CPPGroup plc Annual Report 2011

FY2011 Annual Report · CPPGroup plc
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Annual Report & Accounts 2011

FOCUSED ON CUSTOMER  
SERVICE WORLDWIDE

ABOUT CPP

CPPGroup Plc (CPP) is an International Assistance business operating across 16 geographical 
markets with more than 200 Business Partners worldwide. Via its Business Partners, CPP 
provides Life Assistance products that help consumers cope with the anxieties and complexities 
of everyday modern life. 

Today we are increasingly reliant on our payment cards and mobile phones, we travel more, value 
our free time, and we want to protect what is most valuable to us – at home and abroad. The loss 
or disruption of these life essentials can be inconvenient and stressful.

CPP’s annually renewed and packaged products provide assistance and insurance across a wide 
range of market sectors helping our customers to live life and worry less.

Contents

Group overview

Financial highlights & Group KPIs 

Our products and services 

Group at a glance 

Chairman’s statement 

Chief Executive Ofﬁcer’s review 

Key Performance Indicators 

Chief Operating Ofﬁcer’s review 

Operating review

Northern Europe 

Southern Europe and Latin America 

North America 

Asia Paciﬁc 

Financial review 

Corporate Social Responsibility 

For more information

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Governance

Board of Directors 

Group Executive Committee 

Group Operations Committee 

Directors’ report 

Statement of Directors’ responsibilities 

Corporate Governance statement 

Remuneration report 

Financial statements

Independent Auditor’s report 

Consolidated income statement 

Consolidated statement of  
comprehensive income 

Consolidated balance sheet 

Consolidated statement of  
changes in equity 

Consolidated cash ﬂow statement 

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44

Notes to the consolidated  
ﬁnancial statements 

Company balance sheet 

Notes to the Company  
ﬁnancial statements 

CPP ofﬁce addresses 

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Visit our new corporate  
website at  
www.cppgroupplc.com

 
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CPPGroup Plc Annual Report and Accounts 2011
GrOup Overview: Financial hiGhliGhts & GrOup Kpis

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Financial hiGhliGhts & GrOup Kpis

revenue

underlying operating profit

reported operating profit

£346.1m
+6%

(2010: £325.8m +12%)

£47.7m
(2)%

(2010: £48.7m +17%)

Group revenue has increased 6% from 2010,  
the result of growth in north america of  
19% and northern europe of 6% (although  
has been impacted by lost sales as a  
result of the Fsa investigation).

underlying operating profit which excludes  
legacy scheme share based payments  
and costs associated with the Fsa  
investigation has declined by 2%  
(1% decline on a constant  
currency basis). 

£29.7m
(34)%

(2010: £44.9m +44%)

 reported operating profit has declined 
 by 34%, a result of the £16.9 million costs 
associated with the Fsa investigation.

cash generated by operations

£55.2m
+4%

(2010: £53.0m (4)%)

cash generation continues  
to be strong.

Kpi
new assistance income

£85.5m
(3)%

(2010: £88.0m +10%)

Kpi
annual renewal rate

75.4% 
(0.5)%

(2010: 75.9% (1.6)%)

new assistance income has declined by 3%,  
a result of lower retail policy sales in the  
uK and spain. On a constant currency  
basis the decline is 1%.

the Group annual renewal rate is lower  
than prior year due to mix effects,  
the result of a higher proportion of  
renewals coming from countries  
with lower renewal rates.

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Kpi
live policies

11.0m
(2)%

(2010: 11.2m +12%)

Kpi
cost/income ratio

55%
+4%

(2010: 51% +3%)

Kpi
Operating profit margin

13.8%
(1.2)%

(2010: 15.0% +0.8%)

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the decrease of 2% during the year is  
the result of lower retail policies in the  
uK and spain, partially offset by the  
growth in uK packaged and  
wholesale policies. 

cost/income ratio has increased to 55%  
of revenue, predominantly reflecting the 
continued growth of our packaged  
account channels.

underlying operating profit as a percentage  
of revenue has declined by 1.2%  
as a result of revenue lost due to  
the Fsa investigation and uK  
operating costs.

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CPPGroup Plc Annual Report and Accounts 2011
GROUP OVERVIEW: OUR PRODUCTS AND SERVICES

OUR PRODUCTS AND SERVICES

Our offer – at a glance
CPP continues to diversify and broaden its 
portfolio of Life Assistance products that are 
distributed across multiple market sectors, 
which help our customers cope with the 
complexities and anxieties of modern life.

Over time we have increased the number  
of Life Assistance products we sell to our 
Business Partners’ customers. Card Protection 
was the ﬁrst product the Group introduced in 
the UK and it is now established in the majority 
of our international markets.

Other established products include Identity 
Protection, Phonesafe, Packaged Accounts, 
Purchase Shield and Legal Protection.

More recently we have introduced Airport 
Angel and Home 3, our joint venture with 
Mapfre Asistencia that provides home 
emergency assistance. We continue to explore 
new product opportunities that help consumers 
with their mobile and online experiences and 
have identiﬁed a number of ways to help 
consumers stay connected and feel safe.

Our customer contact centre operations 
support 11 million policies across Northern 
Europe, Southern Europe and Latin America, 
North America and Asia Paciﬁc.

Revenue from major products

£7.2m

£42.3m

£38.5m

Our products

Card Protection

Home 3

Report lost or stolen cards with one call from 
anywhere in the world. Key features include 
card cancellation and re-issue, emergency 
cash advance, protection for keys, valuable 
document replacement, handbag and wallet 
replacement.

Home emergency assistance for plumbing, 
drainage, gas, electrical and other home 
emergencies through our joint venture with 
Mapfre Asistencia. 

Identity Safe

Purchase Shield

Provides consumers with a comprehensive 
range of assistance services that help 
customers detect, prevent and resolve 
identity fraud. The key assistance features 
include a consultation with an identity fraud 
specialist to identify any immediate and  
long-term risks, web surveillance, unlimited 
access to credit reports and a dedicated 
fraud specialist to assist when a fraud has 
taken place. Should a consumer need to go 
to court in order to clear their name, they  
are provided with a dossier of evidence to 
support their case.

A product that protects purchases made  
by customers in the event of damage, 
non-returns or discounting of an item  
after purchase.

Legal Protection

Legal assistance to support consumers  
in a range of legal matters including 
tradesperson, retail purchase, boundary 
disputes, medical and personal injury  
claims, and employment matters.

Phonesafe

Airport Angel

Comprehensive insurance cover for mobile 
devices. Policies include cover for loss,  
theft, breakdown outside warranty and 
accidental damage.

A travel service that provides customers  
with access to more than 570 airport 
lounges in more than 320 airports worldwide 
with complimentary facilities such as food 
and drink, business facilities and a host of 
support services. 

(cid:79)  Retail assistance policies
(cid:79)  Retail insurance policies
(cid:79)  Packaged and Wholesale policies
(cid:79)  Non-policy revenues

£258.1m

Packaged Accounts

New Product Development

Products and services sourced from CPP’s 
own product range and from third-party 
providers to create a ‘package’ tailored to 
customers’ requirements. Products and 
services can range from roadside assistance 
to travel insurance and are primarily used in 
current/checking accounts.

CPP is committed to product development 
and innovation, which has seen the Group 
change from being a Card Protection 
business to a provider of Life Assistance 
products and services. Our new product 
development activity focuses on key themes 
which add considerable value and assistance 
to consumers’ lives. In addition to mobile 
and online assistance, we are developing 
new product concepts covering the areas  
of the family and the home.

 
CPPGroup Plc Annual Report and Accounts 2011

3

Some of our main Business Partners

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Our business model
CPP operates a business-to-business-to-
consumer (B2B2C) business model.  
This proven model operates across 16 
geographical markets, with CPP distributing 
and servicing products and packages with  
our Business Partners’ customers.

Consumers beneﬁt from the provision of  
Life Assistance products designed to make 
everyday life less stressful. Our products  
are typically distributed in association with 
Business Partners in three formats: retail, 
wholesale and packages.

Retail products, which are presented on  
a white label or co-branded basis, offer 
customers relevant features and beneﬁts for  
an annual price, with policies renewable on an 
annual basis. Business Partners beneﬁt from 
acquisition and renewal commission payments 
and proﬁt share in some circumstances, as well 
as product, sales, policy administration, claims 
management and customer service expertise. 

Wholesale variants of our retail products are 
offered to Business Partners who wish to  
offer their customers inclusive and enhanced 
beneﬁts to their core product or service.  
These are funded by the partner, with 
commercial terms based on volume and 
redemption assumptions. 

With Packaged Accounts, CPP designs 
packages to meet Business Partner needs, 
based on customer insight and commercial 
requirements. In addition to in-house products, 
CPP also contracts with third-party product 
providers and manages key aspects of the 
Packaged Account administration.

Business Partner relationships
In addition to providing a portfolio of retail, 
wholesale and packaged products to Business 
Partners, CPP offers a range of support 
services that add value to our Business Partner 
relationships. These services include product 
development and marketing expertise, channel 
management, fraud management, technology 
developments, training support, legal and 
compliance, research and analytics. 

Business Partner relationships, many of  
which are long-standing, are managed through 
specialist Account Management teams, 
ensuring comprehensive understanding of 
Business Partners’ and end-consumers’ needs.

 
 
 
 
 
 
 
 
 
 
 
4

CPPGroup Plc Annual Report and Accounts 2011
GROUP OVERVIEW: GROUP AT A GLANCE

GROUP AT A GLANCE

CPP has targeted its geographical expansion 
with increased focus on key developing 
markets such as Brazil, China, India, Mexico 
and Turkey. Countries are selected according  
to speciﬁc criteria, such as where the existing 
and expected growth in bankable population, 
mobile phone penetration and plastic cards 
presents a signiﬁcant and sustainable growth 
opportunity, as well as the extent to which  
the Group may be able to leverage existing 
Business Partner relationships.

CPP Northern Europe
The increasing reliance by consumers  
on plastic cards as their dominant means of 
payment means that Northern Europe will 
remain important to CPP. The increasing use 
of pre-paid cards and debit cards indicates 
continued market potential with nearly 90 
million debit cards in the UK alone.

Revenue contribution

Underlying 
operating proﬁt

£33.6m

£249.5m

CPP Southern Europe 
and Latin America
Sovereign debt issues have impacted 
heavily on the Southern European region: 
however, economic forecasts in Latin 
America are more promising. All markets 
are forecasted to have modest population 
growth and increased debit and credit 
card usage. Southern Europe and Latin 
America had 505 million cards with  
debit functionality in 2011.

CPP North America
Access to the largest consumer market 
and the large number of credit and debit 
cards in circulation – 540 and 404 million 
respectively – means the United States is 
a signiﬁcant market opportunity. Concerns 
about card fraud and identity theft remain 
a real issue in the United States.

CPP Asia Paciﬁc
The increasing penetration of ﬁnancial 
cards, especially in India and China, 
makes this region a key geographical 
market. Demand for ﬁnancial cards is 
expected to show modest growth and 
increased levels of afﬂuence point 
towards strong market potential.

(cid:79)  Northern Europe
(cid:79)  Rest of group

Revenue contribution

Operating proﬁt

£10.6m

£44.4m

(cid:79)  Southern Europe and 
  Latin America
(cid:79)  Rest of group

Revenue contribution

Operating proﬁt

£6.9m

£45.8m

(cid:79)  North America
(cid:79)  Rest of group

Revenue contribution

Operating loss

£(2.2)m

£6.5m

(cid:79)  Asia Paciﬁc
(cid:79)  Rest of group

CPPGroup Plc Annual Report and Accounts 2011

5

Products and services

Key business partners

Where we operate
Key business partners

Card Protection

Identity Safe

Mobile Phone Insurance

Packaged Accounts

Airport Angel

Santander

DZ WGZ Bank

HSBC

T-Mobile

Royal Bank of Scotland Group

Home 3 Joint Venture

DenizBank

Your Law

Altrincham

York

Chesterﬁeld

Dublin

Tamworth

Hamburg

Istanbul

Paris

Milan

Lisbon Madrid

Sao Paulo

Minneapolis

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Shanghai

New Delhi

Hong Kong

Kuala Lumpur

Singapore
Singapore

Products and services

Key business partners

Where we operate
Where we operate

Card Protection

Identity Protection

Banco Santander

Banco Sabadell

Mobile Phone Insurance

Caixa Geral de Depósitos

Mexico City

Legal Protection

Gadget Insurance

Airport Angel

Diners International

Deutsche Bank

IXE Tarjetas

HSBC

Products and services

Key business partners

Where we operate
Where we operate

IdentityProtector

Sage 365

Lifestyle Perks

PurchaseShield 360

eDefence

Sovereign Bank

Barclaycard

Alliance Data Systems

Wells Fargo Wachovia

Products and services

Key business partners

Where we operate
Where we operate

Card Protection

Identity Protection

China Guangfa Bank

SBI Cards

HSBC

Maybank

Standard Chartered

ICICI

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6

CPPGroup Plc Annual Report and Accounts 2011
GROUP OVERVIEW: GROUP AT A GLANCE CONTINUED

10 year company history – Revenue by region (£’m)

Operational highlights

 –  Northern Europe 

Performance has been 
resilient under what have been 
challenging circumstances.

346

 –  Southern Europe and Latin 

America Economic 
challenges, compounded by 
market sentiment around the 
Euro, have had an impact on 
our business, particularly  
in Spain.

 –  North America A successful 
2011 with revenue and proﬁt 
up signiﬁcantly, including 
increased customer 
acquisition of products  
across our Business  
Partner portfolio.

 –  Asia Paciﬁc New focus  

and vigour to the leadership 
of this region, which  
should result in improved 
future performance.

5 year revenue compound 
annual growth rate

11.8%

5 year EBITDA compound 
annual growth rate

19.1%

225

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39

198

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30

31

168

151

30

132

14
8

30

15

105

4

101

110

106

21

117

156

136

7

46

44

326

6

38

47

249

235

292

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35

47

259

3

30

45

205

181

12

14

12

19

25

33

41

50

59

60

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(cid:81) EBITDA
(cid:81) Northern Europe
(cid:81) Southern Europe
(cid:81) North America
(cid:81) Asia Paciﬁc

Notes
1.  EBITDA is deﬁned as earnings before interest, tax, depreciation, amortisation, legacy share based payments and 

costs associated with the FSA investigation.

2.  US 2003 revenue represents ﬁve months from acquisition.
3.  Financial information from 2007 is IFRS; prior to 2007 all data is UK GAAP.

 
CPPGroup Plc Annual Report and Accounts 2011
GROUP OVERVIEW: CHAIRMAN’S STATEMENT

7

CHAIRMAN’S STATEMENT

“ It has been a difﬁcult year for the Group, 
but we remain committed to providing  
our customers with products and services 
that give them real value and at a price that 
is affordable.”
Charles Gregson
Chairman

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 and which 
are by no means insigniﬁcant.

We have continued to expand the Group’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.

Nevertheless, the announcement to the  
market of the FSA investigation in March 2011 
represented the ﬁrst in a chain of events and 
announcements leading ultimately to the 

suspension of trading in the Group’s shares  
in February 2012. This is the point at which 
changes to the renewal process and Past 
Business Review (PBR) required by the FSA 
became known. The FSA’s investigation and 
identiﬁcation of practices below the required 
standard is of course a deeply regrettable chapter 
in the development of the Group. It has absorbed 
a signiﬁcant amount of resource, with both 
operational and administrative management in 
the UK dedicating signiﬁcant time and effort  
to satisfying the FSA’s requests for information 
and co-operating with the FSA on all aspects of 
the investigation; this has inevitably impacted 
adversely on the performance of the business.

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 to 
replace Eric Woolley. 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 not only that are we compliant with new 
rules and regulations in so far as they relate to 
sales of ﬁnancial products to the consumer, but 
also that we are able to meet the current and 
anticipated requirements of regulators in all of  
the jurisdictions in which we operate.

To comply with the changes in the UK Corporate 
Governance Code we have separated the 
functions of Audit and Risk into two separate 
committees with Les Owen continuing to chair 
the Audit Committee and Duncan McIntyre 
chairing the new Risk and Compliance 

Committee. We have also established  
a Governance Committee to ensure that  
we are fully compliant with all the rules  
and regulations of those organisations who 
supervise our business formally and informally 
around the world.

With regard to the UK Corporate Governance 
Code we have not complied with the requirement 
to appoint a Senior Independent Director; with 
some 75% of the Company’s shares owned  
by two investors and the uncertainties created  
by the FSA investigation, we do not feel that  
it is appropriate to do so. We have noted the 
recommendations of the Davies Committee 
regarding the appointment of women  
to the Boards of listed companies in the UK. 
However, we believe that diversity rather than 
gender should be the criterion and furthermore 
that relevant experience is more important than 
gender or diversity. I strongly believe that  
we have a Board that is ‘ﬁt for purpose’, but  
will continue to keep this under review.  
An independent evaluation of the Board was 
carried out during 2011 and its recommendations 
are currently being implemented. The evaluation 
identiﬁed no major issues with regard to the 
performance of the Board.

In conclusion, as I said at the beginning of  
this statement, it has been a difﬁcult year for  
the Group, but we remain committed to providing  
our customers with products and services that 
give them real value and at a price that is 
affordable. We also intend to be at the forefront 
of our competitors in providing a level of 
customer service that is unequalled in our 
industry. Finally for you, our shareholders,  
we are determined to rebuild conﬁdence in  
the Group’s business model to a level at least 
comparable with the resolute trust that millions  
of satisﬁed customers have in our products and 
services across all our geographical markets.

Charles Gregson
Chairman

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CPPGroup Plc Annual Report and Accounts 2011
GROUP OVERVIEW: CHIEF EXECUTIVE OFFICER’S REVIEW

CHIEF EXECUTIVE OFFICER’S REVIEW

“ The sense of team spirit I observe  
within the 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.”

Paul Stobart
Chief Executive Ofﬁcer

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 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, it 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 £15 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  
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. 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. 

Financial results
I am pleased to report that CPP has delivered 
good revenue growth in 2011, notwithstanding 
the difﬁculties caused by the disruption from 
the FSA investigation. For the year as a whole, 
Group revenue is up 6%, although underlying 
operating proﬁt is down 2%.

New assistance income decreased in the year 
by 3% from £88.0 million to £85.5 million, in 
large part as a result of lower sales of our retail 
policies in the UK and Spain. The decline in the 
UK was a direct result of the lower level of 
retail sales following the cessation of sales of 
the insured Identity Protection product in UK 
voice channels from March 2011. In Spain, the 
difﬁcult economic environment has continued 
to affect sales of new policies. Our total live 
policy base has decreased 2% during the year 
and now totals 11.0 million. 

Our blended renewal rate was 75.4% at the 
end of December 2011, marginally lower than 
in 2010 (75.9%). However, our renewal rate 
calculated on a constant country mix compared 
to December 2010 would be 76.0%. The 
marginal decline in renewal rate is due to the 
increase in the proportion of our live policy 
base from lower renewal markets. These 
markets include our newer markets where  
the renewal model is less established. 

Our cost/income ratio, representing cost  
of sales (excluding commission) and other 
administrative expenses as a percentage  
of revenue, has increased 4% to 55%.  
This increase is largely due to the growth  
of our UK Packaged Accounts business,  
which generally has a lower revenue  
per policy and higher direct costs. 

Finally, our operating proﬁt margin has 
decreased from 15.0% in 2010 to 13.8%  
due to the impact of lost Identity Protection 
sales in the UK market and higher UK  
operating costs. This has been partially  
offset by improvements to operating  
margins in Germany, Turkey and Spain.

CPPGroup Plc Annual Report and Accounts 2011

9

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Key priorities 

 –  Ensure that the agreement we 
have reached with the FSA  
is effected to the satisfaction  
of all stakeholders

service propositions that  
will drive our future success, 
especially in the online, mobile 
and social media markets

 –  Shift our culture and operating 

model to one of growth  
through customer-centricity, 
supported by strengthened 
management discipline and 
enhanced governance

 –  Encourage our product 

marketing people to use  
their creativity and ﬂair to 
develop the product and  

 – Ensure our investments in the 
emerging markets of China, 
India, Turkey, Mexico and Brazil  
take full advantage of the 
signiﬁcant growth opportunities

 – Do everything we can to retain 
and recruit the talent we need, 
at all levels, to deliver our 
future success

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.

5
1
–
9
5

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 

i

F
n
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a

i

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s
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s

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 

 
 
 
 
 
 
 
 
 
 
 
10 CPPGroup Plc Annual Report and Accounts 2011

GROUP OVERVIEW: CHIEF EXECUTIVE OFFICER’S REVIEW CONTINUED

“ We are well placed to make the most  

of our longer-term opportunities, building  
on our strengths as a multi-product,  
multi-geography, multi-channel business 
with specialist product marketing expertise.”

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 to advise us on how we meet or exceed 
customer-facing business standards demanded 
by our obligations as a regulated ﬁrm, and the  
second to advise 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 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.

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, importantly, 
our contract with T-Mobile has been extended  
to September 2012.

In Southern Europe the economic challenges, 
compounded by market sentiment around the 
Euro, have undoubtedly had an impact on our 
business, particularly in Spain, where we have 
seen revenue decline. Conversely, our main 
Latin American market, Mexico, reported  
good growth and 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, 
including increased customer acquisition of 
products across our Business Partner portfolio.

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. We are working hard in  
both these markets to drive both signiﬁcant 
revenue growth and an appropriate return  
on investment.

Key priorities
I am still early in my tenure at CPP, yet I have 
identiﬁed ﬁve key priorities. The ﬁrst, and most 
immediate, is to ensure that the agreement 
with the FSA is effected to the satisfaction  
of all stakeholders. The second is to shift our 
culture and operating model to one of growth 
through customer-centricity, supported by 
strengthened management discipline and 
enhanced governance. Thirdly, I want to  
see our product marketing people be more 
encouraged to use their creativity and ﬂair to 
develop the product and service propositions 
that will drive our future success, and I want  
to see a particular focus, going forward, in  
our product and service thinking on the online, 
mobile and social media markets. Fourthly,  
focus on ensuring our investments in the 
emerging markets of China, India, Turkey, 
Mexico and Brazil take full advantage of the 
signiﬁcant growth opportunities. The ﬁfth 
priority is to do everything we can, at a  
difﬁcult time for the Group, to retain, and  
in some areas recruit, the talent we need,  
at all levels, to deliver our future success.

Outlook
The year to December 2011 has been a  
difﬁcult period for the Group. Much has  
been learned, and much needs to change. 
However, the longer-term opportunities remain 
considerable, and we are well placed to make 
the most of these, building on our strengths  
as a multi-product, multi-geography, multi-
channel business with specialist product 
marketing expertise.

Finally, I would like to thank the people of  
CPP for their unwavering support, loyalty and 
commitment. It is through the efforts of the 
many people at CPP that, notwithstanding the 
disruptions to our business during the year, we 
were able to deliver the 2011 ﬁnancial results.  
I am personally very grateful to each and every 
one of our people for their contributions this 
year and I look forward to working with them  
in the years to come.

Paul Stobart
Chief Executive Ofﬁcer

CPPGroup Plc Annual Report and Accounts 2011
GROUP OVERVIEW: KEY PERFORMANCE INDICATORS

11

KEY PERFORMANCE INDICATORS

KPIs 
We use Key Performance Indicators to  
manage performance and growth of our 
business, reﬂecting the importance of  
both acquiring and retaining customers  
and effective control over our cost base.

New assistance income

Annual renewal rate

%
5
7.
7

%
9
.
5
7

%
4
.
5
7

m
0
.
8
8

m
5
.
5
8

m
3
.
0
8

Deﬁnition
Revenue from customers 
of assistance products 
within one year from the 
customer being acquired.

Performance 
The 3% decline in new 
assistance income (1% 
decline on a constant 
currency basis) results 
from lower retail policy 
recruitment in the UK  
and Spain partially offset 
by increases in North 
America and Packaged 
Accounts in the UK.

9
0
0
2

0
1
0
2

1
1
0
2

9
0
0
2

0
1
0
2

1
1
0
2

Deﬁnition
The net amount of annual 
retail policies remaining 
on book after the 
scheduled renewal date, 
as a proportion of those 
available to renew.

Performance 
The annual renewal rate 
for 2011 has declined by 
0.5% since December 
2010. This reﬂects a 
reduction in renewal rates 
in the UK and a higher 
proportion of renewals 
coming from countries 
with lower renewal rates 
such as North America 
and newer markets.  
On a constant country 
mix basis compared to 
2010 the renewal rate 
would be 76.0%.

1

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Live policies

Cost/income ratio

Operating proﬁt margin

m
2
.
1
1

m
0
.
1
1

m
0
.
0
1

Deﬁnition
Total number of policies 
which are live on Group 
policy databases.

Performance
The live policy base 
is lower than December 
2010 due to lower retail 
recruitment in the UK  
and Spain partially  
offset by higher  
Packaged Accounts  
and wholesale volumes. 

%
5
5

%
1
5

%
8
4

Deﬁnition
Cost of sales (excluding 
commission), and other 
administrative expenses 
as a percentage  
of revenue.

Performance
Our cost/income ratio has 
increased by 4% year on 
year largely due to factors 
affecting the UK including 
the growth of Packaged 
Accounts which have a 
lower revenue per policy 
but higher direct costs.

