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Chairman's statement
"With a clear and focused membership-only strategy and a strong pipeline of business development opportunities, HomeServe remains well positioned for the future."
J M Barry Gibson
Chairman
We are pleased to announce that HomeServe has delivered another year of double-digit profits growth with earnings per share3 growing by 14% driven by the strong performance of our UK and international operations. Revenues1 for our continuing operations have grown by 21% to £369.0m and profit before tax2 by 13% to £100.6m on the back of continuing good levels of customer and policy growth with over 10.3m policies from 4.7m customers worldwide.
STRATEGIC DEVELOPMENTS
During the year we successfully completed the exit from our UK Emergency Services business allowing us to focus all of our resources on the growth and development of our membership businesses.
We announced the acquisition of SFG in France in May 2009, an important step in the development of our European appliance warranty business and, after the year end, the acquisition in the US of the service contract business from National Grid Energy Services.
We have also expanded our global marketing footprint with the addition of a number of new affinity partners including Dyson and GB Oils in the UK, Agbar in Spain and Piedmont Gas in the US. After the year end, we also announced the further expansion of our US footprint with the signing of long-term affinity partner agreements with National Grid USA and Southern California Gas.
RESULTS
In the year, revenues1 grew by 21% to £369.0m (2009: £304.3m) and operating profit2 by 13% to £104.4m (2009: £92.3m) with operating margin reducing in line with our expectations by 2.0 percentage points to 28.3% (2009: 30.3%) reflecting the planned increase in customer acquisition marketing in the UK and continued investment in business development across all our membership businesses. Earnings per share3 grew by 14% to 110.9p per share (2009: 96.9p per share).
I am pleased to say that we have delivered against the targets we set ourselves at the start of the year including 3% customer growth and a retention rate of 82.5% in the UK, a maiden operating profit2 in the US and the continued expansion of our international household footprint.
The business continues to be very cash generative delivering a cash inflow from continuing and discontinued operations of £73.4m (2009: £92.2m) representing cash conversion of 93.4% (2009: 115.7%). Our balance sheet remains strong with net debt at the year end of £52.9m (2009: £34.0m) and £150m of banking facilities in place until December 2012 providing us with significant flexibility to take advantage of selective acquisition opportunities as they arise.
DIVIDEND
The Board is proposing a final dividend of 8.5p per share bringing the total dividend for the year to 44.0p (2009: 35.5p), a year on year increase of 24%. This reflects the Board’s confidence in the continuing strength and resilience of our membership businesses following the exit from UK Emergency Services. The Board intends to continue to follow a policy of growing future dividends in line with earnings per share3 growth.
SHARE SUB-DIVISION
A 5 for 1 sub-division of the share capital of the Company is proposed, the intended effect of which is to seek to improve the liquidity and marketability of the ordinary shares of the Company by reducing the market price of an ordinary share and increasing the number of shares in issue. The Board will seek approval from shareholders for the proposed sub-division at the Company’s AGM on 30 July 2010.
BOARD CHANGES
There were a number of changes to the Board during the year. On 26 June 2009, Martin Bennett was appointed Chief Financial Officer following the departure of Jonathan Simpson-Dent and on 31 March 2010, Brian Whitty, Executive Chairman since 2004 retired from the Board. As a result, I was appointed Non-Executive Chairman on 1 April 2010 and Ian Chippendale was appointed Senior Independent Director. The Board is extremely grateful for the significant contribution to the development and growth of the business made by Brian over the last 14 years not only as Chairman of HomeServe but also before that as Chief Executive of South Staffordshire Group plc.
PEOPLE
These results and the fulfilment of the Company’s future potential are only made possible by the dedication of its people, whose expertise and commitment remain our most important assets. On behalf of the Board, I should like to thank them for their contribution to another set of excellent results.
OUTLOOK
We have made a positive start to the new financial year with all of our membership businesses performing well and the recent announcement of two new large affinity partner deals in the US.
Our focus remains on delivering long-term value for shareholders through a combination of strong organic growth on the back of the continuing development of our existing membership businesses and selective acquisitions.
With a clear and focused membership-only strategy and a strong pipeline of business development opportunities HomeServe remains well positioned for the future and we look forward to another year of strong growth.
J M Barry Gibson
Chairman
25 May 2010
1Including gross up of commissions in 2010 and 2009, but excluding exceptional operating items during the year, see Financial review and notes 4, 5 and 13.
2Excluding amortisation of acquisition intangibles, exceptional operating items and joint venture taxation see Financial review and notes 5 and 13.
3Excluding amortisation of acquisition intangibles and exceptional operating items, see Financial review and notes 5 and 13.