FY20 Results - investors.domesticandgeneral.com · • Tax paid in FY20 impacted by change in instalment methodology in the UK for ‘very large’ companies (estimate of tax liability

FY20 Results

Ian Mason, CEOJoe Fitzgerald, Interim CFO

15 July 2020

About D&G

Domestic & General | Confidential 3

D&G protects domestic appliances

8.3mSubscription

Plans

5.5mSubscription Customers

11Countries

0.5mReplacements p.a.

2.4mRepairs p.a.

D&G is a large, high service, international business With a strong and resilient position in the home

Specialist B2B2C service provider with unique capabilities

Subscription business with high renewal rates

Exclusive partnerships covering 95% of UK white good OEMs

All data points FYE March 2020. Management information

98% 2nd time fix

66 NPS

89% Customer Satisfaction

81%1st time fix


Unique B2B2C partnerships

Differentiated Approach

Trusted brand and customer custodian

Symbiotic: significant partner value created

Positive network effects strengthen proposition

Hard to replicate, with high exit costs

Exclusive, long-term contracts

Symbiotic Ecosystem

Customer

Service Advantage Subscriptions

Commission

OEMs

High policy volumes from unique distribution platform

Commission, Incremental repairs &

Replacements

Retailers

Service &Cost advantage


Multiple opportunities to drive strong growth and higher profitability

Maturity

Illustrative Profitability

D&G has a portfolio of growth businesses

0

Digitalisation

UK

US International

UKGrowth with margin expansion

Each business has a clear growth strategy

InternationalReplication of UK business model

USUS contract signed with Whirlpool

DigitalDigitalisation programme accelerated

FY20 Performance

Confidential 7

FY20 - Key Messages

Financial Performance

• Year-on-year growth in underlying revenues and underlying EBITDA

• Growth in subscription revenues in both our UK and International businesses

Operational Progress

• Real progress on Digital transformation programme ‘DGX’

• Contract to expand into the US market with Whirlpool signed

• Strategy review for new investment cycle completed

Capital Structure

• Refinancing and new investment from ADIA and CVC Fund VII completed

• Ancillary Own Funds application approved by the PRA in February


Revenues

12m to 31st March FY 20 FY 19 Change

Subs

crip

tion

Reve

nue UK 628.1 601.8 4.4%

International 66.9 63.8 4.8%

Group Subscription Revenue 695.1 665.7 4.4%

Non

-Su

bscr

iptio

n Re

venu

e UK 56.1 62.4 -10.1%

International 79.6 83.2 -4.3%

Group Non-Subscription Revenue 135.7 145.6 -6.8%

Und

erly

ing

Reve

nue1 UK 684.3 664.2 3.0%

International 146.5 147.1 -0.4%

Underlying Revenue1 830.8 811.3 2.4%

• Good growth in subscription revenue +4%

• Non-subscription revenue decreases in-line with strategic focus on subscription business

• International underlying revenue impacted by run-off of business in Germany and Spain; +7% on a continuing basis

• Stable, high renewal rates from subscription base driving growth in underlying revenue +2%

1 Underlying revenue represents revenue after the reversal of fair value adjustments associated with acquisition accounting

1

1

2

2

3

3

4

4


Consistent financial performance

66.7%

72.0%

73.9%74.9%

75.9%

FY16 FY17 FY18 FY19 FY20

19.6%21.9%

24.4%

28.0%

32.1%


66.7% 66.3%67.7% 68.4% 68.0%


76.7%77.4%

79.0%

82.1%

83.7%


UK

Shar

e of

Rev

enue

fr

om R

enew

als

Inte

rnat

iona

l Sha

re o

f Re

venu

e fr

om R

enew

als

Und

erw

ritin

g Co

sts /

U

nder

lyin

g Re

venu

e

Gro

up S

ubs R

even

ue /

Und

erly

ing

Reve

nue


Underlying EBITDA

• Group underlying EBITDA +2%, driven by embedded revenue growth from high subscription renewal rates in our UK business, stable cost ratios, and predictable claims and acquisition costs.