%
0
.
5
1

%
2
.
4
1

%
8
.
3
1

Deﬁnition
Operating proﬁt before 
legacy scheme share 
based payments and  
costs associated with  
the FSA investigation as 
a percentage of revenue.

Performance 
Operating proﬁt has 
declined year on year  
due to the lost revenues 
as a result of the FSA 
investigation and 
increased UK operating 
costs which are in  
part due to the  
increased costs of 
regulatory compliance.

5
1
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9
5

9
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0
2

0
1
0
2

1
1
0
2

9
0
0
2

0
1
0
2

1
1
0
2

9
0
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1
1
0
2

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12 CPPGroup Plc Annual Report and Accounts 2011

GROUP OVERVIEW: CHIEF OPERATING OFFICER’S REVIEW 

CHIEF OPERATING OFFICER’S REVIEW

“ The progress we have made in 2011  
is encouraging. The actions we have  
taken will create a more customer-centric 
organisation that will help the Group  
move forward with added conﬁdence, 
clarity and certainty.”

Stephen Kennedy
Chief Operating Ofﬁcer

2011 has been a challenging year for CPP and 
for many of our employees, especially in the UK. 
Nevertheless we have made progress across  
the Group. 

Operationally we have made great strides in 
improving our internal processes to demonstrate 
we have a true customer-centric culture that will 
provide a solid platform for future growth. We are 
very cognisant of the need to make sure that  
our sales processes are as robust as our proven 
service operations, which help thousands of 
anxious customers with lost payment cards, 
stolen identities, stressful legal disputes and  
lost and stolen mobile phones. 

It is our absolute priority that we focus our efforts 
on improving the entire customer experience  
and the Company’s fulﬁlment of all its promises. 
The continued development of our people 
remains a priority and will help us achieve this.  
In the UK, the business implemented a leadership 
programme called ‘developing a leadership 
mindset’ that inspired managers to get the best 
out of their teams and orientate all our people 
behind our strategic ambitions and our common 
purpose. It is this investment that will help CPP 
improve its performance, increase productivity 
and deliver improved bottom line results.

If we look towards our regions, our performance 
across Northern Europe in 2011 was robust, 
despite the uncertain economic environment, 
helped by our resilient customer base and the 
growth of our Mobile Phone Insurance business 
in the UK. In addition, our UK Packaged Accounts 
business has performed well and seen us work 
closely with Santander and RBS Group. 
Notwithstanding these successes, Barclaycard 
suspended new sales to their UK-based 
customers through their call to conﬁrm channel 
after announcement of the FSA investigation in 
March 2011 and, following their normal tender 
process, will not renew their contract when this 
expires on 31 March 2012. In Turkey, revenue  
and proﬁt are up in this growing economy with 
renewal rates improving and new Business 
Partners signed.

Revenue has increased 7% in this region  
although operating proﬁt for this region is  
5% lower, impacted by lost retail income and  
reduced operating efﬁciency as a result of the  
FSA investigation.

Across Southern Europe and Latin America,  
the picture is more mixed. Revenue across the 
region has decreased 7%. The continued difﬁcult 
economic situation in the Eurozone has affected 
our trading performance through higher 
unemployment and lower amounts of disposable 
income. Despite this we have entered into new 
relationships with some major banks including 
Banca Banesto, which is the ﬁfth largest banking 
group in Spain and owned by Banco Santander 
and Caixa Geral de Depósitos (CDG), a state-
owned banking corporation and the largest bank 
in Portugal.

Our Mexican operation has continued to make 
good progress with strong revenue and proﬁt 
growth as this market becomes established.  
As our business matures, it is encouraging to see 
our renewal rates improve and margins increase. 
Elsewhere in Latin America, we are pleased to 
have commenced sales of Card Protection in 
Brazil where we consider the opportunity for 
growth signiﬁcant. This is based on a large 
bankable population that totals 134 million adults 
with more than 700 million ﬁnancial cards in 
circulation. Brazil also has over 191 million mobile 
phone subscriptions.

Our newer markets in Latin America are a good 
example of how we are leveraging our existing 
international Business Partners such as Santander, 
HSBC and the RBS Group to launch in new 
markets. Not only does this accelerate our  
entry plans, but it gives us additional conﬁdence 
having succeeded in other markets with  
the same proven products and Business  
Partner relationships.

In North America, our performance has been 
excellent. Revenue is up 24% and proﬁt is up 
21% as we have focused on managing our 
renewal income and developed relationships  
with Business Partners whose customers 
typically choose to retain their products for longer. 
Growth has been helped by an increase in the 
number of customers acquiring our retail products 
and renewal rates that have increased. I am also 
pleased we have launched Packaged Accounts in 
this market with Citizens Financial Group, Inc. The 
United States, with a population of 312 million and 
1.8 billion ﬁnancial cards in use, remains a very 
important market for CPP, with all the ingredients 
for long-term success.

China and India offer signiﬁcant opportunities  
for long-term growth in our Asia Paciﬁc region.  
In India we continue to make good progress.  
A new Business Partner relationship has been 
signed with SBI Cards, a joint venture between, 
the State Bank of India, the largest Indian banking 
and ﬁnancial services company and GE Money, as 
well as expanding our presence in the debit card 
market with ICICI Bank and Kotak Bank. I am 
delighted that India has seen an increase in 
revenue, underlying operating proﬁt, new sales, 
renewals and margins. 

In China, although we are in the early stages  
of development, revenue is up strongly. Good 
progress has been made and I am conﬁdent  
we will continue to grow our customer volumes 
and Business Partner relationships in this rapidly 
developing economy. With over 3 billion ﬁnancial 
cards in circulation in this country alone and over 
900 million mobile phone subscriptions, the 
potential for growth is huge and we are working 
hard to maximise these opportunities as we 
increasingly understand how to do business  
in this economic superpower.

Elsewhere in this region, notably Hong Kong and 
Malaysia, regulatory challenges persist in affecting 
our performance, but we continue to work hard  
to overcome these issues.

In conclusion, the progress we have made in 2011 
is encouraging. The actions we have taken will 
create a more customer-centric organisation that 
will help the Group move forward with added 
conﬁdence, clarity and certainty. We will continue 
to deliver products that meet our customers’ 
expectations and everyday needs. I am conﬁdent 
in our ability to deliver sustained growth and 
believe there are signiﬁcant opportunities to  
grow the business across all of our geographical 
markets. I am also looking forward to working 
with my colleagues across the Group to make 
CPP a more rewarding place for our people to 
work in order to deliver substantial value for our 
customers and investors.

Stephen Kennedy
Chief Operating Ofﬁcer

Note: All growth percentages are stated on constant  
currency basis.

 
CPPGroup Plc Annual Report and Accounts 2011
OPERATING REVIEW

13

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OPERATING 
REVIEW

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14 CPPGroup Plc Annual Report and Accounts 2011

OPERATING REVIEW: NORTHERN EUROPE

NORTHERN EUROPE

Mike Kneafsey
Managing Director UK and Ireland

Northern Europe consists of 
four geographical markets  
and contributes 72% of Group 
revenue. These geographical 
markets are the UK, Ireland, 
Germany and Turkey.

The UK is CPP’s most 
established market having been 
founded in 1980. Our Irish 
business was established in 
1993. Germany was launched  
in 1991 and Turkey started 
operations in 2007.

Regional highlights

Financial performance

Revenue
Operating proﬁt

Key operating highlights

2011 
£’m
249.5
33.6

2010 
£’m
234.9
35.6

Growth
6%
(6)%

Organic, constant 
currency growth
7%
(5)%

 – UK revenue has grown 6% through Packaged Account sales with Santander and RBS 

Group as well as a strong Mobile Phone Insurance performance

 – Revenue diversiﬁcation via the provision of Airport Angel to new Business Partners

 – Strong revenue and proﬁt performance in Turkey and continued preparations to launch 

Identity Protection

Our products

 – Card Protection

 – Identity Safe

 – Mobile Phone Insurance

 –  Packaged Accounts

 – Airport Angel

 – Home 3 joint venture

 – Your Law

Strategy for future growth

 – Increased Card Protection volumes and focus on renewal income

 – Launching non-insured Identity Safe with key Business Partners

 – Building scale and Business Partner diversiﬁcation in Packaged Accounts

 – Volume growth for Airport Angel

 – Building Card Protection volumes in Germany and Turkey and launching Identity Protection

Key economic and market indicators*

Region/country
UK
Ireland
Germany
Turkey

* Source: Euromonitor.

Population 
(m)
62.3
4.5
81.4
73.3

Bankable 
population 18+ 
(m)
49.2
3.4
68.2
51.0

GDP  

(% real growth)
1.1
1.1
2.7
7.2

Financial cards  
in circulation 
(m)
228.3
9.2
242.9
142.5

Number of 
mobile 
subscriptions 
(m)
84.6
5.4
111.1
71.1

CPPGroup Plc Annual Report and Accounts 2011

15

Northern Europe, which represents 72% of 
Group revenue, has seen revenue increase  
to £249.5 million (2010: £234.9 million), an 
increase of 7% on a constant currency basis. 
The investigation by the FSA into certain issues 
surrounding the sale of the Group’s Card 
Protection and Identity Protection products  
in the UK, and the suspension of Identity 
Protection sales in the UK’s voice channels,  
has adversely impacted revenue growth.

Operating profit for this region of £33.6 million 
(2010: £35.6 million) is 5% lower than 2010  
on a constant currency basis. This has been 
impacted by lost retail income and reduced 
operating efficiency as a result of the FSA 
investigation.

UK
Despite a difficult trading year, the UK business 
reported revenue growth of 6%. This was  
lower than 2010 and was adversely affected  
by the FSA investigation into certain issues 
surrounding the sale of Card Protection and 
Identity Protection. Although an agreement  
has been reached with the FSA the 
investigation has had a material impact on the 
Group’s ability to sell its full range of products 
in the UK including our new non-insured 
Identity Safe product. Operating profit in the 
UK is lower, largely due to lost retail income 
and reduced operating efficiency.

Elsewhere our Packaged Accounts business 
has continued to perform well 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 of our 
insurance covering iPhones are up strongly  
as more customers opt to protect their 
smartphones. This shift towards insuring 
higher-end handsets has increased average 

Revenue growth performance by quarter

%
7
1

%
8

%
5

)

%
3
(

Q1

Q2

Q3

Q4

Regional trends 2011

UK

Ireland

Germany

Turkey

Underlying 
operating 
profit

Revenue

New sales

Renewal 
rates

Margins


























 Increase 

 Level  Decrease

premiums and helped drive mobile revenue. 
Customers are also retaining their insurance  
for longer given the increasing contract length 
and choosing to protect higher-value handsets.

As part of our diversification strategy our  
airport lounge access business has continued 
to work with Diners International. We now  
have 339 airport lounges, servicing around 
24,000 Diners members each month.

2011 also saw us launch a promotional 
marketing business, I-Deal Promotions  
Limited (I-Deal) that will work with our 
Business Partners and other major brands  
to support their acquisition, retention and 
loyalty marketing strategies.

Ireland
Ireland has delivered promising revenue  
growth despite its economy being impacted  
by the Eurozone sovereign debt crisis.

We continue to work closely with Meteor 
Mobile and the Bank of Ireland. With Meteor 
Mobile our Mobile Phone Insurance business 
continuing to perform in line with expectations. 
I-Deal, our promotional marketing business,  
has developed a promotional offer for Meteor 
Mobile. In addition, Bank of Ireland rolled their 
contract forward during 2011.

Germany
Our performance in the Eurozone’s largest 
economy has been encouraging. Revenue  
has increased as we have implemented our 
growth plans.

Our focus on building telemarketing volumes 
and our live policy base, via our card safe 
receipt channel, is progressing with a number 
of Business Partners. Two card re-issue 
programmes were managed on behalf of 
Barclaycard and Valovis in the first half of the 
year and we continue to work with DZ Bank 
AG, the fourth largest bank in Germany, and 
WGZ Bank, the umbrella institution for more 
than 1,100 co-operative banks and co-operative 
financial institutions in this country. 

Turkey
Turkey has had an encouraging 2011 with 
revenue and profit increasing in this growing 
economy. Our Turkish business is developing 
well as our renewal book increases and 
renewal rates improve. Our commitment to 
cost management is also helping to drive 
operational efficiency.

In November, after four successful years, 
DenizBank renewed its relationship with  
CPP to continue sales of Card Protection. 
DenizBank was our first Business Partner in 
Turkey. As previously reported in our half year 
report, our contract with Akbank expired in 
August following their decision to in-source 
new Card Protection sales. We will continue  
to renew existing policies until 2013. 

To increase the market penetration of Card 
Protection, we were pleased to sign two  
new Business Partners, Eurobank Tekfen  
and Anadolubank, in 2011.

Home 3
Building on previous Business Partner wins 
including the AA, our Home 3 joint venture  
with Spanish insurer, Mapfre Asistencia, won  
a contract to service part of ScottishPower’s 
HomeComfort customer base, with a  
number of customers transferring to  
Home 3 in September. 

Outlook
Our Northern Europe region has had a 
challenging 2011 and, although an agreement 
with the FSA has been reached, the region  
will continue to be affected through lost sales 
and ongoing costs. 

Our plans to diversify revenue through new 
sectors and channels will continue in line with 
our business plan.

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16 CPPGroup Plc Annual Report and Accounts 2011

OPERATING REVIEW: SOUTHERN EUROPE AND LATIN AMERICA

SOUTHERN EUROPE AND LATIN AMERICA

Angel de Leon
Regional Managing Director

Southern Europe and Latin 
America consists of six 
geographical markets and 
contributes 13% of Group 
revenue. These geographical 
markets are Spain, Portugal, 
France, Italy, Mexico and Brazil.

Spain is the most established 
business having launched in 
1995. Our Portuguese business 
was established in 2000, after 
which Italy and France began 
operations in 2001 and 2003 
respectively. Mexico launched 
operations in 2009. Brazil is the 
latest addition to Latin America 
having started operations in 
December 2011.

Regional highlights

Financial Performance

Revenue
Operating proﬁt

Key operating highlights

2011 
£’m
44.4
10.6

2010 
£’m
46.7
10.5

Growth
(5)%
2%

Organic, constant 
currency growth
(7)%
0%

 – Revenue was broadly maintained in our Southern European markets with the exception  

of Spain

 – Revenue in our Spanish market fell 12% on a constant currency basis, adversely affected 

by economic uncertainty

 – Revenue and proﬁt performance in Mexico continues to reﬂect new Business Partner 

relationships and the introduction of new product and sales channels with  
existing partners

 – Launched into the Brazilian market through a direct-to-consumer sales channel

Our products

 – Card Protection

 – Identity Protection

 – Mobile Phone Insurance

 – Legal Protection/Legal Assistance

 – Gadget Insurance

 – Airport Angel

Strategy for future growth

 – Secure new Business Partner contracts to drive Card Protection volumes

 – Implement planned product upgrades and price increases on the renewal book

 – Develop and grow Identity Protection

 – Develop and expand Airport Angel

 – Expand card activation and inbound telemarketing

Key economic and market indicators*

Region/country
Spain
Portugal
France
Italy
Mexico
Brazil

* Source: Euromonitor.

Population 
(m)
46.2
10.6
63.1
60.7
110.2
192.2

Bankable 
population 18+ 
(m)
37.9
8.6
49.3
50.3
73.8
134.2

GDP  

(% real growth)
0.8
(1.9)
1.7
0.6
3.8
3.8

Financial cards  
in circulation 
(m)
82.7
28.6
258.7
95.0
126.9
736.2

Number of 
mobile 
subscriptions 
(m)
54.4
17.3
64.5
96.6
92.9
191.3

CPPGroup Plc Annual Report and Accounts 2011

17

Southern Europe and Latin America, which 
represents 13% of Group revenues, has seen 
revenue fall to £44.4 million (2010: £46.7 million) 
a decrease of 7% on a constant currency basis, 
in difﬁcult economic conditions. Large ﬁscal 
imbalances, high indebtedness and adverse 
macroeconomic conditions have forced some  
of our key markets in the Eurozone to embark  
on austerity programmes to make their debts 
sustainable. This has affected consumer 
conﬁdence and demand for our products through 
higher unemployment and lower amounts of 
disposable income. 

In Latin America our operations became more 
established in 2011 with good progress in 
Mexico and the launch of our business in Brazil.

Operating proﬁt for this region of £10.6 million 
(2010: £10.5 million), is ﬂat year on year on a 
constant currency basis, impacted by lower 
renewal revenues in Italy and investment in  
our new Brazilian market.

Spain
In Spain our performance has been adversely 
affected by the continued economic difﬁculties 
that have seen deep public spending cuts, tax 
increases and weak economic growth. Revenue 
in this key European market is down 12% on  
a constant currency basis and has been further 
depressed by a restructure of the country’s 
savings banks.

Despite these challenges, operating proﬁt in this 
country increased as lower customer acquisition 
costs were incurred.

Key to our performance has been our 
commitment to prudent cost management and 
our improved renewal income. Aligned to our 
growth strategy, 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. 

Italy
Italy has not been immune from the crisis 
enveloping the Eurozone due to weak economic 
growth in recent years. Despite this, and with 

Revenue growth performance by quarter

)

%
6
(

)

%
6
(

Q1

Q2

)

%
2
(

Q3

)

%
5
(

Q4

Regional trends 2011

Spain

Italy

Portugal

France

Mexico

Underlying 
operating 
proﬁt

Revenue

New sales

Renewal 
rates

Margins

(cid:84)

(cid:83)
(cid:84)
(cid:83)

(cid:83)
(cid:84)
(cid:83)
(cid:83)
(cid:83)

(cid:84)
(cid:83)
(cid:83)
(cid:84)
(cid:84)

(cid:83)
(cid:83)
(cid:83)
(cid:83)
(cid:83)

(cid:83)
(cid:84)
(cid:83)
(cid:83)
(cid:83)

(cid:83) Increase 

 Level (cid:84) Decrease

increased regulatory pressure on our Business 
Partners, we are pleased to have maintained 
revenue in this important market.

Revenue has been driven by maximising our 
relationships with existing Business Partners  
and we introduced a new card activation sales 
channel with Diners International. A new version 
of Card Protection has been implemented with 
key Business Partners including Barclays, 
Deutsche Bank and Diners Club Italia s.r.l.

Product diversiﬁcation remains a pivotal growth 
driver and we are pleased to have launched 
non-insured variants of existing products.  
Legal Assistance, a new non-insured version  
of our legal advisory service, was launched with 
Findomestic and we have signed a contract to 
sell our non-insured Identity Safe product with 
Banca Valsabbina. 

Portugal
Revenue has grown strongly in our Portuguese 
market, which is an encouraging performance 
given the well-publicised economic problems 
that have seen high unemployment and austerity 
measures implemented by a new Government.

We have entered into a new relationship with 
Caixa Geral de Depósitos (CDG), a state-owned 
banking corporation and the largest bank in the 
country with more than 3.8 million card holders. 
Telemarketing sales commenced in July 
targeting credit card holders. CDG joins our other 
Portuguese Business Partners that include Banco 
Santander Totta, Montepio and Credito Agricola. 

France
In France, we are currently negotiating a contract 
extension with our largest Business Partner,  
BNP Paribas Personal Finance S.A, formerly 
known as Cetelem S.A.

Revenue in this country is in line with our 
expectations and is broadly stable.

Mexico
Mexico has seen progress in 2011 with revenue 
and proﬁt up as this market becomes established.

We have introduced 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 also been 
driven through existing sales channels with 
HSBC and IXE Tarjetas. 

We continue to believe the expected  
growth and size of the bankable population  
and consumer credit penetration will present  
us with a solid platform for sustained growth  
in 2012 and beyond.

Brazil
In December we commenced sales of Card 
Protection in our second Latin American  
market. With a bankable population of 134  
million and over 700 million ﬁnancial cards  
in circulation, Brazil presents us with a sizeable 
growth opportunity.

To demonstrate consumer appetite we 
introduced a direct-to-consumer outbound 
telemarketing campaign, designed to prove the 
appeal of our Card Protection product and to 
encourage new Business Partner relationships. 
Already we have started working with Par 
Corretora, the insurance broker of Caixa 
Econômica Federal, the largest Government-
owned ﬁnancial institution in Latin America  
and one of the largest banks in Brazil.

Outlook
The outlook for Southern Europe and Latin 
America is mixed. In Latin America, we expect 
continued growth in Mexico, and believe the 
early momentum in Brazil can be accelerated  
as we move into 2012.

In our more established European markets, 
unsustainable sovereign debt loads and weak 
economic growth are affecting our performance, 
particularly in Spain. In 2012 we hope to enter 
into new Business Partner relationships and 
increase the penetration of existing and new 
products to drive renewed growth and ongoing 
cost management.

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18 CPPGroup Plc Annual Report and Accounts 2011

OPERATING REVIEW: NORTH AMERICA

NORTH AMERICA

Dave Pearce
Regional Managing Director

North America contributes  
13% of Group revenue.

Our North American business 
was established in 2003 
through the acquisition of  
the enhancement services 
division of Metris Inc,  
a medium-sized card issuer 
now owned by HSBC. Since 
then, the business has grown 
through focused product 
development and working  
with major organisations in  
the ﬁnancial and retail sectors.

Regional highlights

Financial Performance

Revenue
Operating proﬁt

Key operating highlights

2011 
£’m
45.8
6.9

2010 
£’m
38.5
5.9

Growth
19%
17%

Organic, constant 
currency growth
24%
21%

 – Debit card re-branding and reissue card activation campaign with Sovereign Bank

 – Renewal income increased strongly due to longer product retention

 – New products introduced including the Preferred Programme for Wells Fargo customers

Our products

 – IdentityProtector

 – Sage 365

 – Lifestyle Perks

 – PurchaseShield 360

 – eDefence

 – Preferred Program

Strategy for future growth

 – Target new Business Partners in ﬁnancial services and retail sectors

 – Develop and expand new product variants

 – Increase customer retention

 – Develop Packaged Accounts and promotional marketing

 – Expand in-house telemarketing capability

 – Build customer volumes for Sage 365

Key economic and market indicators*

Region/country
USA

* Source: Euromonitor.

Population 
(m)
311.9

Bankable 
population 18+ 
(m)
237.7

GDP  

(% real growth)
1.5

Financial cards  
in circulation 
(m)
1,786.3

Number of 
mobile 
subscriptions 
(m)
325.0

CPPGroup Plc Annual Report and Accounts 2011

19

Regional trends 2011

North America

(cid:83) Increase 

 Level (cid:84) Decrease

Underlying 
operating 
proﬁt

(cid:83)

New sales

(cid:83)

Renewal 
rates

(cid:83)

Revenue

(cid:83)

Margins

Growth has also been achieved through the 
introduction of new product variants at Wells 
Fargo Wachovia, supported by increased 
opportunities to market our products to their 
customers and an improved telemarketing 
performance. In August we acquired Wells 
Fargo’s Preferred Program portfolio; a 
comprehensive concierge service, effectively 
launching a new product line in North America, 
with an established membership base and 
distribution plan.

Product innovation is an important component 
of our growth strategy. At the American 
Bankers Insurance Association Conference in 
September, we launched the concept of Sage 
365, a new product that provides customers 
with the essential tools to predict, detect, 
interrupt and stop identity fraud, which affects 
millions of people in North America.

Building on our expertise in delivering Lifestyle 
Perks and consistent with our strategy to 
develop Packaged Accounts in this geographical 
market, we launched three packaged plans for 

Citizens Financial Group, Inc, a wholly owned 
subsidiary of the RBS Group. This is the ﬁrst 
Packaged Accounts programme we have 
launched in North America and we believe 
these types of accounts provide relevant  
and value-adding beneﬁt to the customer,  
as well as a new revenue stream for our 
Business Partners.

Outlook
We expect continued growth of our North 
America market in 2012. Our commitment to 
product innovation and new Business Partner 
relationships will remain a priority. Focusing on 
providing an exceptional customer experience 
will help build our renewal income and see 
more of our customers retain their products  
for longer.

The development of Packaged Accounts in  
the North American market is exciting and we 
hope to expand the provision of these centrally 
managed services to more Business Partners 
in 2012.

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North America, which represents 13% of  
Group revenue, has seen revenue increase  
to £45.8 million (2010: £38.5 million), an 
increase of 24% on a constant currency basis.

North America
Our North American business has delivered 
strong revenue and operating proﬁt 
performance in 2011. Revenue increased 24% 
on a constant currency basis to £45.8 million 
and operating proﬁt of £6.9 million was 21% 
higher than 2010.

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 
customer renewals and developing 
relationships with major Business Partners, 
particularly in ﬁnancial services, whose 
customers typically opt to retain their  
products for longer. 

This is despite some challenges that could have 
had a detrimental impact on our performance 
including weaknesses in the labour market, 
subdued GDP growth and high levels of credit 
card and mortgage defaults. In addition, the US 
has seen increased regulatory activity with the 
creation of the Consumer Financial Protection 
Bureau (CFPB), which has introduced increased 
compliance and regulation into our Business 
Partner relationships.

In 2011 our relationship with Sovereign Bank,  
a Santander Group subsidiary, beneﬁted from  
a card re-branding and reissue programme 
where we utilised our ‘service to sales’ 
competency in our card activation channel, to 
present Identity Protection, which resulted in 
strong policy acquisition and revenue growth.

