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.
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