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• Key performance indicators
• Chief executive's review
  • Part 1
  • Part 2
• Financial review

Chief executive's review:part 1

" These results demonstrate strong progress in all our membership businesses and reinforce our strategy to focus solely on policy membership. "

Richard Harpin
Chief Executive Officer

Our mission is to provide a membership service which frees our customers from the worry and inconvenience of home emergencies and repairs. We deliver this through building long-term relationships with business partners, leveraging our product development expertise, producing winning sales and marketing, delivering excellent customer service and investing in great people.

These results demonstrate strong progress in all our membership businesses and reinforce our strategy to focus solely on policy membership. We now have access to 68.1m4 households globally through our affinity partners, of which two-thirds are outside the UK. We sold 2.7m gross new policies in the year (2009: 2.6m) and increased total customers and policies by 8% and 12% respectively.

global membership business metrics

With the exception of affinity partner households, which for the US shows the position as at 25 May 2010, the policy, customer and market performance metrics of our membership businesses as at 31 March 2010 are shown above.

UK MEMBERSHIP

As at 31 March 2010, the policy, customer and market performance metrics of our UK Membership business are shown on Key performance indicators page.

Revenue¹ increased by 16% to £286.7m (2009: £246.6m) driven by high levels of renewals income and new policy sales. As reported at our interim results, the UK business increased investment in marketing in line with our focus on customer growth resulting in operating profit² increasing by 10% to £95.8m (2009: £87.2m).

I am pleased to report that the UK business achieved a key objective of 3% customer growth for the year which was mainly driven by our core utility and manufacturer marketing channels. This, combined with the continued success of cross-sell, enabled the business to deliver gross new policy sales of 1.83m (2009: 1.83m).

We are particularly pleased with our retention performance having delivered a retention rate of 82.5% (2009: 83.0%) which is ahead of our expectations at the start of the year. This performance reflects the success of a range of retention-specific initiatives including the introduction of the customer magazine, the use of personalised renewals notices and improved call centre efficiency.

The continued success of Combined Policies, which now represent 17% (2009: 14%) of our customers, helped to increase policies per customer to 2.32 (2009: 2.23) with income per customer growing 14% to £74 (2009: £65).

Our UK manufacturer warranty business has had another successful year with total policies growing by 17% to 387,000 (2009: 331,000). We have recently signed a long-term agreement with Dyson to undertake the marketing and administration of their manufacturer extended warranty scheme in the UK.

The addition of Dyson and Baumatic earlier in the year takes the total number of manufacturer partner brands to 24 across the boiler, shower, white and brown goods sectors and the pipeline of potential partners remains strong. We are now actively applying our UK warranty expertise and best practice to the development of our European warranty business Société Française de Garantie (SFG).

As well as meeting our customer growth targets through our core marketing channels, we have made good progress with a number of new customer growth initiatives aimed at attracting customers from outside our core demographic through new marketing channels.

We have made good progress developing our pay on use service, One Contact, which is now available on a national basis. In September we purchased Reactfast, a national emergency trades business, which is providing an excellent source of new customer leads and emergency jobs for our repair networks having been fully integrated into our membership operations.

Having proved the business model of converting pay on use customers into full policy members our focus now is to create additional ways of maximising the number of emergency jobs and new customer leads by leveraging existing and accessing new marketing channels.

In the energy sector, we announced in March the signing of a long-term affinity partner agreement with GB Oils, the UK’s leading residential oil distributor to offer boiler breakdown cover to their oil customers. We believe that this part of the domestic energy market represents a significant opportunity for us, with over 1m households in the UK using oil as their main source of fuel.

At the start of April we signed a two year agreement with nPower to market electrical breakdown and emergency cover as a customer acquisition product and we will be working closely with them to develop a range of home assistance products during the financial year.

Our product for Landlords is making good progress on the back of direct advertising under the HomeServe brand and we are now in discussions with a range of potential partners to broaden our marketing channels and accelerate take up rates for this product.

Discussions with other potential distribution partners including credit card companies, IFAs and travel companies to offer an insured home emergency product are progressing well.

We have continued to improve the efficiency of our network during the year through the successful acquisition and integration of a number of small plumbing businesses and as at the end of the year, over 80% of all plumbing jobs were being carried out by our network of 285 directly employed plumbers. Increasing the proportion of work carried out by our own engineers will enable us to deliver enhanced customer service together with productivity gains and to steadily reduce the average cost per job. Having completed the franchising of our Electrics and Gas networks we have now started to franchise our plumbing network in remote parts of the UK thereby further increasing the number of HomeServe branded vehicles and engineers in the network. In addition, we continue to invest in systems that support our network to improve customer service and operational efficiency.

Our expectations for the UK business for the coming year are to build on the success we have had this year with the delivery of further customer growth of 3-4% and up to a 1 percentage point reduction in the retention rate.

UK Membership

CONTINENTAL EUROPE

Our European business has had another very good year with local currency revenues increasing by 31% (36% in GBP) and operating profit² by 27% (35% in GBP). We now have access to 24.3m (2009: 22.7m) households in Europe and 2.0m (2009: 1.6m) policies with total penetration of 3.5% (2009: 3.2%).

FRANCE - DOMÉO

As at 31 March 2010, the policy, customer and market performance metrics of our French business were as shown below.

The total number of policies in our French joint venture, Doméo, has increased by 23% in the year to 1.93m (2009: 1.57m). Gross new policy sales in the year were 0.53m (2009: 0.53m) with 15% of new sales on the back of the successful introduction of two new products, Internal Plumbing and Plumbing and Drainage ’Max‘. The retention rate remained high at 88.3% (2009: 87.9%).

Doméo has grown its policy book across all categories through a combination of customer growth and the sale of additional policies to existing customers through cross-sell. During the period, customer numbers grew by 13% to 769,000 (2009: 683,000) with policies per customer increasing from 2.29 to 2.51.

The operating profit² contribution from our share of the Doméo joint venture in the period was £5.7m (2009: £4.8m) representing growth of 17%.

This year, the key focus for the Doméo business will be to generate further customer growth and increased penetration through a combination of signing up new affinity partners and new product development.

FRANCE

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.

4Includes 5.3m households from SoCalGas and 5m households from National Grid USA which were announced after the year end.

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