Homeserve UK profit rises 1.6% despite falling customer numbers

Homeserve’s UK operating profit rose 1.6% in the half-year to 30 September 2012 despite continuing to feel the effects of last year’s mis-selling allegations and continuing FSA probe.

The household repair and insurance provider’s UK operating profit increased to £25.6m for the first half of its 2013 financial year from £25.2m in the same period last year. Excluding amortisation, the operating profit was up by just under 1% to £26m (H1 2012: £25.8m).

The improvement came despite an 11% drop in revenue to £134.5m (H1 2012: £150.9m). This was caused by an expected drop in customer numbers to 2.5 million as the UK arm continues its restructure. This compares with 2.7 million customers at the end of the 2012 financial year in March and 3 million as of September 30 2011.

The customer number target for the full 2013 financial year remains at between 2.2 million and 2.4 million.

UK overhaul

Homeserve continues to overhaul its UK business after the FSA launched an investigation into alleged policy mis-selling at the company last year. The company suspended sales and marketing activity in November last year after discovering “a number of potential failings in its sales and marketing, complaints handling and associated governance and controls”.

During that month, the company embarked on a number of improvement activities in those areas where it found problems following feedback from its supervisory team at the FSA. The company said: “We are making good progress in implementing these initiatives.”

But it added: “The FSA’s investigation is continuing and is expected to take a number of months to complete.”

In the first half of its 2013 financial year, Homeserve “significantly restructured” its call centre and customer administration operations, cutting 400 jobs as a result of the lower customer numbers.

‘Making progress’

Homeserve group chief executive Richard Harpin praised the UK developments so far. He said: “HomeServe is making progress in transitioning its UK business to a smaller, more customer-focused operation.”

He added: “In the UK we are currently testing a number of new marketing and product propositions, the effectiveness of which will determine the future shape and size of our UK business. Our business improvement initiatives are delivering increased customer satisfaction, significantly reduced complaint numbers and strengthened governance and control processes in the UK.”

Lower costs, better margins

Homeserve said the improved UK profitability in the face of falling revenues was caused by “good cost control”. Lower headcount, following 400 job cuts in call centre and customer administration, and reduced marketing expenditure resulted in a £17m cut in expenses and helped offset the revenue reduction.

The company added, however, that the full-year 2013 operating profit will be lower than 2012’s because it plans to ramp up test marketing activity in the second half of the financial year.

Despite a reduction in customer numbers in the UK, Homeserve’s revenue per customer increased 14% to £105 (H1 2012: £92). The company attributed this to price rises in September 2012 as well as the reduction in customer numbers on highly discounted first year policies.

Group performance

Group-wide, Homserve made a profit after tax of £13.5m in the first half of its 2013 financial year, up 1.5% on the £13.5m it made in the first half of 2012. Revenues increased 8% to £229.6m (H1 2012: £213.1m).