TIDMCPP
RNS Number : 1156A
CPPGroup Plc
27 March 2012
CPPGROUP PLC
27 MARCH 2012
FULL YEAR REPORT
FOR THE YEAR ENDED 31 DECEMBER 2011
CPPGroup Plc, the International Assistance business, today
issues its results for the year ended 31 December 2011.
OVERVIEW Year ended 31 December 2011 Year ended 31 December 2010 Growth %
-------------------------------------- ---------------------------- ---------------------------- ---------
Revenue (GBP'm) 346.1 325.8 6%
Operating profit (GBP'm)
- Reported 29.7 44.9 (34)%
- Underlying 47.7 48.7 (2)%
Profit before tax (GBP'm)
- Reported 28.3 39.8 (29)%
- Underlying 46.4 46.7 (1)%
Profit after tax (GBP'm)
- Reported 18.1 27.2 (34)%
- Underlying 32.4 32.2 1%
Basic earnings per share (pence)
- Reported 10.64 16.33 (35)%
- Underlying 18.90 19.34 (2)%
Cash generated by operations (GBP'm) 55.2 53.0 4%
Net funds/(debt) (GBP'm) 11.9 (2.2) 641%
Dividend per share (pence) 2.42 7.54 (68)%
====================================== ============================ ============================ =========
Underlying operating profit is adjusted for legacy scheme share
based payments of GBP1.2 million (2010: GBP3.8 million) and costs
associated with the FSA investigation GBP16.9 million (GBP2.1
million incurred in 2011 together with GBP14.8 million provision
made at year end) (2010: GBP nil).
Underlying profit before tax is adjusted for legacy scheme share
based payments of GBP1.2 million (2010: GBP3.8 million), costs
associated with the FSA investigation GBP16.9 million (GBP2.1
million incurred in 2011 together with GBP14.8 million provision
made at year end) (2010: GBP nil) and exceptional amortisation of
loan issue costs of GBP nil (2010: GBP3.1 million). Underlying
profit after tax is further adjusted for tax of GBP3.9 million
(2010: GBP1.9 million) arising on these items.
Highlights
Group financial highlights
-- Group constant currency revenue growth of 7% and underlying
operating margin of 13.8%.
-- Group annual renewal rate of 75.4%, has remained stable on a
constant country mix basis.
-- Operations continue to be cash generative, with cash
generated by operations of GBP55.2 million and net funds of GBP11.9
million.
-- Following the agreement reached with the FSA and ongoing
discussions with stakeholders, the suspension of the Group's shares
has been lifted with effect from 27 March 2012.
-- No final dividend proposed, due to the Group's consideration
of future capital requirements after the agreement reached with the
FSA. The Group's long-term dividend policy remains unchanged.
UK highlights
-- 6% revenue growth despite the challenges of the FSA's
investigation, aided by strong performance from Packaged Accounts
and Mobile Phone Insurance.
-- 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 and in the design of the
Card Protection product in the UK. It has agreed to make changes to
its renewals process and to carry out a Past Business Review, under
FSA supervision, of direct sales of its Card Protection and
Identity Protection products from 2005, including redress to
customers where appropriate. As a result a provision of GBP14.8
million has been made as at 31 December 2011.
-- Good progress being made on improving internal processes and
customer facing activities.
International operations developing positively and offering
long-term potential
-- Added new Business Partners including Banco Banesto in Spain,
Caixa Geral de Depositos in Portugal and SBI Cards in India.
-- North America has delivered revenue and operating profit
growth of over 20% on a constant currency basis.
-- Launched operations in Brazil, which has a bankable
population of 134 million and 736 million financial cards in
circulation.
-- Developing markets of India, Mexico and China progressing in
line with management expectations.
Key priorities
Paul Stobart, Group Chief Executive Officer, has set five key
priorities for the Group:
1. Ensure that the agreement we have reached with the FSA is
effected to the satisfaction of all stakeholders.
2. Shift our culture and operating model to one of growth
through customer-centricity, supported by strengthened management
discipline and enhanced governance.
3. Encourage our product marketing people to use their
creativity and flair to develop the product and service
propositions that will drive our future success, especially in the
online, mobile and social media markets.
4. Focus on ensuring our investments in the emerging markets of
China, India, Turkey, Mexico and Brazil take full advantage of the
significant growth opportunities.
5. Do everything we can to retain and recruit the talent we
need, at all levels, to deliver our future success.
Paul Stobart: Group Chief Executive Officer, commented
"In a difficult year for the Group in which we have been faced
with the challenges of the FSA's investigation into our UK
business, CPP has nonetheless delivered a robust financial
performance in 2011 with Group revenue increasing by 6%. The Group
has worked very hard to manage the business through this period of
uncertainty and we continue to make important improvements to the
way we engage with customers.
"Since joining the business in October I have spent a lot of
time listening to our stakeholders, and it is clear to me that CPP
has many great strengths. The business has a long history of
success and, most importantly, of excellent customer service. We
are bringing this customer focus to the fore of everything we do,
shifting the business culture and operating model to be more
overtly customer-centric.
"The longer-term opportunities for CPP remain considerable, and
we are well placed to make the most of these. The business has a
customer base of 11 million policy holders, strong and often
long-standing and exclusive relationships with more than 200
Business Partners worldwide, and a well-established international
presence across 16 geographical markets. In the short-term, 2012 is
a very important year for us, particularly in the UK, and my first
priority is to work closely and co-operatively with the FSA to
resolve matters to the complete satisfaction of the regulator."
For enquiries contact:
Paul Stobart, Group Chief Executive Officer
Shaun Parker, Chief Financial Officer
Tel: +44 (0)1904 544702
Tulchan Communications
John Sunnucks
David Allchurch
Tel. +44 (0)20 7353 4200
Note to editors
CPPGroup Plc ("CPP") is a leading international Life Assistance
business with operations in 16 geographical markets in both
developed and developing countries. Card Protection was the first
product the Group introduced 30 years ago. Since then CPP has
launched Mobile Phone Insurance, Legal Assistance and Identity
Theft Protection. CPP is also prominent in the provision of
Packaged Accounts where we source products and services to create a
tailored 'package' for bank account customers. We also provide a
range of travel support services such as translation and
lost-and-found luggage services as well as access to airport
lounges worldwide. Our joint venture with Mapfre Asistencia
provides assistance for plumbing, drainage, gas, electrical and
other home-related emergencies.
Chairman's statement
2011 has been a difficult year for the Group, in large part due
to the investigation by the Financial Services Authority (FSA) into
some of the Group's sales activities in the UK business. The
investigation commenced in March 2011, and detailed discussions
remain ongoing. We are, however, pleased that we have been able to
reach an agreement with the FSA on the remedial actions necessary
to ensure not only that our sales processes improve going forward,
but also that we provide appropriate redress for customers who were
confused or misled when buying our products in the past.
Outside the UK, there have been some notable and very pleasing
achievements across the Group that we must not lose sight of. We
have continued to expand the Company's international activities
with important new Business Partner agreements signed in China,
India, Turkey and Mexico as well as delivering our first policy
sales in Brazil. In North America the business has performed
exceptionally well driven by robust new sales and a strong renewal
performance. In Europe we have expanded the range of products sold,
and in the UK Home 3, our home emergency joint venture service with
Mapfre Asistencia, has signed a contract with ScottishPower.
Internationally our Airport Lounge business continues to develop
its portfolio of partners.
Critically, and in spite of the FSA investigation and associated
publicity, many of our customers have chosen to retain our
products; a clear demonstration that they value the reassurance
that our products and services provide. Of all our operational
achievements, it is this loyalty towards our products and services
that gives me the most satisfaction and reinforces my belief there
is a large and growing market for our products, which should once
again deliver robust growth for the Group.
Away from the business activities of the Group there have been a
number of significant organisational changes. We were delighted to
announce the appointment of Paul Stobart as Chief Executive Officer
in September. Paul joins the Group with a wealth of experience
having had a number of UK and international senior roles at Sage
Group, a business with a similar profile to the Group albeit in
software services rather than Life Assistance. Paul started in
October and is already making a positive impact on the business. We
also made a change to the management of our Asia Pacific business
with the recruitment of Richard Brady who has many years experience
of operating in China and the Asia Pacific region. We have also
strengthened our legal and compliance teams, particularly in the
UK, to ensure that not only are we fully compliant with new rules
and regulations in so far as they relate to sales of financial
products to the consumer, but also so that we are able to meet the
current and anticipated requirements of regulators in all of the
jurisdictions in which we operate.
Charles Gregson
Chairman
26 March 2012
Chief Executive Officer's review
It is a great pleasure to present to shareholders my first
review as Chief Executive of CPP, having joined the business in
October 2011. Since my arrival I have spent a significant amount of
time listening to our various stakeholders, and observing at close
hand how our business works in practice. I have talked to many
hundreds of people within CPP, and have engaged with Business
Partners and customers in most of the markets we serve. The
feedback has been consistent, and encouraging. 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
extremely well for many years.
The most significant event of the past year, an event that had a
disruptive impact on the performance of the Group, occurred in
March 2011, when the FSA launched an investigation into the selling
practices employed in parts of our UK business. Although the
investigation is not yet concluded, in February 2012, the Group and
the FSA reached an agreement, firstly to make certain amendments to
our auto-renewal processes in the UK and secondly to carry out a
Past Business Review (PBR) of those customers of CPP who have
bought our Card Protection and/or Identity Protection products
through our direct channels. The PBR for Identity Protection
relates to the possible mis-selling of policies to customers who
may have been confused or misled in the sales process.
The PBR for Card Protection is different in that the product has
a feature, namely post notification fraud cover, which in actual
fact is not required, as, post notification, it is the issuing bank
that covers any fraud. This feature has been in our Card Protection
product for many years, however was removed during 2011. The
feature has been commonplace in Card Protection products in the
market offered by other players. In respect of the agreed PBR,
where customers of either Identity Protection or Card Protection
are found to have been misled, confused and/or mis-sold at point of
sale, we will ensure they get full redress.
As at the time of writing, the planning and logistics for the
PBR is in process. We have provided GBP14.8 million for the
estimated one-off costs to the business of the changes to the
renewals process, and of the PBR (based on the estimates of likely
response rates provided to us by our advisers).
We are disappointed and deeply sorry that our past sales
practices have not met the standards required, and we are
determined to do everything in our power to demonstrate that the
quality of our sales practices going forward set new benchmarks for
the industry. I know that my colleagues share my own desire to see
CPP emerge from this period as a stronger, more customer-centric
organisation. The sense of team spirit I observe within the UK
business, together with the determination we all share to do the
right thing by the customer, are the all-important building blocks
of a new and exciting future for CPP in the UK. However, one of the
financial implications of the investigation has been the
announcement of a voluntary redundancy programme to help align our
cost base to our revenue.
The year ahead will be challenging, not least because of the
difficult economic conditions we face in some of the markets in
which we trade, as well as having to deal with the outcome of the
FSA investigation. Despite these short-term challenges, I believe
the longer-term potential for the business remains significant.
Business Review
In Northern Europe our performance has been resilient under what
have been challenging circumstances, despite this, the UK business
delivered some notable successes. Our Packaged Accounts business
continued to grow strongly and 2011 saw us support Santander's
Premium, Reward and Student current account customers with a range
of benefits. In addition, we have integrated a number of our
products into the RBS Group Packaged Accounts including, but not
exclusively, Mobile Phone Insurance, Airport Angel and Card
Protection.
