introduction financial h&r block consumer rsm...
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H&R Block Investment Community Conference
January 9, 2007 1
Introduction FinancialReview
H&R BlockTax Services
ConsumerFinancial Services
RSMMcGladrey
Industry Context
Market shift to professionally supported tax preparation
Paid prep channels taking share from DIY
DIY shifting to digitalNon-digital DIY channels are declining as filers move toward software and online
Integration of digital and professional services represent next stage of industry growth
61
26
33
54
13
13
128million
Other DIY
Paid Prep
134million
Digital DIY
CAGR
-13.7%
TS00 TS06
+13.2%
+2.9%
100% 100%
0.8%
U.S. Tax Filers
H&R Block Investment Community Conference
January 9, 2007 2
Speed of Refund Control Expertise
ClientCharacteristics
Competitors
Drivers ofChoice
Settlement products
Convenience
Stress reduction
Lower income (<$40k)
Younger (<40)
High school education
Renters
H&R Block (30% share)
JH/Liberty (<10% share)
Other Paid (52% share)
Expertise of
Professional
Referrals
Relationship
Mid to upper income
(>$50k)
Older (>40)
College education
Homeowners
CPA/Accountants
(64% share)
H&R Block (10% share)
Digital (15% share)
Control over process
Ease of use
Cost/value
Software users have
moderate to high
income and are older
Online users have low
to moderate income
and are younger
Intuit
H&R Block
TaxAct
Consumer Segment Context
Historical Mix of Tax Clients
2.2 2.2 2.3 2.3 2.5
17.2 16.6 16.1 16.0 15.7
2.3 2.9 3.2 3.0 3.7
FY02 FY03 FY04 FY05 FY06
H&R Block Clients Served
21.7 21.7 21.6 21.4 21.9
Digital
Retail
IntÊl
(millions)
Record number of clients served
H&R Block Investment Community Conference
January 9, 2007 3
Consumer Segment Context
133 million total tax filers (TS05)
H&R Block retail shareH&R Block digital share
Hybrid Expertise
ControlSpeed of Refund
27% of Tax Filers 32% of Tax Filers
19% of Tax Filers22% of Tax Filers
Later season clients who have
more complex tax situations
Later season clients who have
more complex tax situations
Dispersed across retail, CPAs,
digital and other service platforms
Dispersed across retail, CPAs,
digital and other service platforms
Early-season clients who
demand their money fast
Early-season clients who
demand their money fast
In the market from late
November throughout the
tax season
In the market from late
November throughout the
tax season
Consumer Segment Context
11%
5%
6%
13%
10%
3%
Hybrid Expertise
ControlSpeed of Refund
42.6 million Tax Filers
25.3 million Tax Filers
29.2 million Tax Filers
10%
9%
1%
30%
29%
1%
35.9 million Tax Filers
133 million total tax filers (TS05)
H&R Block retail shareH&R Block digital share
10%
3%
5%
6%
31 millionPotential
New Clients
31 millionPotential
New Clients
26 millionPotential
New Clients
26 millionPotential
New Clients
38 millionPotential
New Clients
38 millionPotential
New Clients
18 millionPotential
New Clients
18 millionPotential
New Clients
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January 9, 2007 4
Speed of Refund Segment
45% of H&R Block retail office clients
Dominated by tax prep firms and independents
Product innovation driving segment dynamics
H&R Block retail shareH&R Block digital share
Speed of Refund
30%
29%
1%
19% of Tax Filers
Tax Season 2007 Focus:Win Speed of Refund
Key Strategies
Innovate Products
Open Early
Create Operations Excellence
Strengthen Marketing
H&R Block Investment Community Conference
January 9, 2007 5
Open Early
Opened 1,500 company offices and 3,100 franchise offices in November
Opened all remaining offices first week of January
Offer tax planning andInstant Money Advance Loan
Set client appointments for tax preparation
Innovate Products
Instant Money Advance Loan
Guaranteed Instant RAL
Emerald Prepaid MasterCard®
Emerald RAL
Available in November
Higher loan amounts, better approval rates, single-product structure and much lower cost than competition
Guaranteed approval or tax preparation is free
Nationwide roll-out of successful TS06 test
Convenience, safety and savings on check cashing
