News Column

Homeserve Reports Lower Profit Despite Revenue Increase

May 20, 2014

Samuel Agini



LONDON (Alliance News) - Home emergency company Homeserve PLC Tuesday reported a significant drop in full-year pretax profit, as the GBP30.6 million fine it was handed by UK regulators in February for mis-selling insurance policies to its customers offset higher revenue.


However, the company's shares rose strongly as it hinted at a possible return of cash to shareholders.


In a statement, Homeserve, which provides services such as boiler breakdown cover for individuals, said pretax profit fell to GBP24.4 million in the year ended March 31, from GBP66.5 million a year earlier.


Revenue rose to GBP568.3 million, from GBP546.5 million, driven by its operations in the US, France, Spain and other new markets offsetting a decline in the UK.


Operating costs widened to GBP541.1 million, from GBP477.4 million, mainly due to increased costs in Homeserve's claims business, marketing activity and amortisation relating to acquiring electrical assistance policies.


Homeserve booked GBP46.7 million in so-called exceptional expenditure, as it increased its provision by 27.7 million to cover the fine from the Financial Conduct Authority, which was paid in February. An additional GBP19.0 million provision was made due to higher costs than anticipated in re-contacting customers.


The company's UK business has contracted in the wake of the mis-selling probe, and the company is expecting it to stabilise at a lower level than previously. However, it is now offsetting the UK contraction with growth abroad.


"We have made good progress in stabilising the UK business by focusing on improving customer service, increasing retention and delivering effective marketing. Strong customer growth in the USA and Spain has contributed to the growth in total customer numbers to 5.5 million. I am delighted with the significant new affinity partner signings in the USA and Spain," Richard Harpin, chief executive, said in a statement.


The CEO said Homeserve expects to attract 300,000 new customers in the UK in the current financial year.


"The USA remains our greatest opportunity and during [full-year 2015] we intend to increase investment in marketing and business development to take advantage of this. All our businesses are progressing in line with our expectations and we are confident of making further progress in [full-year 2015]."


Homserve said it intends to conduct a review of its capital structure policy during the course of the year, against the background of its "relatively low leverage and strong cash flow".


Analysts at Liberum, who have a 'buy' on the shares and a 350 pence target price, said Homeserve's review of its capital structure "may result in an increased dividend, special dividend, or buy-back.


Homeserve maintained its full-year dividend at 11.3 pence a share.


Homeserve shares were Tuesday quoted at 339.10 pence, up 6.9%, the biggest rise on the FTSE 250.







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Source: Alliance News


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