Revenue growth performance by quarter

%
3
2

%
1
2

%
7
1

%
4
1

Q1

Q2

Q3

Q4

 
 
 
 
 
 
 
 
 
 
 
20 CPPGroup Plc Annual Report and Accounts 2011

OPERATING REVIEW: ASIA PACIFIC

ASIA PACIFIC

Richard Brady
Regional Managing Director

Asia Paciﬁc consists of ﬁve 
geographical markets and 
contributes 2% of Group 
revenue. These geographical 
markets are Hong Kong, 
Singapore, Malaysia, India  
and China.

Hong Kong was the ﬁrst market 
launched in the region in 2004. 
Singapore (2005) and Malaysia 
(2006) were the next to launch. 
Our India business commenced 
operations in 2008 and China  
followed in 2010.

Regional highlights

Financial Performance

Revenue
Operating loss

Key operating highlights

2011 
£’m
6.5
(2.2)

2010 
£’m
5.7
(2.3)

Growth
16%
7%

Organic, constant 
currency growth
21%
3%

 – Renewed wholesale contract with China Guangfa Bank (CGB) and new Business Partner 

relationships with the CITIC Group and the China Industrial Bank (CIB)

 – New contract signed with SBI Cards in India, our tenth Business Partner since country 

launch in 2008

 – Regulatory challenges continue to impact the outbound telemarketing channel in Hong 
Kong and credit card tax in Malaysia continues to negatively affect the number of credit 
cards in circulation

Our products

 – Card Protection

 – Identity Protection

Strategy for future growth

 – Development of Identity Protection

 – Scale Airport Angel

 – Secure new Business Partner contracts to increase Card Protection volumes

 – Implement planned product upgrades and associated price increases on the renewal book

 – Build the renewal book in India

Key economic and market indicators*

Region/country
Hong Kong
Singapore
Malaysia
India
China

* Source: Euromonitor.

Population 
(m)
7.1
5.1
28.6
1,200.8
1,340.9

Bankable 
population 18+ 
(m)
6.1
4.0
18.5
764.1
1,074.3

GDP  

(% real growth)
6.0
5.3
4.4
7.6
9.4

Financial cards  
in circulation 
(m)
58.0
37.8
53.5
299.1
3,010.0

Number of 
mobile 
subscriptions 
(m)
13.7
7.5
34.0
681.4
910.7

CPPGroup Plc Annual Report and Accounts 2011

21

Asia Paciﬁc, which represents 2% of Group 
revenue, has seen revenue increase 21%  
on a constant currency basis to £6.5 million 
(2010: £5.7 million). 

Operating loss for this region of £2.2 million 
decreased by £0.1 million (2010: loss of  
£2.3 million) impacted by continued  
investment costs in China and regulatory 
challenges in Hong Kong and Malaysia.

Hong Kong
In 2011 there continued to be uncertainty  
in Hong Kong regarding changes to data  
privacy regulations, speciﬁcally the transfer  
of personal data to third parties for marketing 
purposes. This resulted in a suspension  
of most third-party marketing activities and  
a reluctance of our Business Partners to use  
our telemarketing channels. As a consequence, 
revenue was lower.

With new product and channel propositions 
developed during 2011, we are conﬁdent we 
can reverse this trend and recommence our 
sales activities in 2012. 

Singapore
Revenue in Singapore increased, driven by 
increased sales through channels managed  
by CPP and our Business Partners.

The Association of Banks in Singapore has 
announced that its members plan to issue 
deactivated credit and debit cards by June 
2012. After this date, customers will have  
to call their banks to activate their new or 
replacement cards before using them.  
Our card activation processes are well 
positioned to help prevent card fraud and 
should support banks with this regulatory 
requirement. The introduction of the Do-Not-
Call registry in 2012 should also boost our 
inbound sales-to-service offering as outbound 
telemarketing channels become less viable.

Revenue growth performance by quarter

%
0
2

%
5
1

%
7
1

%
1
1

Q1

Q2

Q3

Q4

Regional trends 2011

Hong Kong

Singapore

Malaysia

India

China

Underlying 
operating 
proﬁt

Revenue

New sales

Renewal 
rates

Margins

(cid:84)
(cid:83)
(cid:84)
(cid:83)
(cid:83)

(cid:84)
(cid:83)
(cid:84)
(cid:83)
(cid:84)

(cid:84)
(cid:83)

(cid:83)
(cid:83)

(cid:83)
(cid:83)
(cid:83)
(cid:83)
N/A

(cid:84)
(cid:83)
(cid:84)
(cid:83)
(cid:83)

China
Revenue has grown strongly in China although 
start-up investment costs continue to impact 
on operating proﬁt in this recently launched 
geographical market.

In 2011 we renewed our wholesale contract 
with China Guangfa Bank (CGB), a bank based 
in the Guangdong province bordering Hong 
Kong. With this contract we provide Card 
Protection on a wholesale basis to its standard 
and premium cardholders. 

Progress has also been made in securing new 
Business Partner relationships with the CITIC 
Group and the China Industrial Bank (CIB).

Outlook
The prospects for this region remain good.  
In China we continue to build Card Protection 
volumes and develop new Business Partner 
relationships. Revenue in India showed good 
growth and we expect it 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 impacted  
our performance. We hope to overcome  
these short-term challenges in 2012 and  
to drive renewed growth.

(cid:83) Increase 

 Level (cid:84) Decrease

Malaysia
Malaysia has seen a marginal decrease in 
revenue performance and is still being  
affected by two key market changes. Firstly  
the ongoing impact of the credit card tax 
introduced in 2010, followed by the introduction 
of limitations on credit cards linked to net 
earnings. Both measures have reduced the 
number of credit cards in circulation and our  
marketing opportunities.

The Personal Data Protection Act that regulates 
the processing of personal data concerning 
individuals involved in commercial transactions 
is currently under review and is likely to impact 
data sharing practices for the country’s banks. 
Enforcement of the Act is scheduled for 2012 
and we are reviewing all business procedures 
relating to capturing and utilising personal  
data in the business.

India
We are pleased with our performance in  
this rapidly developing economy, which is 
consistent with our expectations. India is now 
the ninth largest economy in the world,  
as deﬁned by nominal GDP. 

We have continued to build our Business 
Partner base and have signed a contract with 
SBI Cards, a joint venture between the State 
Bank of India (SBI), the largest Indian banking 
and ﬁnancial services company (by turnover 
and assets) and GE Money.

We have also expanded our presence in the 
growing debit card market with ICICI Bank  
and Kotak Bank. Consistent with our growth 
strategy to develop new channels to market  
our assistance products and services, we have 
successfully launched the positive option sales 
channel with three existing Business Partners.

Plans to implement a second product, Identity 
Protection, are well advanced and we expect  
to launch this in 2012.

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22 CPPGroup Plc Annual Report and Accounts 2011

OPERATING REVIEW: FINANCIAL REVIEW

FINANCIAL REVIEW

“ In difﬁcult circumstances we have  
delivered 6% revenue growth with  
only a marginal decline in underlying 
operating proﬁt of 2%.”

Shaun Parker
Chief Financial Ofﬁcer

Summary

Revenue (£ millions)
Gross proﬁt (£ millions)
Operating proﬁt (£ millions)

– Reported 
– Underlying1

Proﬁt before tax (£ millions)

– Reported
– Underlying2

Reported earnings per share (pence)

– Basic
– Diluted

Cash generated by operations  
(£ millions)
Dividends (pence)3

 2011
346.1
143.9

29.7
47.7

28.3
46.4

10.64
10.59

55.2
2.42

2010
325.8 
136.7

44.9
48.7

39.8
46.7

16.33
16.03

53.0
7.54

Growth  

%
6%
5%

(34)%
(2)%

(29)%
(1)%

(35)%
(34)%

4%
(68)%

associated with the investigation and Past Business Review, resulted in 
reported operating proﬁt for 2011 of £29.7 million which was lower than 
prior year (2010: £44.9 million).

Net interest and ﬁnance costs of £1.4 million (2010: £5.1 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 £3.1 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 £28.3 million (2010: £39.8 million) 
and underlying proﬁt before tax has reduced by 1% to £46.4 million 
(2010: £46.7 million).

Underlying proﬁt after tax (excluding legacy scheme share based 
payments, accelerated amortisation of debt issue costs and one-off  
costs associated with the FSA investigation) is broadly in line with prior 
year at £32.4 million (2010: £32.2 million). Taking these one-off costs into 
account, reported proﬁt after tax has reduced by 34% to £18.1 million 
(2010: £27.2 million).

1.  Excluding legacy scheme share based payments £1.2 million (2010: £3.8 million) and costs 

associated with the FSA investigation £16.9 million (2010: £nil)

2.  Excluding legacy scheme share based payments £1.2 million (2010: £3.8 million), costs 

associated with the FSA investigation £16.9 million (2010: £nil) and accelerated amortisation 
of debt issue costs £nil (2010: £3.1 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 £346.1 million 
(2010: £ 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  
£47.7 million (2010: £48.7 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 

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 £55.2 million (2010: £53.0 million) 
contributing to a reduction in net debt from £2.2 million at 31 December 
2010 to a net funds position of £11.9 million at 31 December 2011.

The Group will not be proposing 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

Retail assistance policies
Retail insurance policies
Packaged and wholesale policies
Non-policy revenue
Total Group revenue

2011 
£’m
258.1
38.5
42.3
7.2
346.1

2010 
£’m
262.7
33.1
26.6
3.4
325.8

Growth  

%
(2)%
17%
59%
111%
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 

CPPGroup Plc Annual Report and Accounts 2011

23

Provision of £14.8 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 £2.1 million of costs incurred in 2011 on professional  
fees. Underlying operating proﬁt for 2011 excludes one-off costs of  
£16.9 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

Revenue growth1

Group 
Northern Europe 
Southern Europe and 
Latin America
North America
Asia Paciﬁc
UK
Spain

Underlying operating 
proﬁt growth1,2

Group
Northern Europe 
Southern Europe and 
Latin America
North America
Asia Paciﬁc
UK
Spain

Q1 
2011 
%

13%
17%

Q2 
2011  
%

6%
8%

Q3  
2011  
%

6%
5%

Q4  
2011  
%

0%
(3)%

FY  
2011  
%

6%
6%

(6)%
14%
11%
7%

(5)%
(2)%
(6)%
19%
23%
17%
16%
20%
17%
6%
15%
4%
(9)% (11)% (10)% (12)% (10)%

(5)%
21%
15%
(3)%

Q1  
2011 
%

Q2  
2011 
%

Q3  
2011  
%

Q4  
2011  
%

FY  
2011  
%

14%
26%

(5)%
(9)%

8% (20)%
(4)% (28)%

(2)%
(6)%

(7)%
15%
(73)%

5%
(8)%
44%
19% (15)%
20%

6%

2%
34% (15)%
17%
14%
55%
7%
(6)%
21%
(8)% (30)% (10)%
12%
58% (16)%

1

–

1
2

G
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o
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1
3

–

2
7

O
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g
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2
8

–

5
0

G
o
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a
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c
e

1.  Growth percentages stated on a year on year basis
2.  Excluding legacy scheme share based payments £1.2 million (2010: £3.8 million) and costs 

associated with the FSA investigation £16.9 million (2010: £nil)

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 £4.9 million, broadly consistent with the prior 
year (2010: £4.2 million).

5
1
–
9
5

i

F
n
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i

l

s
t
a
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m
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s

UK Mobile Phone Insurance business where the increasing sales of 
higher priced smartphone insurance policies more than compensate  
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 arises 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

Reported operating proﬁt
Legacy scheme share based payments
Costs associated with the FSA investigation – 
incurred in the year
Costs associated with the FSA investigation – 
provided for in the year
Underlying operating proﬁt

Reported proﬁt before tax
Legacy scheme share based payments 
Costs associated with the FSA investigation – 
incurred in the year
Costs associated with the FSA investigation – 
provided for in the year
Accelerated amortisation of debt issue costs
Underlying proﬁt before tax

2011 
£’m
29.7
1.2

2.1

14.8
47.7

28.3
1.2

2.1

14.8
–
46.4

2010  
£’m
44.9
3.8

–

–
48.7

39.8
3.8

–

–
3.1
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 one-off adjustment is made to 
the 2011 results to exclude the additional one-off costs associated with 
the FSA investigation of £16.9 million (2010: £nil). 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 £1.2 million during the 
year (2010: £3.8 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 £80 million revolving credit facility.  
The value of this adjustment in 2011 was £nil (2010: £3.1 million).

After adjusting for these items, underlying operating proﬁt was  
£47.7 million, which was 2% lower than 2010 (£48.7 million). On the 
same basis, underlying proﬁt after tax is broadly in line with prior year  
at £32.4 million (2010: £32.2 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. Further details regarding  
the investigation are included in the Directors’ report on page 34.

 
 
 
 
 
 
 
 
 
 
 
24 CPPGroup Plc Annual Report and Accounts 2011

OPERATING REVIEW: FINANCIAL REVIEW CONTINUED

Key performance indicators

Regional Performance

2011

2010

Growth

New assistance income  
(£ millions) (see table below)
Annual renewal rate
Live policies (millions) (see  
table below)
Cost/income ratio
Operating proﬁt margin1

85.5
75.4%

11.0
55%
13.8%

88.0
75.9%

11.2
51%
15.0%

1.  Underlying operating proﬁt as a percentage of revenue

New assistance income (£ millions)
Retail products
Packaged and wholesale
Total new assistance income

Live policies (millions)
Retail assistance policies
Retail insurance policies
Packaged and wholesale policies
Total live policies

2011
59.8
25.6
85.5

2011
6.9
0.5
3.6
11.0

2010
72.3
15.7
88.0

2010
7.4
0.6
3.2
11.2

(3)%
(0.5)%

(2)%
4%
(1.2)%

Growth
(17)%
63%
(3)%

Growth
(6)%
(7)%
11%
(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. The reduction in 
renewal rates in the UK due to lower renewal rates on Identity 
Protection, Card Protection and mix effects is 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.

2011 
£’m

2010 
£’m

Growth 
%

249.5
33.6

234.9
35.6

44.4
10.6

45.8
6.9

6.5
(2.2)

46.7
10.5

38.5
5.9

5.7
(2.3)

6%
(6)%

(5)%
2%

19%
17%

16%
7%

Organic, 
constant 
currency 
growth  

%

7%
(5)%

(7)%
0%

24%
21%

21%
3%

Northern Europe
– Revenue
– Operating proﬁt1
Southern Europe and 
Latin America
– Revenue
– Operating proﬁt1

North America
– Revenue
– Operating proﬁt1

Asia Paciﬁc

– Revenue
– Operating proﬁt1

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 £33.6 million (2010: £35.6 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 £10.6 million (2010: 
£10.5 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, and revenue in the year has grown by 21% on a 
constant currency basis. As expected the region incurred an operating 

CPPGroup Plc Annual Report and Accounts 2011

25

In total the Group had a working capital inﬂow in the year of £9.0 million 
(2010: outﬂow £12.7 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 £4.7 million (2010: outﬂow £7.1 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.

1

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1
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G
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Continuing investment
We have continued to invest in our business with investment in tangible 
and intangible assets in the year of £11.9 million (2010: £18.2 million) 
which represents 3% of Group revenue. Tangible asset investment of 
£2.4 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 
£5.1 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 £4.3 million was  
£3.8 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 £2.5 million invested with two Business Partners in 2010. 
The net book value of our Business Partner intangible at 31 December 
2011 was £10.4 million (31 December 2010: £9.8 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 
proposing 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: total dividend of 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 £11.9 million, an improvement  
of £14.0 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 £17.8 million at 31 December 2011. 
Allowing for these deposits results in an adjusted Group net debt 
position of £6.0 million.

The Group has in place an £80 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  
£36 million. 

Shaun Parker
Chief Financial Ofﬁcer

1
3

–

2
7

O
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2
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–

5
0

G
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5
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9
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loss of £2.2 million (2010: £2.3 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 £1.8 million 
(2010: £0.2 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 £1.2 million (2010: £0.8 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

Underlying operating proﬁt¹
Share of loss of joint venture
FSA associated costs2
Depreciation, amortisation and other non-cash 
items
Working capital
Cash generated by operations
Legacy scheme share option exercises
Tax
Operating cash ﬂow3
Capital expenditure (including intangibles)
Investment in subsidiary and joint venture
Net ﬁnance costs
Dividends
IPO and share issues4
Net movement in cash/borrowings5
Net funds/(debt)6

2011 
£’m
47.7
1.2
(2.1)

13.1
(4.7)
55.2
(0.2)
(12.6)
42.4
(12.6)
(1.0)
(1.0)
(12.9)
0.2
15.0
11.9

2010 
£’m
48.7
0.8
–

10.6
(7.1)
53.0
(3.7)
(9.1)
40.2
(16.0)
(0.6)
(1.4)
(4.1)
31.3
49.4
(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 £55.2 million (2010:  
£53.0 million) representing a cash conversion ratio (cash generated  
by operations as a percentage of underlying operating proﬁt) of 116% 
(2010: 109%).

 
 
 
 
 
 
 
 
 
 
 
26 CPPGroup Plc Annual Report and Accounts 2011

OPERATING REVIEW: CORPORATE SOCIAL RESPONSIBILITY

CORPORATE SOCIAL RESPONSIBILITY

“ As a business that helps customers 
deal with stressful events, it is in our 
nature to extend our support to our 
local communities and develop our 
people to the best of our ability.”

Paul Stobart
Chief Executive Ofﬁcer

Corporate Social Responsibility 
The Group recognises the importance of 
managing the impact of our activities on  
the community and the environment, and in  
doing so we seek to conduct our business in  
a professional, ethical and fair manner with all 
our stakeholders, including employees, 
customers, Business Partners and suppliers. 
As a business that helps customers deal with 
stressful events, it is in our nature to extend 
our support to our local communities and 
develop our people to the best of our ability. 
Our Corporate Social Responsibility framework 
is based on four key principles: 

 – We are committed to supporting the 

community and the environment in which 
we operate;

 – We will always seek to employ and develop 
the best people for the job, ensuring that 
they conduct themselves with the upmost 
integrity in all internal and external dealings;

 – We endeavour to meet our customers’, 
Business Partners’ and stakeholders’ 
expectations in a responsible manner; and

 – We are committed to ensuring that the 
business and its employees operate in  
a socially conscious way. 

The community
CPP plays an active role in sponsoring 
initiatives in the local communities in which we 
operate, where possible. Central to this is the 
support of young people in the community via 
education programmes and sporting clubs.

In York, home to our international headquarters, 
we have helped ﬁnance York City Football 
Club’s Community Programme for the last  
ﬁve seasons. Elsewhere our Tamworth contact 
centre has supported sporting groups in the 
local community such as cricket, football and 
rowing clubs. 

The Group has also supported grass roots 
sporting clubs in the Chesterﬁeld and 
Altrincham areas.

The Group supports the running, in the UK,  
of competitions such as Young Sports 
Photographer of the Year and Young Sports 
Writer of the Year. In addition, the Group and  
our employees have committed their time to 
supporting the North Yorkshire Business 
Education Partnership, which aims to foster 
closer links between business and education, 
through a number of initiatives such as Green 
Grifﬁns’ Nest, an inter-school competition for 
students to devise a new way of enabling 
schools to make an ecological difference to 
their local environment. Additonally, we support 
a schools Stock Market Challenge that can see 
up to 300 students buying and selling company 
stock at any one event. Our employees also 
work with York Cares, an organisation that 
helps businesses support local good causes.

Sponsorship from CPP has been given to  
youth initiatives such as the ‘Takeover Festival’ 
supported by the Arts Council at York’s Theatre 
Royal. Furthermore, we have provided support  
to employees to give them the opportunity  
to fundraise and assist local charities.

Our overseas initiatives include support for 
Fraser Homes, a charitable organisation in 
North America. In Southern Europe our 
employees worked in partnership with Caritas, 
a charity that collects food for those who are 
disadvantaged in Madrid, and have also taken 
part in Companies Solidarity Day, which sees 
businesses support their local communities. 
Our business in Spain has also achieved the 
DisCert Certiﬁcate© for its commitment to 
integrating people with disabilities into its 
workforce. The certiﬁcate was awarded 
following an independent assessment and 
veriﬁcation of our practices and policies.

Environment
During the year, the Group has worked  
to develop an ethos of environmental 
responsibility. In the UK, our largest  
operation, initiatives have included:

Energy efﬁciency
Year on year energy usage is falling in spite  
of business growth. This is a result of  
working to ensure that our buildings,  
energy-management and monitoring  
systems are effective and efﬁcient.

Minimising the use of paper
We continue to encourage customers, 
Business Partners and suppliers to use online 
services as opposed to paper-based services.

Paper represents a considerable area of 
consumption for the Group and whilst there  
is a need for the business to continue to use 
paper for its communications, we have a policy 
of using recycled paper and double-sided 
printing in our operations.

Waste reduction and recycling 
Our UK operation recycles its general paper, 
cardboard and non-conﬁdential waste.  
In addition, conﬁdential waste paper is 
shredded and, where possible, recycled.

Redundant IT equipment is disposed of in line 
with the UK Waste Electrical and Electronic 
Equipment Directive 2007, with printer  
cartridges and mobile phones sent to  
recycling organisations. 

Carbon footprint
We endeavour to reduce our carbon footprint 
whilst also encouraging employees to reduce 
their own carbon footprint. In the UK, we are 
encouraging employees to use public transport, 
cycle, walk or car-share instead of using their 
own vehicles.

CPPGroup Plc Annual Report and Accounts 2011

27

Employees 
We have placed an increasing amount of focus 
on ensuring that engagement and motivation  
of our employees are sustained at a high level. 
We also believe that strong business 
performance is built on the integrity and 
openness of our employees with customers, 
Business Partners and suppliers.

Training and development
We are committed to the continual  
development of our employees and offer  
a range of development courses that support 
employees throughout their career at CPP. 
These range from initial induction support, 
through to a range of core skills modules  
and development programmes. 

The Group is committed to supporting career 
planning for all of our employees and the annual 
review process provides an opportunity for 
every employee to discuss their personal 
aspirations and skills they would like to develop.

Equal opportunities
The Group believes in equal opportunities for  
all employees. Applications for employment  
are treated fairly and are based on merit, 
irrespective of race, gender, religious  
belief, disability, age, marital status and  
sexual orientation.

The Group’s policy is to give full and fair 
consideration to applications for employment 
made by those with disabilities, taking into 
account their particular aptitudes and abilities 
and the nature of work involved. Should an 
employee become disabled, arrangements 
would be made, wherever practicable, to 
enable them to continue their employment 
within the Group, including the provision of 
appropriate training where relevant.

To achieve this we carry out an annual Group 
Employee Engagement survey that takes place 
across the entire Group in local languages.  
The survey provides us with an insight into 
how people feel about working for the Group, 
their relationship with their manager and, in the 
UK, valuable data on our employees’ attitudes 
towards Treating Customers Fairly. Action plans 
are created at organisational, departmental  
and manager levels to ensure that employee 
feedback is central to improving performance. 

In the UK all employees have been taken 
through a ‘learning map’ exercise to 
understand fully the historical evolution  
of CPP’s business, and the behavioural 
requirements reﬂecting the future needs  
of the business. 

Leadership development
The Group has developed its leadership 
competencies, which will be rolled out in 2012. 
The framework deﬁnes the behaviours which 
will be critical to our next stage of growth – 
innovation, shaping and planning, leadership, 
building capability and delivering results.

This year the Group has made signiﬁcant 
investment in its leaders, commencing  
a leadership development programme for  
160 people in the UK. This programme will  
be completed in 2012. 

Health, safety and welfare 
The Group is committed to ensuring that 
employees have a safe, healthy and pleasant 
working environment. The Health and Safety 
Committee, with the assistance of external 
consultants, manages and monitors the 
effectiveness of its established Health and 
Safety policies and procedures. Health and 
Safety training initiatives are well established.

We continue to aim to help employees  
to balance their work and personal lives. 
Flexible working is accommodated and in  
some instances is supported through the use 
of remote technology. Other initiatives such as  
the Flexible Beneﬁts scheme allow employees 
to make choices on the provision of such items 
as pension provision, life assurance, medical 
and dental cover and childcare vouchers.

Customers 
The fair treatment of our customers lies at  
the heart of what we do. We have clearly 
communicated promises through the Group’s 
values, and these inﬂuence key areas of our 
business. Treating Customers Fairly is critical  
to the Group; it makes good business sense, 
helping to retain satisﬁed customers for longer 
and improving customer loyalty. 

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28 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: BOARD OF DIRECTORS

BOARD OF DIRECTORS

Charles Henry Gregson
Non-Executive Chairman, 
Chairman of the Nomination 
Committee and Member of the 
Remuneration, Audit and Risk  
and Compliance Committees

Charles Gregson was appointed 
Non-Executive Chairman of CPP  
in January 2010. He has also been 
Non-Executive Chairman of ICAP 
plc since 2001 and had been 
Executive Chairman since 1998. 
Between 1978 and 1998 he  
was responsible for the Garban 
businesses that demerged from 
United Business Media in 1998 
and merged with Intercapital in 
1999 to become ICAP. He was a 
Director of United Business Media 
plc and its predecessor companies 
from 1986 until 2007. He is 
currently a Non-Executive Director 
of International Personal Finance 
plc, Caledonia Investments plc and 
Chairman of St James’s Place plc.

