interim results 6 months to 30 september 2003 1. brian whitty group chief executive 2
TRANSCRIPT
Interim Results 6 Months to 30 September 2003
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Brian WhittyGroup Chief Executive
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Financial Highlights
* Before goodwill
Turnover 145.5 111.7 30%
Operating Profit* 21.0 17.4 20%
Profit Before Tax* 17.5 15.3 14%
EPS* 18.0p 17.1p 5%
DPS 6.1p 5.6p 9%
Six months ended 30 September, £m 2003 2002 %
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Operational Highlights 2003
• Home Service profits increased 141% and now has 2.6m policies and has increased retention rate to 87%
• Highway is starting to benefit from the management and operational changes together with a significant new customer win
• Regency has performed well considering the downturn in retail furnishing market and changes to structural warranties
• Commercial Outsourcing profits reduced, primarily reflecting the expected absence of a large software licence sale and implementation
• Customer Solutions has focused on developing a capability for high volume transactional work
• South Staffordshire Water again ranked second in industry for levels of service.
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Andrew BelkGroup Finance Director
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Group Profit and Loss
Turnover 145.5 111.7 30%
Operating Profit 21.0 17.4 20%
Interest (3.5) (2.1) 69%
Profit Before Tax 17.5 15.3 14%
Tax (5.2) (4.4)
Minority Interest (0.9) (0.2)
Earnings 11.4 10.7 6%
EPS 18.0p 17.1p 5%
DPS 6.1p 5.6p 9%
Six months ended 30 September, £m 2003 2002 %
All figures before goodwill
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Analysis of Turnover
Support Services- Home Service 37.6 28.3 33%- Regency 7.6 6.0 7.1 -- Highway 21.6 9.3 21.1 -- Servowarm 4.1 - -
70.9 43.6 63%
Commercial outsourcing
- Middleton 14.4 4.8 13.3 -- OnSite 21.4 22.6 -5%- Customer Solutions 18.3 19.9 -8%- Inter-divisional sales (9.6) (8.5)
44.5 38.8 15%
Regulated Water Supply 30.1 29.3 3%
145.5 111.7 30%
Six months ended 30 September, £m 2003 2002 2002* %
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* Full 6 months
Operating Profit by Division
• HomeServe profit is before interest payable of £1.9m
HomeServe 8.4 3.9 112%
Commercial Outsourcing 4.5 5.5 -18%
Regulated Water Supply 8.1 8.0 2%
Total Operations 21.0 17.4 20%
Six months ended 30 September, £m 2003 2002 %
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HomeServe Operating Profit
• Regency full six months to 30 September 2002 £2.1m profit
• Highway full six months to 30 September 2002 £0.2m profit
Home Service 6.5 2.7 141%
Regency 2.1 1.7 -
Highway (0.2) (0.5) -
Total HomeServe Division 8.4 3.9 112%
Six months ended 30 September, £m 2003 2002 %
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Commercial Outsourcingand Water Operating Profit
• Middleton full six months to 30 September 2002 £1.0m• Regulated Water Supply profit is before interest of £3.2m
Commercial outsourcing - existing 3.6 5.2 -30%
Middleton 0.9 0.3 -
Regulated Water Supply 8.1 8.0 2%
Total Operations 12.6 13.5 -6%
Six months ended 30 September, £m 2003 2002 %
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Group Cash Flow
Operating Profit (pre goodwill) 21.0 17.4Depreciation and profit on disposals 8.7 7.8Decrease / (Increase) in working capital 1.4 (0.1)
Net cash inflow from operating activities 31.1 25.1
Net interest / dividends to minority (3.7) (2.9)Taxation (5.3) (5.1)Capital expenditure (14.1) (15.4)Acquisitions (2.3) (76.0)Equity dividends paid (7.8) (7.0)Issue of shares 0.2 0.1Financing (0.8) 83.1
(Decrease)/Increase in Cash (2.7) 2.1
Net Debt (106.4) (115.2)
Six months ended 30 September, £m 2003 2002
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Capital Expenditure
Regulated Water Supply- New assets 9.0 11.8- Infrastructure renewals 3.9 3.8- Capital contributions (2.9) (2.7)
10.0 12.9
Support Services- HomeServe 2.7 1.2- Commercial Outsourcing 2.1 1.5
4.8 2.7
Sales Proceeds (0.5) (0.3)
Investment in JV - 0.1
14.3 15.4
Six months ended 30 September, £m 2003 2002
£0.2m (2002:£0.1m) acquired under finance leases
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Group Balance Sheet
