TIDMCPP
RNS Number : 4137K
CPPGroup Plc
21 August 2012
CPPGroup Plc
Half year report for the six months ended 30 June 2012
CPPGroup Plc ("CPP"), a leading international Life Assistance
business, today publishes its results for the half year ended 30
June 2012.
Highlights Six months Six months Growth
ended 30 ended 30 %
June 2012 June 2011
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Revenue (GBP millions) 162.9 172.1 (5)%
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Operating profit (GBP millions)
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- Reported 7.4 23.5 (68)%
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- Underlying 19.2 24.8 (23)%
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Profit before tax (GBP millions)
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- Reported 6.8 23.1 (70)%
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- Underlying 18.6 24.4 (24)%
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Profit after tax (GBP millions)
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- Reported 4.4 15.9 (72)%
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- Underlying 13.4 16.9 (21)%
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Basic earnings per share (pence)
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- Reported 2.65 9.34 (72)%
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- Underlying 7.86 9.92 (21)%
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Interim dividend per share (pence) - 2.42 n/a
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Net funds (GBP millions) 8.0 (7.2) n/a
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Underlying operating profit excludes legacy scheme share based
payments of GBP0.2 million (H1 2011: GBP0.8 million), customer
redress and associated costs GBP7.5 million (H1 2011: GBP0.5
million) and restructuring costs GBP4.1 million (H1 2011:
GBPnil).
Underlying profit before tax excludes legacy scheme share based
payments of GBP0.2 million (H1 2011: GBP0.8 million), customer
redress and associated costs GBP7.5 million (H1 2011: GBP0.5
million) and restructuring costs GBP4.1 million (H1 2011: GBPnil).
The tax effect of these adjustments is GBP2.9 million (H1 2011:
GBP0.4 million).
Group overview
-- Operating performance in line with expectations
-- Modest year on year Group revenue decline as expected to
GBP162.9 million (H1 2011: GBP172.1 million)
-- Underlying operating profit reduced as a result of UK
performance to GBP19.2 million (H1 2011: GBP24.8 million)
-- Renewal rates stable at 74.7% (H1 2011: 75.0%; FY 2011 75.4%)
-- Positive net funds position of GBP8.0 million (H1 2011:
GBP7.2 million net debt; 31 December 2011: GBP11.9 million net
funds)
-- Good progress being achieved on key management priorities,
strategic roadmap, governance and management re-structure
-- Pleased to welcome Shaun Astley-Stone as Managing Director,
UK & Ireland, subject to regulatory approval
-- Outlook: short term trading will remain difficult; longer term growth opportunities
UK highlights
-- Lower Card Protection & Identity Protection revenue
partially offset by Packaged Account & wholesale
performance
-- Good UK customer satisfaction scores
-- Re-designed and new product propositions on track
-- Additional GBP7.5 million has been provided to meet the
latest expectations of customer redress and associated costs
-- Continue to work with FSA in respect of the details and
timings surrounding renewals process and customer redress and
on-going changes to governance, risk management and control
environment
International highlights
-- Southern Europe challenging economic backdrop and Latin America continued progress
-- Growth in North America led by new sales and renewal performance
-- Progress continues in Asia PacificNew Business Partner
contracts signed in Germany, Turkey, Spain and Italy
New markets highlights
-- Investment and performance in new markets progressing as planned
-- Home 3 continues to develop
Paul Stobart, Chief Executive Officer, commented:
"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."
Enquiries
Investor Relations
CPPGroup Plc
Paul Stobart, Chief Executive Officer
Shaun Parker, Chief Financial Officer
Tel: +44 (0)1904 544702
Helen Spivey, Head of Corporate and Investor Communications
Tel: +44 (0)1904 544387
Media
Tulchan Communications: John Sunnucks; David Allchurch; Martin
Robinson
Tel: +44 (0)20 7353 4200
NOTES TO EDITORS
CPPGroup Plc (CPP) is an International Assistance business
operating across 16 geographical markets with more than 200
Business Partners worldwide. Via its Business Partners, CPP
provides Life Assistance products to consumers, which includes
annually renewed and packaged products that provide assistance and
insurance across a wide range of market sectors helping our
customers to live life and worry less.
CPP has many strong assets that set it apart as a business - a
strong team of dedicated people, a portfolio of market-leading
product and service offerings, a resilient and scalable systems
infrastructure, a very well established customer base,
long-standing relationships with an impressive mix of Business
Partners, a multi-country footprint which includes many of the
world's fastest growing emerging economies and a B2B2C business
model that has served the business well during its 30 year
history.
For more information on CPP visit www.cppgroupplc.com
CHIEF EXECUTIVE OFFICER'S REPORT
Trading and operational review
The Group has reported a performance in line with expectations
and the trends outlined in our announcements during the first six
months of the year. Revenue has declined at a moderate rate to
GBP162.9 million (H1 2011: GBP172.1 million) and underlying
operating profit is lower at GBP19.2 million (H1 2011: GBP24.8
million) as a result of the issues in our UK business related to
the FSA investigation. New assistance income has reduced to GBP35.7
million (H1 2011: GBP43.6 million) whilst renewal rates and our
live policy base have remained stable at 74.7% (H1 2011: 75.0%) and
10.9 million (H1 2011: 10.9 million) respectively for the half year
period.
Our overall first half performance, as we work to strengthen the
business, has been underpinned by good performances in a number of
our overseas markets and Mobile Phone Insurance and Packaged
Accounts. Nonetheless, the events since the FSA investigation began
have contributed to a slowdown in performance. Principally, our new
and renewal retail revenue streams have been impacted and
consequently declined due to the Group's restricted ability to sell
its full range of products in the UK and adverse economic and
market conditions in some of our operations overseas.
In the UK, notwithstanding the challenging environment, Mobile
Phone Insurance and Packaged Accounts and wholesale activities
delivered a good performance during the first half of 2012,
partially offsetting reduced UK Card Protection and Identity
Protection revenue streams. Our performance in Ireland, Germany and
Turkey has developed in line with our expectations during the
period.
Additionally, a further GBP7.5 million of exceptional costs has
been provided to meet our latest expectation of customer redress
and associated costs, which follows continued discussions with the
FSA since the agreement that we announced in February. As the
nature of the investigation remains on-going, further costs may be
incurred.
Outside of Northern Europe, we are encouraged with the progress
made in many of our international markets. In particular, North
America and Asia Pacific have contributed good performances. On a
constant currency basis North America revenue is up 21% to GBP26.0
million (H1 2011: GBP21.1 million) and profit is up 75% to GBP5.2
million (H1 2011: GBP2.9 million). This level of profit growth is
not expected to continue at such a high level as investment in
acquisition costs increases. Progress continues in Asia Pacific,
driven by an 11% increase in revenue, on a constant currency basis,
and losses reducing to GBP0.8 million (H1 2011: GBP1.2
million).
Our results across Southern Europe and Latin America have been
mixed, most notably in Spain where the prevailing difficult
economic situation has continued to affect our trading performance.
In Mexico, we have increased revenue markedly, albeit from a low
base and our newer market of Brazil continues to develop with
further investment as expected. Revenue in Portugal, France and
Italy has declined on a relatively small scale.
We are pleased to confirm new relationships with Business
Partners, demonstrating the attractiveness of our offering. New
Business Partner relationships include ING Bank and SekerBank in
Turkey. We expect the likely decision by Everything Everywhere is
not to renew our contract with T-Mobile, which will result in
significantly lower revenue in 2012 and beyond, albeit profit and
cash flows will not be impacted in the short to medium term. This
is because the reduction in customer acquisition costs and
anticipated improvement in claims ratio due to the aging of the
book will compensate for reduced revenue. Overall, the pipeline of
new opportunities will support our performance moving into
2013.
We effected cost saving measures in the period to mitigate some
of the adverse profit impact from lower revenue and changes in mix.
This principally involved a voluntary redundancy programme in our
UK business. We are aligning our cost base with our internal plans
and continue to take advantage of opportunities that will produce
further operational efficiencies.
As previously announced in July, after Stephen Kennedy's
departure from the Group, we took the opportunity to review the
organisational structure and decided that the Chief Operating
Officer role is no longer appropriate for the Group at this time.
Following a process to appoint a replacement UK Managing Director
we are pleased to confirm that Shaun Astley-Stone has joined the
Group to assume this role on an interim basis (subject to
regulatory approval). He brings with him a wealth of experience in
insurance and regulatory matters gained during his tenure at a
number of regulated companies.
Operations have generated cash of GBP3.7 million (H1 2011:
GBP16.6 million) in the period resulting in a positive net funds
position of GBP8.0 million (2011: GBP7.2 million net debt). We
continue to work towards limiting the risks associated with
financing and we are in discussions with our lending banks about
our on-going debt facilities which mature in March 2013. We are
also considering a number of alternative financing and strategic
options. The Group will not be declaring an interim dividend in
2012, and is unlikely to declare any dividends during 2013,
although our longer term dividend policy remains unchanged.
Regulation
We have continued to work closely and constructively with the
FSA in the period. Our discussions have been purposeful and focused
as we make every effort to move towards a final resolution with the
regulator, as well as final details regarding the form, structure,
details and timing of customer redress on which agreement was
reached in February. Resolution of these matters will enable us to
progress and provide a greater degree of certainty for the business
and our stakeholders. Pending such resolution, the investigation
has created uncertainty around the Identity Protection and Card
Protection products sold in the UK which is continuing to have a
material impact on the Group's ability to sell its full range of
products in the UK. Achieving an agreement effected to the
satisfaction of all stakeholders remains our first and foremost
priority. The customer redress and associated costs provision of
GBP17 million in our 2011 accounts has increased by GBP7.5 million
in the first half of the year as a result of our on-going
discussions with the FSA and subsequent re-assessment of the
proposals and scope of actions necessary.
We also reached agreement with the FSA in February to make
changes to the renewal process for Card Protection and Identity
Protection. The implementation of additional changes to those
already undertaken during the early part of 2012 are now expected
to be put in place in the third quarter of 2012.
Part of our constructive dialogue with the FSA include changes
to our governance, risk management and compliance frameworks and to
our systems, controls and processes.
Execution of strategy
The key objectives shaping our evolving strategic roadmap that
will drive future success for the Group are:
1. People
Strengthen our organisational culture, with the end-customer and
Business Partners at the heart of what we do, responsibly,
efficiently and in a disciplined manner.
2. Customers
To provide a superior experience that will set us apart from our
competitors which will encourage our customers to renew their
policies, to buy more products from us, and to recommend us to
others.