Paul Stobart
Chief Executive Ofﬁcer

As Chief Executive Ofﬁcer,  
Paul Stobart is responsible for 
developing and executing the 
Group’s business strategy across 
Europe, North and South America 
and Asia Paciﬁc. Appointed CEO  
in October 2011, Paul was, until  
31 May 2011, Executive Director 
and Chief Executive Ofﬁcer of 
Sage Northern Europe, part of 
Sage Group plc. He qualiﬁed as  
a chartered accountant with Price 
Waterhouse and spent ﬁve years 
in corporate ﬁnance with Hill 
Samuel before joining Interbrand, 
an international marketing services 
consultancy, in 1988. He joined 
Sage in 1996 as Business 
Development Director, to then 
become Managing Director of  
UK & Ireland in June 2003 before 
being appointed Chief Executive 
Ofﬁcer of Sage Northern Europe  
in January 2011. 

Shaun Parker
Chief Financial Ofﬁcer,  
Member of the Risk and 
Compliance Committee

Hamish Macgregor 
Ogston, CBE
Founder and Non-Executive 
Director

Shaun Parker is responsible for  
the Group’s Finance, Tax, Treasury, 
Risk and Audit functions. Shaun 
joined the Group in 2003 from 
Diageo where he was Chief 
Financial Ofﬁcer of Guinness  
North America prior to leading  
the cross-functional team that 
completed the integration of  
the acquired Seagram Wines  
and Spirits business. Previously 
Shaun worked for ICI Plc, and  
then Mars Inc. (Pedigree Petfoods) 
where he held a number of senior 
ﬁnance roles in Germany and  
the UK. Shaun has extensive 
international experience gained 
through a number of regional roles, 
and through working and living in 
Germany and the US.

Hamish Ogston founded the  
Group in 1980, before becoming 
Non-Executive Chairman in 1999. 
He acted in that capacity until 
Charles Gregson’s appointment  
in January 2010. Hamish continues 
to contribute to the Group’s 
strategic thinking as a Non-
Executive Director and acts in  
an ambassadorial role helping  
to introduce CPP to industry 
organisations and other inﬂuential 
stakeholders. He was awarded a 
CBE in the 2011 New Year Honours 
for his services to business and to 
the community in York.

Note: During 2011 a combined Audit and Risk Committee structure operated. With effect from January 2012 a separate Audit Committee and a separate Risk and 
Compliance Committee are in operation.

CPPGroup Plc Annual Report and Accounts 2011

29

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Patrick De Smedt
Non-Executive Director,  
Chairman of the Remuneration 
Committee and Member of  
the Nomination Committee

Patrick De Smedt is Chairman  
of the Group Remuneration 
Committee having been appointed 
in August 2010. Patrick joined 
Microsoft in 1983 as one of its ﬁrst 
appointments in Europe and 
enjoyed a 23 year career there, 
culminating in the role of Chairman 
for Europe, Middle East and Africa 
from 2003 until his retirement in 
2006. Since then he has served  
as Non-Executive Director on the 
boards of a number of public and 
private European companies 
including Option NV, Victrex Plc 
and Morgan Sindall Group Plc.  
He also serves on the advisory 
board of the corporate ﬁnance 
division at ING Bank N.V.

Les Owen
Non-Executive Director,  
Chairman of the Audit Committee, 
Member of the Nomination, 
Remuneration and Risk and 
Compliance Committees

Les Owen is Chairman of the  
Audit Committee and member of 
the Nomination and Remuneration 
Committees and was appointed  
in September 2010. Les worked  
for 35 years in retail ﬁnancial 
services including 11 years as  
CEO of companies listed in UK  
and Australia, including AXA Sun 
Life (the life arm of Sun Life and 
Provincial Holdings Plc) and AXA 
Asia Paciﬁc Holdings. He is a 
qualiﬁed actuary and serves  
as Non-Executive Director on  
the boards of a number of 
international companies.

Duncan McIntyre
Non-Executive Director,  
Chairman of the Risk and 
Compliance Committee and 
Member of the Audit Committee

Duncan McIntyre was appointed  
in January 2011. Duncan has 
substantial experience of 
developing and growing 
businesses, having previously  
led Morse plc as Chief Executive, 
taking it from a small private 
company to a main market listing 
and being a key architect in the 
building of Monitise plc, the  
global leader in Mobile Money 
solutions listed on AIM. A qualiﬁed 
accountant, he is also Chairman  
of Monitise plc, Profero Limited, 
Climate Risk Management Limited 
and Technetix Group Limited.

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30 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: GROUP EXECUTIVE COMMITTEE

GROUP EXECUTIVE COMMITTEE

4.

1.

5.

2.

6.

3.

7.

1. Paul Stobart
Chief Executive Ofﬁcer

As Chief Executive Ofﬁcer,  
Paul Stobart is responsible for 
developing and executing the 
Group’s business strategy across 
Europe, North and South America 
and Asia Paciﬁc. Appointed CEO  
in October 2011, Paul was, until  
31 May 2011, Executive Director 
and Chief Executive Ofﬁcer of 
Sage Northern Europe, part of 
Sage Group plc. He qualiﬁed as  
a chartered accountant with Price 
Waterhouse and spent ﬁve years 
in corporate ﬁnance with Hill 
Samuel before joining Interbrand, 
an international marketing services 
consultancy, in 1988. He joined 
Sage in 1996 as Business 
Development Director, to then 
become Managing Director of  
UK & Ireland in June 2003 before 
being appointed Chief Executive 
Ofﬁcer of Sage Northern Europe  
in January 2011. 

2. Shaun Parker
Chief Financial Ofﬁcer

Shaun Parker is responsible for the 
Group’s Finance, Tax, Treasury, Risk 
and Audit functions. Shaun joined 
the Group in 2003 from Diageo 
where he was Chief Financial 
Ofﬁcer of Guinness North America 
prior to leading the cross-functional 
team that completed the 

integration of the acquired 
Seagram Wines and Spirits 
business. Previously Shaun 
worked for ICI Plc, and then Mars 
Inc. (Pedigree Petfoods) where  
he held a number of senior ﬁnance 
roles in Germany and the UK. 
Shaun has extensive international 
experience gained through a 
number of regional roles, and 
through working and living in 
Germany and the US.

3. Stephen Kennedy
Chief Operating Ofﬁcer

Stephen Kennedy is responsible 
for the operational performance 
across the Group. He joined the 
Group in February 2005 from HFC 
Bank where he was a Director of 
several business units, ranging 
from branch networks both in the 
UK and Europe to, more latterly, 
lending and central sales 
operations which included 
Hamilton Direct Bank, Marbles 
Loans and all group telemarketing 
activities. Stephen is a member of 
the Board of Leeds City Region 
Local Enterprise Partnership.

4. Neil Hamilton
Chief Information Ofﬁcer

Since joining the Group in  
2002, Neil Hamilton has been 
responsible for the deﬁnition  
and implementation of a new IT 

platform capable of meeting the 
Group’s ambitious growth plans. 
Prior to joining the Group, Neil  
was the Group IT Director for  
the business process outsourcing 
division of Hays Group Plc.  
Before this, Neil was head of IT 
services for Perot Systems and 
has held a variety of other IT 
management positions. 

5. Richard Coates
Group Marketing Director

Richard Coates joined the Group  
in 2003 and has led the marketing 
function at CPP for the past eight 
years. Prior to joining the Group, 
Richard was Director of Marketing 
and Strategic Planning for a major 
hotel brand, and previously held 
positions with a number of 
high-proﬁle US-owned marketing 
agencies. Richard’s responsibilities 
extend across corporate strategy, 
business planning, brand strategy, 
product portfolio, and channel and 
market development. His 
qualiﬁcations include an MBA  
from Leeds University Business 
School. Richard is a member of  
the Board of Governors at York  
St. Johns University.

6. Arnold Wagner
Group Human Resources Director

Arnold Wagner has worked for 
over 35 years in Human Resources 

(HR). He has held the Group  
HR position in two FTSE100 
companies for a total of 16 years. 
Most of Arnold’s career has been 
in international roles and he lived 
and worked in the US for two 
years. Arnold has considerable 
experience across the range of HR 
activity with a particular emphasis 
on organisation development, 
talent management, succession 
planning and remuneration 
policies, all areas on which he  
has focused since joining CPP  
in May 2011.

7. John Titchener
Group General Counsel and 
Company Secretary

John Titchener is responsible for 
the Group’s Legal, Secretariat and 
Compliance functions. He joined 
the Group in April 2011, having 
previously been General Counsel 
for the Europe, Middle East and 
Africa region of Swiss Reinsurance 
Company Ltd. He is an employed 
barrister and has more than 20 
years’ experience in the ﬁnancial 
services industry, having held 
senior roles in legal, business 
development and compliance at 
GE and Willis, the international 
insurance brokers.

CPPGroup Plc Annual Report and Accounts 2011
GOVERNANCE: GROUP OPERATIONS COMMITTEE

31

GROUP OPERATIONS COMMITTEE

1.

5.

2.

3.

4.

*  The members of the Group 

Executive Committee also form  
the Group Operations Committee.

5. Tim Haig
Director

Tim has been providing support  
to country management teams  
in Turkey, Germany and India, as 
well as sharing sales best practice 
across the Group since April 2011. 
Prior to this appointment, Tim  
was the UK Sales Director having 
joined CPP in April 2006. Before 
CPP, Tim held numerous senior 
positions with Experian over a 10 
year period that included Director 
of Sales, Director of Customer 
Service and Director of Operations 
and Service. Tim’s early career was 
spent with HFC bank. 

1. Mike Kneafsey
Managing Director, UK and Ireland

Mike Kneafsey has more than  
20 years’ experience of sales and 
marketing in the ﬁnancial services 
industry. Before joining the Group 
in 2008 he was Regional Managing 
Director for retail banking at 
Barclays Plc in the North of 
England, Scotland and Northern 
Ireland, leading a team of 5,000 
staff. Previously Mike spent 17 
years at HSBC, holding senior-
management positions in its 
branch and contact centre 
businesses and with First Direct, 
before becoming Sales and 
Service Director for M&S Money. 

2. Angel de Leon
Regional Managing Director, 
Southern Europe and Latin 
America

Angel de Leon joined CPP in 2010 
and has an extensive background 
in ﬁnancial services. Most recently 
he held the positions of Director  
of Private Banking and Director  
of Payment Systems at Banesto. 
Prior to this he worked for 
companies such as American 
Express and Visa International and 
was Regional Director for Southern 

Europe at Kessler Financial 
Services, a leading company  
in loyalty programmes and  
co-branding agreements for 
ﬁnancial institutions. In addition,  
he was Managing Director for 
Western Union International for 
Spain and Portugal. Based in 
Madrid, Angel is responsible for 
our Southern European and Latin 
American countries.

3. Dave Pearce
Regional Managing Director, North 
America

Since joining the Group in 2005, 
Dave has led record development 
and performance across North 
America. His expertise in the retail 
and ﬁnancial sectors includes 
serving as Director of Marketing 
for Wells Fargo Home Mortgage,  
a division of Wells Fargo Bank, 
N.A., and as Chief Marketing 
Ofﬁcer for Liberty Enterprises 
(now Harland Clarke), a leading 
provider of payment and security 
solutions for ﬁnancial institutions. 
Dave also has deep experience  
in the consumer packaged goods 
industry (CPG) as Director of Sales 
& Marketing for the $600 million 
international division of Green 
Giant, and supporter of brands 

including GlaxoSmithKline,  
EJ Brachs and Pillsbury. Dave’s 
qualiﬁcations include an MBA  
in Marketing. He is an adjunct 
professor at Normandale 
Community College in 
Minneapolis, Minnesota,  
where he teaches marketing  
and strategic planning.

4. Richard Brady
Regional Managing Director, Asia 
Paciﬁc

Richard Brady joined CPPGroup  
Plc in March 2011 as Managing 
Director of the Asia Paciﬁc  
Region. He is responsible for the 
development and performance  
of the Group across the region. 
Richard has a strong background 
and extensive experience in 
Banking and Financial Services 
over 28 years. Before joining the 
Group, Richard was CEO of Olive 
Tree, a UK ﬁrm offering investment 
products for ﬁnancial advisers. 
Prior to that, he was the UK 
Business Development Director  
of Zurich Assurance, Vice President 
Agency Sales for AIA in Shanghai 
(AIG Group) and Divisional Director 
of a listed UK national ﬁnancial 
advisory business.

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32 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: DIRECTORS’ REPORT

DIRECTORS’ REPORT 

The Directors present their Annual Report and audited financial 
statements of the Group for the year ended 31 December 2011. 

Principal activities 
The principal activities of the Group during the year were the provision 
of Life Assistance products with operations in 16 countries in both 
developed and developing markets. CPP’s products and services are 
designed to meet a range of consumer needs, in particular relating to 
credit and debit card ownership, personal identity, mobile telephones, 
travel and the home. CPP is also prominent in the provision of Packaged 
Accounts where products and services are sourced to create a tailored 
package for bank account customers. The activities of the Group 
primarily focus on providing customer assistance during stressful life 
events such as loss or theft of a wallet, purse, mobile telephone  
or keys, as well as support in the event of identity theft. 

Further details of the Group’s activities and a review of the business  
are set out in the Group overview and Operating review sections of  
the Annual Report on pages 1 to 27. 

Details of the key performance indicators used by the Directors to  
assist in management of the business and to provide evidence of the 
achievement of its strategies are included on page 11. 

Information relating to the environment and employees is included  
in the Corporate Social Responsibility report on pages 26 and 27. 

These sections are by reference part of the Directors’ report. 

Dividends 
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 Directors have 
considered the future capital requirements of the Group carefully and  
do not propose paying a final dividend for 2011. As a result the total 
dividend for the year was the interim dividend of 2.42 pence paid on  
12 October 2011 (2010: total dividend of 7.54 pence per ordinary share). 
The total dividend of 2.42 pence per share is not in accordance with  
the Group’s long term dividend policy of distributing approximately  
40% of profit after tax to its shareholders.  

Directors 
In accordance with the Company’s Articles of Association, all serving 
Directors retired from the Board at the Company’s first Annual General 
Meeting on 19 May 2011. The retiring Directors, being eligible,  
all offered themselves for re-election and were re-appointed on  
19 May 2011.  

The Directors who served throughout the year except as noted were as 
follows: 

Charles Gregson 

Chairman 

Eric Woolley 

Chief Executive Officer 

(resigned 1 October 2011)

Paul Stobart 

Chief Executive Officer 

(appointed 1 October 2011)

Shaun Parker 

Chief Financial Officer 

Hamish Ogston 

Non-Executive Director 

Les Owen 

Non-Executive Director 

Peter Morgan 

Non-Executive Director 

(resigned 31 March 2011) 

Patrick De Smedt  Non-Executive Director 

Duncan McIntyre  Non-Executive Director 

In accordance with the Company’s Articles of Association, Paul Stobart, 
as a Director appointed during the year will offer himself for re-election 
to the Board at the Company’s Annual General Meeting.  

Details of powers of Directors, procedures for appointment and  
re-election of Directors, Directors’ indemnity insurance and procedures  
for managing Directors’ conflicts of interest are included in the 
Corporate Governance statement on pages 38 to 43. 

Biographical details for each Director are set out on pages 28 and 29. 
Details of committee memberships are set out on pages 40 to 42 of  
the Corporate Governance statement. 

Details of Directors’ beneficial interests in and options over the 
Company’s shares are set out in the Remuneration report on pages  
44 to 50. 

These sections are by reference part of the Directors’ report. 

AGM 
The Annual General Meeting of the Company is to be held on  
16 May 2012. The notice of the Annual General Meeting and an 
explanation of the non-routine business are set out in the explanatory 
circular that accompanies this Annual Report. The notice of the Annual 
General Meeting specifies deadlines for exercising voting rights and 
appointing a proxy or proxies to vote in relation to resolutions to be 
passed at the meeting.  

Capital structure 
Details of the issued share capital, together with movements in the 
Company’s issued share capital for the period, can be found in note 29 
to the financial statements. The Company has one class of capital, 
ordinary shares, which carry no right to fixed income. Each fully paid 
share carries the right to one vote at a general meeting of the Company. 

Details of the Group’s employee share schemes are set out in note 30.  

A special resolution was passed at the Company’s Annual General 
Meeting on 19 May 2011 which allows the Directors to allot shares up 
to an aggregate amount equal to one third of the Company’s existing 
issued ordinary share capital.  

Pursuant to Article 5 of the Company's Articles of Association and 
subject to the provisions of the applicable regulations, statutes and 
subordinate legislation, the Company is entitled to purchase its  
own shares. 

The Company did not purchase any of its own shares during the year. 

Change of control provisions 
Some agreements to which the Company or its subsidiaries are a party 
may be at risk of termination by counterparties in certain restricted 
circumstances in the event of a change of control of the Company. 
Furthermore, the Directors are not aware of any agreements between 
the Company and its Directors or employees that provide for 
compensation for loss of office or employment that occurs because  
of a takeover bid. 

Supplier payment policy 
The Group’s policy is to agree terms of payment with all suppliers, 
ensure that these terms are understood, and abide by the agreed  
terms of payment. At 31 December 2011 invoiced trade creditors were 
equivalent to 18 days’ purchases (2010: 20 days), based on the average 
daily amount invoiced by suppliers during the year.  

 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

33

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 from 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. 

Charitable and political donations 
During the year donations to local charities made by the Group 
amounted to £31,000 (2010: £30,000).  

No political donations were made during the year (2010: £nil). 

Substantial shareholdings 
On 26 March 2012, the Company had been notified, in accordance  
with the Disclosure and Transparency Rules of the Financial Services 
Authority, of the notifiable interests in the ordinary share capital of the 
Company set out in the table below. As far as the Directors are aware 
as at 26 March 2012 no person had a beneficial interest in 3% or more 
of the voting share capital except for the following: 

Name 

Hamish Ogston 

Schroder Investment Management Ltd 

Mondrian Investment Partners Ltd 

Aberforth Partners 

Henderson Global Investors 

Ordinary 
shares 
(thousands) 

98,021 

31,421 

9,838 

7,774 

6,010 

% 

 57% 

18% 

6% 

5% 

4% 

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.  

Hamish Ogston holds 57% of the issued shares of the Company. Under 
the terms of a Relationship Agreement between Hamish Ogston and 
the Company dated 18 March 2010, for so long as Hamish Ogston (or 
any person connected to him) holds, in aggregate, 30 per cent. or more 
of the ordinary shares in the capital of the Company (or the attached 
voting rights in these shares) Hamish Ogston (and each person 
connected to him) shall not: 

–(cid:3) Vote in favour of, or propose, any resolution to amend the Company's 
Articles of Association which would be contrary to the principle of the 
independence of the Company from Hamish Ogston (and each person 
connected to him); 

–(cid:3) Take any action which precludes any member of the Group from 

carrying on its business independently of Hamish Ogston (and each 
person connected to him); and 

–(cid:3) Take any action (or omit to take any action) to prejudice the 

Company's status as a listed company or its suitability for listing,  
or the Company's compliance with the Listing Rules and Disclosure 
Rules, save in circumstances of a takeover or merger of  
the Company.  

Going concern 
The Directors have prepared the financial statements on a going 
concern basis consistent with their views, formed after making 
appropriate enquiries, as outlined in the Corporate Governance 
statement on page 43, which is by reference part of the  
Directors’ report. 

Principal risks and uncertainties  
There are a number of potential risks and uncertainties which could have 
a material impact on the Group’s future development, performance and 
position and could cause actual results to differ materially from expected 
and historical results. The principal risks and uncertainties facing the 
Group, and the actions taken by the Directors to address them, are: 

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 a 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. 

The part of the Group’s net assets and profit before tax originating  
in the Eurozone are included in note 27 to the financial statements. 

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 focused 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 advisers as soon as 
practicable to enhance and strengthen its framework for managing 
compliance risk and assuring compliance with regulatory requirements. 

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34 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: DiRECtORs’ REPORt Continued

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; and 

–  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 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. This is an event 
after the balance sheet date and is referred to in note 34. 

–  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. 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 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. 

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 

Relationships with key Business Partners are actively managed on  

payments. The assumptions, however cannot be guaranteed, and 

a local basis, and globally where appropriate, to ensure that the value  

given the publicity generated by the FSA's investigation into CPP 

to the Group of these relationships is optimised. Agreed contractual 

there remains the risk that customer redress rates in particular could 

terms support the Group’s operations with Business Partners which  

materially exceed those assumed. Notwithstanding such uncertainty, 

are subject to the normal course of re-negotiation when identified in  

it is likely that the results of the pilot contact exercise will provide 

the contract.  

further assurance on the probable outcome of the full review.  

–  Disposition of Assets: The Group has agreed with the FSA certain 

of existing, or failure to develop new, Business Partner relationships.  

restrictions on the disposition of assets by its subsidiary, Card 

An example of this is Barclaycard, one of our Business Partners, who 

Protection Plan Limited (CPPL). These include prohibitions, without 

shortly after the Group’s announcement of the FSA’s investigation on  

prior FSA consent, of any material movements of assets by CPPL 

28 March 2011, suspended new sales to their UK based customers 

within the CPP Group, material changes to its capital structure or 

through their call to confirm channel. Furthermore, following a 

remuneration policy, payments of dividends by CPPL or any other 

competitive tender in line with its normal business practice, Barclaycard 

significant alteration in the composition or quality of CPPL's assets.  

informed the Group that it does not intend to renew its contract when  

Future revenue and profit could be adversely impacted by deterioration 

The anticipated impact of the above actions agreed with the FSA, 

it expires on 31 March 2012.  

together with an estimate of regulatory penalties and professional  

In addition, if the Group’s Business Partners merge with, or are acquired 

fees are included in the Group’s provision of £14.8 million for costs 

by, other entities that are not already Business Partners, such Business 

associated with the FSA investigation described in note 25. 

Partners may reduce or discontinue their use of the Group’s services. 

Approximately half of the amount provided relates to an estimate  

Business models in the UK retail banking sector are subject to change 

for the agreed Past Business Reviews. This element of the provision 

and adaption, which may impact the Group’s revenue and profit. 

could vary depending upon customer response rates. 

As previously announced, the Group has developed a new, non-insured 

It currently remains unclear what steps the FSA may wish to take,  

service product, Identity Safe, which it had hoped to introduce into the 

if any, and against whom, in relation to UK sales of CPP's Card 

UK’s call to confirm and card activation voice sales channels during 

Protection and Identity Protection products that are not within the  

2011. Following extensive discussions with the Group’s Business 

scope of the Group's Past Business Review, or in respect of any similar 

Partners it is now expected that the new Identity Safe product is 

products available to the market from other providers. There can be no 

unlikely to be adopted by Business Partners in the UK until after the  

guarantee that the FSA will not seek to take action on a wider industry 

FSA investigation is concluded, although extension to a number of other 

basis. Until such time as the FSA makes a determination on these 

product initiatives with UK Business Partners has occurred. Although 

issues, and the repercussions are understood for the industry as a 

Group and UK management continue to work closely and actively with 

whole, the Group is unable to assess the potential impact on its 

Business Partners in the UK, reaction of Business Partners to actions 

Business Partners, or the Group’s relationship with them, including  

which may arise from the FSA’s investigation, including any actions on  

any financial consequences. 

a wider industry basis, and the resultant impact on the Group’s Business 

The agreement with the FSA does not mark the end of the FSA 

Partner relationships remains uncertain. 

investigation which is continuing. There is a risk that the investigation 

A large proportion of the UK’s Phonesafe business revenue is 

may result in further action which may have an adverse impact on the 

attributable to the Group’s relationship with one Business Partner,  

Group’s financial performance. During 2011, the investigation has 

T-Mobile. The current contract between the Group and T-Mobile has 

created uncertainty around the UK’s Identity Protection and Card 

been extended to September 2012. Following the merger between 

Protection products which is continuing to have a material impact on the 

T-Mobile and Orange, Everything Everywhere Limited have initiated  

Group’s ability to sell its full range of products in the UK. The Group may 

a tender process for insurance provision post September 2012, which 

suffer reputational damage which might have further impact on the take 

covers both the existing T-Mobile and also the Orange mobile phone 

up of its products with its customers and on its ability to contract with 

schemes. The Group is included in Everything Everywhere Limited’s 

its Business Partners. This could lead to reduced sales levels for the 

tender process, the outcome of which could be increased new 

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.  

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. 

 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

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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. 

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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.  

–(cid:3) 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 £14.8 million for costs 
associated with the FSA investigation described in note 25. 
Approximately half of the amount provided relates to an estimate  
for the agreed Past Business Reviews. 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. 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 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.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: DIRECTORS’ REPORT CONTINUED

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 £80 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 £43.5 million. However this was offset by £54.9 million of cash. 
As at 31 December 2011 the Group was in a net funds position of  
£11.9 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 
accredited and the majority of countries in the Group are certified to the 
payment card industry data security standard (PCI DSS). 

Key supplier contracts 
The Group has a number of suppliers who either support or provide 
elements of the product base or the Group’s operating structure.  
Where a single supplier provides significant services, the risk of loss or 
interruption of services exists. Financial and operational stability of these 
suppliers is monitored and additional or dual supply is implemented in 
appropriate circumstances.  

