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Annual Report and Accounts 2010
You are here: Home > Business Review > Chief executive's review:part 2
Chief executive's review:part 2
In May 2009, we acquiredSFG, France's leading provider of warranties for domestic appliances. In the period to 31 March 2010, SFG contributed £7.0m of revenue and £0.7m operating profit2 to the European result. Having invested in personnel and systems during the year, the infrastructure required to replicate our successful UK manufacturer warranty model is now in place and discussions with potential manufacturer warranty partners are well underway.
SPAIN
As at 31 March 2010, the policy, customer and market performance metrics of our Spanish business were as shown below.
Our Spanish business grew revenues by 14% in local currency (19% in GBP) during the year with another strong performance from our claims handling business, Reparalia, on the back of increased volumes from key customers.
As in the previous financial year, the overall operating profit2 result for Spain of £0.4m (2009: £0.1m) reflects the reinvestment of profits from our claims handling business in the development of our Spanish policy business where we continue to make good progress. In the 12 months to March 2010, the number of policies nearly doubled to 94,000 (2009: 48,000) following an encouraging start to full scale marketing with Endesa and against a backdrop of an extremely tough economic environment.
In February, we announced a significant development for our Spanish business with the signing of a long-term marketing agreement with Agbar, Spain’s largest water company with over 4 million residential customers. The agreement represents an important step for our Spanish business enabling us to launch full scale marketing in Spain under a water brand and increasing our footprint of affinity partner households to 10.0m.
SPAIN
| 2010 | 2009 | Change | |
|---|---|---|---|
| Total number of households (m) | 20.8 | 20.8 | |
| Affinity partner households (m) | 10.0 | 9.2 | |
| Penetration of affinity partner households (%) | 0.8 | 0.5 | |
| Total customers (‘000) | 79 | 47 | 67.0% |
| Policies per customer | 1.19 | 1.01 | |
| Total policies (‘000) | 94 | 48 | 97.6% |
Given the relative size of the Spanish policy business, the retention rate and income per customer metrics have not been presented.
BELGIUM
Our Belgian business, under its first full year of HomeServe ownership, reported revenues of £2.8m (2009: £0.9m) and operating profit2 of £0.4m (2009: £0.4m). The operating profit result reflects the investment we have made during the year in building our marketing capability and the infrastructure required to start a policy business in the Benelux region. At the end of the financial year we successfully conducted a small operational marketing test and we continue to progress discussions with potential utility and other affinity partners in the region.
UNITED STATES OF AMERICA
With the exception of affinity partner households which shows the position as at 25 May 2010, the policy, customer and market performance metrics of our US Membership business as at 31 March 2010 were as shown below.
The US has had another strong year generating an increase in revenue1 in local currency of 41% (GBP 43%) and a maiden operating profit2 of £1.5m. The total number of policies has grown by 38% to 756,000, driven by continued high levels of gross new policy sales of 290,000 (2009: 246,000) and an increase in customer numbers of 31% to 580,000.
The retention rate has also increased to 82.6% (2009: 80.0%) as a result of a greater proportion of customers paying for their policies via their utility bill and the success of “Easi-Pay” which encourages cheque paying customers to switch to continuous payment.
Policy growth in the US has been driven by strong take-ups with our new gas affinity partners SEMCO Energy and Piedmont Gas and we have also been successful in attracting new customers under our own brand in those areas where we have not yet signed up an affinity partner.
United States of America
| 2010 | 2009 | Change | |
|---|---|---|---|
| Total number of households (m) | 128 | 128 | |
| Affinity partner households (m)4 | 20.3 | 9.4 | |
| Total customers (‘000) | 580 | 442 | 31.2% |
| Penetration of affinity partner households (%) | 2.9 | 4.7 | |
| Policies per customer | 1.30 | 1.24 | |
| Number of policies (‘000): | |||
| - Plumbing & drains and water supply pipe | 518 | 419 | |
| - Electrical | 82 | 60 | |
| - Other | 156 | 70 | |
| Total policies (‘000) | 756 | 549 | 37.6% |
| Retention rate (%) | 82.6 | 80.0 | 2.6ppts |
| Income per customer ($) | 70 | 65 | 8% |
On 14 April 2010, we announced the further development and expansion of our US business with the acquisition of National Grid Energy Services’ service contract business and the signing of a 10 year marketing agreement with National Grid USA , one of the largest utilities in the USA with over 5 million residential households.
The contract business has 365,000 annual service contracts across 186,000 customers and delivers its services through a network of directly employed engineers. The acquisition and marketing agreement, which we expect to complete by the end of August, provides our US operations with a robust and profitable platform to support further business development in the region as well as a significant increase in the scale of our operations in terms of customer and policy numbers and marketing footprint.
On 29 April 2010, we announced the signing of a five year marketing agreement with Southern California Gas Co. (”SoCalGas”) an energy and services company primarily engaged in the distribution of gas throughout southern California with 5.3 million residential customers. The agreement with SoCalGas and expected completion of the transaction with National Grid USA doubles our US household footprint to over 20m.
SUMMARY
We are pleased to report a year of significant progress for HomeServe and another set of strong results for our membership businesses despite the economic conditions. The market opportunities for all our membership businesses are exciting and we are confident that each of them will continue to deliver strong growth over the coming years. The disposal of our UK Emergency Services business allows us to focus exclusively on maximising shareholder value from policy membership through growth in existing markets and further international expansion.
Richard Harpin
Chief Executive Officer
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.
4Includes 5.3m households from SoCalGas and 5m households from National Grid USA which were announced after the year end.