3. Products
Develop and scale new assistance products building on our
expertise and penetrating new sectors, supported by integrated
sales and service channels that are easy to use, across voice and
digital channels for our customers.
4. Markets
Stabilise and refocus our UK business, returning to sustainable
growth supported by product and service innovation, and improved
customer experience. At the same time, focus on and accelerate the
growth and scale of our emerging and developing markets.
Our five key priorities
In March, when we announced our preliminary results for 2011, I
outlined our five key priorities for the Group, which we have made
good progress against. The determination and professionalism of our
people to implement important projects that will add value, reduce
risk and achieve these priorities are evident. Our latest UK
customer scores in particular remain consistently high, scoring 72%
for satisfaction with service; 70% for satisfaction with product
and with 75% of our customers likely to renew. We are also
delighted that the achievements of our insurance claims team have
been recognised as a finalist in both the Insurance Fraud Awards
and European Call Centre & Customer Service Awards, which take
place in October.
1. FSA agreement effected to the satisfaction of all
stakeholders
We have worked closely and constructively in the period with the
FSA in relation to its investigation, having reached an agreement
in respect of customer redress during February 2012. Much work is
being done with regulator oversight to ensure that the actions
necessary are undertaken.
2. Shift culture and operating model through greater customer
focus aligned to strengthened management discipline and enhanced
governance
Our approach to improve our internal processes, compliance,
governance and customer experience consistently to establish a true
customer-focused culture is well advanced. Under the leadership of
a new senior management team we are implementing independent
recommendations from leading law firms and consultants which are
expected to be substantially complete by the year end and have
launched a number of 'change' initiatives. The key objectives of
these changes are to enhance and strengthen the framework for
educating and managing compliance and conduct risks and assuring
compliance with regulatory requirements and alignment of reward and
remuneration.
3. Develop product and service propositions that will drive
future success
Another key strand in our priorities is to develop product and
service propositions that meet customers' needs based on powerful
consumer insights that will drive our future success, especially in
the online and mobile markets and have developed a number of
consumer products which include card, identity and mobile
propositions.
4. Ensure investments in emerging markets take full advantage of
significant growth opportunities
Our financial investment in emerging markets has decreased
year-on-year as India and Mexico move towards break-even. China and
Brazil are continuing to develop. Our focus is to deliver new
income and renewals growth while building our network of Business
Partners.
5. Retain and recruit the talent we need, at all levels, to
deliver our future success
Importantly, the continued development of our people remains a
priority. One of our areas of focus has been to conduct an
extensive review of composition and resource to clearly understand
the required structure for the business as we move forward and as a
result, we have made changes accordingly.
Whilst not identified specifically as a key priority for the
Group in our March announcement, management focus is also being
given to ensuring that we have appropriate lending facilities in
place in advance of the March 2013 maturity of our current debt
facilities, as well as giving consideration to a number of
alternative financing and strategic options.
Outlook
The Group has clear challenges and improvements to accomplish
and the short term outlook for CPP will continue to be determined
by the on-going activity in relation to the Group's agreement with
the FSA in the UK. Despite that the Board remains confident that
the actions we are taking to reshape our business coupled with the
pipeline of opportunities with both current and new Business
Partners will ultimately allow the Group to perform profitably,
move forward with renewed focus as a more customer centric business
and make the most of the considerable longer term prospects for the
business.
The Group's UK business will continue its period of significant
transformation and our programme to effect the changes required
will strengthen and move the UK business forward with new products,
sales processes and superior customer experience. Supporting this
change is our investment in greatly improving our governance and
compliance standards and processes. Nonetheless, as a result of
lower retail new assistance income in 2011, combined with the
closure of the call to confirm channel, profitable renewal revenue
and profit growth in 2012 have been adversely impacted. This
adverse impact is expected to continue into 2013 until revenue is
generated from alternative channels. Agreed changes to the renewals
process for Card Protection and Identity Protection in the UK,
which are in the process of being implemented, may also result in a
reduction in renewal rates.
Should the Group's Business Partners conduct their own customer
redress exercises, which the Board believes is increasingly likely,
then we anticipate a material reduction in the number of Card
Protection and Identity Protection customers because the Group will
be unable to renew these policies in 2013.
Our Mobile Phone Insurance business will be impacted by the
likely decision by Everything Everywhere not to renew our contract
with T-Mobile resulting in significantly lower revenue in 2012 and
beyond, albeit that profit and cash flows will not be impacted in
the short to medium term as the reduction in customer acquisition
costs and anticipated improvement in claims ratio due to the aging
of the book will compensate for reduced revenue. Our Packaged
Account and wholesale business is expected to continue to perform
profitably, although we anticipate lower growth as a major partner
is currently not actively marketing Packaged Accounts pending a
strategic review of the channel.
In order to mitigate the full impact to profit from the
reduction in revenue and change in mix we have proactively
implemented cost saving measures, including reductions in
headcount, although we continue to expect that 2012 UK profit will
be significantly lower than 2011. Our new product and channel
initiatives in the UK are expected to contribute positively during
2013, although we do not expect these to be sufficiently material
to offset the negative factors and both UK revenue and profit may
consequently continue to materially decline in 2013.
Southern Europe, in particular Spain, continues to be adversely
affected by the economic situation and we expect lower revenue as a
result in the short term. Notwithstanding this, the Group continues
to invest in Brazil, where the long term opportunity remains
attractive. Combined, this will result in lower profit and margins
in our Southern Europe and Latin America region in 2012. Thereafter
we expect the region to contribute positive revenue growth during
2013 as Mexico and Brazil start to deliver.
Our North America business is expected to continue to increase
revenue and profit as we expand our sales with existing Business
Partners, although growth rates and operating profit will be
slightly lower than currently achieved as we increase investment in
customer acquisition costs.
We will continue to invest in the growth of our Asia Pacific
business, particularly China and expect that the level of start up
losses will marginally reduce as India moves towards
profitability.
Our Home 3 joint venture with Mapfre Asistencia is now expected
to approach break-even towards the end of 2013.
Overall, we continue to expect that the Group will be
significantly impacted by the considerations set out above. Whilst
a decline in revenue in 2012 is anticipated, underlying operating
profit and underlying operating profit margin are likely to be
significantly lower than 2011, the Group will remain profitable and
is expected to continue to generate operating cash flow during 2012
sufficient to cover the Group's capital investment
requirements.
The Board believes that we are laying the foundations for
sustainable growth and once the period of significant adjustment in
the UK has been completed, the new strategy for the UK business
focusing on new products and sectors, together with continued
development of our growing overseas business, will enable the Group
to develop positively again in the medium term.
FSA update
On 24 February 2012 the Group announced that it had reached
agreement with the FSA on the scope of actions necessary to address
certain failings in its sales processes in the UK. We acknowledge
that there were past failings and have agreed to make changes to
our renewals process and to carry out a customer redress exercise
under FSA supervision of direct sales of Card Protection and
Identity Protection products made since 2005, offering redress to
customers where appropriate.
CPP is currently working with the FSA in respect of further
amendments to the renewals process and customer redress. The
renewals process amendments, in addition to changes already
implemented, were expected to take effect on or around 1 May 2012,
however detailed discussions have taken longer than planned and the
change is now expected to take place in the third quarter of 2012.
The Group remains in positive and constructive discussion with the
FSA in respect of the form, structure, details and timing of
customer redress and settlement of customer claims. It is not
possible to determine how long these discussions will continue.
Furthermore, whilst it was originally envisaged that a pilot
exercise would be undertaken for operational reasons, dependent on
the outcome of the discussions on customer redress there is a
possibility that this might not be carried out.
In assessing the likely financial impact of the remedial action
to be taken, the Group has, with its advisers, considered a number
of assumptions, including the form and structure of customer
redress and likely customer response rates. Based on its experience
of customer complaints to date, customer satisfaction surveys and
the results of exercises conducted in similar circumstances, and
the advice of our advisers the Group has been able to reasonably
predict its exposure to direct redress payments. The assumptions,
however cannot be guaranteed, and given the publicity generated by
the investigation there remains the risk that customer redress
rates in particular could materially exceed those assumed.
Furthermore, there is still uncertainty about what steps the FSA
may wish to take, if any, and against whom in relation to UK sales
of the CPP's Card Protection and Identity Protection products that
is not within the scope of the customer redress exercise, or in
respect of any similar products available to the market from other
providers. There can be no guarantee that the FSA will not seek to
take action on a wider industry basis. Until such time as the FSA
makes a determination on these issues, and the repercussions are
understood for the industry as a whole, the Group is unable to
assess the potential impact on its Business Partners, or the
Group's relationship with them, including any financial
consequences. Should the Group's Business Partners conduct their
own customer redress exercises, which the Board believes is
increasingly likely, then we anticipate a material reduction in the
number of Card Protection and Identity Protection customers because
the Group will be unable to renew these policies in 2013.
In addition, the Group's UK subsidiaries are taking appropriate
action to address regulatory expectations going forward. These
actions include strengthening and enhancing the governance, risk
management and compliance arrangements applying to insurance and
insurance intermediation activities and the skills and competence
of our people who are responsible for and engaged in governance,
sales, operations and control functions. This work has also
involved developing a revised strategy for our Card Protection Plan
Ltd subsidiary, which focuses on the delivery of good customer
outcomes as the foundation of the Group's business model.
In the Group's on-going discussions with the FSA concerning
prudential matters, consideration is being given to the increased
risks currently facing the Group's UK regulated subsidiaries. These
risks are outlined in the risks and uncertainties section of this
report. These discussions may result in the requirement for the UK
regulated subsidiaries to increase capital in response to this
increased risk profile, which would need to be funded by the Group.
It is currently not possible to determine exactly how much
additional capital would be required, however the Group believes
that this will be clarified by quarter four, 2012.
OPERATING AND FINANCIAL REPORT
Group revenue has declined by 5% for the half year, excluding
the impact of foreign exchange. Revenue increased in North America
by 21% and Asia Pacific by 11%. In Northern Europe revenue declined
by 9% principally due to the UK performance where reduced Card
Protection and Identity Protection sales have been partially offset
by the growth of Packaged Account and wholesale activities and
Mobile Phone Insurance. Revenue in Southern Europe and Latin
America has continued to decline, down 6%, impacted by the economic
and market challenges facing consumers and banks in Southern
Europe.