Growth in our mobile phone business continues to be strong
despite a small decline in overall customer numbers. Sales for our
insurance covering i-Phone are up strongly as more customers opt to
protect their smartphones. This shift towards insuring higher-end
handsets has pushed up average premiums and helped drive mobile
revenue. Customers are also retaining their insurance for longer
given the increasing contract length and wanting to protect higher
value handsets and importantly, our contract with T-Mobile has been
extended to September 2012.
In Southern Europe the economic challenges have undoubtedly had
an impact on our business, particularly in Spain, where we have
seen revenue decline. Despite this, new Business Partner contracts
have been signed with privately-owned Banca March and with Banesto,
the fifth largest banking group in Spain which is owned by Banco
Santander.
Conversely, our main Latin American market, Mexico, reported
good growth. Central to our future success will be the introduction
of new products and channels as well as new Business Partner
relationships. Banco Santander is now selling Identity Protection
and in July we signed a contract with Scotiabank, a large Canadian
financial institution to sell Card Protection. Revenue has
primarily been driven through first year renewal streams supported
by existing sales channels with HSBC and IXE Tarjetas.
We are excited by our recent launch into Brazil, a market with a
large and rapidly growing economy presenting us with significant
growth opportunities.
In North America, we had a successful 2011 with revenue and
profit up significantly. This has been driven by sustained growth
in the number of customers acquiring our retail products across our
key Business Partner portfolio and price increases implemented over
the past year. Our renewal income has increased as we have focused
on managing and developing relationships with major Business
Partners, particularly in financial services, whose customers
typically opt to retain their products for longer.
In Asia Pacific we have brought new focus and vigour to the
leadership of this region, which is beginning to pay dividends. The
prize in Asia Pacific is undoubtedly the untapped potential of
India and China. In China we continue to build Card Protection
volumes and develop new Business Partner relationships. Revenue in
India showed good growth and we expect them to increase as we
implement new distribution channels and bring new products to
market in this rapidly developing economy.
In our more established markets in Asia Pacific namely Hong Kong
and Malaysia, regulatory challenges concerning data protection and
privacy have undoubtedly impacted our performance. We hope to
overcome these short-term challenges in 2012 and drive renewed
growth.
Strategy
As I have already mentioned, CPP has great strengths in its
people, its products, its customer base, its systems and its
business model. Yet, there is more that we can do to strengthen the
business.
I would point out three areas, in particular, where I believe we
need to place additional focus.
Firstly, we must give more attention to product marketing. It
is, after all, through our efforts in product marketing that we
will create the great product and service ideas of the future.
Product marketers take great care to understand the customer's
perspective in intimate detail and gain insights on the pain points
that customers currently experience. These insights then inform the
creation of powerful, relevant and compelling products and services
that provide real benefits to customers. And for every product or
service they create, product marketers also ensure that the quality
of the customer experience is sacrosanct.
In many ways, CPP's great successes of the past have come about
as a result of outstanding product marketing. What we need to do is
ensure that product marketing thrives once again within CPP so that
we create the right propositions for customers. Encouragingly, I
see excellent product and service innovation taking place right
across the Group, much of it in the online, mobile and social media
spaces, which is exactly where we need to be if we are to enhance
our presence, visibility and relevance to Business Partners and
customers.
Secondly, we need to be even more focused on serving the
customer to the best of our ability. Here we are building on a
great history of excellence in customer service; indeed our
customer satisfaction statistics are some of the highest I have
come across. Yet we do not want to be complacent; rather we want to
move the organisation even further towards a customer-centric way
of thinking and working. To this end, we are investing in
leadership development, training and communications as well as
making improvements to business processes, systems and governance.
We are united in our ambition to provide customers with the kind of
experience that will set us apart from our competitors, and that
will encourage our customers to renew their policies, to buy more
products from us, and to recommend us to others.
I can already see that our increased focus on the customer is
reaping rewards. I have, for example, seen many instances of CPP
people going the extra mile for the customer, and not resting until
outstanding issues have been resolved to the customer's
satisfaction. Equally, I see leadership behaviours shifting, new
strategic thinking emerging, and growing investment being made in
the people through whom we will deliver on our customer promise.
However, there is more to be done.
Thirdly, we need to ensure that, as a leadership team, we manage
our business, and measure our performance, with enhanced
discipline. In the UK the FSA investigation and its consequences
have proved to be highly disruptive and have created an environment
of uncertainty that affected the business far beyond the confines
of the UK market. Going forward, however, everyone in the wider
leadership community is united in being determined to drive the
business forward responsibly and with great discipline.
Regulation and our relationship with the FSA
We operate in a regulated environment in many markets around the
world and enjoy good relationships with the regulators in each of
those markets.
In the UK, though, and with the benefit of hindsight, it is
clear that we should have worked harder to ensure that we were
compliant in every respect and developed a stronger working
relationship with the FSA. More recently and post the FSA
investigation we have adopted an entirely different approach.
Firstly, we have put more investment into our legal and compliance
areas. Secondly, we have effected change throughout the
organisation both in people and in process, in order to make sure
that compliance receives the right level of focus. Thirdly, we have
engaged two leading firms of lawyers, the first specifically for
the UK on how we meet or exceed customer-facing business standards
demanded by our obligations as a regulated firm, and the second for
the Group as a whole on how we can improve our governance more
generally. This advice is being implemented as quickly as is
practicable to demonstrate we are as robust as we can be from a
regulatory, compliance and governance perspective, not just in the
UK, but throughout the CPP Group. Fourthly, and since the onset of
the investigation, we have been working much more closely and
co-operatively with the FSA.
Our experiences in the last 12 months have served to remind us
in no uncertain terms about our regulatory responsibilities and I
am satisfied that the right work is being done to safeguard against
finding ourselves in a similar situation again.
Outlook
The short term outlook for CPP will continue to be determined by
the ongoing activity in relation to the Group's agreement with the
FSA in the UK which will ultimately allow the Group to move forward
with renewed focus as a more customer centric business.
Going forward, the Group's UK business will undergo a period of
significant adjustment as a result of the impact of the FSA
investigation. Lower retail new assistance income in 2011 will lead
to a significant reduction in profitable renewal revenue in 2012.
There may be some adverse impact on renewal rates from changes to
the renewals process for Card Protection and Identity Protection in
the UK. The planned closure of the call to confirm channel in the
UK will adversely impact new assistance income and revenue and
profit growth in 2012 and beyond, unless replaced by revenue from
alternative channels.
We expect our Packaged Account and Mobile Phone Insurance
revenue to continue to grow well, albeit at a lower margin than
retail product sales. Cost saving measures, including reductions in
headcount are being implemented which will mitigate some of the
profit impact of the reduction in revenue and change in mix.
However, it is still expected that UK profit will be significantly
lower than 2011. Our new product and channel initiatives will start
to contribute positively in the UK in the first half of 2013.
Southern Europe, in particular Spain, continues to be adversely
affected by the economic situation and the impact it has on our
existing and potential new Business Partners. Some revenue growth
is expected, however this will require expenditure on acquisition
costs. This, together with further investment in start-up losses in
Brazil, where the long term opportunity for the Group remains
attractive, will result in somewhat reduced profit and lower
margins in our Southern Europe and Latin America region in
2012.
Our North America business looks set to continue to grow revenue
and profit as we expand our sales with existing business partners,
although at slightly lower growth rates than we have achieved
recently.
We will continue to invest in the growth of our Asia Pacific
business, particularly China, although the level of start up losses
incurred will reduce as India moves towards profitability.
Our Home 3 joint venture with Mapfre is expected to approach
break-even during 2012.
Overall, the Group will be significantly impacted by the UK
considerations set out above but still has the potential to
generate revenue growth in 2012. However, underlying operating
profit and underlying operating profit margin are likely to be
significantly lower than 2011. This impact will be particularly
pronounced in the first half of 2012 as the first quarter of 2011
benefited from strong sales of Identity Protection in the UK. The
Group should also continue to demonstrate its inherent positive
underlying cash generation in 2012 and beyond.
A provision of GBP14.8 million has been made in the 2011 results
for the various initiatives agreed with the FSA, however there
remain risks associated with the level of redress to be paid.
Furthermore, it currently remains unclear 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 are
not within the scope of the Group's Past Business Review, 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.
The Board believes that once this period of significant
adjustment in the UK has been completed, the Group's new strategy
for the UK business (which will be communicated in more detail
later in the year), together with continued development of our
growing overseas business will enable the Group to start to develop
positively again.
FSA Investigation
The Group announced on 28 March 2011 that the FSA had initiated
an investigation into the Group's sales processes in the UK for
sales of Identity Protection and Card Protection products. The
Group announced at the same time its decision to suspend sales of
Identity Protection through its UK voice channels in response to
the FSA investigation. The Group continues to renew Identity
Protection with existing customers when their current policy
expires.
Since March 2011, the Group has worked constructively with the
FSA in relation to its investigation and progress has been made on
improving its products, sales processes and customer facing
activities. The Group remains focused on providing a market leading
service to our customers. During the FSA investigation, it was
identified that the Card Protection product has a feature, namely
post notification fraud cover, which in actual fact is not
required, as, post notification, it is the issuing bank that covers
any fraud. This feature has been in our Card Protection product for
many years, however was removed during 2011. The feature has been
commonplace in Card Protection products in the market offered by
other companies.
During 2011, the design and content of the UK's products has
been reviewed and appropriate modifications made reflecting
discussions with the FSA. Changes to the Group's product
development processes have also been made.
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. The Group has
acknowledged that there were failings in its telephone sales
practices and elements of its product design. It has agreed to make
changes to its renewals process in order to highlight more clearly
to customers that they have the right not to renew the products and
to explain clearly the benefits and limitations of the relevant
product. It has also agreed to carry out a Past Business Review
under FSA supervision of direct sales of its Card Protection and
Identity Protection products made since 2005, and to offer redress
to customers where appropriate.
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 the FSA. The changes will be implemented by
1 May 2012.
Past Business Review:The Group will undertake a Past Business
Review 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). The Past Business Review
exercise will be conducted under the supervision of a FSA-appointed
'skilled person', and will comprise a number of customer contact
events including consecutive mailings and telephone calls. The
purpose of the Past Business Review 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.
Prior to launch, and mainly for operational reasons, a pilot
customer contact exercise will be undertaken, using equivalent
materials and procedures as will be used for the wider exercise.
CPP expects that the pilot exercise should be completed during the
second quarter of 2012, with a view to then commencing the wider
Past Business Review and settlement of customer claims for
redress.
Disposition of Assets:The Group has agreed with the FSA 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 anticipated impact of the above actions agreed with the FSA,
together with an estimate of regulatory penalties and professional
fees are included in the Group's provision of GBP14.8 million for
FSA associated costs of which approximately half relates to an
estimate for the agreed PBR. This element of the provision could
vary depending upon customer response rates.
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 Past Business Review, 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.
The agreement with the FSA does not mark the end of the FSA
investigation which is continuing.
The risk and uncertainties associated with the ongoing FSA
investigation are detailed within the risks and uncertainties
section of the Financial Review.
