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HomeServe plc

Preliminary results for the year ended 31 March 2020

Another successful year, with business resilience keeping future prospects strong

· Double digit growth in revenue (up 13% to £1.1bn) and profits (adjusted profit before tax up 12% to £181.0m)

· Strong performance across Membership & HVAC, with 8.3m customers and retention strong at 82% (FY19: 82%)

- North America customers rose to 4.4m (FY19: 4.0m) with adjusted operating profit up 23% and passing $100m to $108.6m

- Efficiency gains drove strong growth in the UK, adjusted operating profit up 23% to £81.0m

- Highest number of new customers ever in France (up 5% to 1.1m) and strong profit growth in Spain (up 16% to €23.1m)

- First utility partnership signed in Japan with Chugoku Electric; successful first marketing campaign

- HVAC revenue up 83% to £80.9m, driven by 15 acquisitions completed for c. £25m

· Good progress in Home Experts

- Acquisition of eLocal in November 2019 for £98.8m created profitable entry to North America

- At Checkatrade, 30% growth in revenue to £38.5m, 32% growth in web visitors to 23.6m and 9% growth in trades to 39,000

- New leadership at Habitissimo following acquisition of remaining 30% of the business

· Statutory profit before tax of £137.9m (FY19: £139.5m) reflects strong operating performance partially offset by a net exceptional charge of £7.6m (FY19: net exceptional gain of £4.6m)

· Focus during the coronavirus crisis on keeping staff and customers safe and supporting trades

- Continued to complete emergency repairs for customers in all territories

- Decision not to furlough staff or make any redundancies in the course of the current lockdowns

- Pro-active membership discounts to support trades at Checkatrade during April and May

- Free repairs for NHS and social care workers in the UK: over 2,000 repairs completed to date

· Strong balance sheet and liquidity: leverage in line with guidance at 1.8x (FY19: 1.4x) and c. £330m headroom vs. total debt facilities of c. £780m

· Solid performance expected in FY21, with medium to long term growth targets for North America Membership and Checkatrade unchanged

· The Board proposes a final dividend of 17.8p, to take the total dividend for the year to 23.6p, up 10%.

Richard Harpin, Founder and Chief Executive, HomeServe plc, said: "I am really pleased with our performance in the last 12 months, in which we continued to provide excellent service to our customers, deliver on our financial objectives and invest for future growth. I am especially proud of how everyone at HomeServe responded to the unprecedented challenges of COVID-19, adapting quickly and efficiently to new ways of working and going beyond the call of duty to help our customers.

"We have all become acutely aware of the importance of our homes over the last few months, which means that HomeServe's purpose of making home repairs and improvements easy has never been more relevant. With our resilient business model and dedicated teams, we look forward to being able to help more and more customers as the world emerges from lockdown."

¹These are the first results which HomeServe has presented under IFRS 16. HomeServe has adopted IFRS 16 using the modified retrospective 'Asset = Liability' approach with a date of initial application of 1 April 2019. Comparative information provided in this announcement has not been restated. As detailed further below, the adoption of IFRS 16 had an immaterial effect on adjusted profit before tax, whilst adjusted operating profit was £0.2m lower.

²Percentage movements throughout this announcement are based on full underlying results, not the rounded figures in the tables.

³HomeServe 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.

4Excludes 0.2m customers sold with the Italian joint venture in August 2019.

Results presentation

An audio webcast with accompanying slides will take place at 10am on Tuesday 19 May at:

https://www.investis-live.com/homeserveplc/5eb03ccb27577e1000d8df89/hnhn

Alternatively follow the link from the homepage on www.homeserveplc.com

The webcast will be available on replay shortly after the event.

Enquiries

Forward Looking Statements

This report contains certain forward looking statements, which have been made in good faith, with respect to the financial condition, results of operations, and businesses of HomeServe plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements have been made with reference to forecast price changes, economic conditions, the current regulatory environment and the current interpretations of IFRS applicable to past, current and future periods. Nothing in this announcement should be construed as a profit forecast.

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. £3.9 billion.

CHIEF EXECUTIVE'S REVIEW

I am writing my review of the year to March 2020 at a moment when the coronavirus pandemic is dominating our personal lives, our business decisions and the international agenda. To create a balanced review, I have started by describing the financial year as a whole, then addressed our response to coronavirus and current business performance, and finished with some thoughts on the future.

The current crisis has reinforced my belief in the importance of a clear sense of corporate purpose. HomeServe's purpose - to make home repairs and improvements easy for homeowners and trades (tradespeople) - drives everything we do. To achieve our ambition of being able to do every job in every home, we need to see growth across both of our business lines - Membership & HVAC (Heating, Ventilation and Air Conditioning) and Home Experts - and in our international development activities. We made good progress on all fronts this year.

FY20

FY20 was another successful year for HomeServe, in which we continued to serve our customers with passion and commitment, delivered double digit revenue and profit growth, and invested for the future.

Continued strong growth in Membership & HVAC

Our Membership and HVAC business line delivered revenue growth of 10%, together with 18% growth in adjusted operating profit. North America remains the outstanding growth driver, and we also saw efficiency gains in the UK, record new customers in France and a good performance in Spain, particularly in the Claims business.

Membership remains attractive, predictable and highly cash generative and has significant further potential. In North America, we now work with over 950 utilities (FY19: c. 700) and have access to 64m households (FY19: 60m). New partner signings continue, and after the year end we were particularly pleased to sign Alabama Power with 1.3m households and a large partner in Canada, the Municipality of Ottawa, with 0.4m households. The customer count grew to 4.4m (up 9%), and North America delivered revenue growth of 25% to $546.1m and topped $100m of adjusted operating profit for the first time, reaching $108.6m (FY19: $88.1m). The acquisition of ServLine opened an interesting new channel with rural water associations as well as new product potential, and we entered the Whole Home Warranty market with an initial product launch and two small acquisitions to give us expertise in the real estate channel.

Our Continental European Membership businesses also performed well. France added its most new customers ever, driven by strong relationships with the top three water utilities and new partners such as JeChange and Papernest. In Spain, strong performance in the Claims business drove revenue up 11%, and we continue to seek new partners in Membership to replace Endesa, which ended in May 2018.

UK Membership also had a good year, delivering efficiency gains which drove strong profit growth, and is at the forefront of innovations to revolutionise the way we serve customers in the future. HomeServe Now connects customers directly to an available, local engineer, and has the potential to attract new customers to HomeServe and further reduce our cost to serve.

In HVAC, we made 15 acquisitions across North America, France and Spain for a cash outflow in the year of c. £25m. Our buy and build strategy drove total HVAC revenue up 83% to £80.9m and HVAC installations are becoming a significant contributor to our customer value proposition in all four of our Membership businesses. With HVAC acquisitions adding c. 0.1m policies through cross-sell and existing policy books it is also a solid contributor to customer growth.