Operating profit declined by 68% to GBP7.4 million. Underlying
operating profit, which excludes legacy scheme share based
payments, customer redress and associated costs and restructuring
costs, declined 23% to GBP19.2 million. This has been impacted by
UK factors including lower Card Protection and Identity Protection
sales and increased overheads, partially mitigated by growth in
North America from increased volumes with existing Business
Partners. Although UK overheads increased year on year, this has
been actively addressed through a voluntary redundancy programme
which has successfully seen a reduction in overhead run-rate
through the period. This reduction is expected to continue in the
second half of the year and lead to annualised savings of GBP5.7
million.
The Group's results are adjusted to arrive at measures that
better reflect underlying performance. Operating profit is adjusted
for customer redress and associated costs for the period which are
GBP7.5 million; this reflects the latest estimate of the cost of
customer redress and associated costs to the Group. A further
adjustment for restructuring costs of GBP4.1 million relates to
redundancy costs that have been incurred as part of the Group's
overall review of its cost base. Further detail is provided in note
4.
Profit after tax declined by 72% to GBP4.4 million. Underlying
profit after tax, which excludes legacy scheme share based
payments, customer redress and associated costs and restructuring
costs declined by 21% to GBP13.4 million. Underlying earnings per
share decreased to 7.86 pence (H1 2011: 9.92 pence); basic earnings
per share decreased by 72% to 2.65 pence.
As previously announced the Group will not be declaring an
interim dividend for 2012, and is unlikely to declare dividends
during 2013, although our longer term dividend policy remains
unchanged.
Net funds at 30 June 2012 were GBP8.0 million, a decrease of
GBP3.9 million from our position at 31 December 2011.
KEY PERFORMANCE INDICATORS
Six months ended Six months Year ended
30 June 2012 ended 31 December
30 June 2011 2011
------------------------------------ ----------------- -------------- -------------
New assistance income
(GBP millions) 35.7 43.6 85.5
Annual renewal rate (moving annual
total) 74.7% 75.0% 75.4%
Live policies (millions) 10.9 10.9 11.0
Cost / income ratio 59% 54% 55%
Operating profit margin(1) 11.8% 14.4% 13.8%
------------------------------------ ----------------- -------------- -------------
1. Underlying operating profit as a percentage of revenue
New assistance income (GBP millions) Six months ended Six months Year ended
30 June 2012 ended 31 December
30 June 2011 2011
-------------------------------------- ----------------- -------------- -------------
Retail products 22.6 31.8 59.8
Packaged and wholesale 13.1 11.8 25.6
-------------------------------------- ----------------- -------------- -------------
Total new assistance income 35.7 43.6 85.5
-------------------------------------- ----------------- -------------- -------------
Live policies (millions) Six months ended Six months Year ended
30 June 2012 ended 31 December
30 June 2011 2011
--------------------------------- ----------------- -------------- -------------
Retail assistance policies 6.3 7.1 6.9
Retail insurance policies 0.6 0.6 0.5
Packaged and wholesale policies 4.0 3.2 3.6
--------------------------------- ----------------- -------------- -------------
Total live policies 10.9 10.9 11.0
--------------------------------- ----------------- -------------- -------------
New assistance income for the half year decreased 18% to GBP35.7
million. The decline was a result of lower sales of retail
products, principally Card Protection and Identity Protection sales
in the UK partially offset by the growth of Packaged Accounts and
wholesale activities in the UK and the impact of increased new
volumes in North America in late 2011.
The Group annual renewal rate at 74.7%, calculated on a moving
annual total basis, is 0.7% lower than 31 December 2011. This is a
result of the expected decline in Card Protection and Identity
Protection renewal rates in the UK and we believe contributing
factors may have included changes to renewal packs already
implemented during the early part of 2012, adverse publicity
surrounding the Group and general economic factors in the UK.
The live policy base is 0.1 million lower than reported at 31
December 2011, with a decline in retail assistance policies of 7%
principally due to a reduction in the UK Card Protection and
Identity Protection policy base. Outside of the UK, the policy base
has remained stable, with increases in China being offset by
decreases in Spain and Turkey.
The cost / income ratio has increased from 54% to 59% for the
half year reflecting increased Packaged Account and wholesale
activities in the UK which have lower revenue per policy, carry
higher direct costs but suffer no commission, along with the impact
of reduced UK Card Protection and Identity Protection renewals and
an increase in overheads, which has been actively addressed. The UK
factors have been partially offset by a reducing ratio in North
America as a result of increased revenue and lower customer
acquisition costs.
As expected, the underlying operating profit margin of 11.8% for
the half year was lower than in 2011, due to the decline in renewal
income for Card Protection and Identity Protection and lost
overhead economies in the UK. These effects have been partially
offset by improving margins in North America and Germany.
REGIONAL PERFORMANCE
Northern Europe
-- Revenue* 9% lower to GBP113.6 million (H1 2011: GBP125.1
million)
-- Operating profit* reduced to GBP10.4 million (H1 2011:
GBP18.0 million)
-- Reduced Card Protection and Identity Protection sales
-- Good UK Packaged and wholesale performance
-- Re-designed and new product propositions on track
-- Germany delivered reduced losses; Turkey profit has
declined
* excluding the impact of foreign exchange
Northern Europe, which accounts for 70% of Group half year
revenue, has been impacted by challenging circumstances which have
led to restricted and reduced Card Protection and Identity
Protection sales in the UK. Revenue has decreased 9% compared to
the same period in 2011. Operating profit has consequently been
adversely affected by reduced sales and mix effects, with operating
profit for the half year declining to GBP10.4 million (H1 2011:
GBP18.0 million).
As previously indicated revenue has declined, down 9% in the UK,
and also in Ireland and Turkey, albeit on a smaller scale. However,
continued revenue growth in Germany and our UK Packaged Account and
wholesale activities and reduction in the cost base from the
voluntary redundancy programme undertaken in the UK has partially
mitigated the impact. Renewal rates have decreased, impacted by the
expected decline in Card Protection and Identity Protection rates
in the UK.
Our Airport Angel business has continued to grow revenue as a
result of increased volume, particularly from Diners International,
Barclays Premier and a new deal with RBS. Mobile Phone Insurance
revenue, through RBS Packaged Accounts, continued to grow in the
period due to increased volumes and an increase to contract rates.
This has been tempered by a decline in Packaged Account revenue
following a major Business Partner's decision in April to suspend
branch and online sales of new accounts pending a strategic review
of the channel.
Mobile Phone Insurance contributed good results in the period
with consumer propensity to migrate to high-end, higher-value
smartphone technology, which now accounts for 72% of UK market new
handset acquisitions. As we place greater emphasis on opportunities
in the rapidly changing digital marketplace we are pleased to have
partnered with Yougetitback, a global market leader in mobile
device anti theft solutions, to develop products which will provide
data protection and restoration services for mobile device users as
mobile and contactless payments convergence pushes increasing
amounts of sensitive data through handsets. T-Mobile (Everything
Everywhere), one of our Business Partners, has informed us that
following a competitive tender in line with its normal business
practice, it is unlikely to renew its contract when it expires on
14 September 2012. This is not expected to result in an immediate
material impact to the Group operating profit for 2012 and 2013,
albeit revenue will be significantly lower as a result. In order to
mitigate the longer term impact the Group is currently engaged in
discussions with potential new Business Partners. We expect to
understand the outcome of these discussions in the coming
months.
In addition, as a result of implementing new processes and
governance structures and following a review of sales processes we
have effected a temporary suspension of new retail Mobile Phone
Insurance sales to customers in both internal and external voice
channels. This short term suspension is not expected to result in a
material impact to Mobile Phone Insurance performance. A detailed
investigation is being carried out into the sales processes.
We believe there are long term opportunities for us to grow in
the UK market. We are investing in our product development which
will allow us to realise this potential, particularly in the online
and mobile markets. Our re-designed and new product propositions
supported by alternative channels to market and pipeline are
expected to contribute positively in 2013.
In Germany new and renewal income has grown well, which combined
with an increasing customer base, high renewal rates and lower
direct costs has led to a reduced operating loss. Campaigns with
our Business Partners, DZ Bank AG and WGZ Bank in particular, have
produced encouraging results. We are pleased to have signed a new
Business Partner in the period, Card Complete, Austria's largest
credit card issuer, as a pilot venture in the Austrian market
managed through our German operation and we have also launched a
new campaign with Ikano Bank. The current focus remains on scaling
our operations and to launch Business Partner sales channels
alongside further market opportunities supported by stable macro
economic conditions that will enable us to continue to deliver
solid results and move to break-even.
We have performed in line with expectations in Ireland, which
continues to be a difficult economy for our business. Revenue has
decreased modestly in the period, although we continue to work
closely with Meteor in the mobile arena.
In Turkey, despite a decline in revenue and profit, our
operating profit margin has improved as a result of the change in
revenue mix, with renewals forming a higher proportion of revenue.
Our performance in Turkey is in line with expectations and reflects
the impact of Akbank not renewing their contract in August 2011.
This is mitigated by the growth of the renewal book. Expanding our
Business Partner network is the main focus for the business and in
the period we signed new agreements with ING Bank, Sekerbank,
Turkiye Finansbank and CIV.
Southern Europe and Latin America
-- Revenue* 6% lower at GBP20.0 million (H1 2011: GBP22.8
million)
-- Operating profit* 17% lower at GBP4.6 million (H1 2011:
GBP5.9 million),
-- Latin America: strong growth in Mexico and market entry
activities continuing in Brazil
-- Southern Europe improved renewal rates despite on-going
adverse Eurozone macro conditions
-- New Business Partner contracts signed
* excluding the impact of foreign exchange
Southern Europe and Latin America, which represents 12% of Group
half year revenue, has seen mixed results with revenue decreasing
6%, excluding the impact of foreign exchange. Operating profit in
the region is 17% lower than in the first half of 2011, impacted by
the continued difficult economic situation and banking sector
conditions in the Eurozone region, which has affected both Business
Partner and consumer confidence, disposable income levels, and
consequently our trading performance. Nevertheless, we are
encouraged by the growth in Latin America, with Mexico revenue
growing well, albeit from a low base, and market entry activities
continuing in Brazil.
In Southern Europe, comprising our businesses in Spain, Italy,
Portugal and France, we have experienced an overall decline in
revenue and operating profit as a result of lower new volumes and
lower renewal income. Despite a reduced financial performance,
particularly in Spain where adverse economic conditions continue,
renewal rates have improved, which reinforces the value our
customers place on our products. We have entered into a new
Business Partner relationship with 20:20 which is a major
distributor of Yoigo (4th largest telecom operator in Spain).