• EBITDA growth affected by investments in Digitisation and Customer First programmes

• International underlying EBITDA flat YoY due to lower investment income following the sale of investments in Q1 FY20 as part of the refinancing

1 Includes holding company costs2 Restated to reflect retrospective adoption of IFRS16 : Leases

Und

erly

ing

EBIT

DA (

£m)

96.2 98.5

8.4 8.4

FY19 FY20UK International

£106.9m£104.6m 2.2% YoY Growth


12m to 31st March FY 20 FY 191 Change

Underlying EBITDA 106.9 104.6 2.2%

Less: Regulated Business Adjusted EBITDA (42.5) (39.1) 8.7%

Unregulated Business Adjusted EBITDA 64.4 65.5

Capital expenditure (19.8) (19.9) -0.8%

Change in working capital (28.6) (19.3) 48.6%

Unregulated Business Free Cash Flow 16.0 26.3

Increase in Distributable reserves in Regulated Business 75.2 43.5 73.1%

Group Free Cash Flow 91.2 69.8 30.7%

Conversion 85.3% 66.7%

Tax paid (11.8) (4.8)

Post-Tax Free Cash Flow 79.4 65.0 22.3%

Underlying EBITDA

• Underlying EBITDA for the UK and International segments, after holding company costs and reflecting adoption of IFRS 16 (comparative restated)

Unregulated business

• Maintaining capital expenditure at FY 19 levels• Working capital outflows reflect the unwind of the negative

working capital position associated with plans transferred to the regulated business and timing differences in non-policyholder working capital balances

Regulated business • Distributable reserves comprise net income of regulated

business before significant items and as adjusted for changes in capital requirements and Solvency II valuation differences

• FY 20 benefitting from approval of Ancillary Own Funds application of £30m by PRA in February

Tax paid

• Tax paid in FY20 impacted by change in instalment methodology in the UK for ‘very large’ companies (estimate of tax liability now payable in full within the year; previously, this was paid half in advance and half in arrears. NB: tax liability unchanged, but payment has been bought forward)

• Lower tax paid in FY 19 reflects allowable deduction of one-off product transition costs of £37.3m recognised in FY 18.

Summary Cash Flow

1 Restated to reflect retrospective adoption of IFRS16 : Leases

Confidential 12

£m Multiple of

EBITDA Maturity Price £m Multiple of

EBITDA Maturity Price

Drawn Super Senior RCF* 77.5 0.7x Apr-26 3m LIBOR + 3% 33.5 0.3x Apr-26 3m LIBOR + 3%Senior Secured FRN (€200m) 180.6 1.7x Jul-26 Euribor + 5.00% 180.6 1.7x Jul-26 Euribor + 5.00%Senior Secured Notes 305.0 2.9x Jul-26 6.50% 305.0 2.8x Jul-26 6.500%Total Super and Senior Secured Debt 563.0 5.3x 519.1 4.8xSenior Notes 150.0 1.4x Jul-27 9.250% 150.0 1.4x Jul-27 9.250%Total Bonds 713.0 6.7x 669.1 6.2xLease liabilities 10.7 7.8Total Gross Debt 723.7 6.8x 676.9 6.3xUnrestricted cash reserves** (99.1) (25.8)Total Net Debt 624.6 5.8x 651.0 6.1xUndrawn Super Senior RCF 0.0 Apr-26 43.5 Apr-26

Q4 FY20 Q3 FY20

• £85.0m super senior revolving credit facility full drawn* during FY20 except for £3.0m available for same day drawdown to increase liquidity in the current uncertain environment. At the end of FY20, there was an on-demand letter of credit under the Facility in favour of the PoS Trust for £5.0m

• Refinancing of external debt during Q2 FY20 increased gross bond debt from £475.1m to £635.6m• Lease liabilities have been included to reflect the adoption of IFRS 16 Leases

• Leverage calculated on basis of underlying adjusted LTM EBITDA of £106.9m (Q3 FY20 £107.3m)* Included within the drawn RCF balance at both Q3 and Q4 FY20 is a €10.0m drawdown which is translated into GBP at the closing exchange rate at the respective Balance Sheet dates

** £30m Ancillary Own Funds application for the UK regulated business was approved by the PRA in February 2020 and is included in the unrestricted cash reserves

Capitalisation

2

3

4

1

2

3

2

4

1

COVID trading update

Confidential 14

Revenues are resilient due to the nature of the business modelTo

tal R

even

ue

Subs

crip

tion

Reve

nue

New

Bus

ines

s Su

bscr

iptio

n Pl

ans

Subscription84%

Cash16%

Subscription is profit generating; cash is marginal

The majority of our subscription revenues are from our renewal book

The majority of new business sales are generated post point of sale (PPOS)

Cust

omer

Ret

entio

n

Subs

crip

tion

Reve

nue

Consistent renewals retention performance leads to compounding growth…

…and growing subscription revenues

• When assessing short term performance the best indicators are new business and renewal plans sold in the period

• Lower volumes sold will eventually translate to revenue in future accounting periods as revenues are released

• Indeed total revenues have grown year on year in Q1 by c. 2% with subscription revenues increased c. 5%

FY12 FY20

Ave >85%

FY12 FY20

New Business

21%

Renewals79%

POS24%

PPOS76%

Confidential 15

Trading (Q1 FY21)