First utility partnership in Japan

Beyond our established businesses in the UK, North America, France and Spain, we achieved a significant milestone in Japan in January 2020, when we signed our first utility partner, Chugoku Electric. Our first marketing campaign yielded encouraging results, with take-up rates approaching those achieved in North America. Strong relationships between Japanese utilities and our joint venture partner, Mitsubishi Corporation, have driven rapid progress, and we look forward to seeing this partnership develop further in FY21 and beyond.

Productive investment in Home Experts

We estimate that our core Membership business in its current form appeals to about a third of homeowners - an older, insurance-minded demographic who want to avoid the financial shock and disruption of an unexpected home emergency. Home Experts gives us the opportunity to broaden our target audience and to make home repairs and improvements easy for homeowners whose instinct is to search for reputable trades online when something needs repairing or improving in their homes.

Total revenue in Home Experts grew by 78% to £71.8m (FY19: £40.4m) driven principally by a 30% increase at Checkatrade to £38.5m and four months of revenue following the acquisition of 79% of eLocal at the end of November 2019. The adjusted operating loss of £13.9m (FY19: £7.4m) reflects increased marketing and advertising to both homeowners and trades as we look to expand both sides of our Home Experts platform.

At our Investor Day in June 2019, we invited shareholders and analysts to visit Checkatrade's new offices in Portsmouth so that they could see our expansion plans first hand. During the year, we made excellent progress strengthening the management team at Checkatrade, and investing in technology and marketing. We saw good growth on the demand side of the website, with consumer visits up 32% to c. 24m, and made good progress on building supply, reaching 39,000 trades. Trades are an increasingly important stakeholder community for the Group, and we want to make home repairs and improvements easy for them too to help them grow their business.

Our purchase of the remaining 30% of Habitissimo and the appointment of Sarah Harmon to lead the business has brought fresh ambition and ideas to our Home Experts business plan in Spain and Latin America. Habitissimo has started working with HomeServe Spain to test the potential to sell a policy after a successful on demand repair. We are also applying sharper focus and have decided to exit Argentina, Columbia and Peru, our three smallest LATAM operations.

In November 2019, we acquired 79% of eLocal, which gave us a profitable entry into the Home Experts market in North America. Unique aspects of eLocal's business model, such as their use of affiliates to generate high volumes of lead calls and relationships with national accounts to satisfy these at scale, are already proving informative to our other Home Experts businesses.

In May 2020 in France, following a successful test of the Home Experts model in the Lyon area, we entered into a new structure to scale the business. The management team will own 80% with HomeServe taking a 20% stake with an option for us to increase this in the future, once the business has achieved national scale.

Discipline and focus

We maintain a disciplined approach to capital allocation and constantly review our investment priorities. In the course of this year, we sold our stake in our Italian associate. I constantly challenge my management team and myself to be bold in the pursuit of our highest potential opportunities, but also in testing, learning and exiting projects if necessary. As our business expands and opportunities multiply, this discipline will become more and more important.

Consumers and insurance partners have been slower than expected to adopt smart leak detection technology and we have consequently impaired our existing LeakBot assets. We will continue to run trials with insurers and our revised business plan frees up management resource and reduces investment as we preserve the intellectual property and look to use LeakBot as a cross sell opportunity to accelerate other initiatives e.g. HomeServe Now.

COVID-19 response

Responding to the developing coronavirus pandemic dominated the last three weeks of our financial year. Our top priority was to do the right thing for our staff, in the knowledge that they would look after our customers. Within two weeks, all of our c. 6,000 office-based staff, including contact centre agents, were working successfully from home, thanks to a monumental effort by operations staff and recent technology investments. In the field, we put additional social distancing procedures in place to safeguard our engineers, contractors and customers, and continued to respond to emergency repair requests in all the countries where we operate, in line with government guidance. We took the decision not to furlough or make redundant any staff as a result of the current crisis.

At Checkatrade, we acted fast to support our trades community - another vitally important stakeholder group. Trades were proactively offered a 50% membership discount for April and May if they wanted to continue to feature in consumer searches. If they wished to maintain their presence on the platform but, for now, not appear in searches, they were offered free-of-charge affiliate membership. This is also being offered to new trades that wish to join and start creating an online presence.

I have always known that HomeServe is full of dedicated, talented people. I could not have been more impressed by their response to the coronavirus crisis, which epitomised The HomeServe Way - our key leadership behaviours and skills. We adapted quickly and efficiently to new ways of working, and went beyond the call of duty to help our customers. The actions by our UK team merit a special mention, where the team launched a special offer of free emergency plumbing and heating repairs for NHS and social care workers, aiming to do around 10,000 free jobs for them during the lockdown period. The response has been phenomenal, with well over 2,000 jobs completed to date, and we were all delighted to be able to help the front line healthcare staff who continue to demonstrate such enormous bravery and dedication.

Current trading

In Membership, we expect our business model to remain resilient. Policy retention - the key top line driver - remained in line with historical trends through April and early May (FY20: 82%), there has been no noticeable increase in cancellation attempts and our internal measures for customer satisfaction returned some of their best ever scores in April. Response rates to marketing campaigns held up well through March and online new customer sign-ups continue. The Membership cost base is approximately one third variable, with marketing spend discretionary and affinity partner commissions linked directly to new sales and renewals. April to September is in any case a quieter period for marketing. We have decided to pause most large scale campaigns and will test regularly on a small scale to assess response rates. This action will affect new customer additions, but also reduce costs.

Checkatrade, Habitissimo and eLocal experienced falling demand from consumers from mid March in light of government directives to minimise unnecessary contact. At Checkatrade, 78% of trades have moved to the 50% discount offer, while 22% have moved to free affiliate membership. We have had an encouraging response from new trades joining up as they focus on how they will rebuild their business post-crisis. Around half of new trades signing up are choosing paid rather than free affiliate membership. Consumer marketing has been substantially reduced at Checkatrade, while in Habitissimo and eLocal, there is a natural offset between reduced traffic on the platforms and the expense involved in generating leads. The performance of these businesses is currently much less material to the Group's overall financial performance, accounting for less than 10% of revenue and are all still in their investment phase.

We are continuing to work on key innovations - notably HomeServe Now and at Checkatrade - in anticipation of substantial demand for home repairs and improvements when the period of lockdown ends. Some of the new ways of working we have learnt during the crisis - telefixes over the phone and video quotes at Checkatrade - will continue to play a valuable role when the crisis is over.

Mergers and acquisitions activity is largely on hold for the time being, but HomeServe is ready to act quickly as quality future opportunities arise.