Fraud 
The Group’s product base, in particular the insurance of mobile  
phone handsets in the UK, introduces an inherent risk of claims fraud.  
A specific operational team monitors external fraud and actions are 
taken to minimise claims settlements that might be fraudulent.  

The Group’s policy on fraud and corruption requires managers and staff 
to act honestly, with integrity and to safeguard all Group resources for 
which they are responsible at all times. Additionally, management 
oversight and controls are designed to be able to identify and minimise 
inherent fraud risks across the Group.  

Financial risks 
The Group’s operations expose it to financial risks including capital 
maintenance, foreign exchange, interest rate, liquidity, credit and 
insurance risks. Further details of these risks, together with mitigating 
actions, are provided in note 27 to the financial statements. 

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. 

Auditor 
Each of the persons who is a Director at the date of approval of this 
report confirms that: 

–(cid:3) So far as the Director is aware, there is no relevant audit information 

of which the Company’s Auditor is unaware; and  

–(cid:3) The Director has taken all the steps that he ought to have taken  
as a Director in order to make himself aware of any relevant audit 
information and to establish that the Company’s Auditor is aware  
of that information. 

This confirmation is given and should be interpreted in accordance with 
the provisions of Section 418 of the Companies Act 2006. 

Deloitte LLP have expressed their willingness to continue in office as 
Auditor. Accordingly, a resolution to reappoint them will be proposed at 
the Annual General Meeting. 

By order of the Board 

John Titchener  
Group General Counsel and Company Secretary 

26 March 2012 

 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011
GOVERNANCE: STATEMENT OF DIRECTORS’ RESPONSIBILITIES

37

STATEMENT OF DIRECTORS’ 
RESPONSIBILITIES 

The Directors are responsible for preparing the Annual Report and 
Accounts in accordance with applicable law and regulations. 

Company law requires the Directors to prepare financial statements for 
each financial year. Under that law the Directors are required to prepare 
the consolidated financial statements in accordance with International 
Financial Reporting Standards as adopted by the European Union 
(‘IFRS’) and Article 4 of the IAS Regulation and have elected to prepare 
the Company financial statements in accordance with United Kingdom 
Generally Accepted Accounting Practice (United Kingdom Accounting 
Standards and applicable law). Under company law the Directors must 
not approve the accounts until they are satisfied that they give a true 
and fair view of the state of affairs of the Company and the Group and 
of the profit or loss of the Group for that period. 

The Directors are responsible for keeping adequate accounting records 
that are sufficient to show and explain the Company’s transactions and 
disclose with reasonable accuracy at any time the financial position of 
the Company and enable them to ensure that the financial statements 
comply with the Companies Act 2006. They are also responsible for 
safeguarding the assets of the Company and hence for taking 
reasonable steps for the prevention and detection of fraud and  
other irregularities. 

The Directors are responsible for the maintenance and integrity of the 
corporate and financial information included on the Company's website. 
Legislation in the United Kingdom governing the preparation and 
dissemination of financial statements may differ from legislation in  
other jurisdictions. 

In preparing the consolidated financial statements, International 
Accounting Standard 1 requires that Directors: 

–(cid:3) Properly select and apply accounting policies; 

–(cid:3) Present information, including accounting policies, in a  
manner that provides relevant, reliable, comparable and 
understandable information; 

–(cid:3) Provide additional disclosures when compliance with the specific 

requirements in IFRSs are insufficient to enable users to understand 
the impact of particular transactions, other events and conditions  
on the Group’s financial position and financial performance; and 

–(cid:3) Make an assessment of the Company’s ability to continue as  

a going concern. 

In preparing the Company financial statements, the Directors are 
required to: 

–(cid:3) Select suitable accounting policies and then apply them consistently; 

–(cid:3) Make judgements and estimates that are reasonable and prudent; 

–(cid:3) State whether applicable UK Accounting Standards have been 

followed, subject to any material departures disclosed and explained 
in the financial statements; and 

–(cid:3) Prepare the Company financial statements on the going concern basis 
unless it is inappropriate to presume that the Company will continue 
in business.  

We confirm that to the best of our knowledge: 

–(cid:3) 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 

–(cid:3) 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 
Chief Executive Officer 

Shaun Parker 
Chief Financial Officer 

26 March 2012 

26 March 2012 

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38 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: CORPORATE GOVERNANCE STATEMENT

CORPORATE GOVERNANCE STATEMENT 

Compliance with the UK Corporate Governance Code 
The Board is responsible to shareholders for strategic direction, 
management and control of the Company’s activities, and is committed 
to the highest standards of corporate governance in delivering in  
these areas. 

Throughout the financial year the Board considers that the Company  
has complied with the provisions set out in the UK Corporate 
Governance Code (the Code), as published by the Financial Reporting 
Council in May 2010 and available on its website www.frc.org.uk except 
as described in the section entitled “Compliance with the UK Corporate 
Governance Code” below.  

The Board 
Throughout the year, the following Directors served on the Board: 
Charles Gregson as Non-Executive Chairman, Shaun Parker as Chief 
Financial Officer and Hamish Ogston, Patrick De Smedt, Les Owen  
and Duncan McIntyre as Non-Executive Directors. 

During the year and up to the date of this statement the following 
changes to the Board were made: 

–  Paul Stobart was appointed as Chief Executive Officer on 1 October 

2011;  

–  Eric Woolley resigned as Chief Executive Officer 1 October 2011; and 

–  Peter Morgan retired as a Non-Executive Director on 31 March 2011.  

Following the changes described above the Board is now comprised  
of the following: 

–  Charles Gregson as Non-Executive Chairman; 

–  Paul Stobart as Chief Executive Officer; 

–  Shaun Parker as Chief Financial Officer; and 

–  Hamish Ogston, Les Owen, Patrick De Smedt and Duncan McIntyre 

as Non-Executive Directors. 

The Board met 25 times during the year, which included a number  
of meetings to address the FSA investigation and the consequences 
for the Group. 

The Board operates within a formal schedule of matters reserved to it. 
This schedule is reviewed and updated on a regular basis. Other powers 
are delegated to the various Board committees and senior management. 
Details of Board and committee attendance during the year are set out 
in the table under the section headed “Directors’ attendance at Board 
and committee meetings” on page 40. Details of the various roles and 
responsibilities of the Board committees are set out on pages 40 to 42. 
Papers for Board and committee meetings are circulated in advance  
of the relevant meeting and where a Director is unable to attend he 
continues to be provided with a full copy of the papers and has the 
opportunity to comment on the matters to be discussed. 

The Board considers that its primary role is to provide leadership to the 
Group, to set the Group’s long term strategic objectives and to develop 
robust corporate governance and risk management practices. 

The Board comprises individuals with wide ranging business skills and 
experience and considers that the balance of skills and experience is 
appropriate to the requirements of the business. The Board considers 
that the balance between Executive and Non-Executive Directors allows 
it to exercise objectivity in decision making and proper control of the 
Company’s business. Each member of the Board has had access to all 
information relating to the Group, the advice and services of the 
Company Secretary (who is responsible for ensuring that Board 
procedures are followed) and, as required, external advice at the 
expense of the Group. 

Chairman and Chief Executive Officer 
The roles of the Chairman and the Chief Executive Officer are separate, 
clearly defined in writing and have been agreed by the Board. 

The Chairman, Charles Gregson is responsible for leadership of the 
Board, ensuring its effectiveness on all aspects of its role and setting  
its agenda. The Chairman has no involvement in the day-to-day business 
of the Group. 

The Chief Executive Officer, Paul Stobart, is the executive responsible 
for the day-to-day running of the business and is accountable to the 
Board for its operational and financial performance.  

On his appointment as Chairman, Charles Gregson did satisfy the 
independence criteria as set out in the Code. However following his 
appointment as Chairman he is assumed, in accordance with the Code, 
not to be independent. The Board, whilst recognising the reasoning in 
the Code behind this assumption, has concluded that Charles Gregson 
is independent, being independent in character and judgement and 
being free from any relationships or circumstances which are likely  
to affect, or could appear to affect, his judgement.  

Throughout the year the Chairman has held regular informal  
meetings with Non-Executive Directors without the Executive  
Directors being present. 

Board balance, independence and appointments 
During the year the Board has reviewed the structure, size and 
composition of the Board (together with an evaluation of the Board’s 
balance of skills, knowledge and experience); the membership of  
the various Board committees and the expected time commitment;  
and the policy for Board appointments for Executive and  
Non-Executive Directors. 

The Directors’ aim is to ensure that the balance between Non-Executive 
Directors and Executive Directors of the Board reflects the changing 
needs of the Group’s business. 

The Board has reviewed the independence of each of the Non-Executive 
Directors that have served on the Board throughout the year and 
concluded that Duncan McIntyre, Les Owen and Patrick De Smedt  
are independent. Hamish Ogston, founder and largest shareholder, is 
not considered independent. As such, together with the two Executive 
Directors, Paul Stobart and Shaun Parker, the Board, during the year, 
has satisfied the Code requirements that at least half the Board, 
excluding the Chairman, should comprise Non-Executive Directors 
determined by the Board to be independent. The Non-Executive 
Directors are considered to be of sufficient calibre and experience  
to bring significant influence to bear on the decision making process. 

On joining the Board, Non-Executive Directors receive a formal 
appointment letter, which identifies the time commitment expected  
of them. A potential director candidate is required to disclose all 
significant outside commitments prior to appointment and the Board  
has approved a policy requiring disclosure and approval by the Board  
of all additional appointments for Executive or Non-Executive Directors. 
The terms and conditions of appointment of Non-Executive Directors 
and service contracts of Executive Directors are available to 
shareholders for inspection at the Group's registered office during 
normal business hours. 

Biographical details of all Directors are given on pages 28 to 29. 

Information and professional development 
The Board receives detailed reports from executive management  
on the performance of the Group at its Board meetings and other 
information as necessary. Regular updates are provided on relevant 
legal, corporate governance and financial reporting developments and 
Directors are encouraged to attend external seminars on areas of 
relevance to their role. 

Appropriate training and induction are made available to any newly 

Relations with shareholders 

appointed Director, having regard to any previous experience they  

The Board remains committed to maintaining good relationships with 

may have as a Director of a public company or otherwise. An ongoing 

shareholders. There is a good dialogue with institutional shareholders, 

programme of training is in place and all members of the Board are 

although care is exercised to ensure that any price-sensitive information 

encouraged to participate in this programme. Directors are also 

is released at the same time to all shareholders, in accordance with the 

encouraged to devote an element of their time to self development 

requirements of the UK Listing Authority. The Chief Executive Officer 

through available training. This is in addition to any guidance that may  

and the Chief Financial Officer meet with institutional shareholders on a 

be given from time to time by the Company Secretary. 

All Directors have access to the advice and services of the Company 

Secretary. The Company Secretary or his nominee, is the secretary for 

all the Board committees. The removal and appointment of the 

Company Secretary is a matter reserved for Board approval. The Board 

regular basis and are available for additional meetings where requested. 

Institutional shareholders will in future be given the opportunity to meet 

with the Chairman and/or other Non-Executive Directors if they have 

concerns that have not, or cannot, be addressed through the Chief 

Executive Officer or the Chief Financial Officer. 

also obtains advice from professional advisers as and when required. 

The Chairman is responsible for ensuring that appropriate channels of 

Performance evaluation 

The Board, led by the Chairman, has carried out a Board effectiveness 

review through an independent third party. The evaluation was based  

communication are established between the Chief Executive Officer 

(and the other Executive Directors) and shareholders and ensuring  

that the views of the shareholders are made known to the Board; this 

includes feedback prepared by the Group’s brokers on meetings held 

on written questionnaires completed by current Directors and some 

with institutional shareholders. 

face to face interviews. These were used to create a written report with 

recommendations. The overall results of the evaluation were presented 

to, and discussed by, the Board in December 2011. The performance of 

the Chairman was included in the above process, and took into account 

the views of the Executive and Non-Executive Directors. Following this 

review, the Directors have agreed that the actions in respect of certain 

processes identified for improvement should be implemented and 

intend to review this implementation regularly.  

The Company recognises the importance of ensuring effective 

communication with all of its shareholders. An annual financial report  

is distributed to all shareholders and to other parties, who may have an 

interest in the Group’s performance. This report, together with a wide 

range of other information, including the half-yearly financial report, 

interim management statements, regulatory announcements and 

current details of the Company’s share price, is made available on  

Re-election 

All Directors are subject to election at the first Annual General Meeting 

following their appointment by the Board. The Company’s Articles of 

Association state that at every Annual General Meeting any Director 

who has been a Director at each of the two preceding Annual General 

Meetings, and who was not appointed or re-appointed by the Company 

in general meeting at, or since, such meeting, shall retire as Director.  

A retiring Director shall be eligible for re-appointment. In practice this 

means that every Director stands for re-election at least once every 

three years. 

The Code recommends that all Directors of FTSE 350 companies  

retire and are put up for re-election at the Annual General Meeting. 

Although the Company is not currently a FTSE 350 company, the 

Company considers this to be best practice and, accordingly, all  

the Directors (save for Paul Stobart who seeks first election as below) 

offer themselves for re-election at the 2012 Annual General Meeting. 

be elected or re-elected in the Notice of Meeting for the next Annual 

General Meeting. As referred to above, Paul Stobart, who was  

appointed as a Director during the year, will be subject to election  

at the forthcoming Annual General Meeting. The Board believes that 

its performance continues to be effective and that the election of 

Directors is also consistent with the Board’s evaluation of the size, 

structure and composition of the Board. 

The Board explains the reasons why it believes each Director should  

to the Board.  

the Company’s website. 

Insurance 

The Company has arranged appropriate insurance cover in respect  

of any potential litigation against Directors. 

Board committees 

The Audit and Risk Committee, the Nomination Committee and the 

Remuneration Committee are standing committees of the Board. The 

Board established during the year a Governance Committee with terms 

of reference to formulate governance arrangements for the Group and 

make recommendations to the Board.  

The written terms of reference of the committees, including their 

objectives and the authority delegated to them by the Board, are 

available upon request from the Company Secretary or via the Group’s 

website at www.cppgroupplc.com and are reviewed at least annually  

by the relevant committee and the Board. All committees have access 

to independent expert advice. The chairman of each committee reports 

Conflicts of Interest 

A register of conflicts of interest is maintained by the Company 

Secretary. Entries in the register are discussed by the Board as required. 

 
 
 
 
CORPORATE GOVERNANCE STATEMENT 

Compliance with the UK Corporate Governance Code 

Chairman and Chief Executive Officer 

The Board is responsible to shareholders for strategic direction, 

The roles of the Chairman and the Chief Executive Officer are separate, 

management and control of the Company’s activities, and is committed 

clearly defined in writing and have been agreed by the Board. 

to the highest standards of corporate governance in delivering in  

these areas. 

The Chairman, Charles Gregson is responsible for leadership of the 

Board, ensuring its effectiveness on all aspects of its role and setting  

Throughout the financial year the Board considers that the Company  

its agenda. The Chairman has no involvement in the day-to-day business 

has complied with the provisions set out in the UK Corporate 

of the Group. 

Governance Code (the Code), as published by the Financial Reporting 

Council in May 2010 and available on its website www.frc.org.uk except 

as described in the section entitled “Compliance with the UK Corporate 

Governance Code” below.  

The Board 

The Chief Executive Officer, Paul Stobart, is the executive responsible 

for the day-to-day running of the business and is accountable to the 

Board for its operational and financial performance.  

On his appointment as Chairman, Charles Gregson did satisfy the 

independence criteria as set out in the Code. However following his 

Throughout the year, the following Directors served on the Board: 

appointment as Chairman he is assumed, in accordance with the Code, 

Charles Gregson as Non-Executive Chairman, Shaun Parker as Chief 

not to be independent. The Board, whilst recognising the reasoning in 

Financial Officer and Hamish Ogston, Patrick De Smedt, Les Owen  

the Code behind this assumption, has concluded that Charles Gregson 

and Duncan McIntyre as Non-Executive Directors. 

During the year and up to the date of this statement the following 

changes to the Board were made: 

–  Paul Stobart was appointed as Chief Executive Officer on 1 October 

2011;  

–  Eric Woolley resigned as Chief Executive Officer 1 October 2011; and 

–  Peter Morgan retired as a Non-Executive Director on 31 March 2011.  

is independent, being independent in character and judgement and 

being free from any relationships or circumstances which are likely  

to affect, or could appear to affect, his judgement.  

Throughout the year the Chairman has held regular informal  

meetings with Non-Executive Directors without the Executive  

Directors being present. 

Board balance, independence and appointments 

During the year the Board has reviewed the structure, size and 

Following the changes described above the Board is now comprised  

composition of the Board (together with an evaluation of the Board’s 

–  Hamish Ogston, Les Owen, Patrick De Smedt and Duncan McIntyre 

needs of the Group’s business. 

as Non-Executive Directors. 

of the following: 

–  Charles Gregson as Non-Executive Chairman; 

–  Paul Stobart as Chief Executive Officer; 

–  Shaun Parker as Chief Financial Officer; and 

The Board met 25 times during the year, which included a number  

of meetings to address the FSA investigation and the consequences 

for the Group. 

The Board operates within a formal schedule of matters reserved to it. 

This schedule is reviewed and updated on a regular basis. Other powers 

are delegated to the various Board committees and senior management. 

Details of Board and committee attendance during the year are set out 

in the table under the section headed “Directors’ attendance at Board 

and committee meetings” on page 40. Details of the various roles and 

responsibilities of the Board committees are set out on pages 40 to 42. 

Papers for Board and committee meetings are circulated in advance  

of the relevant meeting and where a Director is unable to attend he 

continues to be provided with a full copy of the papers and has the 

opportunity to comment on the matters to be discussed. 

The Board considers that its primary role is to provide leadership to the 

Group, to set the Group’s long term strategic objectives and to develop 

robust corporate governance and risk management practices. 

The Board comprises individuals with wide ranging business skills and 

experience and considers that the balance of skills and experience is 

appropriate to the requirements of the business. The Board considers 

that the balance between Executive and Non-Executive Directors allows 

it to exercise objectivity in decision making and proper control of the 

Company’s business. Each member of the Board has had access to all 

information relating to the Group, the advice and services of the 

Company Secretary (who is responsible for ensuring that Board 

procedures are followed) and, as required, external advice at the 

expense of the Group. 

balance of skills, knowledge and experience); the membership of  

the various Board committees and the expected time commitment;  

and the policy for Board appointments for Executive and  

Non-Executive Directors. 

The Directors’ aim is to ensure that the balance between Non-Executive 

Directors and Executive Directors of the Board reflects the changing 

The Board has reviewed the independence of each of the Non-Executive 

Directors that have served on the Board throughout the year and 

concluded that Duncan McIntyre, Les Owen and Patrick De Smedt  

are independent. Hamish Ogston, founder and largest shareholder, is 

not considered independent. As such, together with the two Executive 

Directors, Paul Stobart and Shaun Parker, the Board, during the year, 

has satisfied the Code requirements that at least half the Board, 

excluding the Chairman, should comprise Non-Executive Directors 

determined by the Board to be independent. The Non-Executive 

Directors are considered to be of sufficient calibre and experience  

to bring significant influence to bear on the decision making process. 

On joining the Board, Non-Executive Directors receive a formal 

appointment letter, which identifies the time commitment expected  

of them. A potential director candidate is required to disclose all 

significant outside commitments prior to appointment and the Board  

has approved a policy requiring disclosure and approval by the Board  

of all additional appointments for Executive or Non-Executive Directors. 

The terms and conditions of appointment of Non-Executive Directors 

and service contracts of Executive Directors are available to 

shareholders for inspection at the Group's registered office during 

normal business hours. 

Biographical details of all Directors are given on pages 28 to 29. 

Information and professional development 

The Board receives detailed reports from executive management  

on the performance of the Group at its Board meetings and other 

information as necessary. Regular updates are provided on relevant 

legal, corporate governance and financial reporting developments and 

Directors are encouraged to attend external seminars on areas of 

relevance to their role. 

Appropriate training and induction are made available to any newly 
appointed Director, having regard to any previous experience they  
may have as a Director of a public company or otherwise. An ongoing 
programme of training is in place and all members of the Board are 
encouraged to participate in this programme. Directors are also 
encouraged to devote an element of their time to self development 
through available training. This is in addition to any guidance that may  
be given from time to time by the Company Secretary. 

All Directors have access to the advice and services of the Company 
Secretary. The Company Secretary or his nominee, is the secretary for 
all the Board committees. The removal and appointment of the 
Company Secretary is a matter reserved for Board approval. The Board 
also obtains advice from professional advisers as and when required. 

Performance evaluation 
The Board, led by the Chairman, has carried out a Board effectiveness 
review through an independent third party. The evaluation was based  
on written questionnaires completed by current Directors and some 
face to face interviews. These were used to create a written report with 
recommendations. The overall results of the evaluation were presented 
to, and discussed by, the Board in December 2011. The performance of 
the Chairman was included in the above process, and took into account 
the views of the Executive and Non-Executive Directors. Following this 
review, the Directors have agreed that the actions in respect of certain 
processes identified for improvement should be implemented and 
intend to review this implementation regularly.  

Re-election 
All Directors are subject to election at the first Annual General Meeting 
following their appointment by the Board. The Company’s Articles of 
Association state that at every Annual General Meeting any Director 
who has been a Director at each of the two preceding Annual General 
Meetings, and who was not appointed or re-appointed by the Company 
in general meeting at, or since, such meeting, shall retire as Director.  
A retiring Director shall be eligible for re-appointment. In practice this 
means that every Director stands for re-election at least once every 
three years. 

The Code recommends that all Directors of FTSE 350 companies  
retire and are put up for re-election at the Annual General Meeting. 
Although the Company is not currently a FTSE 350 company, the 
Company considers this to be best practice and, accordingly, all  
the Directors (save for Paul Stobart who seeks first election as below) 
offer themselves for re-election at the 2012 Annual General Meeting. 

The Board explains the reasons why it believes each Director should  
be elected or re-elected in the Notice of Meeting for the next Annual 
General Meeting. As referred to above, Paul Stobart, who was  
appointed as a Director during the year, will be subject to election  
at the forthcoming Annual General Meeting. The Board believes that 
its performance continues to be effective and that the election of 
Directors is also consistent with the Board’s evaluation of the size, 
structure and composition of the Board. 

CPPGroup Plc Annual Report and Accounts 2011

39

1

–
1
2

G
r
o
u
p

o
v
e
r
v
e
w

i

1
3

–
2
7

O
p
e
r
a
t
i
n
g

r
e
v
e
w

i

2
8

–

5
0

G
o
v
e
r
n
a
n
c
e

Relations with shareholders 
The Board remains committed to maintaining good relationships with 
shareholders. There is a good dialogue with institutional shareholders, 
although care is exercised to ensure that any price-sensitive information 
is released at the same time to all shareholders, in accordance with the 
requirements of the UK Listing Authority. The Chief Executive Officer 
and the Chief Financial Officer meet with institutional shareholders on a 
regular basis and are available for additional meetings where requested. 
Institutional shareholders will in future be given the opportunity to meet 
with the Chairman and/or other Non-Executive Directors if they have 
concerns that have not, or cannot, be addressed through the Chief 
Executive Officer or the Chief Financial Officer. 

The Chairman is responsible for ensuring that appropriate channels of 
communication are established between the Chief Executive Officer 
(and the other Executive Directors) and shareholders and ensuring  
that the views of the shareholders are made known to the Board; this 
includes feedback prepared by the Group’s brokers on meetings held 
with institutional shareholders. 

The Company recognises the importance of ensuring effective 
communication with all of its shareholders. An annual financial report  
is distributed to all shareholders and to other parties, who may have an 
interest in the Group’s performance. This report, together with a wide 
range of other information, including the half-yearly financial report, 
interim management statements, regulatory announcements and 
current details of the Company’s share price, is made available on  
the Company’s website. 

Insurance 
The Company has arranged appropriate insurance cover in respect  
of any potential litigation against Directors. 

Board committees 
The Audit and Risk Committee, the Nomination Committee and the 
Remuneration Committee are standing committees of the Board. The 
Board established during the year a Governance Committee with terms 
of reference to formulate governance arrangements for the Group and 
make recommendations to the Board.  

The written terms of reference of the committees, including their 
objectives and the authority delegated to them by the Board, are 
available upon request from the Company Secretary or via the Group’s 
website at www.cppgroupplc.com and are reviewed at least annually  
by the relevant committee and the Board. All committees have access 
to independent expert advice. The chairman of each committee reports 
to the Board.  

Conflicts of Interest 
A register of conflicts of interest is maintained by the Company 
Secretary. Entries in the register are discussed by the Board as required. 

5
1
–
9
5

i

F
n
a
n
c
a

i

l

s
t
a
t
e
m
e
n
t
s

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
40 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: CORPORATE GOVERNANCE STATEMENT CONTINUED

Directors’ attendance at Board and committee meetings 
The Directors’ attendance record for the year at the Board and committee meetings was as follows: 

Charles Gregson 
Paul Stobart* 
Eric Woolley** 
Shaun Parker 
Duncan McIntyre 
Peter Morgan*** 
Hamish Ogston 
Les Owen**** 
Patrick De Smedt 

Non-Executive Chairman
Chief Executive Officer
Chief Executive Officer
Chief Financial Officer
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director

* 

  Appointed to Board 1 October 2011 

**    Resigned from the Board 1 October 2011 

***   Resigned from Board and Audit and Risk Committee 31 March 2011 

**** Appointed to the Audit and Risk Committee 1 April 2011 

Board  

Audit and Risk 
Committee 

Remuneration 
Committee 

Nomination 
Committee 

24 (25) 
5 (5) 
17 (20) 
25 (25) 
25 (25) 
3 (4) 
22 (25) 
24 (25) 
20 (25) 

8 (8) 

6 (6) 

2 (2) 

5 (5) 
3 (3) 

8 (8) 

2 (2) 

6 (6) 
6 (6) 

2 (2) 
2 (2) 

The figures in brackets represent the maximum number of meetings from appointment for which the individual was a Board or committee member.  