Financial Review
Summary
Growth
2011 2010 %
Revenue (GBP millions) 346.1 325.8 6%
======================= ===== ===== ======
Gross profit (GBP
millions) 143.9 136.7 5%
======================= ===== ===== ======
Operating profit
(GBP millions)
======================= ===== ===== ======
- Reported 29.7 44.9 (34)%
======================= ===== ===== ======
- Underlying (1) 47.7 48.7 (2)%
======================= ===== ===== ======
Profit before tax
(GBP millions)
======================= ===== ===== ======
- Reported 28.3 39.8 (29)%
======================= ===== ===== ======
- Underlying (2) 46.4 46.7 (1)%
======================= ===== ===== ======
Reported earnings
per share (pence)
======================= ===== ===== ======
- Basic 10.64 16.33 (35)%
======================= ===== ===== ======
- Diluted 10.59 16.03 (34)%
======================= ===== ===== ======
Cash generated by
operations
(GBP millions) 55.2 53.0 4%
======================= ===== ===== ======
Dividends (pence)
(3) 2.42 7.54 (68)%
----- ----- ------
1.Excluding legacy scheme share based payments GBP1.2 million
(2010: GBP3.8 million) and costs associated with the FSA
investigation GBP16.9 million (2010: GBPnil)
2.Excluding legacy scheme share based payments GBP1.2 million
(2010: GBP3.8 million), costs associated with the FSA investigation
GBP16.9 million (2010: GBPnil) and accelerated amortisation of debt
issue costs GBPnil (2010: GBP3.1 million)
3.Comprises of interim dividend paid in relation to 2011 and
interim and final dividends paid in relation to 2010
We have grown Group revenue by 6% year on year to GBP346.1
million (2010: GBP 325.8 million), led by the growth of Packaged
Accounts in Northern Europe and strong growth in North America and
Asia Pacific, although growth in the UK has been impacted by the
suspension of Identity Protection sales in the Group's UK voice
channels due to the FSA investigation. On a constant currency
basis, Group revenue grew by 7%.
Overall expenditure on business partner commissions reduced to
31% of revenue (2010: 34%) due to changes in mix. Despite this,
cost of sales grew by 7% as the proportion of business from
Packaged Accounts increased and as a result gross profit grew by
5%.
Underlying operating profit has marginally declined by 2% to
GBP47.7 million (2010: GBP48.7 million) as a result of the impact
of lost sales due to the FSA investigation, increased overheads in
the UK and continued investment in the start-up losses of Home 3
(our joint venture with Mapfre Asistencia) offset by performance in
North America and the growth of Packaged Accounts in the UK. This
performance together with the one-off costs arising from the FSA
investigation which comprise anticipated compensation payable to
customers through a Past Business Review, regulatory penalties and
other costs and professional fees associated with the investigation
and Past Business Review, resulted in reported operating profit for
2011 of GBP29.7 million which was lower than prior year (2010:
GBP44.9 million).
Total interest and finance costs of GBP1.4 million (2010: GBP5.1
million) were considerably lower in 2011 as the Group reduced its
level of net debt and due to the one-off cost in 2010 of GBP3.1
million from the write-off of unamortised debt costs at initial
public offering (IPO), not being incurred in 2011.
As a consequence of the decline in reported operating profit,
reported profit before tax reduced by 29% to GBP28.3 million (2010:
GBP39.8 million) and underlying profit before tax has reduced by 1%
to GBP46.4 million (2010: GBP46.7 million).
Underlying profit after tax (excluding legacy scheme share based
payment, accelerated amortisation of debt issue costs and one off
costs associated with the FSA investigation) is broadly in line
with prior year at GBP32.4 million (2010: GBP32.2 million). Taking
these one-off costs into account, reported profit after tax has
reduced by 34% to GBP18.1 million (2010: GBP27.2 million).
Basic earnings per share has reduced by 35% to 10.64 pence
(2010: 16.33 pence) and diluted earnings per share has reduced by
34% to 10.59 pence (2010: 16.03 pence).
Our operations have continued to be highly cash generative, with
net cash from operating activities of GBP55.2 million (2010:
GBP53.0 million) contributing to a reduction in net debt from
GBP2.2 million at 31 December 2010 to a net funds position of
GBP11.9 million at 31 December 2011.
The Group will not be paying a final dividend for 2011, due to
its consideration of future capital requirements after the
agreement reached with the FSA. An interim dividend of 2.42 pence
was paid during the year (2010: total dividend of 7.54 pence).
Group revenue breakdown
2011 2010 Growth
GBP'm GBP'm %
Retail assistance
policies 258.1 262.7 (2)%
======================= ====== ====== ======
Retail insurance
policies 38.5 33.1 17%
======================= ====== ====== ======
Packaged and wholesale
policies 42.3 26.6 59%
======================= ====== ====== ======
Non-policy revenue 7.2 3.4 111%
------ ------ ------
Total Group revenue 346.1 325.8 6%
------ ------ ------
Whilst revenue from retail assistance policies has marginally
declined compared to 2010, revenue from retail insurance policies
and from packaged and wholesale policies has grown strongly. The
growth in revenue from retail insurance policies principally
relates to the Group's UK Mobile Phone Insurance business where the
increasing sales of higher priced smart phone insurance policies
more than compensates for a decline in the overall level of policy
sales. Growth in revenue from packaged and wholesale policies is
due to the continued development of the Group's Packaged Account
activities in the UK.
Non-policy revenue mainly arise from the Group's Airport Angel
lounge access business where customers typically do not subscribe
to a policy and instead pay a fee on each occasion that they visit
an airport lounge.
Underlying financial performance
2011 2010
GBP'm GBP'm
Reported operating profit 29.7 44.9
============================== ====== ======
Legacy scheme share based
payments 1.2 3.8
============================== ====== ======
Costs associated with the
FSA investigation - incurred
in year 2.1 -
------------------------------ ------ ------
Costs associated with the
FSA investigation - provided
for in the year 14.8 -
------ ------
Underlying operating profit 47.7 48.7
------ ------
Reported profit before
tax 28.3 39.8
============================== ====== ======
Legacy scheme share based
payments 1.2 3.8
============================== ====== ======
Costs associated with the
FSA investigation - incurred
in year 2.1 -
============================== ====== ======
Costs associated with the
FSA investigation - provided
for in the year 14.8 -
============================== ====== ======
Accelerated amortisation
of debt issue costs - 3.1
------ ------
Underlying profit before
tax 46.4 46.7
------ ------
The Group's statutory results are adjusted to arrive at measures
which better reflect underlying performance. Adjustment is made for
two items which are non-cash, and relate to the period prior to the
Group's initial public offering. A further adjustment is made to
the 2011 results to exclude the additional one-off costs associated
with the FSA investigation of GBP16.9 million in total (2010:
GBPnil). These costs comprise anticipated compensation payable to
customers through a Past Business Review, regulatory penalties and
other costs and professional fees associated with the investigation
and Past Business Review. The first non-cash adjustment relates to
the accounting charge for the Group's legacy share option scheme
which amounted to GBP1.2 million during the year (2010: GBP3.8
million). The second non-cash adjustment relates to the unamortised
portion of the debt costs which the Group incurred when it
refinanced its debt in April 2008 and which were written off at the
time of the IPO when the existing debt arrangements were terminated
and the Group agreed the current GBP80 million revolving credit
facility. The value of this adjustment in 2011 was GBPnil (2010:
GBP3.1 million).
After adjusting for these items, underlying operating profit was
GBP47.7 million, which was 2% lower than 2010 (GBP48.7 million). On
the same basis, underlying profit after tax is broadly in line with
prior year at GBP32.4 million (2010: GBP32.2 million). Basic
underlying earnings per share was 18.90 pence (2010: 19.34 pence)
and diluted underlying earnings per share was 18.81 pence (2010:
18.99 pence).
FSA investigation
In March 2011 the FSA launched an investigation into UK sales of
the Group's Card Protection and Identity Protection products. We
have subsequently agreed with the FSA to undertake a Past Business
Review in relation to both of these products, and to implement a
number of changes to the customer renewal process.
Provision of GBP14.8 million has been made at 31 December 2011
for estimated compensation to be paid through the Past Business
Review (based on estimates of likely response rates provided to us
by our advisers), regulatory penalties and other related costs,
together with GBP2.1 million of costs incurred in 2011 on
professional fees. Underlying operating profit for 2011 excludes
one-off costs totalling GBP16.9 million associated with the FSA
investigation.
Furthermore, we have suspended sales of Identity Protection
through the Group's UK voice channels since commencement of the
investigation, which has adversely impacted revenue and underlying
operating profit margin.
Quarterly performance
Q1 Q2 Q3 Q4 FY
2011 2011 2011 2011 2011
% % % % %
Revenue growth
(1)
===================== ====== ====== ====== ====== ======
Group 13% 6% 6% 0% 6%
------ ------ ------ ------ ------
Northern Europe 17% 8% 5% (3)% 6%
===================== ====== ====== ====== ====== ======
Southern Europe
and Latin America (6)% (6)% (2)% (5)% (5)%
===================== ====== ====== ====== ====== ======
North America 17% 14% 23% 21% 19%
===================== ====== ====== ====== ====== ======
Asia Pacific 17% 11% 20% 15% 16%
------ ------ ------ ------ ------
UK 15% 7% 4% (3)% 6%
===================== ====== ====== ====== ====== ======
Spain (9)% (11)% (10)% (12)% (10)%
------ ------ ------ ------ ------
Q1 Q2 Q3 Q4 FY
2011 2011 2011 2011 2011
% % % % %
Underlying operating
profit growth
(1), (2)
===================== ====== ====== ====== ====== ======
Group 14% (5)% 8% (20)% (2)%
------ ------ ------ ------ ------
Northern Europe 26% (9)% (4)% (28)% (6)%
===================== ====== ====== ====== ====== ======
Southern Europe
and Latin America (7)% 5% 34% (15)% 2%
===================== ====== ====== ====== ====== ======
North America 15% (8)% 55% 14% 17%
===================== ====== ====== ====== ====== ======
Asia Pacific (73)% 44% (6)% 21% 7%
------ ------ ------ ------ ------
UK 19% (15)% (8)% (30)% (10)%
===================== ====== ====== ====== ====== ======
Spain 6% 20% 58% (16)% 12%
------ ------ ------ ------ ------
1. Growth percentages stated on a year on year basis
2. Excluding legacy scheme share based payments GBP1.2 million
(2010: GBP3.8 million) and costs associated with the FSA
investigation GBP16.9million (2010: GBPnil)
The Group's performance in 2011 has been impacted by the FSA
investigation and the resulting suspension of new sales of Identity
Protection in the Group's UK voice channels, which has resulted in
significant variation in performance in the different quarters of
2011.
Investment in developing markets
The Group's investment in its new markets comprises mainly
start-up losses which are accounted for in the current year's
income statement. For these purposes, the Group considers the
following markets to be developing: Hong Kong, Singapore, Home 3,
India, Mexico, China and Brazil. In 2011, the total investment in
start-up losses in the Group's developing markets was GBP4.9
million, broadly consistent with the prior year (2010: GBP4.2
million).