To complete the viability statement in our 2020 Annual Report, the Directors assessed the viability of the Group over a three year period to 31 March 2023. We have modelled additional stress test scenarios linked to the COVID-19 pandemic. Stress tests indicated that no single scenario would impact the viability of the Group over the next three years and HomeServe's swift response to the crisis means it is well placed to face the ongoing challenges the crisis presents. Trading metrics have remained stable since the onset of the pandemic; the Group has demonstrated its ability to continue to provide a good level of service and its funding position remains healthy. As might be expected the impact increases if different risks were to materialise simultaneously or continue for longer. However, given the nature and relative diversification of the business in terms of both geography and the Group's global business lines, it is considered unlikely that such scenarios in sufficient number would occur. In such scenarios HomeServe would be able to take decisions to protect the profitability of its business.

Outlook

The situation with COVID-19 is unprecedented and continually evolving, and it has never been more difficult to predict the year ahead. In light of this we are taking action to preserve profitability and reduce discretionary spend and capital expenditure, while at the same time preparing to meet pent-up demand for home repairs and improvements as our customers come out of lockdown.

Our current working assumption is that the world will gradually come out of lockdown over the summer months of 2020. In this scenario, we will continue to work towards our stated medium to long term targets for growth in North American Membership & HVAC, and Checkatrade, with breakeven at Checkatrade likely to be delayed from FY22 until FY23. Adjusted operating profit at eLocal in FY21 is now expected to be in excess of $10m.

Given the resilience of our business model, we expect to deliver a solid performance in FY21, with our prospects for growth thereafter unchanged.

Dividend

Given our strong performance in FY20 and expectation of resilience in the year ahead, the Board proposes a final dividend of 17.8p, to take the total dividend for the year to 23.6p, up 10% and in line with earnings growth.

Conclusion

I expect the coronavirus pandemic to permanently change the way we think about our homes. Many of us have learnt that we can work successfully from home, and may be considering how to work from home more in the future. Our appreciation of a safe, agreeable home environment has never been greater. Which means that HomeServe's purpose of making home repairs and improvements easy has never been more relevant.

I would like to finish by expressing my heartfelt thanks to my colleagues for all they have done to support our business and our customers this year. I look forward with confidence to many more successful years ahead.

Richard Harpin

Founder and Chief Executive

OPERATING REVIEW

Financial performance for the year ended 31 March

¹Inter-segment revenue includes transactions with other Group companies removed on consolidation and principally comprise royalty and other similar charges.

Membership KPIs

Home Experts KPIs

*Annual web visits not disclosed - eLocal acquired part way through the year on 26 November 2019.

UK

Financial performance

Net policy income increased by 2% with lower customer numbers more than offset by a 15% increase in income per customer, as retained customers continued to deepen their product coverage.

Repair network revenue decreased by 18% as HomeServe completed 0.9m jobs (FY19: 1.2m) for its customers. Lower job volumes were driven principally by a lower customer count year on year and changes in policy mix as well as a small reduction resulting from the cessation of non-emergency work (e.g. maintenance and boiler servicing) in March owing to COVID-19.

HVAC revenue fell by 16%, driven by lower installation volumes. In FY20 the business increased its focus on providing installations for Membership customers and reduced the number of sales outside of this. Approximately 100,000 customers from the 1.8m UK customer base will require a new boiler installation each year. Accessing these should require less marketing, provide a profitable revenue stream and help strengthen relationships with existing customers.

Other revenue of £12.8m (FY19: £13.3m) principally included transactions with other Group companies and income for non-insured, on demand jobs.

Adjusted operating costs fell by 10% to £291.9m, due to reduced direct costs as a result of lower job volumes and customer acquisition as well as reduced overheads as a result of decisions taken 12 months ago on changes to the organisational design of the UK business.

As a consequence of these changes, adjusted operating profit rose by 23% to £81.0m, with adjusted operating margin up by five percentage points to 22%. The business will retain its focus on efficiency in FY21 with a margin of c. 20% seen as sustainable over the longer term.

On a statutory basis the UK segment recorded an exceptional charge of £15.0m in relation to an impairment of LeakBot reflecting slower uptake of the device from consumers and insurance partners. The financial impact of the exceptional charge is not shown in the adjusted results but is discussed in further detail in the financial review.

Operational performance

UK customers were 1.8m (FY19: 2.0m) with retention at 78% (FY19: 79%). The UK business continued its focus on serving its core customer base, for whom the HomeServe proposition of a reliable and easy way to deal with home repairs and emergencies remains as valued as ever. There continues to be less emphasis on attracting and retaining marginal customers through deep discounts. This approach, combined with lower customer acquisition year on year, drove a 15% rise in income per customer with the retention rate remaining broadly in line with the prior year.

The UK network of 800 directly employed engineers and 446 subcontractors completed 0.9m jobs (FY19: 1.2m). The directly employed network fulfilled in excess of 90% of water jobs and over half of gas jobs, with the remainder completed by the subcontract network.

Customer satisfaction remains high with an "Excellent" rating of 4.4 from 39k reviews on TrustPilot (FY19: 4.3) and a Reevoo score of 96% (FY19: 96%).

The UK business continues to pursue initiatives to transform both the customer experience and operational efficiency. HomeServe Now, HomeServe's app-based technology to swiftly identify a customer's need and connect them directly with an available engineer in close proximity to their home, was trialled in further UK regions during the second half. HomeServe Now has the potential to transform customer service and reduce costs to serve. By combining the App with a subscription-based consumer offer there is also an opportunity to access homeowners that typically would not consider the core Membership product but who frequently buy other products and services on mobile devices and via a subscription.

HomeServe has worked with the majority of UK water utilities for a number of years. In February 2020 the UK signed an agreement with one of the remaining providers, Portsmouth Water, which will see HomeServe initially offering plumbing and drainage products to Portsmouth's customer base of c. 0.3m households. The first customer policies have since been written, a pleasing result coming as it does against the backdrop of the COVID-19 restrictions.

The UK continued to integrate its HVAC business. Help-Link, the HVAC business acquired in 2017, was one of only a few national HVAC providers in the UK and HomeServe UK is now assessing larger regional providers in order to build a pipeline of buy-and-build opportunities as it looks to follow the wider Group's HVAC growth strategy. Acquiring well run, profitable HVAC companies with great local brands where there is existing high policy density also creates the opportunity to compete for the installations that the UK's 1.8m customers require each year but that they currently source elsewhere.

The Financial Conduct Authority's (FCA) market study into pricing practices across the General Insurance industry was due to be published in the first quarter of 2020 but has been delayed amidst the COVID-19 outbreak. HomeServe's focus remains, as ever, on providing products which customers value and use and providing a transparent and fair pricing journey. The business continues to provide all the information necessary to ensure customers are able to make well-informed decisions when choosing their products. HomeServe continues to monitor the situation and remains well positioned to address any recommendations the study makes to the insurance industry.

