CPP Group profits decline following FSA investigation

Shares in CPP Group, an identity theft and credit card insurer, plunged nearly 19 per cent on Tuesday after the firm reported a significant decline in pre-tax profits as a result of issues with its UK business related to an investigation by the Financial Services Authority (FSA).

Underlying pre-tax profits fell 24% from £24.4m to £18.6m, while reported profits plunged 70% from £23.1m to £6.8m on a like-for-like (LFL) basis. Income declined five per cent from £172.1m to £162.9m, while underlying operating profit dropped 23% from £24.8m to £19.2m. Basic underlying earnings per share fell 21% from 9.92p to 7.86p.

The company's stock exchange listing was temporarily suspended in February because the FSA had launched an investigation into the sale of the group's card protection and identity protection products in the UK, throwing the company's business into turmoil.

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The firm said the results were in line with expectations, but warned that short-term trading will remain difficult. The long-term outlook was better, it said.

In the UK, declines in Card Protection & Identity Protection revenue were partially offset by the performance of the Mobile Phone Insurance, Packaged Account, and Wholesale divisions.

In relation to the FSA's investigation, the firm said it will continue to work with association on the details and timings surrounding the renewals process, customer redress and on-going changes to governance, risk management and control environment. An additional £7.5m was been provided to meet the latest expectations of customer redress and associated costs, with the company warning that further costs may be incurred.

The performance in Ireland, Germany and Turkey developed in line with the firm's expectations during the period, while North America and Asia Pacific have contributed good performances. On a constant currency basis North America revenue was up 21% to £26.0m (H1 2011: £21.1m) and profit was up 75% to £5.2m (H1 2011: £2.9m). Progress in Asia Pacific was driven by an 11% increase in revenue, on a constant currency basis, and losses reducing to £0.8m (H1 2011: £1.2m).

Results across Southern Europe and Latin America were described as "mixed", particularly in Spain where the prevailing difficult economic situation has continued to affect the firm's trading performance.

Revenue in Portugal, France and Italy has declined on a relatively small scale.

Paul Stobart, Chief Executive Officer, said: "It has been an important six month period for the group and against the backdrop of challenges in the UK we have worked hard to strengthen the business and deliver a performance which is in line with expectations. Our experiences since the announcement of the FSA investigation in March 2011 - both regulatory and the effects of economic conditions - continue to overshadow the group. Nevertheless, I am encouraged by the progress that has been made in the period and the steps being taken to realise our potential and successfully move the business forward again.

"There are clear challenges and improvements to accomplish. Despite that, I remain confident that our determination, expertise and the actions we are taking to reshape our business and resolve past shortcomings will allow us to move forward successfully. We believe that refocusing our business culture and providing compliant, effective and diverse propositions to our customers will help to provide a stronger platform for growth, realise higher sustainable returns and make the most of the considerable longer term opportunities for CPP."

The share price 18.59% to 40.50p by 11:20.

NR