First step toward banking for many clients
Offer Classic RAL at 36% APR with Emerald card, a savings of 40% vs. last year for average loan
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January 9, 2007 6
Innovate Products
H&R Block Bank account accessed by prepaid MasterCard® debit card
No upfront fees
No overdraft fees
Low fees inside the product
Reloadable
Client loyalty opportunity in speed of refund segment
Innovate Products
$132
$177
$100
$60
2007RAL w/ Check
2006RAL w/ Check
Competition
2007Emerald RAL
H&R Block
2007RAL w/ Card
66%Savings
66%Savings
40%Savings
40%Savings
For a $2,800 RAL
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January 9, 2007 7
TechnologyDevelopment and Implementation
New end-to-end testing approach
New approach to field capacity and readiness
Technology Infrastructure
Client Management
Operations Excellence
17,000 new PCs
93% of company offices upgraded to broadband
Rapid issue identification and resolution process
Continued focus on reduced wait times
Improved Client Service Center approach
Operations Excellence:Office Growth and Tenuring
680625
550
450
300
Year 1 Year 2 Year 3 Year 4 Year 5
$27.3
$14.0
$2.1
$(15.7)
$(21.9)
Year 1 Year 2 Year 3 Year 4 Year 5($ 000s)
Single Office Economics(Fully Burdened)
New Clients per Retail Office2007: 400 new offices
Reduction in growth pace to ensure quality execution
New offices contribute to client growth momentum for 4-5 years
Disciplined return expectations from new locations
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January 9, 2007 8
Strengthen Marketing
Strengthen Marketing: Direct Mail
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January 9, 2007 9
Strengthen Marketing:National Promotion
„Toss Out Your Bills‰ promotion offering $10,000 debt relief
Other prizes:Rent/mortgage $1,000
Groceries $100
Cable bill $50
Gasoline $20
Free lunch $5 Subway
Second chance: go to hrblock.com to enter $50,000 Grand Prize Drawing
Strengthen Marketing:Latino Local Marketing
Street Blitz – In Your Neighborhood
Alianza Soccer Sponsorship
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January 9, 2007 10
Strengthen Marketing
Strengthen Marketing
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January 9, 2007 11
Expertise Segment
25% of H&R Block retail clients
Largest share of market, clients and revenue
75% use CPAs and independents
H&R Block retail shareH&R Block digital share
Expertise
10%
9%
1%
32% of Tax Filers
Focus on H&R Block Tax Professionals
Market H&R Block Expertise
Help Tax Professionals Build Their Client Base
Re-launch Savings Products
Tax Season 2007 Focus:Build Expertise Segment
Key Strategies
H&R Block Investment Community Conference
January 9, 2007 12
Market H&R Block Expertise
Increased focus on Expertise segment with new „You Got People‰ campaign
Research supports strength of advocacy positioning for H&R Block brand
Occupational advice
Access to personal relationships with Tax Professionals
Speak to concerns of average people
Position the expertise and experience ofH&R Block Tax Professionals as key differentiator
Impacts both consumer and Tax Professional choice
Focus on Tax Professionals
Drive Expertise Messages
Launch New Campaign
Market H&R Block Expertise
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January 9, 2007 13
Market H&R Block Expertise
Market H&R Block Expertise:National Tax Advice Day
Boston
Topeka, KS
San Francisco
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January 9, 2007 14
Market H&R Block Expertise
Focus on H&R Block Tax Professionals
Tax Professional value proposition clarity
Improved tools and training
New compensation plan incorporating Tax Professional retention and seasonal benefits
New campaign featuringTax ProfessionalsÊ expertise
Stands behind me and my clients
Provides me the mostin-depth tax knowledge in the industry
Provides me the tools and environment that I need to serve my clients well
Offers me the chance to grow and develop as a professional
Helps me make a real difference in the financial lives of my clients
Tax Professional PromiseH&R Block...