Fixed Assets- Goodwill 121.2 126.7- Tangible 176.6 168.3Net Current Liabilities (7.1) (10.8)Deferred Consideration (21.5) (26.2)Accruals and Deferred Income (17.8) (15.2)
Net Debt (106.4) (115.2)
Deferred Tax and Provisions (10.1) (7.9)
Net Assets 134.9 119.7
Interest Cover Group 6.0 8.0
As at 30 September, £m 2003 2002
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Brian WhittyGroup Chief Executive
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Home Service
• Policies up 8% to 2.6m compared to March 2003 policies of £2.4m– Plumbing 1.85m (1.73m)
– Electrics 0.56m (0.55m)
– Gas and other 0.16m (0.12m)
• Continued successful use of telesales, 190 operatives• Autumn mailings performing well• Joint Venture in France now has over 100,000 policies• Secured agreement with Scottish Water to market plumbing product in its area• Manufacturer warranty operation making good progress with Mira and Ideal, and
secured agreement with Applied Energy (Creda, Redring, Xpelair)• HomeServe and Home Hotline managing Home Emergency business on behalf of
Norwich Union Direct• Plumbing and drains extending its customer base beyond Home Service to
insurers (Royal and Sun Alliance, Prudential)
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Regency
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• Operating profit of £2.1m compared to £2.1m for full six months to 30 September 2002
• Furnishing retail market has been challenging, but showing signs of improvement
• New Customers, including Littlewoods and Furnitureland have continued to grow warranty sales
• Successful replacement of the Harvey’s structural warranty product
• Recent Customer wins include Land of Leather
• Regency at Home is trialing upholstery cleaning and repair with Household Insurers, including Nationwide, Legal and General and Fortis.
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• Operating loss of £0.2m compared to profit of £0.2m for full six months to 30 September 2002
• New management team in place
• Significant operational advances made, expected to be reflected in trading performance in second half
– Conversion of leads to sales– Cost reductions from improved procurement– Automated workflow and invoicing
• Royal and Sun Alliance commenced in September 2003, currently third largest account
Highway
Commercial Outsourcing
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• Operating profit of £4.5m compared to £5.5m
• As expected, no large Rapid software licence sale and implementation
• Operating margins reduced from 9.6% to 9.0%, excluding Rapid, reflecting competitive nature of market and customer reorganisations
• OnSite and Middleton/Doorman businesses experienced inconsistent workloads on some major contracts, and dry summer reduced reactive drainage work
• Middleton/Doorman increased work for new accounts (e.g. HSBC, Shell)
• Customer Solutions has developed capability for high volume transactional services
– Data processing, printing and distribution of invoices– Customer contact and order processing
Water
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• Ranked again by OFWAT as second in the industry for levels of service
• Water resource levels expected to be adequate after exceptional summer weather
• Draft business plan submitted in August 2003, key points are:– Overall strategy is to continue to offer high levels of service at exceptional
value– First year price increase of 6.9%, 12.8% for the five year period overall– Proposal to increase rate of mains renewal by 40% to address rising leakage
and bursts– Capital investment programme of £118m before capital contributions of £15m
is in line with AMP3– Cash neutral over the five year period based on dividend cover of 1.8 times
Prospects
• Activity will continue to be heavily weighted towards the second half
• Home Service is achieving a good response to the busy Autumn mailing period
• Regency has seen early signs that the retail furnishing market will improve and anticipates rolling out upholstery cleaning and repair for at least one household insurer
• Highway is expected to benefit from the operational improvements and new customer wins
• Commercial Outsourcing should benefit from the new service offerings and increased reactive drainage work over the winter
• Regulated Water Supply will continue to provide high levels of performance and service
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