The FCA has also published additional guidance for insurance providers throughout the coronavirus pandemic stating their expectation that firms display increased awareness and respond flexibly to changing consumer circumstances. HomeServe is keeping its customers regularly informed via its many channels, including letters and telephony as well as online and continues to closely monitor the FCA's updates.

North America

Financial Performance

Total revenue increased by 25% to $546.1m and total adjusted operating profit increased by 23% to $108.6m as North America continued its strong growth trajectory. North America alone accounts for over a third of the Group's revenue and total adjusted operating profit.

Net policy income increased by 14% to over $450m as income per customer passed the $100 mark, increasing by 6% to $102 and as the business added 0.4m customers.

Repair network revenue includes jobs performed by HomeServe's growing number of directly employed engineers, including those employed by acquired HVAC companies completing jobs for Membership customers, and almost doubled to $39.5m (FY19: $20.5m).

HVAC revenue tripled to $53.3m (FY19: $17.6m) due to a full year run rate of prior year HVAC acquisitions such as Cropp Metcalfe and an additional three acquisitions in the period for total consideration of $20.7m, the largest of which was Crawford Services, HomeServe's first acquisition in Texas.

Acquisitions in the year contributed just $15.9m of revenue and $1.6m profit, with North American progress still very much driven by organic growth.

The North America margin remained stable at 20% as total adjusted operating profit exceeded $100m for the first time, growing by 23% to $108.6m. HomeServe remains on track to achieve its previously stated medium to long-term profit milestone for its North America business of $230m.

Operational performance

Total customers increased by 9% to 4.4m driven principally by organic growth and the continued success of HomeServe's utility-branded marketing campaigns which added 1.2m (FY19: 1.2m) gross new customers in the year. Supporting this customer growth is a core base of renewing customers and the retention rate remained strong at 83% (FY19: 83%). Customers are also opting for more cover, with policies increasing by 12% to 7.5m and helping drive income per customer over $100 to $102 (FY19: $96).

HomeServe continues to deliver high levels of service when its customers need it most and in FY20 its network of 205 engineers and c.5k contractors completed 0.5m jobs (FY19:195 engineers and c. 5k contractors, 0.5m jobs). The business retains its A+ Better Business Bureau rating and in March 2020 was once again honoured at the annual Stevie Awards for Sales and Customer Service with 30 awards including a gold award for "Innovation in Customer Service". Recent investments in technology and innovation such as Smart IVR have proven invaluable in recent months, delivering additional scale and flexibility to serve customers throughout the challenges presented by COVID-19 in March and April.

Providing great customer service is one of the key reasons utilities trust HomeServe to provide products to their customer base and HomeServe now works with over 950 utility and municipal partners (FY19: c. 700) providing access to 64m North American households under a utility brand (FY19: 60m). Although the situation with COVID-19 inevitably paused some utility partner discussions, HomeServe continues to sign new partnerships and in April 2020 signed Alabama Power for an additional 1.3m households and the Municipality of Ottawa in Canada with 0.4m households. Both are great indications of the continuing appeal of HomeServe's services to utilities, even during the COVID-19 pandemic.

In December 2019 HomeServe acquired ServLine for total consideration of $24.1m. ServLine works with over 150 rural water utilities across 18 states through an exclusive partnership with the National Rural Water Association and 28 State Rural Water Associations. ServLine offers a unique leak adjustment product to participating utilities protecting both homeowner and utility from the cost of water lost from leaking pipes. The leak product increases the range of solutions HomeServe can offer homeowners and utilities, providing further opportunities to increase the customer and partner count as HomeServe looks to achieve its ambitions in North America.

Two further acquisitions in the year were made in the Whole Home Warranty space: American Home Guardian and Nations were added for total consideration of $8.0m. Both acquisitions contributed to HomeServe's launch of its TotalHome Warranty product, a cover-all approach to the main systems and appliances in the home. The launch has used TV and online channels to attract consumers who are typically younger and more digitally minded than HomeServe's current customer demographic. As a much broader product the TotalHome offer attracts a higher price point and over time should provide a further opportunity to increase income per customer.

The HVAC market in North America is highly fragmented with tens of thousands of providers in a market estimated to be worth $29bn annually. HomeServe is building a pipeline of high quality HVAC businesses that can generate synergies with Membership. HomeServe's 4.4m customer base generates hundreds of thousands of installation requests every year which would usually go to competitors but which marketing efforts can now direct to HomeServe's own HVAC businesses. By acquiring HVAC businesses in areas of high policy density HomeServe can also use the acquired workforces to complete repairs for the Membership business and over time reduce its underwriting cost and contribute to future margin growth.

France

Financial performance

2020 was another successful year for France, returning its highest ever revenue of €128.4m (FY19: €118.7m) and highest profit of €39.0m (FY19: €37.8m) whilst continuing to invest in Membership and HVAC growth initiatives.

Net policy income increased by 4% to €120.1m driven principally by a higher customer count and HVAC revenue rose significantly to €7.8m (FY19: €1.7m) due to the full year run rate of prior year HVAC acquisitions and five additional acquisitions made during the year.

At 30% the French margin was lower than the prior year, as expected, due to increased marketing to grow the customer book but it remains the highest in the Group and is sustainable in the long term.

Operational performance

A 5% increase in customers to 1.1m was the strongest percentage growth in France for five years and total gross new customers of 0.2m was the highest ever. The business prospered from a number of new relationships with non-utility partners, e.g. JeChange and Papernest, as an active business development team added six new energy retailers in total and continues to grow the prospects pipeline.

HomeServe continued to generate new customers from its existing water partnerships and Veolia, Suez and Saur all added more customers this year than last but new partners generated c. 20% of new customer joins. Veolia is offering HomeServe's products in its call centres via its Homefriend initiative, Suez has agreed to further direct mail campaigns and all 15 Saur regions are now transferring prospect sales calls to HomeServe.

The retention rate was strong at 89% (FY19: 89%) and remains a good indication of the high levels of customer satisfaction in French Membership. The business was awarded Elu Service Client de l'Année for the fourth year in succession and internally measured complaints statistics are close to all time lows.

In HVAC the buy-and-build strategy added a further five small acquisitions for total combined consideration of c. €3.3m. The HVAC team is focussed on successful integration of these businesses ensuring strong links are made to enable the best cross-selling opportunities for installations and Membership cover.

In November HomeServe France was awarded status as a Great Place to Work, and in March 2020 ranked 23rd amongst companies with 250 to 1,000 employees within Best Place To Work 2020.

Spain

Financial performance

Total revenue in Spain increased by 11% to €176.6m as new contracts drove an 18% increase in repair revenue in the Claims business, acquisitions contributed to a 143% uplift in HVAC revenue and Membership revenue was more resilient than anticipated as initiatives were implemented to preserve its back book of customers, and income per customer rose by 8% to €61.