Key performance indicators
2011 2010 Growth
New assistance income
(GBP millions) (see
table below) 85.5 88.0 (3)%
========================= ===== ===== ======
Annual renewal rate 75.4% 75.9% (0.5)%
========================= ===== ===== ======
Live policies (millions)
(see table below) 11.0 11.2 (2)%
========================= ===== ===== ======
Cost/income ratio 55% 51% 4%
========================= ===== ===== ======
Operating profit
margin (1) 13.8% 15.0% (1.2)%
----- ----- ------
1. Underlying operating profit as a percentage of revenue
New assistance income
(GBP millions) 2011 2010 Growth
Retail products 59.8 72.3 (17)%
======================= ==== ==== ======
Packaged and wholesale 25.6 15.7 63%
---- ---- ------
Total new assistance
income 85.5 88.0 (3)%
---- ---- ------
Live policies (millions) 2011 2010 Growth
Retail assistance
policies 6.9 7.4 (6)%
========================= ==== ==== ======
Retail insurance
policies 0.5 0.6 (7)%
========================= ==== ==== ======
Packaged and wholesale
policies 3.6 3.2 11%
---- ---- ------
Total live policies 11.0 11.2 (2)%
---- ---- ------
Total new assistance income for 2011 was 3% lower than 2010. New
assistance income derived from the sale of retail products has
declined as a result of the suspension of Identity Protection in
the UK and the economic situation in Southern Europe. This has been
partially offset by growth in new assistance income from the
Group's Packaged Accounts and wholesale activities. On a constant
currency basis, total new assistance income for the Group was 1%
lower than 2010.
The Group annual renewal rate at 75.4% (2010: 75.9%) was lower
than prior year. This resulted from the anticipated mix effect of
lower renewal rates in some of our international markets.
Calculated on the basis of a constant territory mix compared to
2010, the Group annual renewal rate would be 76.0% which was in
line with 2010. Reduction in renewal rates in the UK due to lower
renewal rates on Identity Protection, Card Protection and mix
effects are offset by increased rates in our international markets
including Spain, Turkey and North America.
Live policies have declined by 2% to 11.0 million (2010: 11.2
million). Retail assistance policies have declined by 6% to 6.9
million as our policy base has reduced in the UK, due to the
suspension of new Identity Protection sales in the Group's channels
and lower new volumes of Card Protection through the call to
confirm channel, and in Southern Europe due to the economic
situation.
Cost/income ratio, which is expressed as a percentage of
revenue, has increased year on year to 55% (2010: 51%), reflecting
the growth of our Packaged Accounts sales channels which generally
have a lower revenue per policy and higher direct costs.
Underlying operating profit margin has decreased by 1.2
percentage points to 13.8% (2010: 15.0%). The impact of the
suspension of Identity Protection sales in the Group's channels in
the UK and increased UK operating costs, which are in part due to
increased costs of regulatory compliance, have reduced Group
operating profit margin. These effects have been partially offset
by continuing improvements to margin in Germany, Turkey and
Spain.
Regional Performance
Organic,
constant
currency
2011 2010 Growth growth
GBP'm GBP'm % %
Northern Europe
===================== ====== ====== ====== =========
- Revenue 249.5 234.9 6% 7%
===================== ====== ====== ====== =========
- Operating profit
(1) 33.6 35.6 (6)% (5)%
===================== ====== ====== ====== =========
Southern Europe
and Latin America
===================== ====== ====== ====== =========
- Revenue 44.4 46.7 (5)% (7)%
===================== ====== ====== ====== =========
- Operating profit
(1) 10.6 10.5 2% 0%
===================== ====== ====== ====== =========
North America
===================== ====== ====== ====== =========
- Revenue 45.8 38.5 19% 24%
===================== ====== ====== ====== =========
- Operating profit
(1) 6.9 5.9 17% 21%
===================== ====== ====== ====== =========
Asia Pacific
===================== ====== ====== ====== =========
- Revenue 6.5 5.7 16% 21%
===================== ====== ====== ====== =========
- Operating profit
(1) (2.2) (2.3) 7% 3%
------ ------ ------ ---------
1. Excluding legacy scheme share based payments, costs
associated with the FSA investigation and share of loss of joint
venture.
Our Northern Europe region (UK, Ireland, Germany and Turkey)
grew revenue by 7% on a constant currency basis. The principal
drivers of growth were Identity Protection renewals which benefited
from new sales in previous years, UK Packaged Accounts and UK
Mobile Phone Insurance which more than compensated for the lost
Identity Protection new sales following the suspension of sales of
the product in the Group's UK voice channels in March 2011. In
total, UK revenue grew by 6% in 2011. Ireland, Germany and Turkey
all delivered revenue growth in the year. Operating profit of
GBP33.6 million (2010: GBP35.6 million) was 5% lower than 2010 on a
constant currency basis as operating profit margins in the UK and
Ireland reduced, whilst operating losses in Germany were lower and
operating profit in Turkey increased. Margins in the UK were
materially impacted by the suspension of Identity Protection new
sales in the UK's channels from March.
Difficult economic and business conditions have persisted in
Southern Europe, part of our Southern Europe and Latin America
region, which comprises Spain, Italy, Portugal, France, Mexico and
Brazil. This has been particularly the case in Spain, where revenue
has declined by 12% on a constant currency basis, but has also
impacted Italy. Portugal and Mexico have grown revenue through new
Business Partners and first year renewal streams respectively and
Brazil trading commenced in December. Margins have expanded in the
region as the sales mix has shifted from new to renewal, with
further improvement resulting from good cost control and reduced
start-up losses in Mexico as revenue grows. Operating profit for
the region of GBP10.6 million (2010: GBP10.5 million) is flat with
prior year on a constant currency basis.
Performance has been strong in North America as revenue has
grown by 24% on a constant currency basis. This was due to growth
in new and renewal monthly bill volumes along with the impact of
product price increases. Operating profit has increased by 21% on a
constant currency basis.
Asia Pacific continues to be a market where we believe there is
potential for significant growth, revenue in the year has grown by
21% on a constant currency basis. As expected the region incurred
an operating loss of GBP2.2 million (2010: GBP2.3 million)
reflecting that it is still in a developmental stage. Revenue
growth in the newest markets of India and China has been driven by
new and existing Business Partners. Hong Kong continues to be a
difficult market with third party marketing activities suspended
due to data privacy regulation. Malaysia revenue in the year has
been impacted by the credit card tax introduced in 2010 and
limitations on credit cards linked to net earnings.
Investment in Home 3 joint venture
Our Home 3 joint venture with Mapfre Asistencia secured Business
Partner contracts which have delivered total revenue of GBP1.8
million (2010: GBP0.2 million). The continuing development of Home
3 has required further investment in capabilities in anticipation
of the acquisition of new policies and customers. The Group applies
the equity method of accounting for this joint venture, of which
the Group's share is 50%, and as a result our share of operating
losses for 2011 in this start-up phase of the business was GBP1.2
million (2010: GBP0.8 million).
Tax
The Group's effective tax rate in 2011 was 36.2% (2010: 31.7%).
The increase in the rate reflects the lower proportion of Group
profit generated and taxed in the UK at 26.5%, as a result of the
costs associated with the FSA investigation, the impact of profit
in overseas territories taxed at a higher rate and the incidence of
losses in overseas start-up subsidiaries for which no tax deduction
is available.
Cash flow
2011 2010
GBP'm GBP'm
Underlying operating profit
(1) 47.7 48.7
================================ ====== ======
Share of loss of joint
venture 1.2 0.8
================================ ====== ======
FSA associated costs (2) (2.1) 0.0
================================ ====== ======
Depreciation, amortisation
and other non-cash items 13.1 10.6
================================ ====== ======
Working capital (4.7) (7.1)
------ ------
Cash generated by operations 55.2 53.0
================================ ====== ======
Legacy scheme share option
exercises (0.2) (3.7)
================================ ====== ======
Tax (12.6) (9.1)
------ ------
Operating cash flow (3) 42.4 40.2
================================ ====== ======
Capital expenditure (including
intangibles) (12.6) (16.0)
================================ ====== ======
Investment in subsidiary
and joint venture (1.0) (0.6)
================================ ====== ======
Net finance costs (1.0) (1.4)
================================ ====== ======
Dividends (12.9) (4.1)
================================ ====== ======
IPO and share issues (4) 0.2 31.3
------ ------
Net movement in cash/borrowings
(5) 15.0 49.4
------ ------
Net funds/(debt) (6) 11.9 (2.2)
------ ------
1. Excluding legacy scheme share based payments and FSA
associated costs
2. Excluding provision for amounts not yet settled
3. Excluding repayment of loan notes
4. Comprises share issue proceeds, proceeds from the exercise of
share options, debt issue costs and repayment of loan notes
5. Excluding effect of exchange rates and amortisation of debt
issue costs
6. Includes unamortised debt issue costs
Cash generated by operations amounted to GBP55.2 million (2010:
GBP53.0 million) representing a cash conversion ratio (cash
generated by operations as a percentage of underlying operating
profit) of 116% (2010: 109%).
In total the Group had a working capital inflow in the year of
GBP9.0 million (2010: outflow GBP12.7 million). Allowing for the
movement associated with our legacy share scheme loan notes and
provision for costs associated with the FSA investigation results
in an adjusted working capital outflow of GBP4.7 million (2010:
outflow GBP7.1 million). This reflects the growth in our Mobile
Phone Insurance business and our Packaged Accounts offering where
our Business Partners pay us for the services provided to their
customers.
Continuing investment
We have continued to invest in our business with investment in
tangible and intangible assets in the year of GBP11.9 million
(2010: GBP18.2 million) which represents 3% of Group revenue.
Tangible asset investment of GBP2.4 million was mainly computer
hardware, including upgrades to our disaster recovery capability
and our desktop systems. Intangible asset investment comprised
computer software and systems and Business Partner intangibles.
Computer software and systems expenditure was GBP5.1 million as we
further developed our systems to enhance our packaged services and
e-commerce capabilities, to support new market and product
launches.
Investment in Business Partner intangibles of GBP4.3 million was
GBP3.8 million lower than in the prior year as a result of two
factors. Lower sales of Identity Protection following the
suspension of this product in CPP channels in March 2011 led to
lower ongoing investment with the single Business Partner with whom
we have this arrangement. We also made no investment in one-off
opportunities in 2011 which compares to GBP2.5 million invested
with two Business Partners in 2010. The net book value of our
Business Partner intangible at 31 December 2011 was GBP10.4 million
(31 December 2010: GBP9.8 million).
Dividend
As a result of the FSA investigation and the agreement to carry
out a Past Business Review together with the FSA imposed
restriction on distributions from Card Protection Plan Limited, the
Group has considered its future capital requirements carefully and
will not be paying a final dividend for 2011. In total the Group
has paid dividends in the year, in the form of an interim dividend,
of 2.42 pence per share (2010: 7.54 pence per share). The Group's
long term dividend policy to distribute approximately 40% of
underlying profit after tax to its shareholders remains unchanged.
The 2010 total dividend of 7.54 pence per share was in accordance
with this policy.
Net funds
Net funds at 31 December 2011 were GBP11.9 million, an
improvement of GBP14.0 million compared to prior year, as a result
of positive operating cash flow. The Group's insurance businesses
maintain cash deposits for solvency purposes which were GBP17.8
million at 31 December 2011. Allowing for these deposits results in
an adjusted Group net debt position of GBP6.0 million.
The Group has in place an GBP80 million guaranteed revolving
credit facility supported by a club of three banks which expires on
31 March 2013. The undrawn balance on this facility at 31 December
2011 was GBP36 million.
Principal risks and uncertainties
The principal risks and uncertainties facing the Group, and the
actions taken by the Directors to address them, are:
Geographic markets
The Group has operations in several geographic markets with
varying levels of business maturity in terms of size, operating
model and product base. The Group is subject to the risks inherent
in operating and developing international operations.
