Research Update: Galaxy Finco (Domestic & General) - FY2025
MAAGA: Making American Appliances Great Again...
One of the reasons I started this substack was as a personal antidote to the absolute plethora of dubious statistics that permeate the online world. Over the past few months I’ve seen some gargantuan mobile phone insurance market size and growth rate predictions1 and secondhand device market sizes from a company that can also do you a report on the size of the global chicory market for $3,9992. There’s the biggest this or the fastest that but, one company you’ll not find in the fastest warranty company to a billion pounds in revenue category, is Domestic & General. Known to most as D&G, they reported surpassing the revenue milestone in 2024 a mere 112 years after being established in 1912. Good for them, not everyone needs to be on a list.
Recap
After starting life as an international cattle transit insurer, D&G’s predecessors first protected home appliances in the 1960’s and after a series of acquisitions were listed on the London Stock Exchange in 1991 adopting the now familiar moniker. In 2007, PE group Advent took them private before selling them to CVC in 2013. From memory, their key product at that time was a discretionary service plan (DSP) which contained a clause along the lines of “if we decide to pay out”. But, if it looks like insurance and it smells like insurance, it’s probably insurance and from 2018 the firm transitioned to insurance plans and capitalised the business accordingly. Welcome then, was the additional investment from the Abu Dhabi Investment Authority who took a 30% stake for an undisclosed sum. Since then the ownership percentages have shifted around a little with CVC maintaining their majority shareholding.
D&G operate in the UK where they are the largest home appliance insurer, Europe (with entities in Germany, Italy & Spain), Australia and more recently in the U.S. after winning the Whirlpool account in 2021 and strengthening operations with the 2023 acquisition of After, Inc. At the top of the group sits the Jersey-based “Galaxy” holding companies with the main insurance company, Domestic & General Insurance plc domiciled in the UK. The latest annual report highlights a total of 6.7m subscribers, 2.7m repairs and 400k replacements annually and looks shiny enough to be ready for a London listing. Let’s jump right in, although if you’re new here, please take a moment to subscribe:
Performance
After breaking the £1bn barrier in 2024, management continue to sound pretty upbeat as the growth story continued into 2025. Total revenue reached £1,162m up 5.8% from £1,098m in FY2024. Over the 5-year analysis period from FY2021, D&G have registered a 7.5% CAGR.
From a product perspective, management are focused on developing the subscription business (old school: recurring premium) versus a planned decrease in non-subscription business (old school: single premium) suggesting that it’s higher quality. I’m not sure I wholly agree. Single premium has it’s place in consumer choice, but I get that subscriptions are better understood by investors and cashflows are more predictable. The focus is working. Subscription revenues climbed 9.3% from £954m in FY2024 to £1,043m in FY2025 with retention remaining remarkably stable at 86%. Non-subscription revenues dropped 17.9% in FY2025 after a jump in FY2024 due to the acquisition of After, Inc. Subscription revenue now accounts for 90% of the total group revenues with an 8.7% CAGR over the analysis period.
The UK delivers the vast majority of revenues, with apparently 1-in-4 households protected by a D&G policy3, although I’m not sure I can square that statistical circle. What is clear though, is that D&G managed to grow revenue 7% in their home territory from £855m in FY2024 to £912m in FY2025. It’s important to note, however, that the increase was completely attributed to more plans per customer and price increases as UK customer numbers stabilised at 4.7m. Revenue per revenue per customer increased from £147 in FY2024 to £155 in FY2025. B2B2C insurance firms have for the most part absorbed inflationary pressures, but that cannot continue ad infinitum.
European revenues dropped 7% from £201m in FY2024 to £187m in FY2025. However, this hides a 9% growth in subscriptions revenues offset by a 34% drop in single premium business, meaning that the subscription business now makes up 74% of the revenue, up from 63% last year. US subscription revenue grew significantly from £11m to £34m an increase of 213%. This took the subscription mix from 25% in FY2024 to 54% in FY2025.
Profitability
Adjusted EBITDA increased 14% to £162m against 5.8% revenue growth, with the margin expansion to 13.9% from 13.0% demonstrating operational efficiency gains. Insurance service expenses rose £52m against £72m of additional insurance revenue, comprising £24m higher incurred claims and repair costs and, £10m increased amortisation of acquisition cash flows, reflecting the subscription model's inherent cost structure.