Total Group subscription plan sales have grown by 8% year on year for Q1

Renewals New Business

• Our base expectation was compounding growth

• Retention rates have improved versus expectation for both UK and International

• Year on year growth of 13% versus last year

• Subscription new business levels reduced by 4% versus Q1 last year

• Closure of bricks and mortar retailers offset by digital sales as well as continuing PPOS channel sales

• Non-subscription sales have been affected by store closures (c.28% down)

• Pleasingly new business subscription and cash sales have recovered across UK and International in June and we have achieved year on year growth

Subscription Plans (000s) YTD FY20 YTD FY21 % VarRenewals 1250 1418 13%New Business 487 467 -4%Total 1,737 1,885 8%

Confidential 16

The business is stable and serving customers effectively

• Successfully transitioned all employees to homeworking

• Leveraged technology and digital investments

• Inbound call handling service levels strong throughout lockdown

• Repair and replacement services operational across all product lines and territories

• Demand for repairs now recovered after reduced demand at start of lockdown

• Overall our key customer service metrics are stable

• Customer renewal rates remain strong and NPS significantly improved

Operational

Confidential 17

Pragmatic actions have been taken to protect customer service and cash

• Temporary furloughing of employees of which the majority have now returned and delayed tax payments such as VAT

• Recruitment freeze and delayed capital expenditure

• Zero pay increases and bonus payments deferred

• 86% of costs are variable

• Variable costs reviewed and reduced e.g. acquisition related costs

• Identified a range of further mitigating actions that could be pursued should the crisis have a more material impact on our business

Mitigations

Confidential 18

We have headroom in our cash position and are making progress with strategic initiatives

• Fully drawn our revolving credit facility to maintain flexibility

• Unrestricted cash as at May-20 £124m

• Making progress on Brexit-related matters and Part VII transfer, including contingency planning for non-equivalence risk

• US contract signed, launch timing being assessed in light of COVID

• Assessing acceleration of digital program

• Inorganic growth opportunities exist e.g. acquiring books of business

Cash position

Confidential 19

Summary

• Business performance remains resilient through COVID-19 lockdown and actions taken to maintain cash reserves and liquidity

• Solid financial performance for FY 20 with growth in revenue and underlying EBITDA

• Stable cash position and headroom

• Strategy being delivered:

• Digital foundations now established

• International subscription growth

• US contract signed

Appendix

Confidential 21

Available Cash and Net Debt

2

1 Based upon latest estimate of Capital Resources and Solvency Capital Requirement (SCR)2 Lease liabilities have been included in gross debt to reflect the adoption of IFRS 16 Leases; FY19 gross debt and EBITDA have been restated accordingly

• Increase in Group free cash flow driven by approval of Ancillary Own Funds application of £30m by the PRA in February 2020

• Loan notes refinanced in July 2019 and £77m drawn from RCF by year-end to increase liquidity in current uncertain environment

• Debt interest relates to interest payments on external bonds

• Excess funds used to repay shareholder loans (£194.1m) and make a dividend distribution as part of the July refinancing (£22.2m) and a further pre-completion dividend of excess cash associated with closing the transaction with CVC / ADIA (£25.0m) in November

• Corporation tax and other includes payments of corporation tax and timing differences on intercompany loans between the regulated and unregulated businesses

• Significant items relate to initial launch costs for the US, costs in connection with Brexit preparations, and costs incurred in relation to our Value Creation Plan

• Underlying adjusted LTM EBITDA has increased due to disciplined approach to underwriting and cost control

1

2

3 3

54

5

4

6

7

1

6

7

FY20 FY19£m

Group Free Cash flow 91.2 69.8

RCF Drawdown /(Debt Repayment) (402.9) 0.0

Debt Refinance (net of fees) 617.5 0.0

Debt Interest (46.6) (31.9)

Distribution of excess funds (241.3) 0.0

Corp Tax and Other (15.9) 4.7

Free Cash flow before exceptional items 2.0 42.6

Significant items (16.8) (18.5)

