Doubts at outcome of FSA inquiry hits CPP

Shares in the York-based company closed down 16 per cent last night, a fall of 22p to 117p.

CPP said the duration and outcome of the FSA investigation, which started nine months ago, continues to be uncertain.

The FSA is investigating the way in which CPP sold protection against identity theft, an action which led Barclaycard to suspend sales of some CPP products.

CPP has developed a new, non-insured version, Identity Safe, which it had hoped to launch this year. But the new product is unlikely to be adopted by business partners until after the FSA investigation is concluded.

Chief executive Paul Stobart said: “It has been a challenging year for CPP as the business has adjusted to the implications of the FSA’s ongoing investigation announced back in March.

“The transition to a new Identity Protection product has meant lost sales opportunities and this, combined with challenging trading conditions in southern Europe, will impact the business in the near term.”

Analyst Andy Smith at Charles Stanley said: “This update is disappointing as we expected growth of 10 per cent in 2012.

“We have been positive on CPP on the grounds that whenever the FSA makes a decision, it will be positive for the share price as a material uncertainty will be removed. We realise there are risks to this opinion as highlighted by today’s up-date.”

The company said that despite these factors and the impact of the deteriorating economic situation in southern Europe, overall trading has been robust and the group expects to deliver 2011 organic revenue growth of about six per cent for 2011, broadly in line with market expectations.

CPP said it continues to be strongly cash generative and is expected to finish 2011 with net cash and further positive cash flow is expected in 2012.

The group is not planning any changes to its dividend policy, but said it will review this before its 2011 results are announced in the light of any progress made with the FSA investigation and any subsequent financial impact.

“We continue to work constructively with the FSA as we seek a resolution to its investigation, and we are pleased with progress on improving our internal processes and customer facing activities,” said Mr Stobart.

CPP said it remains positive about its overall prospects and its strategy of product, sector, sales channel and international expansion.

It said that while 2012 profitability is expected to be adversely affected by the events of 2011, the board remains confident that future revenue growth remains sustainable and that operating profit and margins will return to growth and more normalised levels once the present constraints on the business are removed.

It added that the consumer appeal of CPP’s products remains strong and its long-term international prospects are developing well, with a launch in Brazil imminent and “robust” revenue growth in North America and Asia Pacific.

“Our UK business has been and will continue to be impacted by the uncertainties created by the FSA investigation and will take time to regain momentum,” said Mr Stobart.

“However, we are making excellent progress in many of our international operations, including our newer markets, such as China and India, which offer significant longer term potential.

Analysts at Peel Hunt said in a note. “The UK business is still materially impeded – especially now that it is clear that not even the non-insurance product will be launched until the investigation is complete.”

History on the cards

CPP was incorporated as Card Protection Plan in 1980 by entrepreneur Hamish Ogston.

It launched its card protection service in the UK the following year

During the 1990s it expanded into Germany, Spain and Ireland.

In 2000, CPP opened its York headquarters.

During the next decade the group embarked on a series of acquisitions, including buying homecare and mobile phone insurance products.

The company floated on the London Stock Exchange in March 2010, raising £150m to fuel its expansion.

In October, former chief executive Eric Woolley stepped down to be replaced by former Sage Northern Europe chief executive Paul Stobart.