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. The FSA investigation into certain
issues surrounding the sale of its Identity Protection and Card
Protection products in the UK has created uncertainty about the
products and some of the sales channels through which they are
marketed. The ongoing 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 and monitor 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 ongoing management oversight and
support, are in place to manage the principal risks. The impacts
which varying economic, social and political conditions in
individual countries have on the Group's risk profile are regularly
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 risk 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. Where appropriate,
mitigation activities to further limit exposure have commenced
including asset repatriation to Sterling in the UK and adjusting
counterparty limits.
Current predictions (In Focus: Implications of a Eurozone
Break-up, Euromonitor International, 8 December 2011) indicate that
a Eurozone break up could precipitate a deeper recession across the
whole of Europe impacting on employment and consumer spending,
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.
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.
At the request of the Board, two leading firms of lawyers have
been engaged to advise the Group. One is focussed on the business
standards operated by the Group's UK regulated subsidiaries with
the aim of demonstrating that these meet or exceed legal and
regulatory requirements. The second addresses compliance systems
throughout the Group, and the controls applicable to them. The
Board intends to implement the recommendations from its legal
advisors as soon as practicable to enhance and strengthen its
framework for managing compliance risk and assuring compliance with
regulatory requirements.
The Board has taken other initiatives to improve the
effectiveness of its regulatory compliance, including the
following:
- the legal and compliance staff has been increased and the
level of expertise on regulatory and compliance subjects deepened
through external recruitment
- a Governance Committee has been established which directs and
oversees change in the Group's systems and controls for preventing,
detecting and mitigating compliance risk, including regulatory
matters
- the Group has worked constructively with the FSA to ensure the
documents describing and explaining its products and services
comply with relevant legal and regulatory requirements
- the quality and comprehensiveness of compliance reporting has
been revised and improved to enable management and the Board to
identify trends and address regulatory and compliance topics
effectively
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. Changes in
regulation or new regulatory bodies (for example, the new Consumer
Financial Protection Bureau (CFPB) in the USA or the upcoming split
of the FSA's regulatory responsibilities in the UK) 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. Two such
analytical developments in the UK are in respect to the FSA's
reviews of "Packaged Services For Current Accounts" and "Sales of
Mobile Phone Insurance", both of which are being considered by the
Group. Implementation of conclusions from these reviews in the UK
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
The FSA investigation which was announced on 28 March 2011 and
subsequent agreement reached with the FSA on 24 February 2012 are
detailed earlier in this statement.
Renewals Process:The detail of the agreement is referred to
earlier in the statement. 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.
Past Business Review:The details of the Past Business Review is
referred to earlier in this statement. 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 Past Business Review. Based on its
experience of customer complaints to date, customer satisfaction
surveys and the results of exercises conducted in similar
circumstances, and on 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 FSA's investigation into CPP there
remains the risk that customer redress rates in particular could
materially exceed those assumed. Notwithstanding such uncertainty,
it is likely that the results of the pilot contact exercise will
provide further assurance on the probable outcome of the full
review.
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 Past Business Review, 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 likely impact on its Business Partners, or the Group's
relationship with them, including any financial consequences.
The agreement with the FSA does not mark the end of the FSA
investigation which is continuing. There is a risk that the
investigation may result in further action which may have an
adverse impact on the Group's financial performance. During 2011,
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. The Group may 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.
Relationships with key Business Partners are 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.
Future revenue and profit could be adversely impacted by
deterioration of existing, or failure to develop new, Business
Partner relationships. An example of this is Barclaycard, one of
our Business Partners, who shortly after the Group's announcement
of the FSA's investigation on 28 March 2011, suspended new sales to
their UK based customers through their call to confirm channel.
Furthermore, following a competitive tender in line with its normal
business practice, Barclaycard informed the Group that it does not
intend to renew its contract when it expires on 31 March 2012.
In addition, 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.
As previously announced, the Group has developed a new,
non-insured service product, Identity Safe, which it had hoped to
introduce into the UK's call to confirm and card activation voice
sales channels during 2011. Following extensive discussions with
the Group's Business Partners it is now expected that the new
Identity Safe product is unlikely to be adopted by Business
Partners in the UK until after the FSA investigation is concluded,
although extension to a number of other product initiatives with UK
Business Partners has occurred. 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 FSA's investigation, including any actions on a wider industry
basis, and the resultant impact on the Group's Business Partner
relationships remains uncertain.
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 has
been extended to September 2012. Following the merger between
T-Mobile and Orange, Everything Everywhere Limited have initiated a
tender process for insurance provision post September 2012, which
covers both the existing T-Mobile and also the Orange mobile phone
schemes. The Group is included in Everything Everywhere Limited's
tender process, the outcome of which could be increased new
Phonesafe revenue from an enlarged customer base or loss of
existing new revenue streams from the T-Mobile customer base or
somewhere in between. The Group is actively participating in the
tender process.
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. As previously
announced on 28 March 2011, the Group decided to suspend new sales
of Identity Protection through its UK voice channels in response to
discussions with the FSA which impacted revenue growth in the
UK.
An example of changes to channel availability is in Hong Kong,
where in 2010 heightened local public concern over the transfer of
personal data to third parties, such as CPP, for marketing
purposes, resulted in a suspension of all third-party marketing
across businesses in Hong Kong. Most third-party marketing has
remained suspended through 2011 which has continued to postpone our
telemarketing activities in the Hong Kong market.
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.
It is the intention of the Group to negotiate appropriate
lending facilities well 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 ongoing debt facilities and the
Board is currently considering other financing options. As at 31
December 2011 the Group had funds drawn down under the RCF of
GBP43.5 million. However, this was offset by GBP54.9 million of
cash. As at 31 December 2011 the Group was in a net funds position
of GBP11.9 million.
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
commissioned by the Board 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 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 service exists. Financial and
operational stability of these suppliers is monitored and
additional or dual supply is implemented in appropriate
circumstances.
Fraud
The Group's policy on fraud & 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.
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.
Financial risks
The Group's operations expose it to financial risks including
capital maintenance, foreign exchange, interest rate, liquidity,
credit and insurance risks.
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 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 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 Revolving Credit Facility which expires
on 31 March 2013. It is the intention of the Group to negotiate
appropriate lending facilities well 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 ongoing debt
facilities and the Board is currently considering other financing
options. At the 31 December 2011, the Group had positive net funds
of GBP11.9 million. Under the scenarios that the Directors consider
most likely, debt funding is not required at 31 March 2013, when
current facilities expire.
-- The potential impacts from the FSA investigation on the
continued resources which may be required by the business including
a number of assumptions around customer response rates to the Past
Business Review.
Although agreement was reached with the FSA, 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
Past Business Review, 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.
Although the Directors believe that there is unlikely to be a
material impact on the Group resulting from these potential events,
it does remain a possibility and therefore leads to the disclosure
of a contingent liability. Given the possible impact of the
contingent liability, there is a material uncertainty which may
cast doubt as to the Group and Company'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 uncertainty and all
the available information, the Directors are of the view that it is
appropriate to continue to adopt the going concern basis in
preparing the financial statements.
Shaun Parker
Chief Financial Officer
26 March 2012
Responsibility statement
The responsibility statement below has been prepared in
connection with the Company's full Annual Report and Accounts for
the year ended 31 December 2011. Certain parts thereof are not
included within this announcement.
We confirm that to the best of our knowledge:
- The financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit of the
Company and the undertakings included in the consolidation taken as
a whole; and
- The business review, which is incorporated into the Directors'
report and the Group overview and Operating review sections of the
Annual Report, includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face.
By order of the Board
Paul Stobart Shaun Parker
Chief Executive Chief Financial
Officer Officer
26 March 2012 26 March 2012
Consolidated income statement
2011 2010
Note GBP'000 GBP'000
==================================================================================== ==== ========= =========
Revenue 346,136 325,803
------------------------------------------------------------------------------------ ---- --------- ---------
Cost of sales (202,229) (189,077)
==================================================================================== ==== ========= =========
Gross profit 143,907 136,726
------------------------------------------------------------------------------------ ---- --------- ---------
Administrative expenses
------------------------------------------------------------------------------------ ---- ========= =========
Legacy scheme share based payments (1,167) (3,841)
------------------------------------------------------------------------------------ ---- --------- ---------
FSA associated costs 9 (16,892) -
------------------------------------------------------------------------------------ ---- --------- ---------
Other administrative expenses (94,989) (87,147)
------------------------------------------------------------------------------------ ---- ========= =========
Total administrative expenses (113,048) (90,988)
------------------------------------------------------------------------------------ ---- --------- ---------
Share of loss of joint venture (1,181) (843)
------------------------------------------------------------------------------------ ---- --------- ---------
Operating profit
------------------------------------------------------------------------------------ ---- ========= =========
Operating profit before legacy scheme share based payments and FSA associated costs 47,737 48,736
------------------------------------------------------------------------------------ ---- ========= =========
Operating profit after legacy scheme share based payments and FSA associated costs 29,678 44,895
------------------------------------------------------------------------------------ ---- --------- ---------
Investment revenues 423 341
------------------------------------------------------------------------------------ ---- --------- ---------
Finance costs - non-derivative instruments (1,795) (5,482)
==================================================================================== ==== ========= =========
Profit before taxation 28,306 39,754
------------------------------------------------------------------------------------ ---- --------- ---------
Taxation (10,255) (12,604)
==================================================================================== ==== ========= =========
Profit for the year from continuing operations 18,051 27,150
==================================================================================== ==== ========= =========
Attributable to:
------------------------------ ------ ------
Equity holders of the Company 18,215 27,150
------------------------------ ------ ------
Non-controlling interests 10 (164) -
------------------------------ ------ ------
18,051 27,150
------------------------------ ------ ------
Basic and diluted earnings per share from continuing operations Pence Pence
================================================================ ====== ======
Basic earnings per share 5 10.64 16.33
================================================================ ====== ======
Diluted earnings per share 5 10.59 16.03
================================================================ ====== ======
Consolidated statement of comprehensive income
2011 2010
GBP'000 GBP'000
============================================================ ======== ========
Profit for the year 18,051 27,150
------------------------------------------------------------ -------- --------
Other comprehensive income and expenses
------------------------------------------------------------ -------- --------
Exchange differences on translation of foreign operations 120 341
------------------------------------------------------------ -------- --------
Other comprehensive income for the year net of taxation 120 341
============================================================ ======== ========
Total comprehensive income for the year 18,171 27,491
============================================================ ======== ========
Attributable to:
------------------------------ ------ ------
Equity holders of the Company 18,335 27,491
------------------------------ ------ ------
Non-controlling interests 10 (164) -
------------------------------ ------ ------
18,171 27,491
------------------------------ ------ ------
Consolidated balance sheet
2011 2010
Note GBP'000 GBP'000
===================================================== ==== ========= =========
Non-current assets
----------------------------------------------------- ---- --------- ---------
Goodwill 16,521 16,536
----------------------------------------------------- ---- --------- ---------
Other intangible assets 6 22,626 22,055
----------------------------------------------------- ---- --------- ---------
Property, plant and equipment 7 14,473 15,389
----------------------------------------------------- ---- --------- ---------
Investment in joint venture - 184
----------------------------------------------------- ---- --------- ---------
Deferred tax asset 1,987 3,809
===================================================== ==== ========= =========
55,607 57,973
===================================================== ==== ========= =========
Current assets
----------------------------------------------------- ---- --------- ---------
Insurance assets 24,552 21,493
----------------------------------------------------- ---- --------- ---------
Income tax receivable - 96
----------------------------------------------------- ---- --------- ---------
Inventories 329 289
----------------------------------------------------- ---- --------- ---------
Trade and other receivables 30,667 30,275
----------------------------------------------------- ---- --------- ---------
