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Q1 FY20 Results
Tom Hinton, CFO
25 September 2019
About D&G
Domestic & General | Confidential 3
D&G protects domestic appliances
23mAppliances
c.16mCustomers
11Countries
0.5mReplacements p.a.
2.5mRepairs 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 2019. Management information
98% 2nd time fix
67 NPS
89% Customer Satisfaction
81%1st time fix
Domestic & General | Confidential 4
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
Domestic & General | Confidential 5
UK: Subscription growth with margin expansion
Low Market Penetration = Headroom for Growth Initiatives Accelerating UK Growth
• Embedded growth from subscription model
• New business acquisition:
• Data science & digital marketing
• Price optimisation
• New partner wins
• Cost efficiencies through digitalisation & automation
• Well invested platform -> operating leverageProportion of UK
Households
Market Potential
D&G
Market Penetration# Appliances
with Cover per Household
1 in 5 1 in 2
1.8
13.0
Future growth
Domestic & General | Confidential 6
International & USA: Replicating successful UK model
✓ Subscription ‘seam of gold’
✓ Pan-European partnerships
✓ Large under-penetrated markets
✓ Initiatives driving accelerating growth
Large Addressable
Market
Customer Demand
Partnership Approach
• Consumer demand for cover
• Preference for subscription
• Replicating UK model
• Launch partner is #1 OEM
• 68m appliances (5x UK)
• Higher appliance value
Europe: driving subscription growth US: Launch with #1 US OEM
# New Appliance Registrations New Subscription Plans
FY18 FY19
0
20,000
40,000
60,000
80,000
Apr…
Sep
Feb
Jul
De
c
May
Oct
Mar
Au
g
Jan
Jun
No
v
+45%YoY
FY15 FY19
+6x
Future growth
Domestic & General | Confidential 7
Digital: Digitising our business model
Reducing CostsImproving Customer Experience Accelerating Revenue Growth
Digital-only interactions reduce cost to serve
Robotic process automation
Removal of paper docs
Digital-first journeys driving highercustomer satisfaction
Connected Homes
New digital-only channels
Big data
Future growth
Q1 FY20 Performance
Confidential 9
Q1 Highlights
• Stable total underlying revenues (+3% Group, +2% UK, and +7% International year on year excluding discontinuing businesses) and controlled costs: EBITDA +6% year on year
• In UK, continuing strong subscription revenues (91.6% of total, FY19 Q1: 89.7%) and share of revenue from renewals (75.6%, FY19 Q1: 73.9%)
• International subscription business (+4.9% year on year) growing in line with strategy
• Foundations of modernising customer journey through digitalisation now established
• Contract negotiations for US launch progressing well
• Successfully attracted new investment from ADIA and CVC Fund VII and completed re-financing to secure long term capital structure
Domestic & General | Confidential 10
Strong and visible value drivers
Revenue
Revenue renewal ratio
Available cash flow
Ongoing capex
Adjusted EBITDA margin
Claims ratio
Acquisition costs ratio Working capital investment
Opex ratio Insurance Capital
Key value drivers
Sustainable pricing
New business
EBITDA growth Cash generationRevenue growth
Domestic & General | Confidential 11
Summary P&L
3m to 30th June FY 20 FY 19 Change
UK
Subscription 154.0 147.3 4.6%
Non Subscription 14.0 16.9 -16.8%
Total UK Underlying Revenue 168.1 164.2 2.4%
Inte
rnat
ion
al Subscription 16.1 15.4 4.9%
Non Subscription 19.5 22.4 -12.8%
Total International Underlying Revenue 35.6 37.7 -5.6%
Gro
up
Group Underlying Revenue 203.7 201.9 0.9%
UK Underlying EBITDA 28.4 26.7 6.2%
International Underlying EBITDA 1.9 1.8 5.7%
Underlying EBITDA 30.3 28.5 6.2%
% margin 14.9% 14.1%
• Continuing growth in subscription revenue
• Continuing strong renewal revenue in mix (UK 76% vs 74%; International 32% vs 26%)
• International total revenue +7% excluding impact of run-off of non-strategic business in Germany and Spain
• Continuing stable cost ratios underpin stable EBITDA margin1
Includes Holding company costs1
Confidential 12
67.4% 67.0%
69.7%69.4%
67.5%
FY19 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY20 Q1
Strong and consistent financial performance
Underwriting costs / Underlying Revenue LTM1 Group Subscription Revenue
UK share of Revenue from Renewals International share of Revenue from Renewals
1 LTM: Last twelve months ended Q1 FY20
2
73.9%
75.1%75.6% 75.2% 75.6%
FY19 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY20 Q1
26.0%
27.4%28.8%
