopted IFRS 15 from 1 April 2018 utilising the cumulative effect method (adopting all applicable practical expedients). The adoption of IFRS 15 has not had a material impact on the timing of revenue recognition and comparative information has not been restated. The Group s revised accounting policies for revenue and associated balances are disclosed below: Revenue recognition The primary impact of IFRS 15 s application has been the revision of accounting policies to reflect the standard s five-step approach: 1) Identify the contract with the customer 2) Identify the performance obligations in the contract 3) Determine the transaction price 4) Allocate the transaction price to the performance obligations 5) Recognise revenue when (or as) each performance obligation is satisfied Revenue is recognised, net of discounts, VAT, Insurance Premium Tax and other sales related taxes, either at the point in time a performance obligation has been satisfied or over time as control of the asset associated with the performance obligation is transferred to the customer. For all contracts identified, the Group determines if the arrangement with the customer creates enforceable rights and obligations. For contracts with multiple components to be delivered, such as those with underwriters to sell policies on behalf of the underwriter as well as deliver handling and 24

25 administration services, management applies judgement to consider whether those promised goods and services are: (i) (ii) (iii) distinct to be accounted for as separate performance obligations; not distinct to be combined with other promised goods or services until a bundle is identified that is distinct; or part of a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer. At contract inception the total transaction price is estimated, being the amount to which the Group expects to be entitled and has present enforceable rights to under the contract. Where applicable, this includes management s best estimate of any variable consideration to be included in the transaction price based on the expected value or most likely amount approach, and only to the extent that it is highly probable that no significant revenue reversal will occur. Once the total transaction price is determined, the Group allocates this to the identified performance obligations in proportion to their relative standalone selling prices and recognises revenue when (or as) those performance obligations are satisfied. Where available, observable prices of goods or services are utilised, when that good or service is sold separately, to similar customers in similar circumstances. Where stand-alone selling price is not directly observable the Group applies judgment to determine an appropriate estimated standalone selling price, typically using an expected cost plus margin, adjusted market assessment or residual approach. Variable consideration is allocated to an entire contract or a specific part of a contract depending on: i) whether allocating the variable amount entirely to part of the contract depicts the amount of consideration the Group expects to be entitled in exchange for transferring the promised good or service to the customer; or ii) the terms of the variable payment relate specifically to satisfaction of an individual performance obligation The Group s variable consideration primarily relates to intermediary commissions received on contracts with underwriters to sell policies and provide handling and administration services. Amounts are typically allocated to the entire contract. Discounts are allocated proportionally across all performance obligations in the contract unless directly observable evidence exists that the discount relates to one or more, but not all, performance obligations. For each performance obligation, the Group determines if revenue will be recognised over time or at a point in time. For each performance obligation to be recognised over time, the Group applies a revenue recognition method that faithfully depicts the Group s performance in transferring control of the goods or services to the customer. This decision requires assessment of the nature of the goods or services that the Group has promised to transfer to the customer. The Group applies the relevant output or input method, typically based on the expected profile of the deferral event (for example claims cost through the policy term or time elapsed). Revenue by category The Group disaggregates revenue from contracts with customers as set out below as management believe this best depicts how the nature, amount, timing and uncertainty of the Group s revenue and cash flows are effected by economic factors. Net Policy Income The Group principally derives net policy income from multiple-element arrangements entered into with underwriters under which the Group acts as an insurance intermediary in the policy sale and handling and administration processes. The Group satisfies its obligation to sell policies over time, recognising revenue as each policyholder is contracted on behalf of the underwriter. The transaction prices of the Group s insurance intermediary arrangements with underwriters are entirely variable and measured based on the commission due to the Group for the number of policies sold, net of a refund liability. This refund liability reflects management s best estimate of mid-term policy cancellations ensuring that a significant reversal of revenue will not arise in the future. 25