Unrestricted cash flow (14.8) 24.1

Unrestricted Cash b/f 113.9 89.8

Unrestricted Cash c/f (Note 1) 99.1 113.9

Gross Debt (Note 2) 723.7 484.6

Net Debt (Note 1) 624.6 370.7

Leverage (Net Debt / LTM EBITDA) 5.8x 3.5x

LTM EBITDA 106.9 104.6

Confidential 22

LTM Underlying Adjusted EBITDA Calculation

£mQ4 FY20 LTM Q3 FY20 LTM

Underlying EBITDA4

Add: HoldCoCosts3

U/L Adjusted EBITDA4

Underlying EBITDA4

Add: HoldCoCosts3

U/L Adjusted EBITDA4

FY19 Q4 21.0 0.3 21.3

FY20 Q14 30.9 (0.3) 30.6 30.9 (0.3) 30.6

FY20 Q24 30.3 0.1 30.4 30.3 0.1 30.4

FY20 Q3 24.9 0.1 25.0 24.9 0.1 25.0

FY20 Q4 20.9 (0.0) 20.9

LTM U/L Adjusted EBITDA 106.9 107.3

Underlying1 / Underlying Adjusted2 EBITDA by Quarter

Note: All amounts above reflect the adoption of IFRS 16 Leases1 Underlying EBITDA refers to EBITDA, adjusted to include investment income and exclude significant items2 Underlying adjusted EBITDA is underlying EBITDA, as further adjusted to exclude holding company costs3 HoldCo costs relate mainly to CVC monitoring fee. CVC monitoring fee agreement was retrospectively terminated effective from 1 January 2019 (the accrual for Q4 FY19 that is no longer required was released in Q1 FY 20)4 Q1 and Q2 FY20 underlying EBITDA and underlying adjusted EBITDA have been restated to reflect the reclassification of initial launch costs for the US to significant items

Confidential 23

DisclaimerThis presentation and any materials distributed in connection herewith (together, the “Presentation”) do not constitute or form a part of, and should not be construed as, an offer for sale or subscription of or solicitation of any offer topurchase or subscribe for any securities in any jurisdiction, and neither this Presentation nor anything contained herein shall form the basis of, or be relied upon in connection with, or act as an inducement to enter into, any contract orcommitment whatsoever.These materials are being provided to you on a confidential basis, may not be distributed to the press or to any other persons, may not be redistributed or passed on, directly or indirectly, to any person, or published, in whole or inpart, by any medium or for any purpose.The information contained in this Presentation has not been independently verified and no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness,reasonableness or correctness of the information or opinions contained herein. None of Galaxy Finco Limited, its subsidiaries or any of their respective employees, advisers, representatives or affiliates shall have any liabilitywhatsoever (in negligence or otherwise) for any loss howsoever arising from any u se o f this document or its contents or otherwise arising in connection with this Presentation. The information contained in this Presentation is providedas at the date of this Presentation and is subject to change without notice.The information in this Presentation does not constitute investment, legal, accounting, regulatory, taxation or other advice, and the Presentation does not take into account your investment objectives or legal, accounting, regulatory,taxation or financial situation or other needs. You are solely responsible for forming your own opinions and conclusions on such matters and for making your own independent assessment of the Presentation.Statements made in this Presentation include forward-looking statements, including in the slide captioned “Summary and Outlook”. These statements may b e identified by the fact that they use words such as “anticipate”, “estimate”,“should”, “expect”, “guidance”, “project”, “intend”, “plan”, “believe”, and/or other words and terms of similar meaning in connection with, among other things, any discussion of results of operations, financial condition, liquidity,prospects, growth, strategies or developments in the industry in which we operate. Such statements are based on management’s current intentions, expectations or beliefs and involve inherent risks, assumptions and uncertainties,including factors that could delay, divert or change any of them. Forward-looking statements contained in this Presentation regarding trends or current activities should not be taken as a representation that such trends or activitieswill continue in the future. Actual outcomes, results and other future events may differ materially from those expressed or implied by the statements contained herein. Such differences may adversely a ffect the outcome and financialeffects of the plans and events described herein and may result from, among other things, changes in economic, business, competitive, technological, strategic or regulatory factors and other factors affecting the business andoperations of the company. Neither Galaxy Finco Limited nor any of its affiliates is under any obligation, and each such entity expressly disclaims any such obligation, to update, revise or amend any forward-looking statements,whether as a result of new information, future events or otherwise. You should not place undue reliance on any such forward-looking statements, which speak only as of the date of this Presentation. It should be noted that pastperformance is not a guide to future performance. Particular uncertainties that could cause our actual results to be materially different than those expressed in these forward-looking statements include risk factors described in theoffering memorandum of Galaxy Bidco Limited and Galaxy Finco Limited dated October 24, 2013, as updated from time to time by our annual and quarterly financial statements and financial reports, including the section c aptioned“Principal Risks and Uncertainties” of our Annual Report and Accounts 2019. Nothing in this Presentation should be construed as a profit forecast.This Presentation may also contain non-GAAP financial information. Management uses this information in its internal analysis of results and liquidity and believes that this information may be informative to investors in gau ging thequality of our financial performance , assessing our liquidity, identifying trends in our results and providing meaningful period-to-period comparisons. For a reconciliation of non-GAAP measures presented in this Presentation, see“Alternative Non-GAAP Performance Measures Reconciliation” in our Annual Report and Accounts 2019.

Documents

FY20 Results - investors.domesticandgeneral.com · • Tax paid in FY20 impacted by change in instalment methodology in the UK for ‘very large’ companies (estimate of tax liability