Cash and cash equivalents 54,924 25,040
===================================================== ==== ========= =========
110,472 77,193
===================================================== ==== ========= =========
Total assets 166,079 135,166
===================================================== ==== ========= =========
Current liabilities
----------------------------------------------------- ---- --------- ---------
Insurance liabilities (8,878) (10,417)
----------------------------------------------------- ---- --------- ---------
Income tax liabilities (2,818) (6,266)
----------------------------------------------------- ---- --------- ---------
Trade and other payables (67,884) (69,321)
----------------------------------------------------- ---- --------- ---------
Provisions 9 (11,393) (860)
===================================================== ==== ========= =========
(90,973) (86,864)
===================================================== ==== ========= =========
Net current assets/(liabilities) 19,499 (9,671)
===================================================== ==== ========= =========
Non-current liabilities
----------------------------------------------------- ---- --------- ---------
Bank loans 8 (43,041) (27,199)
----------------------------------------------------- ---- --------- ---------
Deferred tax liabilities (634) (459)
----------------------------------------------------- ---- --------- ---------
Provisions 9 (4,279) (859)
===================================================== ==== ========= =========
(47,954) (28,517)
===================================================== ==== ========= =========
Total liabilities (138,927) (115,381)
===================================================== ==== ========= =========
Net assets 27,152 19,785
===================================================== ==== ========= =========
Equity
----------------------------------------------------- ---- --------- ---------
Share capital 11 17,106 17,024
----------------------------------------------------- ---- --------- ---------
Share premium account 33,300 32,301
----------------------------------------------------- ---- --------- ---------
Merger reserve (100,399) (100,399)
----------------------------------------------------- ---- --------- ---------
Translation reserve 2,456 2,336
----------------------------------------------------- ---- --------- ---------
Equalisation reserve 6,423 6,196
----------------------------------------------------- ---- --------- ---------
ESOP reserve 11,606 9,599
----------------------------------------------------- ---- --------- ---------
Retained earnings 56,824 52,728
===================================================== ==== ========= =========
Equity attributable to equity holders of the Company 27,316 19,785
----------------------------------------------------- ---- --------- ---------
Non-controlling interest (164) -
===================================================== ==== ========= =========
Total equity 27,152 19,785
===================================================== ==== ========= =========
Consolidated statement of changes in equity
Share
Share premium Merger Translation Equalisation ESOP Retained Non-controlling Total
capital account reserve reserve reserve reserve earnings Total interest Equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
============== ==== ======= ======= ========= =========== ============ ======= ======== ======== =============== ========
At 1 January
2010 15,152 - (100,399) 1,995 4,913 5,783 29,552 (43,004) - (43,004)
-------------- ---- ------- ------- --------- ----------- ------------ ------- -------- -------- --------------- --------
Total
comprehensive
income - - - 341 - - 27,150 27,491 - 27,491
-------------- ---- ------- ------- --------- ----------- ------------ ------- -------- -------- --------------- --------
Movement on
equalisation
reserve - - - - 1,283 - (1,283) - - -
-------------- ---- ------- ------- --------- ----------- ------------ ------- -------- -------- --------------- --------
Current tax
credit on
equalisation
reserve
movement - - - - - - 358 358 - 358
-------------- ---- ------- ------- --------- ----------- ------------ ------- -------- -------- --------------- --------
Equity settled
share based
payment
charge - - - - - 4,216 - 4,216 - 4,216
-------------- ---- ------- ------- --------- ----------- ------------ ------- -------- -------- --------------- --------
Deferred tax
on share
based payment
charge - - - - - - 1,078 1,078 - 1,078
-------------- ---- ------- ------- --------- ----------- ------------ ------- -------- -------- --------------- --------
Exercise of
share options 11 583 7,991 - - - (400) - 8,174 - 8,174
-------------- ---- ------- ------- --------- ----------- ------------ ------- -------- -------- --------------- --------
Other ordinary
share issues 11 1,289 24,310 - - - - - 25,599 - 25,599
-------------- ---- ------- ------- --------- ----------- ------------ ------- -------- -------- --------------- --------
Dividends 4 - - - - - - (4,127) (4,127) - (4,127)
-------------- ---- ------- ------- --------- ----------- ------------ ------- -------- -------- --------------- --------
At 31 December
2010 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
credit 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 11 82 999 - - - (162) - 919 - 919
-------------- ---- ------- ------- --------- ----------- ------------ ------- -------- -------- --------------- --------
Dividends 4 - - - - - - (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
2011 2010
Note GBP'000 GBP'000
===================================================== ==== ======== =========
Net cash from operating activities 12 41,547 38,362
----------------------------------------------------- ---- -------- ---------
Investing activities
----------------------------------------------------- ---- -------- ---------
Interest received 423 341
----------------------------------------------------- ---- -------- ---------
Purchases of property, plant and equipment (3,297) (3,719)
----------------------------------------------------- ---- -------- ---------
Purchases of intangible assets (9,334) (12,241)
----------------------------------------------------- ---- -------- ---------
Acquisition of subsidiary, net of cash acquired - 340
----------------------------------------------------- ---- -------- ---------
Investment in joint venture (997) (977)
===================================================== ==== ======== =========
Net cash used in investing activities (13,205) (16,256)
----------------------------------------------------- ---- -------- ---------
Financing activities
----------------------------------------------------- ---- -------- ---------
Dividends paid (12,925) (4,127)
----------------------------------------------------- ---- -------- ---------
Repayment of bank loans (1,500) (143,383)
----------------------------------------------------- ---- -------- ---------
Proceeds from new bank loans 17,000 66,700
----------------------------------------------------- ---- -------- ---------
Interest paid (1,452) (1,709)
----------------------------------------------------- ---- -------- ---------
Cost of refinancing - (1,080)
----------------------------------------------------- ---- -------- ---------
Issue of ordinary share capital 1,081 34,173
===================================================== ==== ======== =========
Net cash from/(used in) financing activities 2,204 (49,426)
===================================================== ==== ======== =========
Net increase/(decrease) in cash and cash equivalents 30,546 (27,320)
----------------------------------------------------- ---- -------- ---------
Effect of foreign exchange rate changes (662) (19)
----------------------------------------------------- ---- -------- ---------
Cash and cash equivalents at 1 January 25,040 52,379
===================================================== ==== ======== =========
Cash and cash equivalents at 31 December 54,924 25,040
===================================================== ==== ======== =========
Notes to condensed financial statements
1. General information
While the financial information included in this annual results
announcement has been computed in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards as adopted for use by the European Union ('IFRS') and
with those parts of the Companies Act 2006 applicable to companies
reporting under IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The Company will
publish full financial statements that comply with IFRS in April
2012.
The financial information set out above does not constitute the
Company's statutory financial statements for the years ended 31
December 2011 or 31 December 2010, but is derived from the 2011
financial statements. Statutory financial statements for 2010 for
the Company prepared under IFRS have been delivered to the
Registrar of Companies and those for 2011 for the Company will be
delivered following the Company's Annual General Meeting. The
auditors, Deloitte LLP, have reported on these financial
statements; their report was unqualified, and contained an emphasis
of matter paragraph relating to significant uncertainty over the
provisions and contingencies in relation to the ongoing FSA
investigation. The report of the auditors on these financial
statements did not contain statements under s498 (2) or (3) of the
Companies Act 2006. These 2011 financial statements were approved
by the Board of Directors on 26 March 2012.
2. Accounting policies
The same accounting policies, presentation and methods of
computation are followed in the condensed financial statements as
were applied in the Group's audited financial statements for the
year ended 31 December 2010, except that the following Standards
and Interpretations have become effective and have been adopted in
these condensed financial statements. Their adoption has not had
any material impact on the Group. No Standards or Interpretations
have been adopted early in these condensed financial
statements.
Standard/Interpretation Subject
===================================== =============================================================================
IAS 24 (revised November 2009) Related Party Disclosures
------------------------------------- -----------------------------------------------------------------------------
Amendment to IAS 32 (October 2009) Classification of Rights Issues
------------------------------------- -----------------------------------------------------------------------------
Amendment to IFRIC 14 (November 2009) Prepayments of a Minimum Funding Requirement
------------------------------------- -----------------------------------------------------------------------------
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments
------------------------------------- -----------------------------------------------------------------------------
Amendments to IFRS 1 (January 2010) Limited exemption from comparative IFRS 7 disclosures for first time adoption
------------------------------------- -----------------------------------------------------------------------------
Improvements to IFRSs 2010 (May 2010) Annual improvements
------------------------------------- -----------------------------------------------------------------------------
3. Segmental analysis
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the Group that are
regularly reviewed by the Board of Directors to allocate resources
to the segments and to assess their performance.
The Group is managed on the basis of four broad geographical
regions:
- Northern Europe (UK, Ireland, Germany and Turkey);
- Southern Europe and Latin America (Spain, Portugal, France,
Italy, Mexico and Brazil);
- North America (USA); and
- Asia Pacific (Hong Kong, Singapore, Malaysia, India and
China)
Segment revenues and performance have been as follows:
Southern Europe and Latin Asia
Northern Europe America North America Pacific Total
2011 2011 2011 2011 2011
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================================ =============== =============================== ============= ======== =========
Year ended 31 December 2011
-------------------------------- --------------- ------------------------------- ------------- -------- ---------
Revenue - external sales 249,487 44,356 45,752 6,541 346,136
-------------------------------- --------------- ------------------------------- ------------- -------- ---------
Cost of sales (149,050) (22,411) (27,084) (3,684) (202,229)
================================ =============== =============================== ============= ======== =========
Gross profit 100,437 21,945 18,668 2,857 143,907
-------------------------------- --------------- ------------------------------- ------------- -------- ---------
Depreciation and amortisation (7,884) (304) (205) (33) (8,426)
-------------------------------- --------------- ------------------------------- ------------- -------- ---------
Other administrative expenses (58,982) (11,011) (11,596) (4,974) (86,563)
================================ =============== =============================== ============= ======== =========
Regional operating profit/(loss)
before legacy scheme share
based payments, FSA associated
costs and joint ventures 33,571 10,630 6,867 (2,150) 48,918
================================ =============== =============================== ============= ======== =========
Share of loss of joint venture (1,181)
================================ =============== =============================== ============= ======== =========
FSA associated costs (16,892)
-------------------------------- --------------- ------------------------------- ------------- -------- ---------
Legacy scheme share based
payments (1,167)
-------------------------------- --------------- ------------------------------- ------------- -------- ---------
Operating profit after legacy
scheme share based payments,
FSA associated costs and joint
ventures 29,678
-------------------------------- --------------- ------------------------------- ------------- -------- ---------
Investment revenues 423
-------------------------------- --------------- ------------------------------- ------------- -------- ---------
Finance costs - non-derivative
instruments (1,795)
================================ =============== =============================== ============= ======== =========
Profit before taxation 28,306
================================ =============== =============================== ============= ======== =========
North Asia
Northern Europe Southern Europe and Latin America America Pacific Total
2010 2010 2010 2010 2010
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=================================== =============== ================================= ======== ======== =========
Year ended 31 December 2010
----------------------------------- --------------- --------------------------------- -------- -------- ---------
Revenue - external sales 234,945 46,718 38,479 5,661 325,803
----------------------------------- --------------- --------------------------------- -------- -------- ---------
Cost of sales (137,682) (25,689) (22,154) (3,552) (189,077)
=================================== =============== ================================= ======== ======== =========
Gross profit 97,263 21,029 16,325 2,109 136,726
----------------------------------- --------------- --------------------------------- -------- -------- ---------
Depreciation and amortisation (6,979) (303) (139) (27) (7,448)
----------------------------------- --------------- --------------------------------- -------- -------- ---------
Other administrative expenses (54,722) (10,266) (10,319) (4,392) (79,699)
=================================== =============== ================================= ======== ======== =========
Regional operating profit/(loss)
before legacy scheme share based
payments and joint ventures 35,562 10,460 5,867 (2,310) 49,579
=================================== =============== ================================= ======== ======== =========
Share of operating loss of joint
venture (843)
=================================== =============== ================================= ======== ======== =========
Legacy scheme share based payments (3,841)
----------------------------------- --------------- --------------------------------- -------- -------- ---------
Operating profit after legacy
scheme share based payments and
joint ventures 44,895
----------------------------------- --------------- --------------------------------- -------- -------- ---------
Investment revenues 341
----------------------------------- --------------- --------------------------------- -------- -------- ---------
Finance costs - non-derivative
instruments (5,482)
=================================== =============== ================================= ======== ======== =========
Profit before taxation 39,754
=================================== =============== ================================= ======== ======== =========
For the purposes of resource allocation and assessing
performance, operating costs and revenues are allocated to the
regions in which they are earned or incurred. The above does not
reflect additional net charges of central costs of GBP1,222,000
(2010: GBP1,178,000) presented within Northern Europe in the tables
above which have been charged to other regions for statutory
purposes.