Despite £20m higher employee costs from headcount growth (to 3,201) there was a £9m reduction in other operating expenses down to £133m driven by £5.4m lower mailing costs and £7.8m in reduced property maintenance expenses. There’s likely been some tangible benefits in switching from their classic mailshot and insert acquisition approach to digital initiatives. Further down the value chain, 44% of repairs are now being booked online which will have brought further cost savings.
The underlying performance drivers show UK and EU operations contributed £17m of incremental EBITDA whilst US losses narrowed to just £0.3m. Excluding £9.7m of significant items, predominantly £5.9m of finance transformation costs and £3.7m of transaction expenses, underlying profit before tax reached £25.4m versus £20.6m in FY2024 (restated), representing 23% growth and highlighting how one-off transformation costs masked the operational progress.
When you’ve been beating the same drum for as long as D&G I guess you can begin to expect some consistency as evidenced by a remarkably constant claims ratio which at 44%, maintained the nine-year average of, 44%. There’s much behind this, but knowing your risk is something these guys can undeniably add to their corporate CV.
The technical ratio improved to 5.5% from 4.7%, demonstrating pure underwriting profitability before investment income, although this hides significant geographic variation. Germany delivered 23.2% and Iberia 14.6% compared to the UK's modest 2.7%. Management attributes the UK's lower technical ratio to a higher proportion of post-manufacturer warranty sales compared to other markets which predominantly sell enhanced protection during the manufacturer's guarantee period.
Combined ratio improvement to 94.5% from 95.3% occurred despite inflationary repair cost pressures, whilst commission ratios compressed 1.2 percentage points to 23.6%. The stable claims experience reflects D&G's extensive historical data on appliance breakdown patterns and their established repair network structure.
Balance Sheet & Cashflow
D&G's December 2024 refinancing extended all debt maturities from 2026-27 to 2029 and eliminated any near-term refinancing risk. Net debt increased modestly to £786m (vs £756m FY2024), but leverage improved meaningfully to 4.9x from 5.3x, driven entirely by EBITDA growth. The new financing structure comprises £350m GBP senior secured notes at 8.125% and €367m EUR term loans at EURIBOR + 4.00%, with an enlarged £165m revolving credit facility (undrawn at year-end). At 4.9x, leverage remains elevated, even by private equity standards, though the improving EBITDA trajectory provides confidence in the debt serviceability.
The regulated insurance entities maintain robust capitalisation with a 189% solvency ratio (vs 192% FY2024), comfortably exceeding management's 130% risk appetite threshold and providing £86m of surplus. Eligible own funds of £183m cover solvency capital requirements of £97m, with the modest decline reflecting business growth rather than capital erosion. Domestic & General UK Insurance plc maintains a 170% ratio whilst Domestic & General Insurance EU in Germany delivers 366%, both well above regulatory minimums.
Despite the EBITDA growth, operating cash flow dropped significantly to £2.7m (vs £17m FY2024), due to £77m working capital outflows supporting business expansion. However, operating cash conversion improved to 78% (vs 70% FY2024) as European legacy business run-off effects reduced, with management targeting 80%+ conversion in FY2026. Free cash flow reached £67m after £36m capital expenditure, comfortably covering debt service requirements, though this remains dependent on moderating the working capital demands. The £18m US cash outflow and ongoing Australian run-off costs highlight the cash intensity of multi-geographic operations. As with other warranty businesses, investment usually follows deal wins, which presents a classic chicken and egg and will be particularly evident in the US with larger deal sizes.
Shareholders' deficit improved to £9.1m from £31.1m but remained negative, a legacy of historical dividend extractions familiar to PE backed businesses. Goodwill and intangibles dominate at £494m carrying value, representing the premium paid in the 2013 Galaxy Bidco acquisition plus recent US bolt-ons. Unrestricted cash improved to £56.1m (vs £42.5m FY24) with the undrawn £165m RCF providing adequate liquidity, though £30m of the facility supports regulatory capital via letters of credit. The asset-light subscription model masks this goodwill dependency, and whilst the growth outlook, particularly in the US is strong, any sustained downturn could test these valuations.
