preliminary results 2003

Preliminary Results 2003

Brian WhittyGroup Chief Executive

Financial Highlights

* Before goodwill and exceptional item

Turnover 265.8 177.1 50%

Operating Profit* 50.5 38.3 32%

Profit Before Tax* 44.5 36.4 22%

EPS* 45.9p 39.6p 16%

DPS 18.0p 16.1p 12%

Year ended 31 March, £m 2003 2002 %

Operational Highlights 2003

• Operating profits up 54% in Support Services

• Home Service outstanding growth, operating profits up 37%,policies up 30% to 2.4 million

• Commercial outsourcing continues to benefit from its investment in longer term customer relationships

• Three significant acquisitions contributed £6.2m to operating profits

• South Staffordshire Water provides a steady profit streamon reduced equity base

• Strong cash flow, net cash generated £12m

• Successful placing of 40% of our shares held by Vivendi and Axa

Andrew BelkGroup Finance Director

Group Profit and Loss

Turnover 265.8 177.1 50%

Operating Profit 50.5 38.3 32%

Interest (6.0) (1.9) 314%

Profit Before Tax 44.5 36.4 22%

Tax (12.8) (9.8) 31%

Minority Interest (2.9) (1.9) 53%

Earnings 28.8 24.7 17%

EPS 45.9p 39.6p 16%

DPS 18.0p 16.1p 12%


All figures before goodwill and exceptional item

Operating Profit by Division

• HomeServe profit before interest payable of £2.9m

HomeServe 24.0 14.1 70%

Commercial Outsourcing 10.0 8.0 25%

Regular Water Supply 16.5 16.2 2%

Total Operations 50.5 38.3 32%


HomeServe Operating Profit

• Regency audited 11 months to 28th February 2002 £3.1m

• Highway audited 9 months to 31st March 2002 £2.4m

Home Service 19.3 14.1 37%

Regency (11 months) 4.0 - -

Highway (9 months) 0.7 - -

Total HomeServe Division 24.0 14.1 70%


HomeServe Performance

Home Service

• Renewals maintained at 86%

• Cost of acquisition reduced

• Successful use of outbound telesales for customer acquisition

• Price increases in April and September

• International investment increased from £0.2m to £0.7m

Regency

• Profit growth of 29% on audited 11 months to February 2002

• Loss of structural warranty sales end of final quarter had limited impact

• New customers including Littlewoods and Furnitureland contributed to growth

• Underwriting costs have remained stable

• Repair business increased sales by over 50%






HomeServe Performance

Highway

• Profit £0.7m compared to £2.4mcomparable 9 months

• Increase in costs £0.7m in order to increase operating capacity

• Sales volumes have reduced across insurance customer base

• Fall in average job values, particularly high value work, £0.6m impact

• Maintained conversion rates and retained capacity for growth

• New customers slower to win and achieve run rate sales than anticipated, no significant contribution to profits in 2002/3






Commercial Outsourcingand Water Operating Profit

• Regulated Water Supply profit before interest of £4.7m

Commercial outsourcing - existing 8.5 8.0 6%

Middleton 1.5 - -

Regulated Water Supply 16.5 16.2 2%



Commercial Outsourcing

Commercial Outsourcing - existing

• Thames sales doubled to £8m,LUL up 39% to £6.4m

• Growing long term accounts constrained capacity

• Rapid results include licence revenue of £1.0m, consistent with prior year

• Echo investment in developing Walsall and Exeter facilities, £0.5m

• Mail Solutions increased profit and improved margins

Middleton

• Profits up 27% compared to audited 12 months to January 2002

• Increased sales to Birmingham City Council

• Retail customer sales increasing (eg, Tesco, Argos refurbishment work)

• Nationwide service contracts for Doorman with financial sector customers



Middleton 1.5 - -



Regulated Water Supply

Regulated Water Supply

• Low inflation impact on turnover

• Achieving targeted efficiency savings

• Increase in depreciation £0.4m

• Profits growth 2% against RPI 1% and K-1

• Before interest £4.7m



Middleton 1.5 - -



Group Cash Flow

Operating Profit (pre goodwill) 50.5 38.3Depreciation and profit on disposals 16.7 13.2Increase in working capital and loss in JV (0.6) (2.0)

Net cash inflow from operating activities 66.6 49.5

Net interest / dividends to minority (6.0) (3.2)Taxation (13.0) (9.4)Capital expenditure (26.0) (32.0)Acquisitions (78.9) -Equity dividends paid (10.5) (9.4)Issue of shares 1.0 1.4Financing 79.0 (1.3)

Increase / (decrease) in Cash 12.2 (4.4)

Net Debt (103.1) (28.6)

Year ended 31 March, £m 2003 2002

Capital Expenditure

Regulated Water Supply- New assets 18.1 19.3- Infrastructure renewals 8.0 9.1- Capital contributions (4.8) (6.0)

21.3 22.4

Support Services- HomeServe 3.0 6.8- Commercial Outsourcing 3.4 4.0

27.7 33.2

Sales Proceeds (1.0) (1.2)

Investment in JV 0.1 0.3

26.8 32.3

Year ended 31 March, £m 2003 2002

£0.8m (2002:£0.3m) acquired under finance leases

Group Balance Sheet

Fixed Assets- Tangible 171.1 153.4- Goodwill 127.4 21.6Net Current Liabilities (12.1) (16.1)Deferred Consideration (26.4) -Deferred Income (18.5) (8.4)