Segment assets
2011 2010
GBP'000 GBP'000
================================== ======== ========
Northern Europe 117,399 91,543
---------------------------------- -------- --------
Southern Europe and Latin America 9,348 8,379
---------------------------------- -------- --------
North America 18,478 12,557
---------------------------------- -------- --------
Asia Pacific 2,346 2,158
================================== ======== ========
Total segment assets 147,571 114,637
---------------------------------- -------- --------
Unallocated assets 18,508 20,529
================================== ======== ========
Consolidated total assets 166,079 135,166
================================== ======== ========
Goodwill, deferred tax and investments in joint ventures are not
allocated to segments.
Capital expenditure
Intangible assets Property, plant and equipment
================================== ------------------- -------------------------------
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
================================== ========= ======== =============== ==============
Northern Europe 8,992 13,112 1,994 4,597
---------------------------------- --------- -------- --------------- --------------
Southern Europe and Latin America 8 51 322 37
---------------------------------- --------- -------- --------------- --------------
North America 396 108 99 291
---------------------------------- --------- -------- --------------- --------------
Asia Pacific 21 3 20 46
================================== ========= ======== =============== ==============
Consolidated total additions 9,417 13,274 2,435 4,971
================================== ========= ======== =============== ==============
Revenues from major products
2011 2010
GBP'000 GBP'000
================================ ======== ========
Retail assistance policies 258,048 262,707
-------------------------------- -------- --------
Retail insurance policies 38,529 33,042
-------------------------------- -------- --------
Packaged and wholesale policies 42,325 26,630
-------------------------------- -------- --------
Non-policy revenue 7,234 3,424
================================ ======== ========
Consolidated revenue 346,136 325,803
================================ ======== ========
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 ongoing product or service which is provided for a
specified period of time; "non-policy revenues" are those which are
not in connection with providing an ongoing service to
policyholders for a specified period of time.
Major product streams have previously been monitored as
"assistance products", being those which are predominantly
insurance backed but contain a bundle of assistance, insurance and
other benefits, and "insurance products", which cover a single
insurance risk, as set out in the table below:
2011 2010
GBP'000 GBP'000
===================== ======== ========
Assistance products 294,844 286,796
--------------------- -------- --------
Insurance products 51,292 39,007
--------------------- -------- --------
Consolidated revenue 346,136 325,803
===================== ======== ========
Geographical information
The Group operates across a wide number of territories, of which
the UK, Spain and the USA 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
====== ------------------- --------------------
2011 2010 2011 2010
GBP'000 GBP'000 GBP'000 GBP'000
====== ========= ======== ========= =========
UK 233,859 221,474 38,698 39,609
------ --------- -------- --------- ---------
USA 45,752 38,479 13,287 12,988
------ --------- -------- --------- ---------
Spain 26,717 29,802 551 497
------ --------- -------- --------- ---------
Other 39,808 36,048 1,084 886
====== ========= ======== ========= =========
346,136 325,803 53,620 53,980
====== ========= ======== ========= =========
Information about major customers
There are no customers in either the current or the previous
year from which the Group earns more than 10% of its revenues.
4. Dividends
Amounts recognised as distributions to equity holders in the
year are as follows:
2011 2010
GBP'000 GBP'000
============================================================================================== ======== ========
Final dividend paid for the year ended 31 December 2010 of 5.12 pence per share (2009: nil
pence per share) 8,776 -
---------------------------------------------------------------------------------------------- -------- --------
Interim dividend paid for the year ended 31 December 2011 of 2.42 pence per share (2010: 2.42
pence per share) 4,149 4,127
============================================================================================== ======== ========
Amounts recognised as distributions to equity holders in the period 12,925 4,127
============================================================================================== ======== ========
The Directors have not proposed a final dividend for the year
ended 31 December 2011. During 2011 the Directors proposed a final
dividend for the year ended 31 December 2010 of 5.12 pence per
share, which was not accrued as a liability as at 31 December 2010
in accordance with IAS 8.
5. 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.
Earnings
2011 2010
GBP'000 GBP'000
============================================================================= ======== ========
Earnings for the purposes of basic and diluted earnings per share 18,215 27,150
============================================================================= ======== ========
Legacy scheme share based payments (net of tax) 1,167 2,766
============================================================================= ======== ========
FSA associated costs (net of tax) 12,976 -
----------------------------------------------------------------------------- -------- --------
Exceptional amortisation of capitalised loan issue costs (net of tax) - 2,246
============================================================================= ======== ========
Earnings for the purposes of underlying basic and diluted earnings per share 32,358 32,162
============================================================================= ======== ========
Number of shares
Number Number
(thousands) (thousands)
========================================================================================== ============ ============
Weighted average number of ordinary shares for the purposes of basic earnings per share 171,210 166,278
------------------------------------------------------------------------------------------ ------------ ------------
Effect of dilutive potential ordinary shares: share options 787 3,114
========================================================================================== ============ ============
Weighted average number of ordinary shares for the purposes of diluted earnings per share 171,997 169,392
========================================================================================== ============ ============
2011 2010
Pence Pence
============================================================================ ====== ======
Basic and diluted earnings per share from continuing operations:
---------------------------------------------------------------------------- ------ ------
Basic 10.64 16.33
---------------------------------------------------------------------------- ------ ------
Diluted 10.59 16.03
---------------------------------------------------------------------------- ------ ------
Basic and diluted underlying earnings per share from continuing operations:
---------------------------------------------------------------------------- ------ ------
Basic 18.90 19.34
---------------------------------------------------------------------------- ------ ------
Diluted 18.81 18.99
============================================================================ ====== ======
6. Other intangible assets
Contractual
arrangements with Business Internally generated Externally acquired
third parties relationships software software Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
===================== =================== ==================== ==================== ==================== ========
Cost:
--------------------- ------------------- -------------------- -------------------- -------------------- --------
At 1 January 2010 4,744 2,118 12,159 13,393 32,414
--------------------- ------------------- -------------------- -------------------- -------------------- --------
Additions 8,109 - 2,344 2,821 13,274
--------------------- ------------------- -------------------- -------------------- -------------------- --------
Exchange
adjustments - - 6 (15) (9)
===================== =================== ==================== ==================== ==================== ========
At 1 January 2011 12,853 2,118 14,509 16,199 45,679
--------------------- ------------------- -------------------- -------------------- -------------------- --------
Additions 4,275 - 2,397 2,745 9,417
--------------------- ------------------- -------------------- -------------------- -------------------- --------
Disposals - - - (107) (107)
--------------------- ------------------- -------------------- -------------------- -------------------- --------
Exchange
adjustments - - - (16) (16)
===================== =================== ==================== ==================== ==================== ========
At 31 December 2011 17,128 2,118 16,906 18,821 54,973
===================== =================== ==================== ==================== ==================== ========
Accumulated
amortisation:
--------------------- ------------------- -------------------- -------------------- -------------------- --------
At 1 January 2010 355 - 7,804 8,529 16,688
--------------------- ------------------- -------------------- -------------------- -------------------- --------
Provided during the
year 2,714 158 2,068 1,989 6,929
--------------------- ------------------- -------------------- -------------------- -------------------- --------
Exchange
adjustments - - 4 3 7
===================== =================== ==================== ==================== ==================== ========
At 1 January 2011 3,069 158 9,876 10,521 23,624
--------------------- ------------------- -------------------- -------------------- -------------------- --------
Provided during the
year 3,663 478 2,425 2,284 8,850
--------------------- ------------------- -------------------- -------------------- -------------------- --------
Disposals - - - (107) (107)
--------------------- ------------------- -------------------- -------------------- -------------------- --------
Exchange
adjustments - - - (20) (20)
===================== =================== ==================== ==================== ==================== ========
At 31 December 2011 6,732 636 12,301 12,678 32,347
===================== =================== ==================== ==================== ==================== ========
Carrying amount:
--------------------- ------------------- -------------------- -------------------- -------------------- --------
At 31 December 2010 9,784 1,960 4,633 5,678 22,055
===================== =================== ==================== ==================== ==================== ========
At 31 December 2011 10,396 1,482 4,605 6,143 22,626
===================== =================== ==================== ==================== ==================== ========
7. Property, plant and equipment
Freehold land & Leasehold
property improvements Computer systems Furniture & equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
===================== ===================== ===================== ================ ===================== ========
Cost:
--------------------- --------------------- --------------------- ---------------- --------------------- --------
At 1 January 2010 7,278 5,534 26,332 6,920 46,064
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Additions - 92 4,489 390 4,971
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Disposals - - (3) - (3)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Exchange
adjustments - (192) (52) (22) (266)
===================== ===================== ===================== ================ ===================== ========
At 1 January 2011 7,278 5,434 30,766 7,288 50,766
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Additions - 235 1,771 429 2,435
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Disposals - (1) (1,969) (38) (2,008)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Exchange
adjustments - (18) (69) (52) (139)
===================== ===================== ===================== ================ ===================== ========
At 31 December 2011 7,278 5,650 30,499 7,627 51,054
===================== ===================== ===================== ================ ===================== ========
Accumulated
Depreciation:
--------------------- --------------------- --------------------- ---------------- --------------------- --------
At 1 January 2010 1,409 3,679 21,240 5,872 32,200
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Provided during the
year 213 196 2,446 378 3,233
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Disposals - - (3) - (3)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Exchange
adjustments - (33) (20) - (53)
===================== ===================== ===================== ================ ===================== ========
At 1 January 2011 1,622 3,842 23,663 6,250 35,377
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Provided during the
year 165 230 2,449 396 3,240
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Disposals - - (1,957) (38) (1,995)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Exchange
adjustments - (15) (18) (8) (41)
===================== ===================== ===================== ================ ===================== ========
At 31 December 2011 1,787 4,057 24,137 6,600 36,581
===================== ===================== ===================== ================ ===================== ========
Carrying amount
--------------------- --------------------- --------------------- ---------------- --------------------- --------
At 31 December 2010 5,656 1,592 7,103 1,038 15,389
===================== ===================== ===================== ================ ===================== ========
At 31 December 2011 5,491 1,593 6,362 1,027 14,473
===================== ===================== ===================== ================ ===================== ========
Included in freehold land and property is freehold land at its
cost value of GBP759,000 (2010: GBP759,000), which is not
depreciated.