Adjusted operating costs grew by 10% to €153.5m as a result of costs directly attributable to the increased repair revenue and growing HVAC business line. The adjusted operating margin rose slightly to 13% principally reflecting the benefit of additional scale in the Claims business.

Operational performance

The Membership business had a good year and total customers were 1.0m (FY19: 1.1m) as HomeServe continued to explore opportunities for new partnerships to replace the relationship with Endesa, which ended in May 2018. In the absence of a major new partner the customer book will continue to decline but the relationship with Endesa remains positive with an extended billing agreement and continued re-activation marketing. The retention rate increased to 83% (FY19: 80%) and income per customer increased to €61 (FY19: €57) reflecting the increasing maturity of the book.

The customer number was also boosted by the addition of a small policy book of c. 30k from Sareteknika, an HVAC provider, and a further 15k acquired with various smaller HVAC acquisitions in the year.

The Claims business had its most successful year ever, completing 1.0m jobs (FY19: 0.8m), a year on year increase of 17% despite a marked reduction in March due to the effects of COVID-19. The increase in job volumes was driven by successful business development activities and a number of new partnerships including Bansabadell Seguros Generales. The business is also working closely with Habitissimo to buy leads which can be deployed to its existing network of 266 franchisees and c. 2.2k subcontractors (FY19: 190 franchisees and c. 1.9k subcontractors).

HomeServe Spain made seven HVAC acquisitions in the year including three policy books and four business combinations (Somgas, Linacal, Tecno Arasat and Sate) for a total cash outflow of €9.4m. The business continues to build a pipeline of further potential acquisitions and in line with the wider Group's HVAC strategy, all acquisitions to date are being integrated in order to generate maximum synergies with the Membership business - cross-selling Membership cover following an installation and marketing installations of new HVAC appliances to the Membership customer base.

Home Experts

*Annual web visits not disclosed - eLocal acquired part way through the year on 26 November 2019.

Financial performance

Total Home Experts revenue increased by 78% to £71.8m principally as a result of a 30% increase at Checkatrade to £38.5m and the addition of £22.1m revenue from eLocal, which was acquired in November 2019. Habitissimo revenue grew 4% to £11.1m despite a 4k reduction in trades as the business increased its focus on serving and growing its larger trades.

The total adjusted operating loss of £13.9m increased by 86% due to increased marketing activity at Checkatrade, structural changes at Habitissimo and the cost of an organic test of Home Experts in France. eLocal generated an adjusted operating profit for the four months post-acquisition of $2.5m, below the anticipated $5m, due to increased headcount to strengthen the team for its future growth plans and the effects of COVID-19 that significantly reduced demand in March.

On a statutory basis an exceptional gain of £3.6m was recorded in relation to the acquisition of the remaining 30% of Habitissimo. This is discussed in further detail in the Financial Review.

Checkatrade

Checkatrade is making good progress to grow both sides of its platform as it strives to achieve its milestone targets of 150k to 200k trades, average revenue per trade of £1,200 to £1,300 and an adjusted operating margin of 25% to 35%.

Visitors to Checkatrade's newly refreshed website grew by 32% and now benefit from additional functionality when selecting and contacting trades such as 'shortlist' and 'call back'. Average revenue per trade grew by 10% to £1,023, total trades grew by 9% to 39k and Checkatrade was on track for slightly higher growth until the impacts of COVID-19 caused numbers to fall in March.

Matching increased consumer web visits with high trades growth has been a key focus of the business throughout FY20. Gross trade acquisition of 16k was very successful but a higher level of cancellations amongst members within their first year slowed overall progress. Key to retaining these trades is ensuring a fair distribution of work generated by the increased visitor traffic amongst all trades. Initiatives to achieve this, such as inserting new trades higher up the search results pages for a period of time, had begun to take effect and showed encouraging improvements early in the final quarter.

Directory leaflets also play a crucial role in driving brand awareness amongst consumers and generating work that provides value for trades' membership. Calls to leaflet members in FY20 were up 42% year on year reflecting the roll out to new geographies and an increased frequency of leaflet 'drops' in some areas.

Back office changes to improve the platform and its supporting systems to ensure the business scales effectively and efficiently to meet its growth plans continue apace with projects to automate the vetting process and implement a new customer management system and billing engine well underway.

The impact of COVID-19 has been particularly pronounced in Checkatrade but proactive decisions taken to support trades and offer options to pause or alter Memberships have been well received and should serve to underline the value of the platform to its trades in the future.

Habitissimo

In June 2019 HomeServe acquired the remaining 30% of Habitissimo and appointed Sarah Harmon, previously Country Manager of LinkedIn Spain and Portugal, as its new CEO. Sarah spent the second half of the year building a new commercial plan for the business and determining its future priorities.

Learnings from other successful lead generation businesses, including eLocal, show the benefit of offering a solution for national accounts and larger trades companies. These companies want a greater volume of leads and have the support functions to enable them to maximise lead conversion. HomeServe Spain's Claims operation is a good example of such a business and Habitissimo has been working closely with them to develop its offer.

By focussing its efforts on increasing the volume and quality of leads it generates, Habitissimo intends to grow its lead generation business whilst also launching the directory model under the HomeServe brand in Spain later in 2020. To provide additional bandwidth and oversight, the decision has also been taken to exit Argentina, Columbia and Peru, Habitissimo's three smallest LATAM territories.

eLocal

On 26 November 2019 HomeServe acquired 79% of eLocal for £98.8m. eLocal is a fast growing Home Experts business based in Philadelphia, in North America, with annualised revenue of c. $90m, a network of 3k paying trades and a directory of c. 8.5m free listings. The key management team has been retained with Bruce Aronow, one of the founders, continuing as CEO.

eLocal's business model most closely resembles lead generation with a number of unique aspects that can be applied in HomeServe's other Home Experts businesses. As well as using its own SEO and SEM (Search Engine Optimisation and paid Search Engine Marketing), eLocal utilises a wide network of affiliates to generate leads principally via calls from consumers. These are then monetised by matching to a network of trades, many of whom are larger national accounts buying hundreds or even thousands of leads a year. The focus on calls and larger national accounts means that today eLocal generates fewer web visits and has fewer paying trades than both Checkatrade and Habitissimo so all businesses are already working closely together to share best practice and initiatives to drive future growth. eLocal is also looking at ways to work more closely with the North America Membership business.

Financial performance for FY20 was lower than originally anticipated with additional costs incurred to integrate the business into a Plc environment and to introduce headcount to prepare the business for its future growth plans. The business was also impacted by COVID-19 with significantly reduced demand in March. HomeServe now expects eLocal to add in excess of $10m of adjusted operating profit in FY21 vs. previous guidance of $16m.