In Latin America, we have been encouraged by good revenue growth
and reduced start up costs as we move towards break-even in Mexico.
We continue to augment our performance, signing our first wholesale
deal with Banco Inbursa. This provides us with a solid platform to
achieve further sustainable growth in the second half of the year.
Our newer market of Brazil has made progress with product
propositions being discussed with a number of potential Business
Partners.
North America
-- Revenue* up 21% at GBP26.0 million (H1 2011: GBP21.1
million)
-- Operating profit* up 75% at GBP5.2 million (H1 2011: GBP2.9
million)
-- Revenue growth led by new and renewal performance
-- Operating profit growth positively impacted by reduced
customer acquisitions
* excluding the impact of foreign exchange
North America, which represents 16% of Group half year revenue,
has grown revenue strongly, up 21% and increased operating profit
by 75% as a result of new monthly bill volumes and increasing
renewal streams primarily through our existing Business Partner
relationships with Alliance Data, Sovereign Bank and Wells Fargo
Wachovia. The operating profit increase is greater than the rate of
revenue growth as a result of lower acquisition costs due to
product mix and reducing new customer acquisitions in the first
half of 2012. The lower rate of customer acquisition was due to
reduced sales of our Purchaseshield product to Wells Fargo
customers whilst they evaluate their product strategy and will
result in lower growth rates for the rest of 2012.
Retail policy holders are in line with the prior year, while our
wholesale policy holders have grown strongly, primarily due to the
Packaged Account programme at Citizens Bank Financial Group Inc. In
addition, the Packaged Account contract with this Business Partner
has been extended for a period of two years.
Product innovation continues to drive our growth strategy and we
are currently focused on additional new concepts and channels to
market.
Asia Pacific
-- Revenue* up 11% at GBP3.3 million (H1 2011: GBP3.1
million)
-- Operating loss* 34% lower at GBP0.8 million (H1 2011: GBP1.2
million)
-- Operations maturing and country performance improving
* excluding the impact of foreign exchange
Our Asia Pacific business, which represents 2% of Group half
year revenue, has performed well, with an 11% increase in revenue
largely as a result of renewal revenue in India and China. Start up
investment costs have reduced as operations begin to mature and
country performance improves. We are encouraged by the sales
pipeline with existing Business Partners and new prospects.
In China, we have grown revenue from a low base, although start
up losses have increased as a result of higher overheads which were
expected as we continue to develop the business. Despite the loss
of our wholesale contract with China Guangfa Bank in July 2012 we
will seek to take advantage of new opportunities in this
market.
In India, we have grown revenue and significantly reduced our
operating loss through the change in revenue mix and price
increases. Opportunities arising from our sales pipeline, including
a new Business Partner, Bajaj Finance Limited, coupled with our
focus on developing and launching new product propositions are
expected to drive future performance.
In Hong Kong, as expected, local challenges concerning data
protection and privacy have resulted in lower revenue. Operating
loss in this market is 34% lower at GBP0.8 million. The new Data
Privacy Bill was passed on 27 June 2012 which provides clarity and
allows us to move forward, adopting a new operating model to
re-commence sales in this market.
In Malaysia, our revenue has been impacted by the introduction
of Bank Negara Malaysia regulations in January 2012 and operating
profit performance is lower due to increased overhead costs
associated with the investment in strengthening our Business
Development team. To mitigate this impact we are developing new
products that take advantage of debit and credit card opportunities
which meet specific consumer needs.
In Singapore, revenue has declined although we have generated a
small local profit for the period. New regulations on credit card
activation, effective in early July 2012, provide us with future
card activation opportunities as we focus on channel
diversification.
NEW MARKETS
Underlying operating profit includes GBP1.6 million (H1 2011:
GBP2.6 million) of start up losses as we continue to invest in new
markets. For these purposes we consider the following new markets
to be developing: Hong Kong, Home 3, India, Mexico, China and
Brazil.
We continue to make progress with Home 3, our joint venture with
Mapfre Asistencia. Home 3 has continued to develop its relationship
with existing Business Partners. The Group's investment in Home 3
for the half year, representing the Group's share of its losses
after tax, amounts to GBP0.2 million (H1 2011: GBP0.7 million).
TAXATION
Our effective tax rate has increased to 34.6% (H1 2011: 31.0%),
reflecting the lower proportion of Group profit generated and taxed
in the UK, increased profit in North America and the incidence of
losses in overseas start up markets for which no tax deduction is
available.
FINANCING AND CASH FLOWS
Net finance costs for the half year have increased by GBP0.2
million to GBP0.6 million, reflecting the higher average loan
balances held during the period compared to 2011.
The Group has in place an GBP80 million guaranteed Revolving
Credit Facility (RCF) supported by a club of three banks which
expires on 31 March 2013. The drawn balance on this facility at 30
June 2012 is GBP43.5 million, which is disclosed as a current
liability given the expiry date of the facility. We continue to
work towards renewing appropriate lending facilities in advance of
the March 2013 maturity, as well as considering a number of
alternative financing and strategic options.
The Group had net funds of GBP8.0 million at 30 June 2012, down
from GBP11.9 million at 31 December 2011, as a result of voluntary
redundancy payments in the UK and adverse working capital
movements. The Group's insurance businesses maintain cash deposits
for solvency purposes which were GBP22.8 million (H1 2011: GBP14.5
million) at 30 June 2012. Working capital requirement has increased
by GBP10.2 million (H1 2011: GBP15.0 million) during the period,
reflecting growth and timing of receipts from Business Partners
associated with our increasing UK Packaged and wholesale business
and the impact of a larger Mobile Phone Insurance book. Operating
cash inflow for the period of GBP0.5 million has been offset by
continued investment in our IT capabilities and Business Partner
intangibles.
We have continued on-going investment of GBP1.7 million (H1
2011: GBP2.7 million) in our IT capabilities, improving our
existing platforms, adding new capabilities and supporting the
development of our new products. We invested GBP0.3 million (H1
2011: GBP2.7 million) in our Business Partner intangible, which is
an arrangement we have with a single Business Partner. As expected,
this is lower than 2011 following the suspension in March 2011 of
Identity Protection sales in CPP channels.
DIVIDENDS
The Group will not be declaring an interim dividend in 2012, and
is unlikely to declare any dividends during 2013. The Group's
longer term dividend policy to distribute approximately 40% of
underlying profit after tax to its shareholders remains
unchanged.
RELATED PARTY TRANSACTIONS
Related party transactions, comprising transactions with our
Home 3 joint venture and remuneration of key management personnel,
are disclosed in note 14 to the condensed financial statements.
There have been no material changes to the related party
transactions described in our 2011 Annual Report and Accounts.
RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which
could have a material impact on the Group's future development and
performance over the remaining six months of the financial year and
could cause actual results to differ materially from expected and
historical results.
The principal risks and uncertainties of the Group were detailed
in the 2011 Annual Report and Accounts, available at
www.cppgroupplc.com. An Enterprise Wide Risk Management Framework
is currently being implemented in the UK and the roll-out across
the Group will commence during the second half of 2012.
The areas listed below summarise the principal strategic,
operational and financial risks and uncertainties including any
change since publication of the aforementioned document.
Regulation
The Group has a number of regulated subsidiaries, and a
regulated joint venture, and as such the risks of non-compliance
with current regulation, continuance of the Group's 'licence to
trade' in any given territory or future changes to regulatory
frameworks are ever present.
Oversight and governance procedures coupled with a prudential
risk management framework are maintained centrally and in each key
territory to embed operational and financial compliance. Through
the first half of 2012, tangible progress has been seen in
implementation of independent findings from leading law firms and
consultants, the objectives of which are to enhance and strengthen
the framework for managing compliance and conduct risks and
assuring compliance with regulatory requirements:
-- The business standards operated by the Group's UK regulated
subsidiaries have been reviewed and changes are being made with the
aim of demonstrating that these meet or exceed legal and regulatory
requirements.
-- The compliance systems throughout the Group, and the controls
applicable to them, have been reviewed and are being revised. The
design phase is complete and the second phase of embedding and
enabling has commenced.
The recommendations for both of the above are expected to be
substantially complete by the year end. Other regulatory related
initiatives, documented in the 2011 Annual Report and Accounts,
continue to embed effectiveness of regulatory compliance.
In addition, the Group's UK regulated subsidiaries are taking
action to address the FSA's regulatory expectations going forward.
These actions include strengthening and enhancing the governance,
risk management and compliance arrangements applying to insurance
and insurance intermediation activities and the skills and
competence of our people who are responsible for and engaged in
governance, sales, operations and control functions. This work is
on-going and additional costs may be incurred as a result.
Developments in, and the increasing burden of, the regulatory
environment are closely monitored to enable the Group to
pro-actively respond to potential future change. An example is the
new regulations in Malaysia in respect of personal credit, where
the Group has taken mitigating action to invest in business
development resources.
Changes in regulation or new regulatory bodies not only
potentially impact the Group's operations and product base but
might also impact Business Partners' appetite for the Group's
products and thus revenue generation. Close relationships with
Business Partners assist proactive management of this risk.
Much of the Group's product base is regulated in local markets
and as such is open to analysis by local regulators. As a result of
the UK experience, discussions with local regulators have increased
and the Group continues to work with local regulators. However
implementation of any agreed changes by the Group and its Business
Partners could adversely affect the Group's sales and
profitability.
Potential changes in tax legislation, either direct or indirect,
in any of the Group's geographic operating markets are ever
present. The impact of emerging tax legislation is monitored by
management and the Board. Appropriate action would be taken to
mitigate any adverse impact from crystallisation of tax legislation
changes.
FSA investigation
During the first half of the year the Group has continued to
work closely and constructively with the FSA in relation to its
investigation in the UK. The Group's discussions have been
purposeful and focused as every effort is made to move towards a
final resolution with the regulator as well as final agreement
regarding the form, structure, details and timing of the customer
redress exercise on which agreement was reached in February. The
Group acknowledges its past failings in certain sales processes and
fully supports customer redress, where appropriate. Resolution of
these matters will enable the Group to progress and provide a
greater degree of certainty for the business and stakeholders.
Achieving an agreement effected to the satisfaction of all
stakeholders remains our first and foremost priority.
Continued progress has been made on improving products and their
development, sales processes and customer facing activities. The
Group remains focused on providing a market leading service to our
customers.
The position agreed with the FSA and the underlying residual
risks are detailed below:
- Renewals Process: The Group has agreed with the FSA to make
the following changes to the renewal process of its Card Protection
and Identity Protection products. The post renewal cancellation
period will be extended from 14 to 60 days, during which time a
customer seeking to cancel their policy will obtain a full refund.