30.1%
32.2%
FY19 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY20 Q1
79.5%
80.3%
81.0%
82.1%
82.8%
FY19 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY20 Q1
Domestic & General | Confidential 13
3m to 30th June FY 20 FY 19 Change
Underlying EBITDA 30.3 28.5 6.3%
Less: Regulated Business Adjusted EBITDA (9.1) (10.9) -16.4%
Non-Regulated Business Adjusted EBITDA 21.2 17.6
Capital expenditure (4.4) (4.3) 2.3%
Change in working capital (12.2) (13.6) -10.3%
Free Cash Flow 4.6 (0.3)
Distributable reserves in Regulated Business 4.5 6.1 -26.2%
% of Regulated Business Revenue 5.1% 8.3%
Group Free Cash Flow 9.7 7.9 22.8%
Conversion 32.0% 27.2%
Tax expense (2.9) (2.4)
Post-Tax Free Cash Flow 6.8 5.5 23.6%
Non-regulated business
• Ongoing investment in technology infrastructure, core systems and applications, digital projects
• Working capital outflows reflect timing differences in quarter which will continue to moderate through the year
Regulated business
• Distributable reserves comprise net income of regulated business as adjusted for changes in capital requirements and Solvency II valuation differences
• Reflects impact of transitioning book from non-regulated to regulated resulting in:
• Higher acquisition cost burden, exacerbated by phasing of new business in Q1; and
• Impact of irrecoverable VAT
• Full year outcome (% of regulated revenues) expected to improve as phasing effect moderates
Summary Cash Flow
Confidential 14
Refinancing of external debt after Q1 FY20 has increased bond gross debt from £475.1m to £635.6m
Lease liabilities have been included to reflect the adoption of IFRS 16 Leases and FY19 gross debt and EBITDA has been restated accordingly
Proforma leverage calculated on basis of LTM EBITDA of £104.8m as adjusted for adoption of IFRS16
Revolving credit facility remains undrawn. There is an on-demand £10.0m letter of credit under the Facility in favour of the PoS Trust
Capitalisation
1
2
3
1
2
3
Q1 FY20 Pro Forma for Refinancing
£m £m Multiple of
EBITDA Maturity Price
Sr. Secured FRN 150.1 180.6 1.7x Jul-26
EURIBOR + 5.00%
Sr. Secured Notes 200.0 305.0 2.9x Jul-26 6.50%
Total Senior Secured Debt 350.1 485.6 4.6x
Senior Notes 125.0 150.0 1.4x Jul-27 9.250%
Total Bonds 475.1 635.6
Lease liabilities 9.0 9.6
Total Gross Debt 484.1 645.1 6.2x
Unrestricted cash reserves (91.9) (10.3)
Total Net Debt 392.2 634.9 6.1x
Super Senior RCF 100.0 85.0 Apr-264
4
Confidential 15
Summary
Solid start to year with key components of delivering our long term plan in place:
- Digital strategy operationalised and driving next phase of business development
- International strategy delivering strong subscription growth
- Substantial progress made on US launch preparations
- Brexit contingency plans in place
- New equity investment and long term financing secured
- Regulatory approvals for completion of M&A transaction progressing
Confidential 16
£m Q1 FY20 Q1 FY19
Group free cash flow 9.7 7.9
Debt repayment (0.7) (0.7)
Debt refinance - -
Debt interest (13.6) (12.9)
Corp tax and other (14.5) (0.4)
Free cash flow before exceptional items (19.1) (6.1)
Exceptional items (2.9) (6.5)
Unrestricted cash flow (22.0) (12.7)
£m Q1 FY20 Q1 FY19
Unrestricted cash b/f 113.9 60.2
Unrestricted Cash c/f 1
91.9 47.5
Gross debt 2
488.0 488.9
Net debt 1 396.1 441.4
Leverage (Net debt / LTM EBITDA) 3.8x 4.4x
LTM EBITDA 104.8 99.6
Available Cash and Net Debt
1
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 and FY19 gross debt and EBITDA have been restated accordingly
• Debt repayment relates to the capital element of the operating lease rental payment (treatment reflects the adoption IFRS 16 Leases)
• Debt interest relates to interest payments on external bonds
• Other flows includes payments of corporation tax and timing differences on intercompany loans between the regulated and unregulated businesses
• Exceptional items relates to payments to partners in relation to the FY18 provision for product enhancements and transition to maintenance and insurance products, and costs in connection with Brexit preparations
1
22
3
3
4
4
Confidential 17
Disclaimer
This 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 use of 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 be 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 affect 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 captioned“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 gauging 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.