Audit and Risk Committee 
Membership and meetings  
Set out below is the current membership of the Audit and Risk 
Committee: 

–(cid:3) Les Owen (Chairman); 

–(cid:3) Charles Gregson; and 

–(cid:3) Duncan McIntyre 

Les Owen took over as Chairman of the Audit and Risk Committee  
on 1 April 2011 following the retirement of Peter Morgan on 31 March 2011.  

The Company Secretary acts as secretary to the Audit and Risk 
Committee. Other individuals attend at the request of the Audit and Risk 
Committee Chairman and during the year the external Auditor, senior 
management, Chief Executive Officer, Chief Financial Officer, Head of 
Risk and Audit and Head of Compliance would usually attend meetings 
to report to the Audit and Risk Committee and provide clarification and 
explanations where appropriate. The Audit and Risk Committee also 
meets with the external Auditor without executive management present 
on a regular basis. The Audit and Risk Committee met on eight 
occasions during the year and details of attendance at Audit and  
Risk Committee meetings are set out in the table under the heading 
“Directors’ attendance at Board and committee meetings”. 

The Board is satisfied that Duncan McIntyre has recent and relevant 
financial experience, as referred to in the Smith Report.  

Role of the Audit and Risk Committee 
The role of the Audit and Risk Committee is to assist the Board in 
discharging its duties and responsibilities for financial reporting, 
corporate governance and internal control. The Audit and Risk 
Committee is also primarily responsible for making recommendations  
to the Board in relation to the appointment, re-appointment and removal 
of the external Auditor and to approve the Auditor’s remuneration and 
terms of engagement. The Audit and Risk Committee’s duties include 
keeping under review the scope and results of the audit work, its cost 
effectiveness and the independence and objectivity of the Auditor.  
The Audit and Risk Committee also monitors the volume and nature  
of non-audit services provided by the Auditor. The Audit and Risk 
Committee is also responsible for monitoring and reviewing the 
effectiveness of the internal audit and risk functions and the capital 
adequacy requirements of the Group’s relevant subsidiaries on an 
ongoing basis. 

A full copy of the terms of reference for the Audit and Risk Committee 
can be obtained on request from the Company Secretary or via the 
Group’s website at www.cppgroupplc.com. 

To reflect the Group’s continuing development of its governance 
structures, the Board has agreed that with effect from January 2012, 
the roles of the current Audit and Risk Committee should be split with 
the formation of a separate Audit Committee and a separate Risk and 
Compliance Committee. Each committee will be chaired by a different 
Non-Executive Director. In addition, separate Internal Audit and Risk 
Management teams will be formed from the current multi-disciplined 
Risk & Audit team. 

During the year the Audit and Risk Committee discharged its 
responsibilities by performing the following activities: 

Financial statements 
During the financial year and up to the date of this report, the Audit and 
Risk Committee reviewed and discussed the financial disclosures made 
in the annual results announcement, Annual Report and Accounts, half-
yearly financial report, interim management statements and the other 
trading statements made by the Group together with any related 
management letters, letters of representation and reports from the 
external auditors. Significant financial reporting issues and judgements 
were considered together with any significant accounting policies and 
changes proposed to them. 
Internal control and risk management 
The Audit and Risk Committee has reviewed the Group’s internal  
control and risk management systems. It has received presentations 
from senior management on the major risks faced by the Group and the 
procedures established to identify, assess, manage, monitor and report 
on these risks.  

During the year the Audit and Risk Committee has reviewed and 
updated the Group’s Risk Strategy and Risk Appetite statements,  
to reflect the current operating environment of the Group. 

In the UK, Homecare Insurance Limited is subject to the European 
Commission’s Solvency II Directive, due to be implemented by  
1 January 2014. The Directive is aimed at producing a more consistent 
solvency standard for insurers across Europe, ensuring that capital 
requirements are more reflective of the risks being accepted. During  
the year, the Audit & Risk Committee has monitored progress of the 
Group’s Solvency II project and enhancements made in the UK to risk 
management and governance systems, as required by the Directive. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

41

External Auditor 
The Audit and Risk Committee has responsibility for overseeing  
the relationship with the external Auditor and approves the external 
Auditor’s engagement letter, audit fee and audit and client services plan 
(including the planned levels of materiality). The external Auditor attends 
the Audit and Risk Committee meetings as appropriate and meets at 
least annually with the Audit and Risk Committee without executive 
management. The Chairman of the Audit and Risk Committee also 
meets privately with the external Auditor. 

During the year, the Audit and Risk Committee received regular  
detailed reports from the external Auditor including a formal written 
report dealing with the audit objectives, the Auditor’s qualifications, 
expertise and resources, effectiveness of the audit process, procedures 
and policies for maintaining independence and compliance with the 
ethical standards issued by the Auditing Practices Board. The external 
Auditor’s management letter is reviewed, as is management’s response 
to issues raised. The Audit and Risk Committee monitors the latest 
ethical guidance regarding rotation of audit partners. Non-audit services 
provided by the external auditors are monitored by the Audit and  
Risk Committee.  

During the year the Audit and Risk Committee has reviewed detailed 
reports covering the planning and results of external audit work, which 
included challenge to management’s assumptions. In addition, the  
Audit and Risk Committee considered a review of the external Auditor’s 
client service provision and arrangements for partner rotation. The lead 
external audit partner, Stephen Williams, is due to rotate after 2011 
reporting is complete, assuming that the resolution to adopt Deloitte  
as auditors for a further year is passed by shareholders. The Audit  
and Risk Committee is satisfied with the performance of the external 
Auditor during the year and the policies and procedures in place to 
maintain their objectivity and independence. Having considered the 
quality, objectivity and independence of the audit teams and their work 
completed across the Group, the external Auditor’s reporting and the 
levels of communication and service, the Audit and Risk Committee has 
recommended that Deloitte be re-appointed at the forthcoming Annual 
General Meeting. 

Internal Audit 
The Audit and Risk Committee approves the annual internal audit plan 
and methodology and monitors progress against the plan during the 
year. 30 audit reports across the Group (2010: 21) identifying some  
150 key recommended actions (2010: 100) in respect of the Group’s 
system of internal control were considered by the Audit and Risk 
Committee. Progress against actions identified in these reports and  
the external Auditor’s management letter as well as other control 
related actions raised by third parties are monitored by the Audit and 
Risk Committee at quarterly intervals. 

The Risk and Internal Audit team is led by a Chartered Accountant with 
more than 20 years’ audit experience in the financial services sector. 
The team comprises a total of four auditors whose tenure in the Group 
varies up to 10 years. The Audit and Risk Committee has approved the 
department’s terms of reference and has established procedures to 
monitor and review the department’s effectiveness including feedback 
from the external Auditor and senior management. The Audit and Risk 
Committee has assessed the resources the department has to 
complete its remit and has approved the use of co-sourced external 
consultants to supplement work, particularly in areas requiring specialist 
skills, e.g. Information Technology and Solvency II. The appointment and 
removal of the Head of Risk and Audit is the responsibility of the Audit 
and Risk Committee. The Risk and Internal Audit department continues 
to have unrestricted access to all Group documentation, premises, 
functions and employees as required to enable it to perform its 
functions. The Head of Risk and Audit has direct access to the Board 
and the Audit and Risk Committee Chairman and is accountable to the 
Audit and Risk Committee, meeting regularly with the Audit and Risk 
Committee Chairman without executive management. 

Other activities 
During the year other significant activities addressed by the Audit and 
Risk Committee were as follows: 

–(cid:3) The review of regular reports from the Head of Compliance; and 

–(cid:3) The review of the Audit and Risk Committee’s own terms  

of reference. 

Regular updates are provided to the Audit and Risk Committee on 
developments in financial reporting, risk management and related legal 
and corporate governance matters. 

A formalised whistle-blowing policy and procedure for staff to raise 
issues regarding possible improprieties in matters of financial reporting 
or other matters has been established and was reviewed during the 
year. The Audit and Risk Committee is responsible for monitoring the 
effectiveness of the Group’s whistle-blowing procedures and any 
notifications made. The Audit and Risk Committee is charged with 
ensuring that appropriate arrangements are in place for employees  
to be able to raise matters of possible impropriety in confidence and 
performing suitable subsequent follow-up action.  

An alternative reporting channel also exists whereby perceived 
wrongdoing may be reported via telephone to an external third party. 

The Audit and Risk Committee has access to the services of the  
Risk and Internal Audit and Company Secretarial departments and  
is authorised to obtain independent professional advice if it considers  
it necessary. 

Auditor’s independence and objectivity 
The external Auditor provides some non-audit services, primarily in  
the provision of taxation and in relation to corporate transactions that 
may arise from time to time. In order to ensure that Auditor objectivity 
and independence are safeguarded the following controls have  
been implemented: 

–(cid:3) Formal guidance on the use of the Auditor for non-audit work has 
been agreed by the Audit and Risk Committee. In summary, this 
ensures that work would usually only be awarded when, by virtue  
of the Auditor’s knowledge, skills or experience, the Auditor is clearly 
to be preferred over alternative suppliers; 

–(cid:3) The Audit and Risk Committee receives and reviews each year an 

analysis of all non-audit work awarded to the Auditor over the financial 
period; and 

–(cid:3) The Audit and Risk Committee receives each year a report from the 
external Auditor as to any matters that the Auditor considers bear on 
its independence and which need to be disclosed to the Audit and 
Risk Committee.  

Nomination Committee 
Membership and meetings  
Set out below is the current membership of the Nomination Committee: 

–(cid:3) Charles Gregson (Nomination Committee Chairman); 

–(cid:3) Patrick De Smedt; and  

–(cid:3) Les Owen 

Peter Morgan was a Member of the Nomination Committee during  
the year up until his retirement on 31 March 2011, Charles Gregson 
(Chairman), Patrick De Smedt and Les Owen served as members of  
the Nomination Committee throughout the year. 

Role of the Nomination Committee 
A full copy of the terms of reference for the Nomination Committee can 
be obtained by request to the Company Secretary or via the Group’s 
website at www.cppgroupplc.com.  

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42 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: CORPORATE GOVERNANCE STATEMENT CONTINUED

The Nomination Committee’s principal function is to carry out a formal 
selection process for Executive and Non-Executive Directors and 
subsequently to propose to the Board any new appointments (this 
includes recommending Directors appointed during the year for election 
by shareholders at the Annual General Meeting after their appointment). 
Ultimate responsibility for the appointment of Directors resides with  
the Board.  

The Nomination Committee oversees succession planning for Directors 
and senior managers below Board level. 

The Chairman of the Nomination Committee reports to the Board  
on the outcome of meetings. 

During the year the Nomination Committee met two times.  

The Nomination Committee engaged the services of professional 
advisers, particularly in relation to the appointment of the new CEO,  
Paul Stobart. 

During the year the Nomination Committee considered the following 
principal items: 

–(cid:3) A review of the current structure, size and composition of the Board; 

–(cid:3) Engaging an independent third party to carry out an evaluation of 

Board effectiveness; 

–(cid:3) The time commitment expected of Non-Executive Directors; 

–(cid:3) Leadership and succession planning; 

–(cid:3) The proposed election of Directors at the forthcoming Annual  

General Meeting; and 

Internal control 
The Board has overall responsibility for the Group’s system of internal 
control and for monitoring its effectiveness. The Audit and Risk 
Committee has been in operation throughout the year and oversees  
the Group’s system of internal control. Material risk or control matters 
together with the appropriate remedial action are reported by the Audit 
and Risk Committee to the Board. The Board monitors the ongoing 
process by which critical risks to the business are identified, evaluated 
and managed. This process is consistent with the Turnbull Guidance on 
Internal Control and the revised guidance issued by the Financial 
Reporting Council in October 2005, and has been in place for the year 
under review and up to the date of approval of the Annual Report and 
Accounts. The key elements of the Group’s system of internal control 
include regular meetings of the Risk Management Group (an executive 
management forum) and of subsidiary company boards together with 
annual budgeting, monthly financial, key performance indicators and 
operational reporting for all businesses within the Group.  

Compliance is monitored by management, the Group’s compliance 
departments, Internal Audit and, to the extent it considers necessary to 
support its audit report, the external Auditor. Included in the description 
of Regulatory risk on page 33, are the actions and initiatives taken by the 
Board to improve the effectiveness of its regulatory compliance, some 
of which are currently in train. A number of other changes to the system 
of internal control are identified in the description of the FSA 
investigation on page 34.  

The Board assesses the effectiveness of the Group’s system of internal 
control (including financial, operational and compliance controls and risk 
management systems) on the basis of: 

–(cid:3) The appointment of the new Chief Executive Officer. 

–(cid:3) Established procedures, including those already described, which are 

Governance Committee 
A full copy of the terms of reference for the Governance Committee  
can be obtained by request to the Company Secretary.  

The Governance Committee’s principal function is to review governance 
procedures in the Group to ensure they are fit for purpose and 
consistent with current best practice. The Governance Committee  
is not expected to become a standing committee of the Company.  
The Chairman of the Governance Committee reports to the Board on 
the outcome of its meetings and makes recommendations to the Board 
about governance procedures. The Governance Committee has advised 
the Board on engaging the services of professional advisers, particularly 
in relation to compliance procedures and controls, and Board reporting 
and management information. 

During the year the Governance Committee met three times. It has 
considered the following matters: 

–(cid:3) The implementation of replacing the Audit and Risk Committee with  
a separate Audit Committee and Risk and Compliance Committee; 

–(cid:3) The establishment of the Group Executive Committee of the 

Company to assist the Chief Executive Officer in the performance  
of his duties; 

–(cid:3) The Board composition and committee structures of the Company’s 

UK subsidiary undertakings; 

–(cid:3) The Group’s compliance procedures and controls; 

–(cid:3) The Group’s policies and procedures to ensure its customers  

are treated fairly; and 

–(cid:3) The form and content of Board reporting and management 

information. 

Report of the Remuneration Committee 
The full details of the composition and work of the Remuneration 
Committee are provided in the Remuneration Report set out on pages 
44 to 50. 

in place to manage perceived risks; 

–(cid:3) Reports by management to the Board on specific aspects of the 
Group system of internal control and significant control issues; 

–(cid:3) Under the direction of the Risk Management Group the continuous 

Group-wide process for formally identifying, evaluating and managing 
the significant risks to the achievement of the Group’s objectives; and 

–(cid:3) Reports to the Audit and Risk Committee on the results of internal 
audit reviews and work undertaken by other departments including 
compliance and information security. 

The Group’s system of internal control is designed to manage rather 
than eliminate risk of failure to achieve the Group’s objectives and can 
only provide reasonable and not absolute assurance against material 
mis-statement or loss. In assessing what constitutes reasonable 
assurance, the Board considers the materiality of financial and non-
financial risks and the relationship between the cost of and benefit  
from the system of internal control. 

The Board regularly reviews the actual and forecast performance  
of the business compared with the annual plan, as well as other key 
performance indicators. 

Lines of responsibility and delegated authorities are clearly defined.  

The Group’s policies and procedures are regularly updated and 
distributed throughout the Group. The Audit and Risk Committee 
receives reports on a regular basis on compliance with the Group’s 
policies and procedures. 

On behalf of the Board, the Audit and Risk Committee confirms that 
through discharging its responsibilities under its terms of reference  
as described on page 40, it has reviewed the effectiveness of the 
Group’s system of internal controls and is able to confirm that necessary 
actions have been or are being taken to remedy any identified failings  
or weaknesses. 

 
 
 
The Nomination Committee’s principal function is to carry out a formal 

Internal control 

selection process for Executive and Non-Executive Directors and 

The Board has overall responsibility for the Group’s system of internal 

subsequently to propose to the Board any new appointments (this 

control and for monitoring its effectiveness. The Audit and Risk 

includes recommending Directors appointed during the year for election 

Committee has been in operation throughout the year and oversees  

by shareholders at the Annual General Meeting after their appointment). 

the Group’s system of internal control. Material risk or control matters 

Ultimate responsibility for the appointment of Directors resides with  

together with the appropriate remedial action are reported by the Audit 

the Board.  

The Nomination Committee oversees succession planning for Directors 

and senior managers below Board level. 

The Chairman of the Nomination Committee reports to the Board  

on the outcome of meetings. 

During the year the Nomination Committee met two times.  

The Nomination Committee engaged the services of professional 

advisers, particularly in relation to the appointment of the new CEO,  

Paul Stobart. 

principal items: 

During the year the Nomination Committee considered the following 

–  A review of the current structure, size and composition of the Board; 

–  Engaging an independent third party to carry out an evaluation of 

Board effectiveness; 

–  The time commitment expected of Non-Executive Directors; 

–  Leadership and succession planning; 

and Risk Committee to the Board. The Board monitors the ongoing 

process by which critical risks to the business are identified, evaluated 

and managed. This process is consistent with the Turnbull Guidance on 

Internal Control and the revised guidance issued by the Financial 

Reporting Council in October 2005, and has been in place for the year 

under review and up to the date of approval of the Annual Report and 

Accounts. The key elements of the Group’s system of internal control 

include regular meetings of the Risk Management Group (an executive 

management forum) and of subsidiary company boards together with 

annual budgeting, monthly financial, key performance indicators and 

operational reporting for all businesses within the Group.  

Compliance is monitored by management, the Group’s compliance 

departments, Internal Audit and, to the extent it considers necessary to 

support its audit report, the external Auditor. Included in the description 

of Regulatory risk on page 33, are the actions and initiatives taken by the 

Board to improve the effectiveness of its regulatory compliance, some 

of which are currently in train. A number of other changes to the system 

of internal control are identified in the description of the FSA 

investigation on page 34.  

The Board assesses the effectiveness of the Group’s system of internal 

–  The proposed election of Directors at the forthcoming Annual  

control (including financial, operational and compliance controls and risk 

General Meeting; and 

management systems) on the basis of: 

–  The appointment of the new Chief Executive Officer. 

–  Established procedures, including those already described, which are 

Governance Committee 

A full copy of the terms of reference for the Governance Committee  

can be obtained by request to the Company Secretary.  

The Governance Committee’s principal function is to review governance 

procedures in the Group to ensure they are fit for purpose and 

consistent with current best practice. The Governance Committee  

is not expected to become a standing committee of the Company.  

The Chairman of the Governance Committee reports to the Board on 

the outcome of its meetings and makes recommendations to the Board 

about governance procedures. The Governance Committee has advised 

the Board on engaging the services of professional advisers, particularly 

in relation to compliance procedures and controls, and Board reporting 

and management information. 

During the year the Governance Committee met three times. It has 

considered the following matters: 

–  The implementation of replacing the Audit and Risk Committee with  

a separate Audit Committee and Risk and Compliance Committee; 

of his duties; 

UK subsidiary undertakings; 

–  The Group’s compliance procedures and controls; 

–  The Group’s policies and procedures to ensure its customers  

are treated fairly; and 

information. 

–  The form and content of Board reporting and management 

in place to manage perceived risks; 

–  Reports by management to the Board on specific aspects of the 

Group system of internal control and significant control issues; 

–  Under the direction of the Risk Management Group the continuous 

Group-wide process for formally identifying, evaluating and managing 

the significant risks to the achievement of the Group’s objectives; and 

–  Reports to the Audit and Risk Committee on the results of internal 

audit reviews and work undertaken by other departments including 

compliance and information security. 

The Group’s system of internal control is designed to manage rather 

than eliminate risk of failure to achieve the Group’s objectives and can 

only provide reasonable and not absolute assurance against material 

mis-statement or loss. In assessing what constitutes reasonable 

assurance, the Board considers the materiality of financial and non-

financial risks and the relationship between the cost of and benefit  

from the system of internal control. 

The Board regularly reviews the actual and forecast performance  

of the business compared with the annual plan, as well as other key 

Lines of responsibility and delegated authorities are clearly defined.  

distributed throughout the Group. The Audit and Risk Committee 

receives reports on a regular basis on compliance with the Group’s 

policies and procedures. 

On behalf of the Board, the Audit and Risk Committee confirms that 

through discharging its responsibilities under its terms of reference  

as described on page 40, it has reviewed the effectiveness of the 

Group’s system of internal controls and is able to confirm that necessary 

actions have been or are being taken to remedy any identified failings  

–  The establishment of the Group Executive Committee of the 

Company to assist the Chief Executive Officer in the performance  

performance indicators. 

–  The Board composition and committee structures of the Company’s 

The Group’s policies and procedures are regularly updated and 

Report of the Remuneration Committee 

The full details of the composition and work of the Remuneration 

Committee are provided in the Remuneration Report set out on pages 

or weaknesses. 

44 to 50. 

Homecare Insurance Limited and Card Protection Plan Limited 
(insurance and insurance intermediary companies of the Group 
respectively) are subject to regulation by the Financial Services Authority 
and as such undertake a solvency/capital adequacy assessment process 
on a regular basis. Output from these assessments are subject to 
review and approved by the individual Boards of these companies  
and are reviewed by the Financial Services Authority from time to time. 
The assessments include consideration of the risks that the Group’s 
business faces in its operating environment, the assessment of the 
likelihood of the risks crystallising and their potential materiality and  
the effectiveness of the control framework in mitigating each risk. 
Homecare Insurance Limited is currently preparing to comply with  
the future requirements of the Solvency II Directive. 

The purpose of each assessment is to establish the level of capital 
resources that the business should maintain, both under current market 
conditions and under a range of scenarios, in order to ensure that 
financial resources are sufficient to successfully manage the effects  
of any risks that may crystallise.  

Using a framework of key controls, the Risk and Internal Audit 
department reviews the extent to which the system of internal control  
is effective, is adequate to manage the Group’s significant risks and 
safeguard the Group’s assets and, in conjunction with the Company 
Secretary and the Group’s Legal and Compliance teams, ensures 
compliance with legal and regulatory requirements. It provides 
independent and objective assurance on risks and controls to the  
Board and senior management. 

Internal Audit’s work is focused on areas of greatest risk to the Group,  
as determined by a structured risk assessment process involving 
Executive Directors and senior management. The output from the 
process is summarised in an annual audit plan, which is approved by  
the Audit and Risk Committee. The Head of Risk and Audit reports 
regularly to the Audit and Risk Committee and Chief Financial Officer. 

The role of Internal Audit and the scope of its work continue to  
evolve to take account of changes within the business and emerging 
best practice. 
Compliance with the UK Corporate Governance Code 
The Directors consider that the Company has been in full compliance 
with the provisions set out in the Code throughout the year except as 
described below: 

The Board has not appointed a Senior Independent Non-Executive 
Director. A decision as to who should take up the role of Senior 
Independent Non-Executive Director has not yet been made by the 
Board. The Board expects to fill this role in 2012.  

The Directors are not subject to annual re-election. The Articles of 
Association of the Company require a Director appointed during the 
year to be reappointed at the next annual general meeting of the 
Company. In addition, all Directors are reappointed no less frequently 
than every third annual general meeting. The Board, however, has 
agreed to be subject to annual election at this year’s Annual General 
Meeting as referred to on page 39.  

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 
it, included on pages 34 to 35 of the Directors’ report. 

CPPGroup Plc Annual Report and Accounts 2011

43

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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 pages 7 to 12 of the Group overview section and pages 14 to 25  
of the Operating Review section of this Annual Report. 

–  The financial position of the Group, its cash flows, liquidity position 

and existing borrowing facilities are described in the financial review 
on pages 22 to 25. 

–  In addition, note 27 to the financial statements includes the Group’s 

objectives, policies and processes for managing its capital, its financial 
risk management objectives, details of its financial instruments, and 
its exposure to credit, liquidity, interest rate and insurance risks. 

–  The sources of finance available to the Group, which include the 
Group’s £80 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 £11.9 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. 

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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. 

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44 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: REMUNERATION REPORT

REMUNERATION REPORT 

This report has been prepared on behalf of the Board by the 
Remuneration Committee and is in accordance with the provisions  
of the Companies Act 2006 (the Act) and schedule 8 of the Large  
and Medium-sized Companies and Groups (Accounts and Reports) 
Regulations 2008. The report also meets the relevant requirements  
of the Listing Rules of the FSA. In accordance with the Act, a resolution 
will be proposed at the forthcoming Annual General Meeting of the 
Company to approve this report. 

The Act requires the independent Auditor to report to the members  
of the Company on certain information contained in the report and to 
state whether, in the Auditor’s opinion, that information has been 
properly prepared in accordance with the Act. The report has, therefore, 
been divided into two sections, showing the audited and unaudited 
information separately. 

Throughout the year, the Remuneration Committee has complied with 
the UK Corporate Governance Code 2010. This report sets out the policy 
for the financial year just ended, for the forthcoming year and, subject to 
ongoing review, for subsequent years. 