France

During the year Home Experts in France launched a test with free basic website listings, upselling trades to enriched, fuller profiles. Following the successful test, in May 2020 HomeServe entered into a new structure to scale the business. The management team will now own 80% with HomeServe taking a 20% stake with an option to increase this in the future, once the business has achieved national scale.

New Markets

In January 2020 HomeServe announced that its Japanese joint venture with Mitsubishi Corporation had signed its first utility partnership, with Chugoku Electric a utility in Western Japan serving 2.9m households. Responses to initial marketing campaigns launched in January were very encouraging with take-up rates approaching those seen in North America. Marketing was paused as a result of COVID-19 but the business continues to run tests and is building a pipeline of other utility partnerships as it attempts to grow its access to Japan's 53m households.

The £4.7m loss also includes the cost of the international business development team, which continues to prospect and hold discussions in a number of other countries.

HomeServe saw limited opportunities for Membership growth in Italy, so in line with its discipline of focusing resources on the Group's largest opportunities, the decision was taken to exit the Italian operations. HomeServe sold its 49% share in its Italian associate and 0.2m customers to its partner and existing 51% shareholder Edison Energia for cash consideration of £8.4m, giving rise to a £3.8m exceptional gain.

FINANCIAL REVIEW

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

Group statutory results

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

Profit before tax

A strong operational performance driven by profit growth in all Membership businesses resulted in a 12% growth in adjusted profit before tax to £181.0m.

Statutory profit before tax is reported after the amortisation of acquisition intangibles and exceptional items as detailed below. On this basis profit before tax was £137.9m (FY19: £139.5m) as underlying profit growth was offset by net exceptional charges of £7.6m recorded principally in the UK in relation to the Group's LeakBot asset (see below).

Net finance costs

Net finance costs rose to £20.7m (FY19: £13.1m) due to the unwinding of interest on deferred consideration in relation to previous M&A activity, the impact of IFRS 16 and the higher average net debt balance year on year combined with a higher weighted interest rate as a result of US Private Placements agreed in the prior year.

Exceptional items

The Group incurred the following exceptional items in the year, amounting to a net charge of £7.6m (FY19: net gain of £4.6m).

Consumers and insurance partners have been slower than expected to adopt smart leak detection technology. Following the Group's annual budgeting process and subsequent updates in light of COVID-19 HomeServe completed an impairment review of the Group's LeakBot assets, concluding that the net assets of the business are impaired, and incurring £15.0m of exceptional charges. This conclusion has been reached based on a number of factors affecting expected future cash flows including commercial traction, access to investment and the pace of technology change. Of the £15.0m, £12.9m related to the impairment of development assets for the LeakBot device, £1.4m of inventory and a £0.7m restructuring provision.

An exceptional gain of £3.8m was recorded in relation to the sale of HomeServe's Italian associate, Assistenza Casa, principally representing the excess of the total £8.4m sale proceeds over the carrying value of the investment in the Group's balance sheet.

A further exceptional gain of £3.6m was recorded in relation to the purchase of the remaining 30% stake in Habitissimo, principally representing the lower consideration paid of £7.7m compared to the carrying value of the option liability in the Group's balance sheet.

The prior year exceptional item of £4.6m included an exceptional cost of £5.5m, mostly related to redundancies and other associated charges incurred in respect of changes to the organisational design of the UK business. Offsetting this charge was an exceptional gain of £10.1m relating to a fair value movement on contingent consideration payable to the previous owners of Help-Link upon hitting certain stretch target volumes of boiler installations. At 31 March 2019 the Group determined that the likelihood of hitting these targets was remote and that the fair value of the outstanding liabilities was £nil.

Amortisation of acquisition intangibles

Acquisition amortisation relates to customer and other contracts held by businesses, which were acquired by HomeServe as part of business combinations and asset purchases.

The amortisation of acquisition intangibles of £35.5m (FY19: £26.8m) increased principally due to charges relating to prior year M&A activity.

Amortisation of acquisition intangibles is excluded from the adjusted performance measures reported by the Group in each specific reporting period, ensuring that these measures only reflect the revenue attributable to, and costs incurred by, the Group in managing and operating its businesses and assets at that time in each reporting period. A reconciliation between adjusted and statutory amounts is included with the Glossary at the end of this announcement along with further commentary on HomeServe's use of adjusted items as an Alternative Performance measure.

Tax strategy

The Group has continued to operate within the tax strategy approved by the Board in May 2019. The tax strategy is subject to annual review and reflects HomeServe's status as a plc, and the regulated nature of its business which requires strong governance and consideration of reputation as well as compliance with local laws, regulations and guidance. The UK elements of the tax strategy document are publicly available on the Homeserve plc website as required by UK legislation.

The Group tax strategy covers how HomeServe:

(i) applies tax governance on an ongoing basis and maintains strong internal controls in order to substantially reduce tax risk;

(ii) will not engage in artificial transactions the sole purpose of which is to reduce tax;

(iii) holds a strategic aim to retain its low tax risk rating as determined by the UK Tax Authority's Business Risk Review process; and

(iv) works 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 £32.1m (FY19: £31.2m), representing an effective tax rate of 23% (FY19: 22%). The corporate income tax rates in the overseas countries in which the Group operates continue to be higher than the UK corporate income tax rate of 19% (FY19: 19%), which results in a Group effective rate higher than the headline UK rate. As the proportion of the Group's profits earned overseas continues to grow, the effective tax rate is expected to increase slightly.

Other comprehensive income

At 31 March 2020 the fair value of the Group's investment held in a manufacturer of smart thermostat connected home technology has been reassessed. In light of the current market conditions and uncertainty associated with the COVID-19 pandemic the Group has reduced the fair value of its investment by £3.7m. This movement, net of a £0.8m reduction in the associated deferred tax liability, has been recorded in the investment revaluation reserve.

Cash flow and financing

HomeServe's business model continues to be highly cash generative with free cash flow in FY20 of £93.4m (FY19: £44.3m).

Working capital

Working capital absorption was £44.1m in FY20 (FY19: £30.4m) slightly higher than guided, reflecting the expected growth in all businesses, in particular in North America and the adverse timing of underwriting payments in the UK.

Capital expenditure

Total capital expenditure of £85.9m (FY19: £115.7m) included £6.9m (FY19: £48.8m) for the acquisition of five small policy books across France, Spain and North America. Bolt-on policy books continue to be a proven, comparatively low-risk approach for acquiring additional customers. In FY19 the cash outflow of £48.8m related principally to the second tranche of the Dominion Products and Services policy book.

Ordinary capital expenditure of £79.0m included £21.0m (FY19: £15.0m) of payments made to partners who undertake marketing activity to acquire customers on HomeServe's behalf with the largest increase in France due to higher sales completed by Veolia which helped drive France's highest ever new customers acquired.