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January 9, 2007 15
Focus on Tax Professional Client Base Building
National Tax Advice Day, in-season local marketing
Building Your Client Base toolkit and training
Nearly 10,000 Tax Professionals enrolled in new Building Your Client Base course
Revised core training incorporating tools and techniques to build business
Integrated approach to training, career development and compensation
Test mentoring and other new approaches
Develop Comprehensive Strategy
Train on Client Base Building
DriveTax Professional Engagement
Re-launch Savings Products
5.00%
2.10%
1.09%
2.00%
1.09%
5.25%
4.25%
5.00%
2.00%
0.50%0.75%
5.05%5.25%
0.25%0.50%0.50%0.50%
0.20%
4.50%
5.05%
Bank of America
JPMorganChase
Wachovia Wells Fargo Citigroup WaMu
IRA Savings
E-Trade AllStateBank
ING Direct
H&R BlockÊs Savings Products vs. Competitive Benchmarks
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January 9, 2007 16
Control Segment
H&R Block serves 11% of segment – fastest growth through digital TurboTax leads digital portion of marketHigh incidence of pen and paper use
H&R Block retail shareH&R Block digital share
Control
11%
5%
6%
22% of Tax Filers
Tax Season 2007 Focus:Grow Digital Business
Use digital presence to expand brand relevance
Simplify software line-up to differentiate
Aggressively increase digital brand awareness
Key Strategies
H&R Block Investment Community Conference
January 9, 2007 17
Simplified Software Line-up
All SKUs are Premium Federal based
Customer decision is based on filing intentions
Easier choice for consumers
Priced for better value
Simplify Software Experience
Simpler, faster start-up (sign-in, install, update)Simplified language and standardized Q&AImproved error prevention and correctionClear feedback to enhance client confidence
End of experience/e-filing, printingWhereÊs my refund; refund/owe meter
Expect significant decrease in live support contacts
TaxCut 2005TaxCut 2005
TaxCut 2006TaxCut 2006
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January 9, 2007 18
Digital Presence:Brand Relevance
Digital Presence:Brand Relevance
A digital tax organizerDemonstrates our expertise
Creates a tax preparation list
Links to tax preparation options/tools on hrblock.com
Usable with H&R Block tax preparation or stand-alone
Distributionhrblock.com/online
Direct mail via CD
To Financial Advisor clients
Test distribution strategies
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January 9, 2007 19
Increase Brand Awareness
Increase Brand Awareness
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January 9, 2007 20
Hybrid Segment
High dispersion across filing methods
30% retail
14% CPA
26% digital
30% other
Dispersion results from inadequate choices to meet consumer desire for tax help
H&R Block retail shareH&R Block digital share
Hybrid
Hybrid
13%
10%
3%
27% of Tax Filers
Tax Market Choices
CPAsJackson Hewitt
H&R Block Products and Services
TurboTaxTaxAct
TaxCutSoftware
Online
H&R BlockRetail Office
Customer Need
Key Competitors
Self PreparationDo it myself
Professional PreparationDo it for me
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January 9, 2007 21
Tax Market Choices
Assistance
Do it with me
H&R BlockOnline Office
SignatureAsk a Tax Advisor
Tango
TaxCutSoftware
Online
H&R BlockRetail Office
Self PreparationDo it myself
Professional PreparationDo it for me
Online Office
Client initiates relationship online; Tax Professional completes/files return
Office visit not required
Uniquely positioned to execute on a scaled basis, with consistent quality
Leverages network, efficient workflow distribution
Significant historical client growth rates
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January 9, 2007 22
Online Office
New Solutions
New experience in tax preparation
Targeted to do-it-yourself clients who want the assurance of extra support and guidance if needed
Partnership approach betweenClient and Tango
Tango and H&R Block
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January 9, 2007 23
A New Category to Serve Tax Consumers
Newly built technology platform
Allows professional support inside product with intelligent cueing for Tax Professionals
Unique to industry technology features
Data files can have either local or central storage
Accordion-style navigation
Soft launch in TS07 to refine execution
Core client targetAggressively competing to winUnique H&R Block competitive capability
Core client target –significant room for growthMultiple market approaches
Limited number of scale competitorsProduct innovation can impact choice
Unique H&R Block assets to create scaled capability
Outlook
Tax Outlook
Speed of Refund
Expertise
Control/DIY
Hybrid
Product innovationProduct pricing impact and communication
Promotion of capabilityModel development
Aggressive product promotionBrand building
New product development and launchTesting category promotion
Tax Season 2007
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January 9, 2007 24
Tax Season 2007 Outlook
Unique impacts in TS07Tax extenders impact nearly 200,000 early season clientsTelephone tax rebateSplit refunds
PacingExtra Wednesday in Q3 peakEarly-season lending – uncertain impactApril 15th – Sunday
PricingMid-single digit price increaseValue enhancement – advice and client advocacy
Tax Margins
Reduced pace of office expansion
Intersegment margin sharing with H&R Block Bank
Emerald Card affects segment margins by 80bp – fully realized in bank
FY07 projected margin impactsEarly season lending as defensive strategy
Incremental marketing targeted at high potential segments
Digital acquisition strategy potentially creates negative margin impact but positive client growth with offsetting revenues
28.3% 29.1%28.1%
26.1%
FY02 FY03 FY04 FY05 FY06 FY07
Projected
29.0% 28.7%30.9%30.9%
Estimated Negative Effect from Office ExpansionDigital ImpactReported Margin Litigation Impact
Contribution to H&R Block Bank
26.9%26.9% 26.9%26.9%
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January 9, 2007 25
Tax Season 2007
Winning today⁄Aggressive speed of refund actions consistent with H&R Block advocacy intent
Product agreements and bank provide key competitive advantages
Focus on Tax Professionals as key competitive advantage – both front line and national positioning
Multi-channel delivery as unique brand capability
Tax Season 2007
And tomorrow⁄Continued brand building – „Expert in Your Corner‰
New hybrid category launch
Multiple tests within each target segment to inform future
Client loyalty strategies
Client acquisition strategies
Pricing structures