UNAUDITED INFORMATION 

Role 
The Remuneration Committee (the Committee) has responsibility for,  
on behalf of the Board, determining the remuneration policies and 
practices for the Executive Directors, the Group Operations Committee, 
the Company Chairman and the Group-wide remuneration policy more 
broadly. In implementing these policies and practices the Company aims 
to support the implementation of a business strategy which creates 
value for shareholders over time.  

The Committee’s terms of reference are available on the Company’s 
website or you can request a copy from the Company Secretary. 

Membership 
Patrick De Smedt has been a member and Chairman of the Committee 
since 19 August 2010. Peter Morgan served as a member of the 
Committee until he resigned from the Board on 31 March 2011.  
Other members of the Committee are Charles Gregson and Les Owen. 
All members of the Committee are considered by the Board to be 
independent (Charles Gregson being independent on his appointment  
as Chairman of the Board).  

Advisers 
New Bridge Street (NBS) has served as independent adviser to the 
Committee throughout the year (NBS being a brand of Aon Hewitt 
Limited). In addition to advising the Committee, NBS also provides 
advice to the Company on implementing decisions made by the 
Committee. Neither NBS nor any other part of the Aon Corporation 
Group provide any other services to the Company. The Chief Executive 
Officer, the Group HR Director and the Group Head of Tax assisted  
both the Board and the Committee as required, albeit taking no part  
in discussions directly relating to their own remuneration. The Company 
Chairman absents himself from discussions with respect to his  
own pay.  

The Committee met six times in the year and is scheduled to meet  
four times in the forthcoming financial year. Additional meetings may  
be held should any matters arise that require the consideration of  
the Committee. 

Remuneration policy 
The remuneration of Executive Directors comprises both fixed and 
variable elements. Fixed remuneration is basic salary, pension and 
flexible benefits, and variable performance-related remuneration is in  
the form of an annual cash bonus (partly paid in cash and partly deferred 
in shares) and long term incentive arrangements. Significant weighting 
is given to the variable element of pay which will be derived from  
the Company’s performance, which is strongly aligned to shareholder 
value creation.  

Both the Board and the Committee recognise the importance of  
an effective remuneration policy in the achievement of the Group’s 
successful financial performance. The aim of the remuneration policy  
is to: 

–(cid:3) Provide overall remuneration to Executive Directors that is 

competitive and sufficient to attract, motivate and retain individuals  
of the quality required to deliver successful performance; and 

–(cid:3) Align rewards with the Group’s performance. 

It is the intention of the Committee to ensure the remuneration policy 
strongly aligns the interests of the Executive Directors with those of 
shareholders and the Company. For example, this is demonstrated by 
the payment of no annual bonus for the 2011 financial year and the 
absence of any base salary increase for the Executive Directors for the 
forthcoming year.  

It is the Remuneration Committee’s view that the current executive 
remuneration policies are compatible with the Company’s risk 
management policies and systems. In light of issues regarding systems 
and controls that were raised during the FSA investigation, the 
Committee has instigated a further risk review in order to ensure the 
executive remuneration policies remain fully aligned with the Company’s 
risk appetite and with compliance requirements.  

In determining executive remuneration, the Committee has regard to 
pay levels and structures elsewhere in the Group in ensuring that pay  
is coherent overall. Regular interaction between the Chairman of the 
Remuneration Committee and the Company's HR function ensures that 
this is the case. 

The Company’s approach to non-executive remuneration is set by the 
Board with account taken of the time and responsibility involved in each 
role, including where applicable the Chairmanship of Board Committees.  

In line with the Association of British Insurers’ Guidelines on 
Responsible Investment Disclosure, the Committee will ensure that the 
incentive structure for the Executive Directors and senior management 
will not raise environmental, social or governance (ESG) risks by 
inadvertently motivating irresponsible behaviour. More generally, with 
regard to the overall remuneration structure, there is no restriction on 
the Committee which prevents it from taking account of ESG matters. 

Key activities 
Key activities of the Committee are to: 

–(cid:3) Carry out an annual strategic review of the remuneration framework 
for Executive Directors and the Group Operations Committee to 
ensure that the remuneration policy supports the Company's strategic 
goals as explained in the Group overview section of the Annual 
Report & Accounts; 

–(cid:3) Determine the remuneration and benefits packages of individual 

Executive Directors and senior executives within the framework of 
the Group’s agreed remuneration policy; 

CPPGroup Plc Annual Report and Accounts 2011

45

–(cid:3) Determine the remuneration of the Chairman; 

–(cid:3) Review remuneration arrangements for the Group; 

–(cid:3) Set and review performance targets for Executive Directors and  

the Group Operations Committee; 

–(cid:3) Assess annually the Company’s and individuals’ performance  
against targets to determine the level of executive bonus;  

–(cid:3) Approve and grant awards under the Company’s long term  

incentive plans; 

–(cid:3) Determine and review the contractual terms of Executive Directors; 

and 

–(cid:3) Review the governance arrangements for global remuneration. 

Remuneration for Executive Directors 
The main components of the remuneration package for Executive 
Directors are: 

Basic salary 
Basic salary for each Executive Director is determined by the  
Committee taking into account the roles, responsibilities, performance 
and experience of the individual and pay levels elsewhere in the Group.  
The Committee's policy is to adopt a broadly median base salary 
positioning vis-à-vis appropriate comparable benchmark companies. 

Salaries were reviewed in January 2012. Following the January 2012 
review, the Committee decided there should be no increase in  
Executive Directors’ salary (as per the table below) or for senior 
management. Across the Group as a whole there was an average  
basic pay increase of 2%.  

Salary to  
31 December  
2011  
£’000 

Current salary 
effective from 
1 January 
2012 
 £’000 

412 

268 

113 

412 

268 

450 

% increase 

0% 

0% 

0% 

E Woolley* 

S Parker 

P Stobart* 

*   Eric Woolley resigned as CEO from the Board on 1 October 2011 and his employment 

ceased on 22 March 2012. Paul Stobart joined the Board as CEO on 1 October 2011. 

Eric Woolley signed a compromise agreement on 16 September 2011, 
which provided for his employment to end on 22 March 2012. 

Pension arrangements  
An employer contribution of up to 15% of base salary is paid into a 
private pension scheme of the Executive Director’s choice. Where  
it is not tax efficient to receive a pension payment, the Executive may 
request a cash payment in lieu. The Committee does not compensate 
for changes in the tax consequences of the payment. 

Benefits 
Each Executive Director is a member of the Company’s flexible  
benefits fund. Eric Woolley was entitled to an allowance of £20,000  
per annum and Shaun Parker a £15,000 allowance per annum. Paul 
Stobart is entitled to an allowance of £20,000 per annum. In addition 
Paul Stobart is entitled to a sum, after the deduction of income tax and 
employees’ National Insurance Contributions, equal to £1,500 per month 
to cover travel expenses. Each Executive Director is entitled to 30 days’ 
holiday per annum. 

Executive Bonus Scheme 
The Company’s senior executives, including the Executive Directors, 
participate in the Executive Bonus Scheme. For the 2011 financial year, 
the maximum bonus award that could be achieved was 100% of basic 
salary, with the on-target amount 50% of basic salary. 

The Executive Bonus Scheme payment was dependent upon the overall 
Group performance and individual performance measures. For the 2011 
financial year, 70% of an executive’s bonus was based on Group 
performance and 30% was based on the achievement of personal 
objectives and KPIs set for the role. 

Group performance, which determined 70% of an Executive Director’s 
maximum bonus, was based upon the Group’s underlying operating 
profit against stretching targets set at the start of the year. This element 
could also be subject to a quality of earnings adjustment as determined 
by the Committee.  

The criteria used to determine the remaining 30% were based on 
personal objectives such as customer satisfaction and retention, product 
development and international expansion.  

In light of the Group’s financial performance in 2011, no Executive 
Director, and no member of the Group Executive Committee, received  
a bonus in relation to the 2011 financial year. 

Whilst all Group Operations Committee members contribute to the 
overall Group performance, the performance of the relevant region  
is also taken into consideration in this factor for those below Board 
executives with regional responsibilities. Regional performance is 
assessed following a review of the regional growth, delivery of regional 
objectives and a judgement of the financials against a quality of earnings 
assessment. The exact percentage award is agreed by the Committee 
and approved by the Board on an individual basis. 

The concept of annual bonus clawback applies to bonuses which 
permits the Company to reclaim or reduce payments if it subsequently 
comes to light that the performance upon which bonuses were paid 
was incorrect or is required to be restated. 

The Company intends that the senior executives, including the 
Executive Directors, will participate in an Executive Bonus Scheme  
for the 2012 financial year. This Scheme will be structured on the same 
basis as the Scheme for the 2011 financial year in terms of maximum 
bonus opportunity and the use of financial and personal objectives.  
The financial targets will be set once the impact of the FSA investigation 
has been fully assessed. They will be appropriate and challenging in the 
context of the assessment.  

Deferred Share Bonus Plan 
The Committee supports the principle that the payment of a  
proportion of any annual bonuses paid in future periods should be 
deferred and paid in Company shares as it further aligns executives  
with shareholders. 

Accordingly, annual bonuses awarded under the Executive Bonus 
Scheme are also subject to the Deferred Share Bonus Plan (DSBP) 
arrangements. Any bonuses awarded up to 50% of maximum potential 
(i.e. up to target bonus) will be paid as cash. Where the bonus exceeds 
50% of maximum potential (i.e. is above target), half of the additional 
bonus above target will be paid as cash and half will be deferred into 
awards over shares under the DSBP. Deferred shares will vest on  
the third anniversary of grant subject to continued employment at  
the Company. 

As under the Executive Bonus Plan, the concept of clawback applies  
to DSBP awards. 

While awards were made under the DSBP in the 2011 financial year, 
these were made before the commencement of the FSA investigation 
and were based on performance against the bonus targets for the 2010 
financial year (as reported last year). No DSBP awards will be made to 
an Executive Director in connection with performance in the 2011 
financial year as no bonus was payable for performance in that year. 

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46 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: REMUNERATION REPORT CONTINUED

Long term incentive schemes 
For Executive Directors, only one long term incentive plan operates, 
which can be summarised as follows:  

2010 Long Term Incentive Plan (LTIP) 
Under this plan, Executive Directors and key individuals may each  
year be issued awards over ordinary shares in the Company up to  
a maximum of 200% of salary. However, the Committee's normal  
policy is to grant LTIP awards not exceeding a face value of 125%  
of salary and 100% of salary to the Chief Executive Officer and Chief 
Financial Officer respectively. Lower levels of awards are made to  
less senior executives. 

The normal policy thus far has been for awards to have a three year 
vesting period and be subject to performance conditions relating to 
adjusted Earnings Per Share (EPS) and Total Shareholder Return (TSR) 
as follows: 

–(cid:3) 75% of the award has been dependent on the satisfaction of an EPS 
performance target. EPS is measured over the three years following 
grant and vesting will occur on the following basis: 

EPS growth over the  
performance period 

Less than 12% p.a. 

Equal to 12% p.a. 

Vesting percentage of  
75% of the total award 

0% 

25% 

Equal to or greater than 17% p.a. 

100% 

Between 12% p.a. and 17% p.a.  On a straight-line basis 

–(cid:3) The above EPS targets, at the discretion of the Committee, may be 
amended if RPI over the performance period is negative or greater 
than 4% p.a. The Committee notes that RPI is above 4% and is 
keeping any potential change to targets under review. The EPS 
calculation is based on a fully diluted basis, adjusted for taxation and 
other items to reflect underlying financial performance. 

–(cid:3) 25% of the award has been dependent upon the Company’s TSR 

performance over a single three year period against the constituents 
of the FTSE 250 (excluding any Investment Trusts). Vesting for this 
portion of the award will occur on the following basis: 

TSR ranking against the  
comparator group 

Vesting percentage of  
25% of the total award 

Below median 

Median 

Upper quintile 

0% 

25% 

100% 

Between median and upper quintile On a straight-line basis 

In addition, and notwithstanding the Company’s TSR performance,  
this part of the award subject to the TSR condition will only vest to  
the extent that the Committee is satisfied that the underlying financial 
performance over the vesting period warrants the level of vesting  
under the TSR performance condition. 

The Committee considered that this combination of performance 
conditions was the most appropriate way of rewarding Executive 
Directors because it took into account both the long term returns to 
shareholders and the Group’s financial growth. The TSR performance 
condition is monitored on the Committee’s behalf by NBS whilst the 
Group’s EPS growth is derived from the audited financial statements.  

It is the Committee's intention to make further awards under the LTIP  
in 2012, but only once the impact of the FSA investigation is known. 
This will allow the Committee to consider all relevant facts before 
determining the size, structure and appropriate challenging performance 
conditions of such awards. Full details of these awards will be disclosed 
in next year's report. 

LTIP Award to Paul Stobart 
Paul Stobart commenced employment after the grant date of the  
March 2011 LTIP awards and after the commencement of the  
FSA investigation. 

The Committee's objectives when structuring Paul Stobart's 2011 LTIP 
award were as follows: 

–(cid:3) To ensure Paul is appropriately incentivised to generate substantial 
and sustainable long-term returns to shareholders via an entirely 
performance-linked award; 

–(cid:3) That Paul's award should be made under the terms of the existing 

LTIP, rather than be made under a separate "one-off" recruitment plan; 

–(cid:3) To ensure that, where possible, Paul's award not only provides an 
alignment of his interests with those of shareholders, but also with 
the forward-looking interests of other LTIP participants; and 

–(cid:3) That the award should take account of the circumstances and 

challenges faced by the Company now, rather than the circumstances 
that prevailed at the time of the grant of the 2011 LTIP awards to 
other participants. 

Consequently, Paul was granted an initial LTIP award over shares worth 
165% of salary (within the 200% of salary LTIP limit), based on a share 
price of 131 pence (i.e. the share price prevailing on the date the 
Committee agreed the award). It is intended that this award be subject 
to the same performance conditions as will be applied to the LTIP award 
made in 2012 to other participants, thereby providing alignment of 
interests across the senior management population who receive LTIP 
awards. However, if no LTIP awards have been made in 2012 by six 
weeks following the date of the Company's announcement of its 2012 
interim results, Paul's 2011 award will be subject to similar EPS and 
TSR-based performance conditions as have been applied to past LTIP 
awards (i.e. 75% of the award will be based on a sliding scale of three 
year EPS growth targets of 12%-17% p.a., albeit with the base year 
being 2011 from which growth is measured, with the remaining 25% 
subject to the relative TSR condition, measured from the date of grant). 

Other share plans 
2010 Restricted Stock Plan (RSP) 
The RSP is a non-performance based share plan aimed to incentivise the 
second level of management across the Group and Executive Directors 
are not eligible to participate. Employment is the only performance 
condition attached to this plan. 

UK Save As You Earn Scheme (SAYE) 
The Company launched a Save As You Earn scheme (ShareSAVE Plan) 
in September 2010 and made an additional offer in September 2011.  
All employees in the UK, including Executive Directors, are eligible  
to participate in the SAYE scheme. Options were granted under  
this scheme in September 2011 at an option price of 125 pence 
representing a discount of 20% to the market value applicable at  
the time of grant. Consistent with HMRC rules, the scheme is not 
subject to any performance criteria other than employment. 

Dilution limits 
In line with the ABI guidelines the rules of the above incentive schemes 
provide that: 

–(cid:3) Commitments to issue new shares or re-issue treasury shares, when 
aggregated with awards under all of the Company’s other schemes, 
must not exceed 10% of the issued ordinary share capital in any 
rolling 10 year period commencing on Admission; and  

 
 
 
CPPGroup Plc Annual Report and Accounts 2011

47

–(cid:3) Commitments to issue new shares or re-issue treasury shares under 

executive (discretionary) schemes should not exceed 5% of the 
issued ordinary share capital of the Company in any rolling 10 year 
period commencing on Admission.  

It has been decided to split the Audit and Risk Committee into two 
separate committees from 1 January 2012. Duncan McIntyre will chair 
the new Risk and Compliance Committee, for which he will receive an 
additional fee of £10,000. Les Owen will chair the Audit Committee. 

Current headroom under these limits is 7.4% and 3.2% respectively.  

Service contracts 
The contracts of Eric Woolley and Shaun Parker, who served during the 
financial year, were subject to a notice period to and from the Company 
of six months. Eric Woolley was employed under a service agreement 
with CPP Holdings Limited (formerly named CPP Group Plc prior to its 
acquisition by CPPGroup Plc) dated 9 May 2008. Shaun Parker is 
employed under a service agreement with CPP Group Plc dated  
1 January 2010. Paul Stobart is employed under a service agreement 
with CPPGroup Plc dated 16 September 2011 which is subject to a 
notice period to and from the Company of twelve months. 

The Company may terminate the employment of Executive Directors  
by making a payment in lieu of notice equivalent to basic salary and 
fixed benefits only. 

Currently neither of the Executive Directors holds a non-executive  
director role elsewhere. 

The Articles of Association require a Director to stand for election  
by shareholders at the first Annual General Meeting following their 
appointment and by rotation every three years thereafter.  

There are no service agreements for Non-Executive Directors. However, 
a formal letter of appointment is issued to all Non-Executive Directors  
to confirm the terms of their appointment. Non-Executive appointments 
terms provide for an initial period of appointment of three years (which 
may be extended at the liberty of the Board) normally terminable on  
one month’s notice by either party. Non-Executive Directors are 
included in the requirement for all Directors to stand for election by  
the shareholders at the Annual General Meeting following their initial 
appointment and to stand for re-election on a three year rolling  
basis thereafter. 

With regard to the current Non-Executive Directors, Charles Gregson 
entered into a Non-Executive appointment letter with CPP Group Plc  
on 14 January 2010. It had been agreed that from Admission the terms 
of his engagement be transferred to the Company. Hamish Ogston 
entered into a Non-Executive appointment letter with the Company 
which was conditional on and effective from Admission on 24 March 
2010 although he was appointed as a Director of the new holding 
Company at the date of incorporation on 9 February 2010. Patrick De 
Smedt was appointed on 19 August 2010, Les Owen was appointed  
on 21 September 2010 and Duncan McIntyre was appointed on  
1 January 2011. 

Share ownership guidelines 
Pursuant to a letter agreement with Hamish Ogston dated 18 March 
2010, Charles Gregson has agreed, from Admission, to apply all of the 
net fees he receives from his position as Chairman of the Company to 
making on-market purchases of shares in the Company, until he has 
committed, in total, at least £250,000 in purchasing shares.  

Paul Stobart, the Chief Executive Officer, and Eric Woolley the outgoing 
Chief Executive Officer agreed to commit 50% of the post tax gain  
from any vested shares in the form of shares held by them, until the 
qualifying holding of the equivalent of one and a half year’s salary is met. 
Shaun Parker, the Chief Financial Officer, agreed to commit 50% of the 
post tax gain from any vested shares in the form of shares held, until 
the qualifying holding of the equivalent of one year’s salary is met. 
These arrangements only apply to share awards made on or after 
Admission and not to any awards under the legacy plans 

Each Non-Executive Director has agreed to commit to making on-market 
purchases of shares in the Company, within a two year period from the 
date of their appointment, until they have committed in total to at least 
£50,000 in the purchasing of such shares.  

Non-Executive Directors 
Non-Executive Directors receive a fixed fee for their services to the 
Group. These fees are set for each individual Non-Executive Director  
by the Board on an annual basis. Fee levels for the Chairman and  
Non-Executive Directors reflect the time commitment in preparing and 
attending meetings and the responsibility and duties of the positions. 
The policy is to pay a market rate against other companies of a similar 
size and complexity. Non-Executive Directors are not entitled to any 
other benefits, pension arrangements or to participate in the Group’s 
share incentive schemes. Details of annual fees for 2011 are provided  
in the table below: 

Basic 
annual fee  
£’000 

Audit & Risk 
Committee 
Chairman 
£’000 

Remuneration 
Committee 
Chairman 
£’000 

Charles 
Gregson 

Duncan 
McIntyre 

Peter 
Morgan* 

Hamish 
Ogston 

Non-Executive 
Chairman 

Non-Executive 
Director 

Non-Executive 
Director 

Non-Executive 
Director 

Les Owen*  Non-Executive 

Director 

Patrick  
De Smedt 

Non-Executive 
Director 

125 

40 

40 

40 

40 

40 

10 

10 

10 

*   Peter Morgan was the Chairman of the Audit and Risk Committee until his resignation from 
the Board on 31 March 2011 at which point Les Owen was appointed as the Chairman of 
the Audit and Risk Committee. 

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48 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: REMUNERATION REPORT CONTINUED

Performance graph 

Total shareholder return (£’m)

140

120

100

80

60

40

18 March 2010

31 December 2010

31 December 2011

●  CPPGroup Plc  ● FTSE 250 Index  ● FTSE SmallCap Index

This graph shows the value by 31 December 2011, of £100 invested in 
CPPGroup Plc at the Offer Price as stated in the Prospectus, compared
with the value of £100 invested in the FTSE 250 and the FTSE SmallCap 
Indices from the start of trading.

Source: Thomson Reuters

The graph illustrates the TSR performance on a cumulative basis with dividends reinvested as at the end of the financial year compared with the 
FTSE 250 and FTSE SmallCap Index, being the equity market indexes in which CPPGroup Plc has been a member since Admission. 

AUDITED INFORMATION 
The remuneration and benefits payable to each Director in respect of their services for the year ended 31 December 2011 is set out in the  
following table. 

2011 
Basic annual 
salary 
£’000 

2011 
Annual 
Benefits 
£’000 

2011 
Annual 
Bonus*** 
£’000  

2011  
Annual  
pension 
contribution  
£’000 

Executive 

Eric Woolley* 

Shaun Parker 

Paul Stobart (since 1 October 2011) 

Non-Executives 

Charles Gregson 

Duncan McIntyre 

Peter Morgan** 

Hamish Ogston 

Les Owen 

Patrick De Smedt 

412 

268 

113 

125 

40 

22 

40 

50 

50 

20 

15 

14 

– 

– 

– 

– 

– 

– 

Aggregate emoluments 

1,120 

49 

*   Eric Woolley resigned from the Board on 1 October 2011. 

**   Peter Morgan resigned from the Board on 31 March 2011. 

*** Annual bonus awards are subject to the provisions of the Deferred Share Bonus Plan. 

–  

 –  

–  

–  

–  

–  

–  

–  

–  

– 

2011 
Total 
£’000 

494 

323 

144 

125 

40 

22 

40 

50 

50 

2010 
Total 
£’000 

759 

504 

– 

119 

– 

63 

45 

11 

18 

62 

40 

17 

– 

– 

– 

– 

– 

– 

119 

1,288 

1,519 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

49

Share options, long term incentives and potential future awards and entitlements to shares 
Long Term Incentive Plans 
Details of awards held, granted and exercised in respect of the LTIP’s are detailed below. 

Director 

Eric Woolley 

Shaun Parker 

Paul Stobart 

As at 
1 January 
2011 

212,766 

110,638 

– 

Granted  
in year 

157,933 

80,340 

566,794 

Exercised  
in year 

Lapsed 
in year 

– 

– 

– 

– 

– 

– 

As at 
31 December 
2011 

370,699 

190,978 

566,794 

The 2011 LTIP awards for Eric Wolley and Shaun Parker were granted as nil cost options on 4 March 2011 and vest on 4 March 2014 subject to 
performance conditions. When awards were granted the market value of shares was £3.00. The 2011 LTIP award for Paul Stobart was granted as  
a nil cost option on 28 November 2011 and vests on 1 January 2015 subject to performance conditions. When awards were granted the market 
value of shares was £1.24. Awards vest subject to continued employment and the satisfaction of performance conditions as set out on page 46. 

Following the termination of Eric Woolley’s employment on 22 March 2012, all 370,699 of his LTIP options granted under the 2010 and 2011 
awards lapsed and can no longer be vested. 

The market price of ordinary shares of the Company as at 31 December 2011 was £1.12 and the range during the year was £1.12 to £3.29. 

Deferred Share Bonus Plan 

Director 

Eric Woolley 

Shaun Parker 

As at 
1 January 
2011 

– 

– 

Granted  
in year 

14,333 

9,967 

Exercised  
in year 

Lapsed 
in year 

As at 
31 December 
2011 

– 

– 

– 

– 

14,333 

9,967 

Eric Woolley’s DSBP options vested on his last day of employment with the Company. These must be exercised within 12 months, i.e before  
22 March 2013 or they will lapse.  

The market price of ordinary shares of the Company as at 31 December 2011 was £1.12 and the range during the year was £1.12 to £3.29. 

SAYE Share Option Plan 
Details of options held, granted and exercised in respect of the SAYE scheme are detailed below. 

Director 

Shaun Parker 

As at 
1 January 
2011 

4,545 

Granted 
in year 

– 

Exercised  
in year 

– 

Lapsed  
in year 

As at 
31 December 
2011 

– 

4,545 

Exercise 
Price 
£ 

1.98 

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There were no additional grants to Executive Directors under the SAYE scheme during the year.  

The market price of ordinary shares of the Company as at 31 December 2011 was £1.12 and the range during the year was £1.12 to £3.29. 