A renewal pack will be sent to customers 60 days before renewal,
explaining to the customer their right to cancel and the advantages
and limitations of the relevant product. 30 days after the policy
renewal date, CPP will send the customer a reminder that their
policy has renewed and that they have another 30 days in which to
cancel their policy in order to obtain a full refund. All
communications with the customer during the renewal process will be
approved in advance by FSA. The planned implementation date for
these changes was 1 May 2012. However, detailed discussions with
the FSA have taken longer than planned and implementation is now
expected to take place in the third quarter of 2012. Based on
customer surveys and feedback, the Group remains confident that its
customers continue to place great value on its products and
services across the offered range. However the risk exists that an
adverse impact on renewal rates may occur as a direct result of the
redesigned renewal process.
- Customer Redress Exercise: A customer redress exercise to
ascertain those customers who may have suffered detriment (and the
extent of any loss) as a result of sales or renewal conducted by
CPP of its Card Protection policies since 14 January 2005 and sales
of Identity Protection through CPP's telephone sales channels since
14 January 2005 (but, in both cases, only where the original sale
did not involve one of CPP's Business Partners making an
introduction or conducting the sale) remains in discussion with the
FSA. The precise form, structure, details and timing of customer
redress are the subject of on-going constructive discussions with
the FSA and the purpose of any redress exercise will be to offer
customers the opportunity for redress by way of reimbursement in
the event that they have been mis-sold the Group's products. In
assessing the likely financial impact of the remedial action to be
taken, the Group has, with its advisers, considered a number of
assumptions, including customer response rates to the exercise. The
assumptions, however cannot be guaranteed, and given the publicity
generated by the investigation there remains the risk that customer
redress rates in particular could materially exceed those
assumed.
- Disposition of Assets: The Group has agreed with the FSA the
need for prior consent in respect of certain restrictions on the
disposition of assets by its subsidiary, Card Protection Plan
Limited (CPPL). These include prohibitions, without prior FSA
consent, of any material movements of assets by CPPL within the CPP
Group, material changes to its capital structure or remuneration
policy, payments of dividends by CPPL or any other significant
alteration in the composition or quality of CPPL's assets. The risk
exists that the FSA will not give appropriate consent.
- Other Providers: It currently remains unclear what steps the
FSA may wish to take, if any, and against whom, in relation to UK
sales of CPP's Card Protection and Identity Protection products
that are not within the scope of the Group's customer redress, or
in respect of any similar products available to the market from
other providers. There can be no guarantee that the FSA will not
seek to take action on a wider industry basis. Until such time as
the FSA makes a determination on these issues, and the
repercussions are understood for the industry as a whole, the Group
is unable to assess the potential impact on its Business Partners,
or the Group's relationship with them, including any financial
consequences. Should the Group's Business Partners conduct their
own customer redress exercises, which the Board believes is
increasingly likely, then we anticipate a material reduction in the
number of Card Protection and Identity Protection customers because
the Group will be unable to renew these policies in 2013.
- On-going Activity: There is a risk that the continuing
investigation may result in further action which may have an
adverse impact on the Group's financial performance. The
investigation has created uncertainty around the UK's Identity
Protection and Card Protection products which is continuing to have
a material impact on the Group's ability to sell its full range of
products in the UK. As noted above, enhanced governance and control
arrangements are being implemented and processes reviewed. The
Group may also suffer reputational damage which might have further
impact on the take up of its products with its customers and on its
ability to contract with its Business Partners. This could lead to
reduced sales levels for the Group's products.
The investigation has placed additional pressure on management
and staff in the UK, the impact of which is being actively
managed.
Business Partner relationships
The Group mainly operates a 'Business to Business to Consumer'
model and as such a relatively high proportion of the Group's
revenue and profit is attributable to sales through relationships
with its Business Partners. Future revenue and profit could be
adversely impacted by deterioration of existing, or failure to
develop new, Business Partner relationships. An example being that
following a competitive tender in line with its normal business
practice, Barclaycard informed the Group that it did not intend to
renew its contract when it expired on 31 March 2012.
Relationships with key Business Partners continue to be actively
managed on a local basis, and globally where appropriate, to ensure
that the value to the Group of these relationships is optimised.
Agreed contractual terms support the Group's operations with
Business Partners which are subject to the normal course of
re-negotiation when identified in the contract.
Although Group and UK management continue to work closely and
actively with Business Partners in the UK, reaction of Business
Partners to actions which may arise from the regulatory
investigation, including any actions on a wider industry basis, and
the resultant impact on the Group's Business Partner relationships
remains uncertain.
A further risk is posed if the Group's Business Partners merge
with, or are acquired by, other entities that are not already
Business Partners, such Business Partners may reduce or discontinue
their use of the Group's services. Business models in the UK retail
banking sector are subject to change and adaption, which may impact
the Group's revenue and profit.
A large proportion of the UK's Phonesafe business revenue is
attributable to the Group's relationship with one Business Partner,
T-Mobile. The current contract between the Group and T-Mobile was
extended to September 2012. Following the merger between T-Mobile
and Orange, Everything Everywhere Limited initiated a tender
process for insurance provision to all new customers post September
2012. It has recently indicated that it is unlikely to extend the
Group's contract. The impact of this decision would not result in
an immediate material impact to the Group's profit or cash flow for
2012 and 2013 as the back-book of policies will still be managed
and the reduction in customer acquisition costs together with
expected lower claims costs due to the ageing of the book will
offset the impact of the loss of new sales revenue in the short
term. In order to mitigate the longer term impact the mobile team
is currently engaged in advanced discussions with new Business
Partners.
Across the Group, external pressures arise from competitive
activities, Business Partners' pressure on commercial margins and
the ability to establish and grow operations. The Group proactively
addresses these competitive pressures through seeking to develop
new products, enhancing existing products, delivering a high
quality customer experience and operating through diverse marketing
and customer acquisition channels.
Sales channel management
The Group uses a selected number of sales channels to take its
products to market. A risk to revenue growth arises if existing
channels cease to be available or viable and the Group is not able
to identify and exploit alternative channels. Examples are:
suspension of new sales of Identity Protection through its UK voice
channels in response to regulatory discussions which impacted
revenue growth in the UK; also changes to channel availability in
Hong Kong.
The Group continues to actively explore and invest in new and
alternative sales channels through which to distribute its products
to end customers, a key element of which is product presence and
selling on the internet.
Borrowing facilities
The Group entered into an GBP80 million Revolving Credit
Facility (RCF) with Barclays Plc, The Royal Bank of Scotland Plc
and Alliance & Leicester Plc (part of the Santander Group) on
17 February 2010. The RCF expires on 31 March 2013. A risk exists
that one or more of the current lending banks will not wish to
participate in the new facility or the Group will not be able to
refinance its debt.
The Board has commenced assessing its refinancing options and
intends negotiating appropriate lending facilities in advance of
the maturity of the current RCF. The Group is currently in
discussion with the banks about its on-going debt facilities as
well as considering a number of financing and strategic
options.
Geographic markets
The Group is subject to the risks inherent in operating and
developing international operations. The Group has operations in
several geographic markets with varying levels of business maturity
in terms of size, operating model and product base.
-- Given the UK's significance in the corporate structure, the
Group's operating results are at risk to fluctuations in
performance of the UK business. On-going uncertainty prevails in
respect of sales of Identity Protection and Card Protection
products in the UK as well as some of the sales channels through
which they are marketed.
-- The on-going difficult macroeconomic backdrop in Southern
Europe and banking sector conditions in Spain continue to prevail
in this part of the Group's business.
The Group's Risk Policy summarises the processes used to
identify, evaluate, monitor and report risks faced in each of the
Group's operating geographical markets as well as the Board's
appetite for risk. A series of Group Board Policies and delegated
responsibilities, together with on-going management oversight and
support, are in place to manage the principal risks.
As part of the Group and country strategic planning, the impacts
which varying economic, social and political conditions in
individual countries have on the Group's risk profile are
considered and appropriate management actions implemented.
Eurozone operations
With the Group operating in Euro denominated countries and
reporting in Sterling, the current position with the potential for
the Eurozone to break up presents risks to the Group.
-- Risks to the carrying value of the Group's Euro based
subsidiaries, Euro denominated intragroup loans, translation of
Euro based trading activities and other Euro based balances exist.
Mitigation activities to limit exposure have been taken including
asset repatriation to Sterling in the UK, holding minimum Euro
balances overseas and reducing counterparty limits.
-- A Eurozone break up could precipitate a deeper recession
across the whole of Europe impacting on employment and consumer
spending and thus impacting demand for CPP's products in the
Group's Euro countries. This may be mitigated by growth of new
business streams from CPP's non Euro developing markets.
Data security, IT and telephony systems
The nature of the Group's products, sales channels and delivery
models mean that its reputation, cash flows or operations could be
adversely affected by failures of the Group's own IT or telephony
systems or those provided by third parties. Examples of such
failures include: temporary or permanent loss of customers' data,
data security breaches or adverse impacts to contractual service
levels.
The Group has continued to invest significant capital in the
maintenance, improvement and security of its IT and data management
systems (applications, databases, platforms, telephony systems and
networks) for its worldwide operations and for the security and
privacy of customers' data. An independent review has recently been
completed to provide assurance over the Group's design of data
management controls. Key performance indicators of the Group's
principal supplier network, their equipment and services are
actively and continuously monitored. The UK business, which
operates the Group's international IT data and telephony networks,
is ISO 27001 accredited and the majority of countries in the Group
are certified to the payment card industry data security standard
(PCI DSS).
Key supplier contracts
The Group has a number of suppliers who either support or
provide elements of the product base or the Group's operating
structure. Where a single supplier provides significant services,
the risk of loss or interruption of services exists. Financial and
operational stability of these suppliers is monitored and
additional or dual supply is implemented in appropriate
circumstances.
Fraud
The Group's product base, in particular the insurance of mobile
phone handsets in the UK, introduces an inherent risk of claims
fraud. A specific operational team monitors external fraud and
actions are taken to minimise claims settlements that might be
fraudulent.
The Group's policy on fraud and corruption requires managers and
staff to act honestly, with integrity and to safeguard all Group
resources for which they are responsible at all times.
Additionally, management oversight and controls are designed to be
able to identify and minimise inherent fraud risks across the
Group.
