Homeserve to cut 300 jobs as watchdog probe goes on

The group, which repairs burst water pipes, covers boilers against breakdown and replaces fuses, is in the middle of a mis-selling investigation by the Financial Services Authority (FSA).

It currently has 2.25 million UK customers, but this number is expected to fall to 1.9 million by this time next year.

The company, which is no longer making cold calls, has a retention rate of around 80 per cent.

The group’s chief executive Richard Harpin, who lives near York, said the UK business is improving its sales and marketing activity and there are clear plans for increasing both customer numbers and retention over the next two years.

Analyst Andy Brown at Panmure Gordon, said that the FSA investigation launched in May is making the company more cautious about marketing. This means it is not winning enough new business to offset customers who are choosing not to renew their existing policies.

“Now what we’re seeing is the group having to operate within much stricter guidelines,” he said, adding that the wide range of possible outcomes from the investigation makes the firm hard to value.

HomeServe expects its UK operations to contribute £35m less than expected in the next financial year to March 2014.

It hopes to partially offset this by cutting 300 jobs, which will help save £10m. Yesterday’s job losses come on top of the 300 announced previously. Last year the company employed over 2,700 people in the UK.

HomeServe suspended telesales in the UK 18 months ago after an internal review raised concerns over how policies were being marketed and sold.

The company has now ended cold-calling and is selling new policies through partnerships with utility firms which offer the services under their own brand.

But Mr Harpin said the most effective way of winning new customers is through direct mailshots. Most of these new customers are retired and want a one-stop shop for problems in the home.

Panmure Gordon, which has a “sell” rating on the stock, said that opinion is divided on the stock and it is unlikely that big investors will sell as a result of yesterday’s news.

The company is pinning its hopes on expansion abroad, particularly in North America, to help it return to growth in 2015.

The FSA investigation, which is looking into the mis-selling of household emergency policies and failures in complaints handling, is expected to last for several more months.

HomeServe said its switch to a “customer-focused culture” is starting to pay off with better customer satisfaction scores and a 41 per cent fall in complaints.