Commercials & Advantages
The heart of D&G's competitive advantage lies it’s distribution network. It has taken decades to build and would be fiendishly difficult replicate and expensive to disrupt. Distributors partner with warranty companies as a means of generating additional income. That’s it, fashionable ideas about improving customer lifetime value and sustainability are side-dishes. It’s continuity and consistency of income that matters and, trust on that basis, accumulated over decades, creates genuine barriers to entry. Even without PR copy, D&G’s track record is impressive:
Never lost a significant OEM partner in over 20 years
Partners with OEMs representing 95% of UK white goods sales
Top 10 UK partners now averaging 25 years tenure (up from 19 years in FY21)
Which, with an average contract term of three years is a decent renewal rate, suggesting more than simple transactional relationships. The partnership model's commercial terms reveal the cash intensity required to maintain it. Geographic commission variations are substantial, with the UK recording a 19.7% commission ratio compared to 45.3% in Iberia and 27.4% in Germany, reflecting different distribution models where retailers require higher compensation for point-of-sale activity.
John Lewis is probably the marquee client in the UK and the Protect+ product offer shows considerable investment in the distribution platform. The Sky partnership's 5-year extension to include Sky Glass, Sky Stream, and Sky Mobile demonstrates how established relationships can grow into adjacent product areas. Similarly, the Carrefour 3-year agreement represents validation from one of the world's largest retailers, whilst the Hoover Candy extension's inclusion of the growing Haier UK brand shows how partnerships can expand organically as portfolios evolve.
However, with more and bigger deals, the working capital implications are becoming pronounced. FY25 saw £77m of working capital outflows versus £42m the previous year, driven by multi-year commercial arrangements where D&G pays upfront commissions but recognises revenue over policy terms. The classic subscription business timing mismatch, albeit one that's manageable given D&G's scale and renewal rates. The deferred acquisition costs mechanism helps smooth these flows, but there will be growing capital requirements as the business expands, particularly in the US as D&G will begin to compete more aggressively against the likes of Assurant and Asurion.
Case in point is the US Whirlpool deal. Customer growth from 100k to 284k (+161%) with revenue surging 213% to £33.5m suggests D&G’s way of doing business is translating effectively across the pond. Whirlpool's 23% US market share and sales volumes exceeds the entire UK market and offers significant runway. The June 2025 extension to 2033, including enhanced cross-selling rights and additional mailing campaigns, indicates Whirlpool's confidence in the partnership's future.
Whilst switching costs can often be softened in contract negotiations, with a mutual understanding of working practices built over time in an increasingly entangled IT stack, moving partners is no small job. The embedded online subscription products now live with three retail partners represent the evolution from bolt-on services to integrated customer journeys and partners would face significant disruption costs to replicate this digital infrastructure whilst maintaining service quality.
Perhaps most intriguingly, D&G's partnerships create network effects that strengthen over time. Partners benefit from D&G's scale in repair networks, data analytics, and operational efficiency. Customers benefit from consistent service across multiple brands. D&G benefits from diversified revenue streams and deep market intelligence. Breaking these interconnected relationships becomes progressively more difficult as they mature, exactly the kind of sustainable competitive advantage that private equity buyers pay premiums to acquire.
Summary
Finding further growth in the UK might be more difficult if customer numbers have indeed plateaued stabilised. This probably means concerted effort on operational efficiency to keep EBITDA moving in the right direction. Given intense competition over upfront and ongoing commissions, ongoing claim cost inflation and supporting US and European growth, cost will come under increasingly tighter control.
That said, management are right to be excited about the US market potential. It’s huge, and not just because of management’s highlighted hypothesis, the household multiple over the UK. American consumers are happy to be sold a warranty product, far more than their European counterparts. Having previously worked for an American insurance / warranty company endlessly disappointed with European results, a UK company with a real chance of growing successfully in the US is a thing to behold.
Further product developments are likely in the pipeline. I’ve often wondered about D&G’s limited success in pure mobile device insurance with e.g. mobile carriers. But, given the claims ratio, adding a large book of iPhones may add some unwanted and significant variation to the claims ratio.
I can imagine that further acquisition might be in the pipeline. There’s a few US start ups that come to mind and potentially one or two in Europe. Scale is a vitally important advantage in this market. D&G acknowledges that sector M&A activity "remains steady, with focus on consolidating solutions," and by positioning its own distribution network as "an advantage matched by few peers and complex to replicate." they may well find themselves on the other side of the investment banker’s table. They’re building a decent ticket size though, anyone go for a £1.8bn to £2.0bn range?
Peace,
sb.