Financial risks
The Group's operations expose it to financial risks including
capital maintenance, foreign exchange, interest rate, liquidity,
credit and insurance risks. Further details of these risks,
together with mitigating actions, were provided in the 2011 Annual
Report and Accounts.
Homecare Insurance Limited (HIL) is currently preparing to
comply with the future requirements of the Solvency II Directive in
respect of capital maintenance. As part of these preparations and
to reflect HIL's risk profile, a Partial Internal Model has been
developed which is subject to approval by the FSA, prior to being
used to determine capital requirements. A risk exists that the FSA
will not approve the Partial Internal Model and HIL will have to
use the Standard Model which may give rise to a higher regulatory
capital requirement when Solvency II is implemented in January
2014.
GOING CONCERN
In reaching their view on preparation of the Group's accounts on
a going concern basis, the Board considered a wide range of
stressed scenarios and has taken external advice. These scenarios
included the known impacts and possible direct and indirect impacts
arising from areas identified in the risks and uncertainties facing
the Group, which include the FSA investigation and customer redress
and the actions taken by the Directors to address these, described
above.
Having considered the outcomes of all these scenarios, the
Directors have a reasonable expectation that the Group has adequate
resources to continue to operate for the foreseeable future and
accordingly the Directors have continued to adopt the going concern
basis in preparing the financial statements.
In this assessment the Directors have taken into consideration
the following in connection with the preparation of the accounts on
a going concern basis:
-- The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chief Executive Officer's Review.
-- The financial position of the Group, its cash flows,
liquidity position and existing borrowing facilities are described
above.
-- The sources of finance available to the Group, which include
the Group's GBP80 million RCF which expires on 31 March 2013. It is
the intention of the Group to negotiate appropriate lending
facilities in advance of the maturity of the current RCF. A risk
exists that one or more of the current lending banks will not wish
to participate in the new facility or the Group will not be able to
refinance its debt. The Group is currently in discussion with the
banks about its on-going debt facilities and the Board is currently
considering a number of strategic and other financing options which
are considered to have a reasonable probability of meeting the
funding requirement. At 30 June 2012, the Group had positive net
funds of GBP8.0 million.
-- The potential impacts from the FSA investigation and customer
redress on the continued resources which may be required by the
business including a number of assumptions around customer response
rates to the customer redress exercise.
Although agreement was reached with the FSA in February 2012 in
respect of customer redress, it remains unclear what further steps
the FSA may wish to take, if any, and against whom in relation to
UK sales of CPP's Card Protection and Identity Protection products
that are not within the scope of the Group's customer redress, or
in respect of any similar products available to the market from
other providers. The FSA may seek to take action on a wider
industry basis. Until such time as the FSA makes a determination on
these issues, and the repercussions are understood for the industry
as a whole, the Group is unable to determine with any certainty the
potential impact on its Business Partners, or the Group's
relationship with them, including whether there will be an adverse
impact on the Group's financial performance.
As there is uncertainty regarding the impact of this wider
possible outcome, the disclosure of a contingent liability remains.
Given the possible impact of the contingent liability, the
uncertainties in relation to the impact of customer redress and
related provisions and the forthcoming expiry of the Group's RCF,
there remain material uncertainties which may cast doubt as to the
Group's ability to continue as a going concern, and therefore it
may be unable to realise its assets and discharge its liabilities
in the normal course of business.
Nevertheless, having considered the above material uncertainties
and all the available information including certain strategic and
potential financing options available to the Group, the Directors
are of the view that it is appropriate to continue to adopt the
going concern basis in preparing the financial statements.
On behalf of the Board
Paul Stobart Shaun Parker
Chief Executive Officer Chief Financial Officer
20 August 2012
CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Year ended
6 months ended 30 June 2012 6 months ended 30 June 2011 31 December 2011
GBP'000 GBP'000 GBP'000
Note (Unaudited) (Unaudited) (Audited)
Revenue 162,909 172,101 346,136
Cost of sales (95,222) (100,461) (202,229)
Gross profit 67,687 71,640 143,907
Administrative expenses
---------------------------- ---------------------------- ------------------
Exceptional items 4 (11,788) (1,349) (18,059)
Other administrative expenses (48,325) (46,105) (94,989)
Total administrative expenses (60,113) (47,454) (113,048)
Share of loss of joint
venture (156) (724) (1,181)
Operating profit
------------------
Operating profit before
exceptional items 19,206 24,811 47,737
------------------
Operating profit after
exceptional items 7,418 23,462 29,678
Investment revenues 303 264 423
Finance costs (915) (638) (1,795)
Profit before taxation 6,806 23,088 28,306
Taxation 5 (2,358) (7,147) (10,255)
Profit for the period from
continuing operations 4,448 15,941 18,051
---------------------------- ---------------------------- ------------------
Attributable to:
Equity holders of the Company 4,535 15,969 18,215
Non-controlling interests (87) (28) (164)
---------------------------- ---------------------------- ------------------
4,448 15,941 18,051
============================ ============================ ==================
Basic and diluted earnings per
share from continuing
operations: Pence Pence Pence
Basic earnings per share 7 2.65 9.34 10.64
============================ ============================ ==================
Diluted earnings per share 7 2.60 9.23 10.59
============================ ============================ ==================
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
6 months ended 30 June 2012 6 months ended 30 June 2011 Year ended 31 December 2011
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
Profit for the period 4,448 15,941 18,051
Other comprehensive income
and expenses
Exchange differences on
translation of foreign
operations (8) (784) 120
Other comprehensive
(expenses) / income for
the period net of taxation (8) (784) 120
---------------------------- ---------------------------- ----------------------------
Total comprehensive income
for the period 4,440 15,157 18,171
---------------------------- ---------------------------- ----------------------------
Attributable to:
Equity holders of the
Company 4,527 15,185 18,335
Non-controlling interests (87) (28) (164)
---------------------------- ---------------------------- ----------------------------
4,440 15,157 18,171
============================ ============================ ============================
CONSOLIDATED BALANCE SHEET
30 June 30 June
2012 2011 31 December 2011
GBP'000 GBP'000 GBP'000
Note (Unaudited) (Unaudited) (Audited)
Non-current assets
Goodwill 8 16,362 16,056 16,521
Other intangible assets 8 19,475 22,513 22,626
Property, plant and equipment 8 13,640 14,589 14,473
Investment in joint venture - - -
Deferred tax asset 1,961 2,929 1,987
------------ ------------ -----------------
51,438 56,087 55,607
------------ ------------ -----------------
Current assets
Insurance assets 36,143 24,207 24,552
Income tax receivable - 57 -
Inventories 331 302 329
Trade and other receivables 36,895 40,340 30,667
Cash and cash equivalents 51,205 35,642 54,924
124,574 100,548 110,472
Total assets 176,012 156,635 166,079
------------ ------------ -----------------
Current liabilities
Insurance liabilities (8,276) (8,714) (8,878)
Income tax liabilities (2,467) (8,558) (2,818)
Trade and other payables (68,836) (67,172) (67,884)
Bank loans 9 (43,225) - -
Provisions (20,339) (863) (11,393)
(143,143) (85,307) (90,973)
------------ ------------ -----------------
Net current (liabilities) / assets (18,569) 15,241 19,499
------------ ------------ -----------------
Non-current liabilities
Bank loans 9 - (42,858) (43,041)
Deferred tax liabilities (832) (534) (634)
Provisions - - (4,279)
(832) (43,392) (47,954)
Total liabilities (143,975) (128,699) (138,927)
------------ ------------ -----------------
Net assets 32,037 27,936 27,152
============ ============ =================
Equity
Share capital 11 17,109 17,104 17,106
Share premium account 33,299 33,289 33,300
Merger reserve (100,399) (100,399) (100,399)
Translation reserve 2,448 1,552 2,456
Equalisation reserve 7,188 6,935 6,423
ESOP reserve 11,856 11,103 11,606
Retained earnings 60,787 58,380 56,824
------------ ------------ -----------------
Total equity attributable to equity holders of the company 32,288 27,964 27,316
Non-controlling interests (251) (28) (164)
------------ ------------ -----------------
Total equity 32,037 27,936 27,152
============ ============ =================
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Non-
Share premium Merger Translation Equalisation ESOP Retained controlling Total
capital account reserve reserve reserve reserve earnings Total interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
6 months ended 30 June 2012
(Unaudited)
At 1 January 2012 17,106 33,300 (100,399) 2,456 6,423 11,606 56,824 27,316 (164) 27,152
Total comprehensive income - - - (8) - - 4,535 4,527 (87) 4,440
Movement on equalisation
reserve - - - - 765 - (765) - - -
Current tax charge on
equalisation reserve
movement - - - - - - 193 193 - 193
Equity settled share based
payment charge - - - - - 253 - 253 - 253
Exercise of share options 3 (1) - - - (3) - (1) - (1)
Dividends (note 6) - - - - - - - - - -
At 30 June 2012 17,109 33,299 (100,399) 2,448 7,188 11,856 60,787 32,288 (251) 32,037
======== ======== ========== ============ ============= ======== ========= ========= ============ =========
6 months ended 30 June 2011
(Unaudited)
At 1 January 2011 17,024 32,301 (100,399) 2,336 6,196 9,599 52,728 19,785 - 19,785
Total comprehensive income - - - (784) - - 15,969 15,185 (28) 15,157
Movement on equalisation
reserve - - - - 739 - (739) - - -
Current tax charge on
equalisation reserve
movement - - - - - - 196 196 - 196
Equity settled share based
payment - - - - - 1,657 - 1,657 - 1,657
Deferred tax on share based
payment - - - - - - (998) (998) - (998)
Exercise of share options 80 988 - - - (153) - 915 - 915
Dividends (Note 6) - - - - - - (8,776) (8,776) - (8,776)
At 30 June 2011 17,104 33,289 (100,399) 1,552 6,935 11,103 58,380 27,964 (28) 27,936
======== ======== ========== ============ ============= ======== ========= ========= ============ =========
Year ended 31 December 2011
(Audited)
At 1 January 2011 17,024 32,301 (100,399) 2,336 6,196 9,599 52,728 19,785 - 19,785
Total comprehensive income - - - 120 - - 18,215 18,335 (164) 18,171
Movement on equalisation
reserve - - - - 227 - (227) - - -
Current tax charge on
equalisation reserve
movement - - - - - - 60 60 - 60
Equity settled share based
payment charge - - - - - 2,169 - 2,169 - 2,169
Deferred tax on share based
payment charge - - - - - - (1,027) (1,027) - (1,027)
Exercise of share options 82 999 - - - (162) - 919 - 919
Dividends (note 6) - - - - - - (12,925) (12,925) - (12,925)
At 31 December 2011 17,106 33,300 (100,399) 2,456 6,423 11,606 56,824 27,316 (164) 27,152
======== ======== ========== ============ ============= ======== ========= ========= ============ =========
CONSOLIDATED CASH FLOW STATEMENT
6 months ended 30 6 months ended 30 Year ended 31
Note June 2012 June 2011 December 2011
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
Net cash from operating activities 12 509 10,802 41,547
Investing activities
Interest received 303 264 423
Purchases of property, plant and
equipment (1,028) (2,023) (3,297)
Purchases of intangible assets (2,461) (5,548) (9,334)
Investment in joint venture (156) - (997)
Net cash used in investing
activities (3,342) (7,307) (13,205)
------------------- ------------------- --------------------
Financing activities
Dividends paid 6 - (8,776) (12,925)
Repayment of bank loans - (1,500) (1,500)
Proceeds from new bank loans - 17,000 17,000
Interest paid (735) (468) (1,452)
Issue of ordinary share capital 2 1,068 1,081
Net cash (used in) / generated by
financing activities (733) 7,324 2,204
------------------- ------------------- --------------------
Net (decrease) / increase in cash and
cash equivalents (3,566) 10,819 30,546
Effect of foreign exchange rate changes (153) (217) (662)
Cash and cash equivalents at start of
period 54,924 25,040 25,040
Cash and cash equivalents at end of
period 51,205 35,642 54,924
=================== =================== ====================
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1 General information
The information for the year ended 31 December 2011 does not
constitute statutory accounts as defined under Section 434 of the
Companies Act 2006. A copy of the statutory financial accounts for
that year has been delivered to the Registrar of Companies. The
auditors report on those accounts was not qualified and did not
contain statements under section 498(2) or (3) of the Companies Act
2006, but did draw attention by way of emphasis to material
uncertainties resulting from the on-going FSA investigation and the
Group's ability to continue as a going concern in the light of
these.
