May 22, 2012 6:42 pm

HomeServe to shrink services in UK

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Shares in HomeServe, the home repairs group, fell 29 per cent on Tuesday as the company said that it was shrinking its UK operations because of a formal investigation by regulators.

The company, which insures nearly 3m people in the UK against burst pipes, broken-down boilers and problems with electrical appliances, said it was cutting back its operations while it awaits the outcome of a Financial Services Authority investigation into alleged mis-selling practices. HomeServe could face a large fine or be forced to pay compensation to customers if it is found they were mis-sold policies.

The formal investigation will come as a blow to Richard Harpin, the company’s chief executive, who had attempted to head off the inquiry by announcing a temporary suspension of sales and marketing activity after discussions began with the FSA last October.

HomeServe’s UK revenues fell £5.4m to £353.5m in the year to March 31 as bad publicity took its toll, according to full-year results released on Tuesday.

Overall revenues rose 14 per cent to £535m, while pre-tax profit was up 32 per cent at £138m, giving earnings per share of 34.6p. The dividend was increased by 10 per cent to 11.3p.

But with the FSA engaged in a broader crackdown on insurance type policies, the inquiry had been widely anticipated by investors. CPP, the identity protection insurer, is also awaiting the outcome of a long-running investigation by the regulator, while banks are being forced to pay out billion of pounds in compensation over missold payment protection insurance.

Mr Harpin, who founded the business in 1993 as a joint venture with South Staffordshire Water, said that the FSA’s investigation could take months and the group would focus on growing international operations instead.

Customer numbers in the UK have already fallen 9 per cent in the past financial year and this could reduce a further 18 per cent to 2.2m in the year ending March 31 2013, he said. The warning prompted analysts at UBS, Barclays and Peel Hunt to cut earnings estimates for the year ahead by 20 per cent or more.

The shares fell as much as 35 per cent to 147p, extending the decline over the past year to 66 per cent, before closing at 160.9p, a drop of 29.24 per cent.

The company is planning to cut a further 250 staff from its 2,500 UK workforce and reduce the range of products sold so that it can focus on its core trade of plumbing and boiler repairs.

“In the UK we are planning to create a smaller, better-focused business from which we can grow in a year’s time,” Mr Harpin said.

It has also been overhauling its sales procedures, introducing penalties for sales staff that receive follow-up complaints, and improving the clarity of sales and marketing material, he said.

HomeServe is also compensating customers who received poor service and were left without heating in the bitter winter of 2010. Last month the telecoms regulator Ofcom fined the company £750,000 for breaching its rules on silent and abandoned calls.

Despite the troubles in its domestic market, HomeServe confirmed that it was expanding its overseas operations. The number of international customers rose 14 per cent to 2.2m at March 31 while revenues in the US grew 56 per cent to £82.3m. The group is targeting France, Italy and Spain for growth.

This story has been amended to reflect the correct amount of the Ofcom fine, which was £750,000.

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