8. Bank loans
The carrying value of the Group's financial liabilities, for
short term borrowings and long term borrowings, are as follows:
2011 2010
GBP'000 GBP'000
=================================== ======== ========
Repayments due within one year - -
----------------------------------- -------- --------
Less: unamortised issue costs - -
=================================== ======== ========
Bank loans due within one year - -
=================================== ======== ========
Repayments due outside of one year 43,500 28,000
----------------------------------- -------- --------
Less: unamortised issue costs (459) (801)
=================================== ======== ========
Bank loans due outside of one year 43,041 27,199
=================================== ======== ========
Analysis of repayments:
2011 2010
GBP'000 GBP'000
============================== ======== ========
Within one year - -
------------------------------ -------- --------
In the second year 43,500 -
------------------------------ -------- --------
In the third to fifth years - 28,000
============================== ======== ========
Total repayments 43,500 28,000
------------------------------ -------- --------
Less: unamortised issue costs (459) (801)
============================== ======== ========
Total carrying value 43,041 27,199
============================== ======== ========
The Group's bank debt is in the form of a Revolving Credit
Facility (RCF). The Group is entitled to roll over repayment of
amounts drawn down, subject to all amounts outstanding falling due
for repayment on expiry of the facility on 31 March 2013.
The RCF bears interest at a variable rate of LIBOR plus a
variable margin dependant 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.
At 31 December 2011 the Group had available GBP35.6 million
(2010: GBP51.1 million) of undrawn committed borrowing facilities
which expire in 2013 and on which all conditions precedent had been
met.
9. Provisions
Cash settled
share based FSA associated Cash settled FSA associated
payments costs Total share based costs Total
2011 2011 2011 payments 2010 2010 2010
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
================== ================= ================= ========== ================= ================= ==========
At 1 January 1,719 - 1,719 3,048 - 3,048
------------------ ----------------- ----------------- ---------- ----------------- ----------------- ----------
Charged to the
income
statement 72 16,892 16,964 464 - 464
------------------ ----------------- ----------------- ---------- ----------------- ----------------- ----------
FSA associated
costs paid in
the year - (2,114) (2,114) - - -
------------------ ----------------- ----------------- ---------- ----------------- ----------------- ----------
Loan notes
repaid in the
year (897) - (897) (1,793) - (1,793)
================== ================= ================= ========== ================= ================= ==========
At 31 December 894 14,778 15,672 1,719 - 1,719
================== ================= ================= ========== ================= ================= ==========
Provisions in respect of cash settled share based payments
represent loan notes issued by employees to the Group.
During the year the FSA carried out an investigation into
certain UK sales of the Group's Card Protection and Identity
Protection products, as described in the FSA investigation section
of this statement. Provision for FSA associated costs comprises
anticipated compensation payable to customers through a Past
Business Review in relation to these sales, regulatory penalties,
and other costs and professional fees associated with the
investigation and Past Business Review.
FSA associated costs are expected to be settled within two years
of the balance sheet date.
Provisions are expected to be settled in the following
periods:
Cash settled
share based FSA associated Cash settled share FSA associated
payments costs Total based payments costs Total
2011 2011 2011 2010 2010 2010
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=================== ================= ================== ======== ================== ================== ========
Within one year 894 10,499 11,393 860 - 860
------------------- ----------------- ------------------ -------- ------------------ ------------------ --------
Outside of one year - 4,279 4,279 859 - 859
=================== ================= ================== ======== ================== ================== ========
At 31 December 894 14,778 15,672 1,719 - 1,719
=================== ================= ================== ======== ================== ================== ========
10. Incorporation of a subsidiary
On 30 March 2011, I-Deal Promotions Limited (I-Deal) was
incorporated as a subsidiary of the Group, with 51% of the issued
share capital being held by the Group and the non-controlling
interest being held by members of its management team. I-Deal has
been established to provide current and new Business Partners with
promotions, incentive and loyalty programmes.
Since incorporation, I-Deal has contributed revenue of GBP0.3
million and losses after taxation of GBP0.3 million to the
consolidated income statement.
11. Share capital
2011
Number 2011 2010 2010
(Thousands) GBP'000 Number (Thousands) GBP'000
========================================================= ============ ======== =================== ========
Called-up and allotted: Ordinary Shares of 10 pence each
--------------------------------------------------------- ------------ -------- ------------------- --------
At 1 January 170,616 17,024 151,521 15,152
--------------------------------------------------------- ------------ -------- ------------------- --------
Issue of shares in connection with:
--------------------------------------------------------- ------------ -------- ------------------- --------
Incorporation of company - - 500 12
--------------------------------------------------------- ------------ -------- ------------------- --------
Initial Public Offering - - 12,766 1,277
--------------------------------------------------------- ------------ -------- ------------------- --------
Exercise of share options 814 82 5,829 583
========================================================= ============ ======== =================== ========
At 31 December 171,430 17,106 170,616 17,024
========================================================= ============ ======== =================== ========
During the year the Company issued 813,770 shares for total
consideration of GBP1,081,000. The Company was incorporated in
2010, and issued 500,000 ordinary shares on 11 February 2010 for
consideration of GBP12,000. Also in 2010 as part of a group
reconstruction, the Company issued 151,520,832 10 pence ordinary
shares to the shareholders of CPP Group Plc, the previous holding
company of the Group, in exchange for 100% of the issued share
capital of CPP Group Plc, without change to the identity or
relative rights of the ultimate shareholders of CPP Group Plc. In
accordance with the principles of merger accounting, the
consolidated financial statements presented the Group as if these
shares had been issued throughout the prior year.
The IPO offering represented a trigger event for vesting of the
Group's legacy 2005 and 2008 ESOP arrangements. During the year,
813,770 10 pence ordinary shares have been issued to option holders
for total consideration of GBP1,081,000.
Of the 171,429,503 ordinary shares issued at 31 December 2011,
170,929,504 are fully paid and 499,999 are partly paid.
The ordinary shares are entitled to the profits of the Company
which it may from time to time determine to distribute in respect
of any financial year or period.
All holders of ordinary shares shall have the right to attend
and vote at all general meetings of the Company. On a return of
assets on liquidation the assets (if any) remaining, after the
debts and liabilities of the Company and the costs of winding up
have been paid or allowed for, shall belong to, and be distributed
amongst, the holders of all the ordinary shares in proportion to
the number of such ordinary shares held by them respectively.
12. Reconciliation of operating cash flows
2011 2010
GBP'000 GBP'000
========================================================= ======== ========
Profit for the year 18,051 27,150
--------------------------------------------------------- -------- --------
Adjustment for:
--------------------------------------------------------- -------- --------
Depreciation and amortisation 12,090 10,162
--------------------------------------------------------- -------- --------
Equity settled share based payment expense 2,169 4,279
--------------------------------------------------------- -------- --------
Loss on disposal of property, plant and equipment 13 -
--------------------------------------------------------- -------- --------
Share of loss of joint venture 1,181 843
--------------------------------------------------------- -------- --------
Investment revenues (423) (341)
--------------------------------------------------------- -------- --------
Finance costs - non derivative instruments 1,795 5,482
--------------------------------------------------------- -------- --------
Income tax expense 10,255 12,604
========================================================= ======== ========
Operating cash flows before movements in working capital 45,131 60,179
--------------------------------------------------------- -------- --------
Increase in inventories (40) (130)
--------------------------------------------------------- -------- --------
Increase in receivables (770) (7,134)
--------------------------------------------------------- -------- --------
Increase in insurance assets (3,059) (7,441)
--------------------------------------------------------- -------- --------
Increase in payables 605 5,655
--------------------------------------------------------- -------- --------
(Decrease)/Increase in insurance liabilities (1,539) 1,420
--------------------------------------------------------- -------- --------
Increase in provisions 14,850 464
========================================================= ======== ========
Cash generated by operations 55,178 53,013
--------------------------------------------------------- -------- --------
Exercise of share options (1,059) (5,530)
--------------------------------------------------------- -------- --------
Income taxes paid (12,572) (9,121)
========================================================= ======== ========
Net cash from operating activities 41,547 38,362
========================================================= ======== ========
13. Contingent liabilities
Having regard to the disclosure in note 9, 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. Events after the balance sheet date
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. It has agreed to
make changes to its renewals process in order to highlight more
clearly to customers that they have the right not to renew the
products and to explain clearly the benefits and limitations of the
relevant product. It has also agreed to carry out Past Business
Review under FSA supervision of direct sales of its Card Protection
and Identity Protection products from 2005, and to offer
appropriate redress to customers. The agreement with the FSA is
detailed earlier in the statement within the FSA Investigation
section.
The anticipated impact of the above actions agreed with the FSA,
together with an estimate of regulatory penalties and professional
fees are included in the Group's provision of GBP14.8 million for
FSA associated costs in note 9.
On 12 March 2012 the Group confirmed that it was undertaking a
restructuring of its UK business with a voluntary redundancy
programme. This measure has been taken to align the UK cost base to
its revenue, and is expected to result in one-off redundancy costs
of approximately GBP3-4 million.
15. Related party transactions and control
Ultimate controlling party
The Group is controlled by the Company's majority shareholder,
Mr Hamish Ogston.
Transactions with associated undertakings
Transactions between the Group and its joint venture represent
related party transactions.
The Group has undertaken the following transactions with its
joint venture entity, Home 3:
2011 2010
GBP'000 GBP'000
=================================================== ======== ========
Costs rechargeable to Home 3 incurred by the Group 361 366
--------------------------------------------------- -------- --------
Balance receivable from Home 3 at 31 December 1,090 27
=================================================== ======== ========
Amounts receivable from Home 3 include GBP1,200,000 of
sub-ordinated loan notes which fall due for repayment on 29
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:
2011 2010
GBP'000 GBP'000
============================= ======== ========
Short term employee benefits 3,436 3,986
----------------------------- -------- --------
Post employment benefits 231 161
----------------------------- -------- --------
Termination benefits 142 240
----------------------------- -------- --------
Share based payments 1,153 2,871
============================= ======== ========
4,962 7,258
============================= ======== ========
Cautionary statement
This announcement has been prepared solely to provide additional
information to shareholders as a body to meet the relevant
requirements of the UK Listing Authority. The announcement should
not be relied on by any other party or for any other purpose.
The announcement 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
announcement 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, 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 announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR VQLFLLXFLBBE
Cppgroup (LSE:CPP)
Historical Stock Chart
From Sep 2024 to Oct 2024
Cppgroup (LSE:CPP)
Historical Stock Chart
From Oct 2023 to Oct 2024