2 Accounting policies
Basis of preparation
The annual consolidated financial statements of the Group are
prepared in accordance with IFRS as adopted in the European Union.
The condensed financial statements included in this Half Year
Report have been prepared in accordance with IAS 34 "Interim
Financial Reporting", as adopted by the European Union.
Management performed a review of the presentation of certain
items in the income statement in advance of the 2011 year end.
Management concluded that customer redress and associated costs
should be separately presented in the income statement as an
exceptional item and not therefore included in the underlying
results of the Group. Accordingly GBP0.5 million has been
reclassified from "other administrative expenses" to "customer
redress and associated costs" in relation to the 30 June 2011
comparative.
This is a presentational change only and has no net impact on
reported operating profit or net assets for any of the financial
periods disclosed.
The same accounting policies, presentation and methods of
computation are followed in the condensed financial statements as
applied to the Group's latest annual audited consolidated financial
statements, except for adoption of the following Standards and
Interpretations. These are mandatory from 1 January 2012 and their
adoption has not had any material impact on the Group:
- Amendments to IFRS 7 (October Disclosures - Transfer of Financial Assets
2010)
- Amendments to IFRS 1 (December Severe Hyperinflation and Removal of Fixed
2010) Dates for First-time Adopters
- Amendments to IAS 1 (June Presentation of Items of Other Comprehensive
2011) Income
Going concern
The Directors have considered the Group's business activities
and financial resources, together with the principal risks,
uncertainties and other factors likely to affect its future
development, performance and position. Having taken account of
these factors the Directors have, at the time of approving the
condensed financial statements, a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. For this reason they continue to adopt
the going concern basis in preparing the condensed financial
statements. Further details of the Directors' assessment are set
out in the Operating and Financial Review.
3 Segmental analysis
Segment revenues and performance for the current and comparative
periods have been as follows:
Northern Southern North Asia Total
Europe Europe America Pacific
Six months ended 30 June 2012 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Unaudited)
Revenue - external sales 113,566 20,043 26,005 3,295 162,909
--------- --------- ----------- --------- ---------
Regional operating profit /
(loss) before exceptional items
and joint ventures 10,443 4,573 5,159 (813) 19,362
--------- --------- ----------- ---------
Exceptional items (note 4) (11,788)
Share of loss of joint venture (156)
---------
Operating profit after exceptional items
and joint ventures 7,418
Investment revenues 303
Finance costs (915)
Profit before taxation 6,806
=========
Northern Southern North Asia Total
Europe Europe America Pacific
Six months ended 30 June 2011 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Unaudited)
Revenue - external sales 125,082 22,829 21,078 3,112 172,101
--------- --------- ----------- --------- --------
Regional operating profit /
(loss) before exceptional items
and joint ventures 17,990 5,857 2,890 (1,202) 25,535
--------- --------- ----------- ---------
Exceptional items (note 4) (1,349)
Share of loss of joint venture (724)
--------
Operating profit after exceptional items
and joint ventures 23,462
Investment revenues 264
Finance costs (638)
Profit before taxation 23,088
========
Northern Southern North Asia Total
Europe Europe America Pacific
Year ended 31 December 2011 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Audited)
Revenue - external sales 249,487 44,356 45,752 6,541 346,136
--------- --------- ----------- --------- ---------
Regional operating profit /
(loss) before exceptional items
and joint ventures 33,571 10,630 6,867 (2,150) 48,918
--------- --------- ----------- ---------
Exceptional items (note 4) (18,059)
Share of loss of joint venture (1,181)
---------
Operating profit after exceptional items
and joint ventures 29,678
Investment revenues 423
Finance costs (1,795)
Profit before taxation 28,306
=========
For the purposes of resource allocation and assessing
performance, operating costs and revenue are allocated to regions
in which they are earned or incurred. The above does not reflect
additional annual net charges of central costs of GBP1,222,000
presented within Northern Europe in the table above which has been
charged to other regions for statutory purposes.
Segmental assets
30 June 30 June
2012 2011 31 December 2011
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
Northern Europe 139,945 112,927 117,399
Southern Europe and Latin America 7,947 9,031 9,348
North America 7,924 13,578 18,478
Asia Pacific 1,873 2,114 2,346
Total segment assets 157,689 137,650 147,571
Unallocated assets 18,323 18,985 18,508
Consolidated total assets 176,012 156,635 166,079
Goodwill, deferred tax and investments in joint ventures are not
allocated to segments.
Revenues from major products
6 months ended 30 June 2012 6 months ended 30 June 2011 Year ended 31 December 2011
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
Retail assistance policies 111,834 130,225 258,048
Retail insurance policies 20,751 19,081 38,529
Packaged and wholesale
policies 26,654 19,815 42,325
Non-policy revenue 3,670 2,980 7,234
Consolidated revenue 162,909 172,101 346,136
============================ ============================ ============================
Major product streams are disclosed on the basis monitored by
the Board of Directors. For the purpose of this product analysis,
"retail assistance policies" are those which may be insurance
backed but contain a bundle of assistance and other benefits;
"retail insurance policies" are those which protect against a
single insurance risk; "packaged and wholesale policies" are those
which are provided by Business Partners to their customers in
relation to an on-going product or service which is provided for a
specified period of time; "non-policy revenue" are those which are
not in connection with providing an on-going service to
policyholders for a specified period of time.
Geographical information
The Group operates across a wide number of territories, of which
the UK, USA and Spain are considered individually material. Revenue
from external customers and non-current assets (excluding
investments in joint ventures and deferred tax) by geographical
location are detailed below.
External revenues Non-current assets
6 months
6 months ended Year ended 6 months 6 months Year ended
ended 30 30 June 31 December ended 30 ended 30 31 December
June 2012 2011 2011 June 2012 June 2011 2011
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited) (Unaudited) (Unaudited) (Audited)
UK 106,290 116,928 233,859 34,999 38,950 38,698
USA 26,005 21,078 45,752 12,978 12,681 13,287
Spain 11,896 14,366 26,717 510 434 551
Other 18,718 19,729 39,808 990 1,093 1,084
162,909 172,101 346,136 49,477 53,158 53,620
4 Exceptional items
6 months ended 30 June 2012 6 months ended 30 June 2011 Year ended 31 December 2011
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
Customer redress and
associated costs 7,495 547 16,892
Restructuring costs 4,097 - -
Legacy scheme share based
payments 196 802 1,167
Total exceptional items 11,788 1,349 18,059
The GBP7,495,000 customer redress and associated costs in the
six month period relate to the further costs required to compensate
customers and other costs associated with the customer redress
exercise.
The GBP4,097,000 restructuring costs in the six month period
relate to redundancy programmes and associated costs across the
Group, the majority of which is in the UK as announced in the 2011
Annual Report and Accounts.
The tax credit arising in respect of these items is GBP2,851,000
(H1 2011: GBP345,000).
5 Taxation
Tax for the six month period is charged at 34.6% (six months
ended 30 June 2011: 31.0%; year ended 31 December 2011: 36.2%),
representing the best estimate of the average effective tax rate
expected for the full year, applied to the pre-tax income of the
six month period.
6 Dividends
6 months ended 30 June 2012 6 months ended 30 June 2011 Year ended 31 December 2011
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
Interim dividend for the year
ended 31 December 2011 of
2.42 pence - - 4,149
Final dividend for the year
ended 31 December 2011 of
nil pence (2010: 5.12 pence) - 8,776 8,776
Amounts recognised as
distributions to equity
holders in the period - 8,776 12,925
The Directors have not proposed an interim dividend for
2012.
7 Earnings per share
Basic and diluted earnings per share have been calculated in
accordance with IAS 33 "Earnings per Share". Underlying earnings
per share have also been presented in order to give a better
understanding of the performance of the business.