The balance of £58.0m (FY19: £51.9m) principally comprised technology investments in customer and network management systems in Membership and platform developments at Checkatrade. With major capex programmes such as the UK Customer Relationship Management system coming to an end, capital expenditure is expected to fall.

Acquisitions

M&A activity continued to support HomeServe's growth ambitions, incurring a cash outflow in the year of £140.6m. There were three material acquisitions in the year, all in North America;

· 79% of eLocal Holdings LLC for a net cash outflow of £93.4m, bringing Home Experts to North America

· a group of assets constituting a business under IFRS 3 from Sunbelt Group LLC, "ServLine", for an outflow of £13.7m, expanding the product and partnership opportunities of the North American Membership business

· Crawford Services Inc., a HVAC service provider, enhancing the scale and scope of HomeServe's HVAC capabilities, for a net outflow of £10.5m

The acquisition of 79% of eLocal also provided HomeServe with options to acquire the remaining 21% by FY26. Further detail on the structure and operation of the different 'put' and 'call' options is disclosed in note 12. At 31 March 2020 the carrying value of obligations under these put options was £31.3m.

An additional 14 businesses were acquired for an outflow of £16.6m as the Group continued the pursuit of its HVAC buy-and-build strategy in North America, France and Spain and Membership added two whole home warranty providers, enabling the North America business to gain experience and a foothold in this growing market to support the launch of its own TotalHome Warranty product.

In addition to the total net cash outflow on the acquisitions above of £134.2m, deferred and contingent consideration was paid relating to previous business combinations of £6.4m (FY19: £10.4m).

HomeServe continues to identify and assess M&A opportunities in all of its businesses, including further HVAC investment as it expands its buy-and-build initiative. Policy book M&A remains a low risk approach to accelerating growth and HomeServe continues to attempt to unlock opportunities in all countries, particularly North America.

Purchase of own shares

During the year 249,975 (FY19: nil) shares were repurchased at a cost of £3.0m (FY19: £nil) to fulfil awards made under share incentive schemes. No shares were transferred to individuals to satisfy awards (FY19: nil).

Earnings per share

Basic earnings per share for the year decreased by 3% to 31.7p from 32.7p due principally to the impact of the exceptional items discussed above. On an adjusted basis, earnings per share increased 10% from 37.5p to 41.3p. The weighted average number of shares increased from 331.7m to 334.2m principally due to new shares issued in fulfilment of share schemes that vested in the year.

Dividends

Given the Group's good performance, the Board's confidence in HomeServe's continued short-term resilience and its future prospects, the Board is proposing to increase the final dividend to 17.8p per share (FY19: 16.2p) to be paid on 3 August 2020 to shareholders on the register on 3 July 2020.

Together with the interim dividend declared in November 2019 of 5.8p (November 2018: 5.2p), this represents a 10% increase in the total ordinary dividend payment for the year of 23.6p (FY19: 21.4p), which is 1.75x covered by the FY20 adjusted earnings per share (FY19: 1.75x).

Financing

In FY20 the Group continued to target net debt in the range of 1.0-2.0x adjusted EBITDA, measured at 31 March each year. With adjusted EBITDA of £275.3m and net debt of £509.0m, including c. £60m of lease liabilities at 31 March 2020 following the adoption of IFRS 16 in this financial year, the Group was inside its target range at 1.8x. Due to the ordinary seasonality of the business, net debt is expected to increase at the next half year before declining, absent any future M&A.

Excluding lease liabilities, gross debt was c. £580m and cash was c. £131m, giving the Group over £330m of headroom against total available facilities of £780m. Included within the facilities is a new £50m revolving credit facility added on 30 March. With this headroom and with only £36m of the facilities due within the next 12 months the Group is well positioned to address the challenges posed by COVID-19.

Net interest and borrowing costs paid increased to £18.5m (FY19: £9.9m) principally due to the higher net debt figure year on year and a full year's fixed interest charge on the c. £175m US Private Placement agreed in October 2018.

At a Company only level HomeServe has replaced intercompany receivables with an injection of capital into its intermediary holding companies to better match their funding requirements. There is no impact from this to the consolidated Group financing position.

Foreign exchange impact

The impact of changes in the Euro and USD exchange rates between FY19 and FY20 resulted in a £9.1m increase in the reported revenue and a £1.3m increase in adjusted operating profit of the international businesses as summarised in the table below, largely as a result of a beneficial movement in the US dollar. The impact of foreign exchange on statutory operating profit was in line with this.

¹Home Experts is reported in GBP due to the different currencies used by the operating businesses within the segment. This table shows the impact of foreign exchange movements in the Euro for the results of Habitissimo

With an increasing proportion of HomeServe's profits generated overseas, the potential translation impact of foreign exchange movements on reported profits may have a larger impact. A ten cent movement in the FY20 average USD rate of 1.27 and the Euro rate of 1.15 would have had approximately a £7.0m and £5.0m impact respectively on full year adjusted operating profit.

The impact of future movements in the Yen in FY21 following HomeServe's new joint venture in Japan is not expected to be material.

IFRS 16

HomeServe has adopted IFRS 16 using the modified retrospective 'Asset = Liability' approach with a date of initial application of 1 April 2019. Comparative information provided in this announcement has not been restated. The effect of IFRS 16 on the income statement is to remove operating lease charges previously shown within 'operating costs', replacing them with depreciation and interest charges that now result from the capitalisation of "Right of Use Assets" and the recording of "Lease Liabilities" in the consolidated balance sheet (see note 2).

There is no material impact on FY20 PBTA as a result of adopting IFRS 16. The effect on adjusted operating profit at a Group level is a reduction of £0.2m with the segmental breakdown shown in the Glossary, at the end of this announcement.

Customers

HomeServe Membership's growth strategy aims for the business to provide its products to more homeowners. It does this by successfully marketing its products to end consumers and by delivering high standards of service. HomeServe's customer KPI measures its success in achieving this aim.

Under IFRS 15 a customer is defined as 'a party that has contracted with an entity to obtain goods or services'. In the Membership businesses where the Group acts as an intermediary selling contracts and insurance policies to end consumers, the 'IFRS 15 customer' is considered to be the underwriter with which the Group has contracted to sell policies. The Glossary at the end of this announcement provides further detail on customer definitions and the associated effect this has on revenue recognition.

Principal Risks and Uncertainties

HomeServe has a robust risk management framework which encompasses the Group's risk policy and overall risk appetite. The framework utilises the three lines of defence model which is recognised as best practice across the industry. It provides a disciplined and consistent approach across all of HomeServe, ensuring a structured response at all levels throughout the Group and across all businesses and geographies.

