CPPGroup Plc (“CPP” or “the Group”) announces that it is in discussions with the FSA in relation to certain issues surrounding the sale of the Group’s Card Protection and Identity Protection products. The FSA’s investigation only relates to such of the Group’s products as are sold into the UK, and specifically to alleged failings in sales calls with customers. The Group may need to conduct a review in order to identify whether any deficiency has caused customer detriment requiring redress.
CPP is Britain’s biggest seller of card and ID protection policies, which bundle together insurance with some “life assistance services” that promise to straighten things out whenever a crook misappropriates your particulars. It sells the policies through about 200 partners including HSBC, Barclays and Citi.
The company has more than 10m customers, about two-thirds of which are in the UK. It was, as of Monday night, valued at £478m.
Back to the statement:
In relation specifically to CPP’s Identity Protection products in the UK and notwithstanding the fact that the Group contests a number of the concerns raised by the FSA, the Group has decided to suspend all new sales of Identity Protection with immediate effect in CPP’s own voice channels.
So what’s left?
The pure insurance component of such products, which is the component that makes the product subject to FSA supervision, is comparatively small. As such, CPP intends to develop and design a non-insurance Identity Protection product, which it believes will remain an attractive offering for its customers. Sales of the redesigned product are expected to commence in around six weeks time.
Investors may believe otherwise. And, even if this new non-insurance insurance hybrid manages to sell, the revenue would still need to be bumped back by a year. You can’t book expected service revenue upfront like you can with insurance contracts.
Cue the profit warning:
The financial impact of both the suspension of sales of the insured Identity Protection product in the UK and the deferral of income is likely to reduce the earnings for the current financial year. The Group expects to be able to mitigate to some extent the financial impact through sales of alternate products, including Card Protection. The net impact however is that underlying operating profit is expected to be below the lower end of the current range of analysts’ estimates for 2011.
The timing of all this could have been better for Hamish Ogston, CPP’s founder. He retained a 58 per cent stake in the company following its flotation a year ago. The lock-up on his stake is due to come off at the end of March.
Related link:
CPP shortlisted for New Company of the Year at the PLC Awards 2010 – FT