Net Debt (103.1) (28.6)

Deferred Tax (8.6) (6.8)

Net Assets 129.8 115.1

Debt : EBITDA 1.5 0.6

Interest Cover Group 8.5 19.0

Interest Cover Support Services 27.0 n/a

As at 31 March, £m 2003 2002

Group Overview - Acquisitions

• Servowarm acquired in March 2003 for cash consideration of £2.4m• Regency £4m retention for up to 2 years and £2.7m earnout after one year• Highway earnout in two tranches, March 2004 and 2006 based

on significant profit growth• 2004 earnout minimum £4.4m• Fair Value adjustments of £466,000• Acquired 40% of Home Hotline Ltd 1st April 2002 for £1.9m

Cash Consideration (incl fees) 38.6 29.0 12.0 5.0 84.6

Loan notes - - 3.8 - 3.8

Deferred Consideration 6.7 19.5 - 0.2 26.4

45.3 48.5 15.8 5.2 114.8

Goodwill on Acquisition 48.0 44.5 13.7 5.6 111.8

£m Regency Highway Middleton Other Total

Brian WhittyGroup Chief Executive

Home Service

• Policies up 30% to 2.4m, plumbing 1.73m (1.41m),electrics 0.55m (0.38m), gas and other 0.12m (0.06m)

• Nine years of policy growth in excess of 25%

• Increased market share

• Successful new product development - 157,000 supply pipe cross sales

• Successful use of telesales

• Acquisition of Servowarm for £2.4m complements gas heating policy business, 86,000 policies in total

• Direct Line Response 24 and help line performing well

• Joint Venture in France now has 60,000 policies


Turnover 76.7 60.3 27%


Regency

• Profit 12 months to 31st March 2003 £4.4m compared to prior 12 months£3.2m (unaudited)

• 7 million policies now issued, growth of 27% since acquisition• Structural warranties for Harveys replaced with optional policy

– enhancement to existing extended warranty product– rolled out in March and April across all stores

• Further expansion of Littlewoods and Furnitureland products• Potential to develop new retail accounts• Sales incentive schemes operated on behalf retailers • Repair business performed strongly, experiencing increased demand• Appointed new Managing Director• Overall retail market holding up

Year ended 31 March, £m 200311 months

Turnover 13.0Operating Profit 4.0

Highway

• Profit 12 months to 31 March 2003 £1.4m compared to prior 12 months£2.8m (unaudited)

• Secured contract with Prudential in January 2003, slow start now one of largest customers (new commercial customers in year - McDonalds, Six Continents, Marks and Spencer)

• Operational gearing to meet expected growth

• Reorganising the business to react to troughs in demand– fewer principal branches to reduce cost and improve efficiency– productivity incentives – appointed Chief Executive to strengthen management team

• Developing plumbing and drains, rollout with a leading insurer from July 2003

Year ended 31 March, £m 20039 months

Turnover 30.9

Operating Profit 0.7

Commercial Outsourcing

OnSite• Middleton profit 12 months to 31 March 2003 £2.2 compared to prior 12 months

£1.8m (unaudited)• Continued investment in long term customer relationships• Regional retail customers wins include Argos and The Big Food Group • Providing a national service to new financial services customers

Customer Solutions• Echo joint venture with South West Water implemented Rapid• Rapid has a long sales and implementation cycle, no new licence fees for 2004• Mail Solutions strong customer demand and improving margins


Turnover- Commercial outsourcing - existing 84.8 77.8 9%- Middleton (8 months) 19.2 - -

Operating Profit- Commercial outsourcing - existing 8.5 8.0 6%- Middleton (8 months) 1.5 - -

Water

• Continues to be an industry leader for operational efficiencyand customer service

• Expect to meet OFWAT’s target reduction in opex to 2005

• Second in customer service 2001/2 and improved since

• Preparation for 2005 periodic review


Turnover 58.8 59.1 -1%


Synergies Achieved With Acquisitions

• Regency national upholstery repair and cleaning network– household insurance market value estimated at £100m– agreement to trial with several insurers

• Highway and Home Hotline developed a national plumbing and drains network – household insurance market value estimated £200m– trials with a number of insurers– national rollout with leading insurer in quarter 2

• Servowarm enhanced gas heating business– improved service delivery to Home Service policy holders– cross selling Home Service policies

• Home Hotline recently won CGNU as a client (Highway’s largest client)

• Middleton provided broader service range, shared and new customers

• Other initiatives ongoing

Prospects

• Support Services will underpin future growth

• Home Service will continue to develop new productsand improve market penetration

• Regency’s priorities are to grow repair businessand develop new retail warranty products

• Highway will improve operational efficiencyand develop plumbing and drains for household insurance market

• Commercial outsourcing experiencing increased demandfrom retail and financial sectors

• Regulated Water Supply will continue to provide high levels of service

Appendices

Analysis of Turnover

Support Services- Home Service 76.7 60.3 27%- Regency 13.0 - -- Highway 30.9 - -- Servowarm 0.7 - -

121.3 60.3 101%

Commercial outsourcing- OnSite 66.1 41.5 59%- Customer Solutions 37.9 36.3 4%- Inter-divisional sales (18.3) (20.1)

85.7 57.7 49%

Regulated Water Supply 58.8 59.1 -1%

265.8 177.1 50%


preliminary results 2003

Documents

operating profits

total homeserve division24

divisionhomeserve profit

operating profit50

steady profit stream

total operations50

total operations26

home service19