This structured approach is aimed not only at monitoring and mitigating identified risks but also aims to capture and escalate emerging risks and opportunities and is best illustrated by HomeServe's response to COVID-19, the rapid move to home working for all office based staff and initiatives in the field to ensure a safe continuity of service for HomeServe's customers.

Changes in FY20

Group Enterprise Risks are considered to represent the most significant threats to HomeServe's ongoing strategy and operations. Risk registers continue to be maintained at a local level in every business and are formally reviewed by the Audit & Risk Committee at each of its meetings together with Group Enterprise Risks.

In previous years all businesses had separately considered the effects of climate change within the context of other risks. With increasing interest in this area amongst our staff, as well as other stakeholder Groups, all businesses commenced a more coherent approach this year to implement actions which improve HomeServe's environmental impact. With discussions also occurring at Board and Exec level, the potential impacts of climate change and other environmental considerations on HomeServe's business model have been considered more formally and Sustainability is now reported separately as a Group Enterprise Risk.

Whilst climate change affects all of our business lines, Membership continues to dominate the rest of our Principal Risks - understandably so, given its current size relative to other business lines. However as Home Experts continues to grow and with the acquisition of eLocal, there have been movements in certain other risks and new emerging risks in Home Experts may become elevated to Group Enterprise Risks in the future.

The following table sets out what the Board believes to be the principal risks and uncertainties facing the Group, the mitigating actions for each, and where applicable, updates on any change in the profile of each risk during the past year. All risks carry equal importance and weighting for the Board, however additional focus and priority may be given to specific risks for a period of time in certain circumstances e.g. following a material acquisition or to implement plans to reduce any risk which exceeds the appetite threshold.

Some additional, presentational, changes have been made this year to align risk labels to those reviewed internally by HomeServe's Committees and Board. Where there has been an update, the previous name is denoted below the risk label in the principal risks table.

The principal risks and uncertainties should be read in conjunction with the Operating Review and the Financial Review. Additional risks and uncertainties of which HomeServe is not currently aware or which are believed not to be significant may also adversely affect strategy, business performance or financial condition in the future.

Risk Appetite

In accordance with the Group's Risk Management policy, the Group's risk appetite is subject to an annual review of its definition, content and criteria for assessment scores.

The Board's assessment of risk appetite is guided by our vision to become the world's most trusted provider of home repairs and improvements and by our purpose to make home repairs and improvements easy. HomeServe's values reflect our commitment to our customers, our people, to innovation and integrity and being the best at what we do. HomeServe's risk appetite is comparatively low, recognising; firstly our status as a plc which requires strong governance and reputation, together with delivering returns for our shareholders and; secondly our regulated status which requires compliance with local laws, rules and guidance.

Risks are assessed at a local level on a gross basis using a matrix approach, to score likelihood and impact, and on a net basis after considering any mitigations which have been applied.

Brexit

Brexit has never featured as one of HomeServe's enterprise risks but it continues to be monitored at a local and a Group level following the UK's formal exit on 31 January 2020. Brexit retains the potential to be one of the most significant economic events for the UK and the full range, scale and timing of potential outcomes and impacts are not yet certain. However, HomeServe continues to believe the impact on the underlying performance of the Group will be limited.

HomeServe's businesses trade exclusively within their own borders and HomeServe is not exposed to any cross border transactional currency risk. The Group remains subject to translation risk on the presentation of results in Sterling however this is within the ordinary course of business.

COVID-19

The COVID-19 crisis is still an evolving situation which all businesses are actively tackling in a number of different respects. For example ensuring technology is available to support staff working from home, ensuring that engineers on the front line can complete repairs whilst protecting themselves and our customers and ensuring that supplier relationships are maintained safely and appropriately to deliver the necessary protective equipment and parts and materials.

As a risk which has crystallised, COVID-19 is categorised neither as an enterprise level risk nor as an emerging risk. However consideration is being given to a wider emerging risk of the potential for other pandemics in the future. The work undertaken to switch to home working and maintain emergency repairs is being reviewed as is the impact on sales volumes, claims volumes, cancellation rates and a number of other KPIs and metrics. The results of this analysis will inform not only short-term return to work plans but also longer term risk monitoring approaches and mitigations.

Having demonstrated in the short term that we were able to respond quickly and effectively to keep operations functioning and maintain good levels of service in all businesses, key to the longer term prospects of the Group will be the resilience of the model and consumer behaviour. In previous periods of consumer uncertainty and economic downturn, for example during the financial crisis in c. 2008 to 2009, little negative impact on business performance was observed and the model remained resilient.

Impacts have so far been more pronounced on the Home Experts businesses but the portfolio effect of different business lines, and four main Membership businesses situated in different countries affords a good degree of protection for the Group as a whole and the longer term prospects for Home Experts, including Checkatrade's milestone targets remain unchanged. Underpinning the resilience of the Membership model is the type of customer it attracts; policy buyers like to protect themselves from unforeseen expenses and the difficulty of getting a good tradesman out quickly. The additional requirement to find a provider who can perform repairs whilst adhering to strict health and hygiene guidance is an extra factor customers now need to consider.

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. With over £330m of headroom against its debt facilities, liquidity is healthy and the Group is well positioned to face the ongoing challenges of COVID-19.

For further detailed actions and initiatives being taken as a result of COVID-19, please see the Chief Executive's Review.

Enterprise risks

Movements in risks shown below are largely 'business as usual' but all risks are now in sharper focus as a result of the circumstances concerning COVID-19 and wider economic uncertainty. However some risks have increased as a direct consequence of COVID-19 e.g. Cyber, as a result of 6,000 new homeworkers.

The COVID-19 situation is unprecedented and will likely have a number of other unforeseen outcomes on the risks below potentially both positive and negative e.g. M&A activity was paused as the Group exercised additional caution due to the widespread uncertainty but there is every possibility that more M&A opportunities may now arise and at more favourable multiples. For example a utility could revisit its current stance and opt to sell its policy book in order to fully focus on its core operations. Additionally there may be further upside opportunities as HomeServe advances its current product initiatives e.g. HomeServe Now and looks to meet the possibility of increased demand when situations ease across the countries in which HomeServe operates.

Group Income Statement

Year ended 31 March 2020

1 The Group's results are being reported under IFRS 16 for the first time in 2020 following the mandatory adoption of the standard from 1 April 2019. In accordance with the transitional provisions of IFRS 16, comparatives have not been restated. See note 2.

Group Statement of Comprehensive Income

Year ended 31 March 2020

Group Balance Sheet

31 March 2020

Group Statement of Changes in Equity

Year ended 31 March 2020

Year ended 31 March 2019

1 Other reserves comprise the Merger, Own shares and Capital redemption reserves.

Group Cash Flow Statement

Year ended 31 March 2020