6 months Year ended
6 months ended ended 30 31 December
30 June 2012 June 2011 2011
(Unaudited) (Unaudited) (Audited)
Earnings GBP'000 GBP'000 GBP'000
Earnings for the purposes of basic and diluted earnings
per share 4,535 15,969 18,215
Customer redress and associated costs (net of
tax) 5,659 402 12,976
Restructuring costs (net of tax) 3,082 - -
Legacy scheme share based payments (net of tax) 196 592 1,167
Earnings for the purposes of underlying basic and diluted
earnings per share 13,472 16,963 32,358
Number of
shares Number Number Number
(thousands) (thousands) (thousands)
Weighted average number of ordinary shares for the purposes of
basic earnings per share 171,439 170,990 171,210
Effect of dilutive potential ordinary shares: share
options 3,112 1,959 787
Weighted average number of ordinary shares for the purposes of
diluted earnings per share 174,551 172,949 171,997
Earnings per
share Pence Pence Pence
(Unaudited) (Unaudited) (Audited)
Basic and diluted earnings per share from continuing
operations:
Basic shares 2.65 9.34 10.64
Diluted shares 2.60 9.23 10.59
Basic and diluted underlying earnings per share from continuing operations:
Basic shares 7.86 9.92 18.90
Diluted shares 7.72 9.81 18.81
8 Tangible and intangible assets
Goodwill Other intangible assets Property, plant and equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
Six months ended 30 June 2012 (Unaudited)
Carrying amount at 1 January 2012 16,521 22,626 14,473 53,620
Additions - 1,360 687 2,047
Disposals - (64) (2) (66)
Depreciation / amortisation - (4,458) (1,543) (6,001)
Exchange adjustments (159) 11 25 (123)
Carrying amount at 30 June 2012 16,362 19,475 13,640 49,477
Six months ended 30 June 2011 (Unaudited)
Carrying amount at 1 January 2011 16,536 22,055 15,389 53,980
Additions - 4,560 833 5,393
Depreciation / amortisation - (4,109) (1,645) (5,754)
Exchange adjustments (480) 7 12 (461)
Carrying amount at 30 June 2011 16,056 22,513 14,589 53,158
Year ended 31 December 2011 (Audited)
Carrying amount at 1 January 2011 16,536 22,055 15,389 53,980
Additions - 9,417 2,435 11,852
Disposals - - (13) (13)
Depreciation / amortisation - (8,850) (3,240) (12,090)
Exchange adjustments (15) 4 (98) (109)
Carrying amount at 31 December 2011 16,521 22,626 14,473 53,620
9 Bank loans
30 June 2012 30 June 2011 31 December 2011
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
Repayments due within one year 43,500 - -
Less: unamortised issue costs (275) - -
Bank loans due within one year 43,225 - -
Repayments due in more than one year - 43,500 43,500
Less: unamortised issue costs - (642) (459)
Bank loans due in more than one year - 42,858 43,041
The Group's bank debt is in the form of a Revolving Credit
Facility (RCF). The Group is entitled to roll over amounts drawn
down, subject to all amounts outstanding falling due for repayment
on expiry of the facility in March 2013.
The RCF bears interest at a variable rate of LIBOR plus a
variable margin dependent on the net debt to EBITDA ratio of the
Group. It is secured by fixed and floating charges on certain
assets of the Group. The financial covenants of the RCF are based
on the interest cover and leverage of the Group. The Group has been
in compliance with these covenants since inception of the RCF.
10 Provisions
Customer redress
Cash settled share and associated
based payments costs Total
GBP'000 GBP'000 GBP'000
Six months ended 30 June
2012 (Unaudited)
At 1 January 2012 894 14,778 15,672
Charged to the income statement 3 7,495 7,498
Customer redress and associated costs paid
in the period - (1,934) (1,934)
Loan notes repaid in the period (897) - (897)
At 30 June 2012 - 20,339 20,339
Six months ended 30 June
2011 (Unaudited)
At 1 January 2011 1,719 - 1,719
Charged to the income statement 152 - 152
Customer redress and associated costs paid - - -
in the period
Loan notes repaid in the period (897) - (897)
At 30 June 2011 974 - 974
Year ended 31 December 2011 (Audited)
At 1 January 2011 1,719 - 1,719
Charged to the income statement 72 16,892 16,964
Customer redress and associated costs paid
in the period - (2,114) (2,114)
Loan notes repaid in the period (897) - (897)
At 31 December 2011 894 14,778 15,672
Provisions in respect of cash settled share based payments
represent loan notes issued by employees to the Group. The loan
notes were payable in accordance with certain vesting conditions
and have been fully repaid by the balance sheet date.
Provision for customer redress and associated costs comprises
anticipated compensation payable to customers through a customer
redress exercise, regulatory penalties, and other costs and
professional fees associated with the customer redress
exercise.
Customer redress and associated costs are expected to be settled
within one year of the balance sheet date.
11 Share capital
Share capital at 30 June 2012 amounted to GBP17,109,000, having
increased from GBP17,106,000 at 31 December 2011. During the period
the Company issued 26,191 ordinary shares for cash consideration of
GBP5,000 to option holders under its share option schemes.
12 Reconciliation of operating cash flows
6 months ended 30 June 2012 6 months ended 30 June 2011 Year ended 31 December 2011
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
Profit for the period 4,448 15,941 18,051
Adjustment for:
Depreciation and amortisation 6,001 5,754 12,090
Equity settled share based
payment expense 253 1,657 2,169
Loss on disposal of property,
plant and equipment 62 - 13
Share of loss of joint venture 156 724 1,181
Investment revenues (303) (264) (423)
Finance costs 915 638 1,795
Income tax expense 2,358 7,147 10,255
Operating cash flows before
movement in working capital 13,890 31,597 45,131
Increase in inventories (2) (13) (40)
Increase in receivables (6,393) (9,982) (770)
Increase in insurance assets (11,591) (2,714) (3,059)
Increase / (decrease) in
payables 2,819 (662) 605
Decrease in insurance
liabilities (602) (1,703) (1,539)
Increase in provisions 5,564 38 14,850
Cash generated by operations 3,685 16,561 55,178
Exercise of share options (897) (1,047) (1,059)
Income taxes paid (2,279) (4,712) (12,572)
Net cash from operating
activities 509 10,802 41,547
13 Contingent liabilities
It is possible that other claims or matters may arise against
the Group in connection with the FSA's investigations, which could
take a number of forms and therefore have a financial effect that
cannot presently be estimated. The Directors have considered the
probability of such claims or matters crystallising, and as a
result do not deem them probable enough to recognise a
provision.
14 Related party transactions
Ultimate controlling party
The Group is controlled by the Company's majority shareholder,
Mr Hamish Ogston.
Transactions with associated undertakings
The Group has undertaken the following transactions with its
joint venture entity, Home 3 Assistance Limited ("Home 3"):
6 months ended 30 June 2012 6 months ended 30 June 2011 Year ended 31 December 2011
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
Costs rechargeable to Home 3
incurred by the Group 163 139 361
Balance receivable from Home
3 1,945 450 1,090
Amounts receivable from Home 3 include GBP1,700,000 (H1 2011:
GBP500,000) of sub-ordinated loan notes which fall due for
repayment in December 2012.
Remuneration of key management personnel
The remuneration of the Directors and Senior Management Team,
who are the key management personnel of the Group, is set out
below:
6 months ended 6 months ended Year ended 31
30 June 2012 30 June 2011 December 2011
GBP'000 GBP'000 GBP'000
(Unaudited) (Unaudited) (Audited)
Short term employee benefits 2,220 1,713 3,436
Post employment benefits 128 103 231
Termination benefits 323 140 142
Share based payments 58 879 1,153
2,729 2,835 4,962
DIRECTORS' RESPONSIBILITIES STATEMENT
We confirm that to the best of our knowledge:
a) The condensed financial statements have been prepared in
accordance with IAS 34 "Interim Financial Reporting"
b) The Chief Executive Officer's report and operating and
financial report together include a fair review of the information
required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
c) The operating and financial report includes a fair review of
the information required by DTR 4.2.8R (disclosure of related
parties' transactions and changes therein).
By order of the Board
Paul Stobart Shaun Parker
Chief Executive Officer Chief Financial Officer
20 August 2012
CAUTIONARY STATEMENT
This Half Year Report has been prepared solely to provide
additional information to shareholders as a body to meet the
relevant requirements of the UK Listing Authority's Disclosure and
Transparency Rules. The Half Year Report should not be relied on by
any other party or for any other purpose.
The Half Year Report contains certain forward-looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the time of
approval of the Half Year Report but such statements should be
treated with caution due to the inherent uncertainties, including
both economic and business risk factors, underlying any such
forward-looking information. Subject to the requirements of the UK
Listing Authority's Disclosure and Transparency Rules and Listing
Rules, CPP undertakes no obligation to update these forward-looking
statements and it will not publicly release any revisions it may
make to these forward-looking statements that may result from
events or circumstances arising after the date of this Half Year
Report.
The Half Year Report has been prepared for the Group as a whole
and therefore gives greater emphasis to those matters which are
significant to CPPGroup Plc and its subsidiary undertakings when
viewed as a whole.
INDEPENDENT REVIEW REPORT TO CPPGROUP PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2012 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated cash flow statement and
related notes 1 to 14. We have read the other information contained
in the half-yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting," as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2012 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
Emphasis of matter
In forming our review conclusion on the condensed financial
statements in the Half Year Report, we have considered the adequacy
of the disclosure made in the Operating and Financial review and
note 2 of the Half Year Report concerning the on-going FSA
investigation, the ability of the Group to refinance on expiry of
the revolving credit facility in March 2013, and the Group's
ability to continue as a going concern in the light of these
material uncertainties. This disclosure also includes material
uncertainties in relation to the impact of Past Business Reviews
and related provisions, and possible future contingent expenditures
for which reliable estimates cannot be made.
The total financial impact in relation to the FSA investigation
is subject to significant uncertainty in that it is dependent on
certain factors outside of the control of the Group. In addition,
the Group's ability to refinance on expiry of the revolving credit
facility in March 2013 is open to significant uncertainty as it
relies upon the successful implementation of certain strategic and
financing options. These conditions indicate the existence of a
material uncertainty which may cast significant doubt about the
Group's ability to continue as a going concern and, therefore, that
it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
Having considered these matters, the directors have concluded
that it is appropriate to prepare these condensed financial
statements on a going concern basis. The condensed financial
statements do not include the adjustments that would result if the
Group or the Company were unable to continue as a going concern.
Our review conclusion is not qualified in respect of these
matters.
Deloitte LLP
Chartered Accountants and Statutory Auditor
Leeds, United Kingdom
20 August 2012
CORPORATE INFORMATION
ENQUIRIES
Investor Relations
CPPGroup Plc: Helen Spivey, Head of Corporate and Investor
Communications
Tel: +44 (0)1904 544387
Media
Tulchan Communications: John Sunnucks; David Allchurch; Martin
Robinson
Tel: +44 (0)20 7353 4200
This half year report is available for download at
www.cppgroupplc.com.
REGISTERED OFFICE
CPPGroup plc
Holgate Park
York
YO26 4GA
Registered number: 07151159
This information is provided by RNS
The company news service from the London Stock Exchange
END
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