Legacy Plans  
Prior to Admission, the Company operated the CPP Group Plc Executive Share Option Plan 2005 (the 2005 Plan) and the CPP Group Holdings 
Limited Exit Plan 2008 (2008 Plan) for which options were outstanding. Conditional upon Admission, all outstanding options under the Legacy  
Plans (the Old Options) were automatically surrendered in consideration for the grant of an equivalent new option over Ordinary Shares (the New 
Options). The exchange was determined on the basis that for every one share in CPP Group Plc held under the Old Options immediately prior to 
the Share for Share Exchange the holder of that Old Option was granted a New Option over 16 Ordinary Shares in CPPGroup Plc. The exercise 
price per share of the New Options was equal to the exercise price per share of the Old Options reduced by a factor of 16, so that immediately 
following the surrender and exchange of Old Options for New Options the aggregate exercise cost of the New Option is the same as the 
aggregate exercise cost of the Old Option. The rules of the Legacy Plans were applied to the New Options save that references in the rules to  
the “Company” and “Shares” are construed as meaning the Company and Ordinary Shares. 

The options in the Legacy Plans were exercisable as follows: 50% on 24 March 2010, 25% on 24 March 2011 and 25% on 24 March 2012.  
There are no performance conditions attached to these shares other than those relating to employment. 

5
1
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9
5

An additional executive option (the Executive Option) was granted to Eric Woolley on 21 April 2009 on substantially the same terms as the 2008 
Plan. The parties to the Executive Option and the Company agreed that, in relation to all outstanding options held by Eric Woolley under the Legacy 
Plans and the Executive Option, on Admission any one or more of his outstanding options may be exercised up to 50% of the aggregate, up to 
75% of the aggregate on the first anniversary of Admission and up to 100% of the aggregate on the second anniversary of Admission. 

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50 CPPGroup Plc Annual Report and Accounts 2011

GOVERNANCE: REMUNERATION REPORT CONTINUED

The following options are held by Eric Woolley and Shaun Parker under the 2005 Plan, the CPP Group Holdings Limited 2008 Plan and, in relation to 
Eric Woolley only, the individual Executive Option, together known as the ”Legacy Plans”: 

Director 

Legacy Plan 

Option price 

Eric Woolley 

2005 

Shaun Parker 

2008 
Loan note1 
2005 

2008 
Loan note1 

£2.28 

£1.79 

n/a 

£2.28 

£1.79 

n/a 

As at 
1 January 
2011 

944,784 

1,648,000 

620,673 

415,648 

352,000 

235,226 

Granted 
in Year 

Exercised 
in year 

Lapsed  
in year 

– 

– 

 – 

– 

– 

– 

– 

– 

310,336 

– 

– 

117,613 

– 

– 

– 

– 

– 

– 

As at 
31 December 
2011 

944,784 

1,648,000 

310,337 

415,648 

352,000 

117,613 

Expiry date 

21/12/19 

19/06/18 

n/a 

21/12/19 

19/06/18 

n/a 

1   Certain option holders in the 2005 Plan hold loan notes which have similar vesting conditions to the options under the 2005 Plan. The above table shows the value of these loan notes. 

Following the termination of Eric Woolley’s employment on 22 March 2012, he retained 944,784 ESOP 2005 options, which must be exercised 
within ten years of grant (by 20 December 2019) or they will lapse.  

Of the 1,648,000 ESOP 2008 options, 1,620,488 vested on 22 March 2012. These must be exercised within six months of termination or they will 
lapse. Of the remaining 27,512 options which were unvested at termination, 60% i.e.16,507 options lapsed immediately and the remaining 40% 
i.e. 11,005 options must be exercised within ten years of grant (by 18 June 2018) or they will lapse. 

The remainder of Eric Woolley’s loan note vested on 24 March 2012. 

The market price of ordinary shares of the Company as at 31 December 2011 was £1.12 and the range during the year was £1.12 to £3.29. 

Directors’ shareholdings 
The Directors of the Company have beneficial interests in the Company’s ordinary shares as follows: 

Interest in ordinary shares of 10 pence each 

Executive 

Paul Stobart 

Eric Woolley 

Shaun Parker 

Non-Executives 

Charles Gregson 

Duncan McIntyre 

Peter Morgan 

Hamish Ogston  

Les Owen 

Patrick De Smedt 

31 December  
2011  
Beneficial 

31 December 
2011 
Non-
beneficial 

– 

– 

9,600 

157,873 

13,340 

51,696 

98,021,288 

22,984 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

Total 

– 

– 

9,600 

157,873 

13,340 

51,696 

98,021,288 

22,984 

– 

There have been no purchases of shares by Directors since 31 December 2011 to the date of this report.  

Approval of report 
The Committee considers that the various components of the Directors’ remuneration set out above combined to produce an overall package that 
achieves an appropriate alignment between the interests of the Directors and those of the Shareholders and the Company. 

The Directors’ Remuneration Report was approved by the Board on the 26 March 2012 and signed on behalf of the Board by 

Patrick De Smedt 
Chairman of the Remuneration Committee 

26 March 2012 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011
FINANCIAL STATEMENTS: INDEPENDENT AUDITOR’S REPORT 

51

INDEPENDENT AUDITOR’S REPORT  
TO THE MEMBERS OF CPPGROUP PLC 

We have audited the financial statements of CPPGroup Plc for the year 
ended 31 December 2011 which comprise the consolidated income 
statement, the consolidated statement of comprehensive income, the 
consolidated and Company balance sheets, the consolidated statement 
of changes in equity, the consolidated cash flow statement and the 
related notes 1 to 49. The financial reporting framework that has been 
applied in the preparation of the group financial statements is applicable 
law and International Financial Reporting Standards (IFRSs) as adopted 
by the European Union. The financial reporting framework that has been 
applied in the preparation of the parent company financial statements  
is applicable law and United Kingdom Accounting Standards (United 
Kingdom Generally Accepted Accounting Practice). 

This report is made solely to the Company’s members, as a body, in 
accordance with Chapter 3 of Part 16 of the Companies Act 2006.  
Our audit work has been undertaken so that we might state to the 
Company’s members those matters we are required to state to them  
in an auditor’s report and for no other purpose. To the fullest extent 
permitted by law, we do not accept or assume responsibility to anyone 
other than the Company and the Company’s members as a body, for 
our audit work, for this report, or for the opinions we have formed. 

Respective responsibilities of Directors and Auditor 
As explained more fully in the Statement of Directors’ Responsibilities 
Statement, the directors are responsible for the preparation of the 
financial statements and for being satisfied that they give a true and  
fair view. Our responsibility is to audit and express an opinion on the 
financial statements in accordance with applicable law and International 
Standards on Auditing (UK and Ireland). Those standards require us  
to comply with the Auditing Practices Board’s Ethical Standards 
for Auditors. 

Scope of the audit of the financial statements 
An audit involves obtaining evidence about the amounts and disclosures 
in the financial statements sufficient to give reasonable assurance that 
the financial statements are free from material misstatement, whether 
caused by fraud or error. This includes an assessment of: whether the 
accounting policies are appropriate to the Group’s and the Company’s 
circumstances and have been consistently applied and adequately 
disclosed; the reasonableness of significant accounting estimates  
made by the directors; and the overall presentation of the financial 
statements. In addition, we read all the financial and non-financial 
information in the annual report to identify material inconsistencies  
with the audited financial statements. If we become aware of any 
apparent material mis-statements or inconsistencies we consider 
the implications for our report. 

Opinion on financial statements 
In our opinion: 

investigation and the Group’s ability to continue as a going concern. 
This disclosure includes material uncertainties in relation to the impact 
of Past Business Reviews, and possible contingent liabilities for which 
reliable estimates cannot be made. 

The total financial impact of these matters is subject to significant 
uncertainty in that they are dependent upon certain factors outside  
of the control of the Group. These conditions indicate the existence  
of a material uncertainty which may cast doubt about the Group’s and 
the Company's ability to continue as a going concern and, therefore, 
that it may be unable to realise its assets and discharge its liabilities  
in the normal course of business.  

Having considered these matters, the directors have concluded that it  
is appropriate to prepare these financial statements on a going concern 
basis. The financial statements do not include the adjustments that 
would result if the Group or the Company were unable to continue as a 
going concern. Our opinion is not modified in respect of these matters. 

Opinion on other matters prescribed by the 
Companies Act 2006 
In our opinion: 

–  the part of the Remuneration report to be audited has been properly 

prepared in accordance with the Companies Act 2006; and 

–  the information given in the Directors’ report for the financial year  
for which the financial statements are prepared is consistent with  
the financial statements. 

Matters on which we are required to report by 
exception 
We have nothing to report in respect of the following: 

Under the Companies Act 2006 we are required to report to you if, in 
our opinion: 

–  adequate accounting records have not been kept by the Company, or 
returns adequate for our audit have not been received from branches 
not visited by us; or 

–  the Company financial statements and the part of the Remuneration 

report to be audited are not in agreement with the accounting 
records and returns; or 

–  certain disclosures of Directors’ remuneration specified by law are 

not made; or 

–  we have not received all the information and explanations we require 

for our audit. 

–  Under the Listing Rules we are required to review: 

–  the Directors’ statement, contained within the Corporate Governance 

statement, in relation to going concern;  

–  the financial statements give a true and fair view of the state of the 
Group’s and of the Company’s affairs as at 31 December 2011 and  
of the Group’s profit for the year then ended; 

–  the part of the Corporate Governance statement relating to the 

Company’s compliance with the nine provisions of the June 2010 
Combined Code specified for our review; and 

–  the consolidated financial statements have been properly prepared  

–  certain elements of the report to shareholders by the Board on 

in accordance with IFRSs as adopted by the European Union; 

Directors’ remuneration. 

–  the Company financial statements have been properly prepared in 
accordance with United Kingdom Generally Accepted Accounting 
Practice; and 

–  the financial statements have been prepared in accordance with  
the requirements of the Companies Act 2006 and, as regards the 
consolidated financial statements, Article 4 of the IAS Regulation. 

Emphasis of matter 
In forming our opinion on the financial statements, which is not 
modified, we have considered the adequacy of the disclosure made  
in notes 4 and 32 to the financial statements concerning the FSA 

Stephen Williams  
(Senior Statutory Auditor) 
for and on behalf of Deloitte LLP 
Chartered Accountants and Statutory Auditor 
Leeds, United Kingdom 

26 March 2012 

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52 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: CONSOLIDATED INCOME STATEMENT

CONSOLIDATED INCOME STATEMENT 

For the year ended 31 December 2011 

Revenue 

Cost of sales 

Gross profit 

Administrative expenses 

Legacy scheme share based payments 

FSA associated costs 

Other administrative expenses 

Total administrative expenses 

Share of loss of joint venture 

Operating profit 

Operating profit before legacy scheme share based payments and FSA associated costs 

Operating profit after legacy scheme share based payments and FSA associated costs 

Investment revenues 

Finance costs – non-derivative instruments 

Profit before taxation 

Taxation 

Profit for the year from continuing operations 

Attributable to: 

Equity holders of the Company 

Non-controlling interests 

Basic and diluted earnings per share from continuing operations 

Basic earnings per share 

Diluted earnings per share 

Note 

2011 
£’000 

2010 
£’000 

346,136 

325,803 

(202,229) 

(189,077) 

143,907 

136,726 

30 

25 

17 

9 

10 

11 

6 

28 

13 

13 

(1,167) 

(16,892) 

(94,989) 

(113,048) 

(1,181) 

47,737 

29,678 

423 

(1,795) 

28,306 

(10,255) 

18,051 

18,215 

(164) 

18,051 

 Pence  

10.64 

10.59 

(3,841) 

– 

(87,147) 

(90,988) 

(843) 

48,736 

44,895 

341 

(5,482) 

39,754 

(12,604) 

27,150 

27,150 

– 

27,150 

 Pence  

16.33 

16.03 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011
FINANCIAL STATEMENTS: CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

53

CONSOLIDATED STATEMENT  
OF COMPREHENSIVE INCOME 

For the year ended 31 December 2011 

Profit for the year 

Other comprehensive income and expenses 

Exchange differences on translation of foreign operations 

Other comprehensive income for the year net of taxation 

Total comprehensive income for the year 

Attributable to: 

Equity holders of the Company 

Non-controlling interests 

2011 
£’000 

2010 
£’000 

18,051 

27,150 

120 

120 

341 

341  

18,171 

27,491 

28 

18,335 

(164) 

18,171 

27,491 

– 

27,491 

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54 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: CONSOLIDATED BALANCE SHEET

CONSOLIDATED BALANCE SHEET 

As at 31 December 2011 

Non-current assets 

Goodwill 

Other intangible assets 

Property, plant and equipment 

Investment in joint venture 

Deferred tax asset 

Current assets 

Insurance assets 

Income tax receivable 

Inventories 

Trade and other receivables 

Cash and cash equivalents 

Total assets 

Current liabilities 

Insurance liabilities 

Income tax liabilities 

Trade and other payables 

Provisions 

Net current assets/(liabilities) 

Non-current liabilities 

Bank loans 

Deferred tax liabilities 

Provisions 

Total liabilities 

Net assets 

Equity 

Share capital 

Share premium account 

Merger reserve 

Translation reserve 

Equalisation reserve 

ESOP reserve 

Retained earnings 

Equity attributable to equity holders of the Company 

Non-controlling interest 

Total equity 

Approved by the Board of Directors and authorised for issue on 26 March 2012 and signed on its behalf by: 

Paul Stobart 
Chief Executive Officer 

Shaun Parker 
Chief Financial Officer 

Company registration number: 07151159

Note 

2011 
£’000 

2010 
£’000 

14 

15 

16 

17 

26 

18 

19 

20 

21 

22 

23 

25 

24 

26  

25 

29 

22 

16,521 

22,626 

14,473 

– 

1,987 

55,607 

16,536 

22,055 

15,389 

184 

3,809 

57,973 

24,552 

21,493 

– 

329 

30,667 

54,924 

110,472 

166,079 

(8,878) 

(2,818) 

(67,884) 

(11,393) 

(90,973) 

19,499 

96  

289 

30,275 

25,040 

77,193 

135,166 

(10,417) 

(6,266) 

(69,321) 

(860) 

(86,864) 

(9,671) 

(43,041) 

(27,199) 

(634) 

(4,279) 

(459) 

(859) 

(47,954) 

(28,517) 

(138,927) 

(115,381) 

27,152 

19,785 

17,106 

33,300 

17,024 

32,301 

(100,399) 

(100,399) 

2,456 

6,423 

11,606 

56,824 

27,316 

(164) 

27,152 

2,336 

6,196 

9,599 

52,728 

19,785 

– 

19,785 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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CPPGroup Plc Annual Report and Accounts 2011
FINANCIAL STATEMENTS: CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

55

CONSOLIDATED STATEMENT  
OF CHANGES IN EQUITY 

For the year ended 31 December 2011 

Share  
capital 
£’000 

Share 
premium 
account 
£’000 

  Note 

Merger 
reserve 
£’000 

Translation 
reserve 
£’000 

Equalisation 
reserve 
£’000 

ESOP 
reserve 
£’000 

Retained 
earnings 
£’000 

Non-
controlling 
interest 
£’000 

Total 
£’000 

Total 
Equity 
£’000 

At 1 January 2010 

  15,152 

–  

(100,399) 

1,995 

4,913 

5,783 

29,552 

(43,004) 

– 

(43,004) 

Total comprehensive 
income 

Movement on 
equalisation reserve 

Current tax credit on 
equalisation reserve 
movement 

Equity settled share 
based payment charge 

22 

11 

Deferred tax on share 
based payment charge  11 

–  

–  

–  

–  

–  

–  

–  

–  

–  

–  

Exercise of share 
options 

Other ordinary share 
issues 

Dividends 

29 

583  

 7,991 

29 

12 

1,289 

24,310 

–  

–  

–  

341 

–  

–  

27,150 

27,491 

–  

27,491 

–  

–  

–  

–  

–  

–  

–  

–  

1,283 

–  

(1,283) 

–  

–  

–  

–  

–  

–  

–  

–  

–  

358 

358 

–  

4,216 

–  

4,216 

–  

–  

–  

–  

–  

1,078 

1,078 

(400) 

–  

8,174 

– 

– 

– 

25,599 

(4,127) 

(4,127) 

–  

–  

–  

–  

–  

–  

–  

– 

– 

358 

4,216 

1,078 

8,174 

25,599 

(4,127) 

19,785 

At 31 December 2010 

  17,024 

32,301  

(100,399) 

2,336 

6,196 

9,599 

52,728 

19,785 

Total comprehensive 
income 

Movement on 
equalisation reserve 

Current tax credit on 
equalisation reserve 
movement 

Equity settled share 
based payment charge 

22 

11 

Deferred tax on share 
based payment charge  11 

–  

–  

–  

– 

–  

–  

–  

–  

 – 

–  

Exercise of share 
options 

Dividends 

29 

12 

82 

–  

999 

–  

–  

120 

–  

–  

18,215 

18,335 

(164) 

18,171 

–  

–  

–  

–  

– 

–  

–  

–  

–  

–  

–  

–  

227 

–  

(227) 

–  

–  

–  

60 

60 

–  

2,169 

– 

2,169 

–  

–  

–  

–  

(1,027) 

(1,027) 

(162) 

– 

919 

–  

(12,925) 

(12,925) 

– 

– 

– 

– 

– 

– 

– 

60 

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(1,027) 

919 

(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 

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56 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: CONSOLIDATED CASH FLOW STATEMENT

CONSOLIDATED CASH FLOW STATEMENT 

For the year ended 31 December 2011 

Net cash from operating activities 

Investing activities 

Interest received 

Purchases of property, plant and equipment 

Purchases of intangible assets 

Acquisition of subsidiary, net of cash acquired 

Investment in joint venture 

Net cash used in investing activities 

Financing activities 

Dividends paid 

Repayment of bank loans 

Proceeds from new bank loans 

Interest paid 

Cost of refinancing 

Issue of ordinary share capital 

Net cash from/(used in) financing activities 

Net increase/(decrease) in cash and cash equivalents 

Effect of foreign exchange rate changes 

Cash and cash equivalents at 1 January 

Cash and cash equivalents at 31 December 

Note 

31 

2011 
£’000 

2010 
£’000 

41,547 

38,362 

423 

(3,297) 

(9,334) 

– 

(997) 

341 

(3,719) 

(12,241) 

340 

(977) 

(13,205) 

(16,256) 

(12,925) 

(1,500) 

17,000 

(1,452) 

– 

1,081 

2,204 

30,546 

(662) 

25,040 

54,924 

(4,127) 

(143,383) 

66,700  

(1,709) 

(1,080) 

34,173 

(49,426) 

(27,320) 

(19) 

52,379 

25,040 

21 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011
FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

57

NOTES TO THE CONSOLIDATED 
FINANCIAL STATEMENTS 

1. General information 
CPPGroup Plc is a company incorporated in England and Wales under the Companies Act 2006 and domiciled in the United Kingdom. Its registered 
office is Holgate Park, York, YO26 4GA. The Group comprises CPPGroup Plc and its subsidiaries. The Group’s principal activity during the year was 
the provision of Life Assistance products. 

The consolidated financial statements are presented in Pounds Sterling, the functional currency of the Company. Foreign operations are included  
in accordance with the policies set out in note 3. 

2. Adoption of new Standards 
New Standards adopted 
The following Standards and Interpretations have become effective and have been adopted in these financial statements. Their adoption has not 
had any material impact on the Group. No Standards or Interpretations have been adopted early in these 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 

Standards not yet applied 
At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these 
financial statements were in issue but not yet effective (and in some cases have not yet been adopted by the EU): 

Standard/Interpretation 

Subject 

Period first applies (Year ended) 

Amendments to IFRS 7 (October 2010) 

Disclosures – Transfers of Financial Assets 

Amendments to IFRS 1 (December 2010) 

Severe Hyperinflation and Removal of Fixed Dates for First-
time Adopters 

Amendments to IAS 12 (December 2010) 

Deferred Tax: Recovery of Underlying Assets 

IAS 27 (revised May 2011) 

IAS 28 (revised May 2011) 

IFRS 10 

IFRS 11 

IFRS 12 

IFRS 13 

IAS 19 (revised June 2011) 

Separate Financial Statements 

Investments in Associates and Joint Ventures 

Consolidated Financial Statements 

Joint Arrangements 

Disclosure of Interests in Other Entities 

Fair Value Measurement 

Employee Benefits 

31 December 2012 

31 December 2012 

31 December 2012 

31 December 2013 

31 December 2013 

31 December 2013 

31 December 2013 

31 December 2013 

31 December 2013 

31 December 2013 

Amendments to IAS 1 (June 2011) 

Presentation of Items of Other Comprehensive Income 

31 December 2013 

Amendments to IFRS 7 (December 2011) 

Disclosures – Offsetting Financial Assets and Financial 
Liabilities 

31 December 2013 

Amendments to IAS 32 (December 2011) 

Offsetting Financial Assets and Financial Liabilities 

31 December 2014 

IFRS 9 

Financial Instruments 

31 December 2015 

The Directors do not anticipate that the adoption of these Standards and Interpretations in future periods will have a material impact on the Group. 

3. Significant accounting policies 
Basis of preparation 
These consolidated financial statements on pages 52 to 85 present the performance of the Group for the year ended 31 December 2011.  
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU,  
IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS and therefore comply  
with Article 4 of the EU IAS Regulation. The consolidated financial statements have also been prepared under the historical cost basis. 

The Company was incorporated on 9 February 2010 and acquired by way of a share for share exchange the entire issued share capital of  
CPP Group Plc (the previous ultimate holding company of the Group) on 24 March 2010 as part of a group reconstruction. The reconstruction  
did not change either the identity or relative rights of the ultimate shareholders of CPP Group Plc and, therefore comparative information has  
been reflected in the consolidated financial statements using the principles of merger accounting for group reconstructions. 

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58 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

3. Significant accounting policies continued 
Going concern 
The Board of Directors have, at the time of approving the consolidated financial statements, a reasonable expectation that the Company and the 
Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern 
basis of accounting in preparing the consolidated financial statements. Further details of the Directors’ assessment are set out in the Corporate 
Governance statement on page 43.  

Basis of consolidation 
The consolidated financial statements include the results, cash flows and assets and liabilities of the Company and the entities under its control. 
Control is defined as the ability to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. 

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of 
acquisition or up to the effective date of disposal. Adjustments are made, where necessary, to the financial statements of subsidiaries to bring  
their accounting policies into line with Group policies. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. 

Joint ventures 
Investments in joint ventures are accounted for using the equity method of accounting. The Group share of the net assets of joint ventures, 
including associated goodwill, is included in the consolidated balance sheet. 

The Group’s share of its joint ventures’ post-acquisition profits or losses is recognised in the consolidated income statement. When the Group’s 
share of losses in a joint venture equals or exceeds its interest in the joint venture, the Group does not recognise further losses, unless it has 
incurred obligations or made payments on behalf of the joint venture. 

Non-controlling interests 
Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries that is not held by the Group and is presented within 
equity in the consolidated balance sheet, separately from Company’s equity holders. 

Government grants 
Grants receivable from government bodies are recognised to the extent that the Group has substantively met the conditions of the grant.  
Grants received in respect of which Group obligations are ongoing are deferred and recognised over the period in which the conditions are  
fulfilled. Government grants are presented as a reduction in applicable expenses. 

Provisions 
Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that the Group will be required to settle 
that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of 
the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the 
obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value 
of those cash flows. 

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised 
as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 

Share based payments 
Prior to the Company’s shares being listed on the London Stock Exchange on 24 March 2010, the Group issued share options to certain of its 
employees through the Executive Share Option Plan (ESOP). Costs in relation to the ESOP are presented within legacy scheme share based 
payments in the consolidated income statement.  

Subsequent to its listing, the Group has issued share options to certain of its employees under the Long Term Incentive Plan (LTIP), the Restricted 
Stock Plan (RSP), the Deferred Share Bonus Plan (DSBP) and the ShareSAVE Plan. Costs in relation to these plans are presented within other 
administrative expenses in the consolidated income statement. 

Share options are treated as equity settled if the Group has the ability to determine whether to settle exercises in cash or by the issue of shares. 
Share options are measured at fair value at the date of grant, based on the Group’s estimate of shares that will eventually vest, and adjusted for  
the effect of non-market based vesting conditions each year. Non-market vesting conditions include a change in control of the Group and are 
considered by the Directors at each year end. The fair value of equity settled share based payments is expensed in the consolidated income 
statement on a straight line basis over the vesting period, with a corresponding increase in equity, subject to adjustment for forfeited options. 

Share options are treated as cash settled if the terms of the scheme require or the Directors intend to settle share options with a cash payment. 
Cash settled options are measured at fair value at date of grant and then subsequently revalued at each year end. For cash settled share based 
payments, a liability is recognised for a proportion, based on the vesting period, of the fair value as calculated at the balance sheet date. 
Movements in the provision are charged to the consolidated income statement. 

The fair value of share options is measured by use of the Black Scholes option pricing model and Monte Carlo simulation model. 

 
 
 
CPPGroup Plc Annual Report and Accounts 2011

59

3. Significant accounting policies continued 
Assistance products  
Recognition of revenue  
Revenue attributable to the Group’s assistance products is generally comprised of the prices paid by customers for the assistance products net  
of underwriting fees and exclusive of any sales taxes.  

Revenue is generally split into two categories: introduction fees and claims management fees. Introduction fees are recognised on inception of  
the arrangement. Claims management fees are recognised over the period of the underlying contract and, where revenue is deferred to match  
the Group’s future servicing obligations under assistance product contracts, the amount deferred corresponds to the relevant fair values of the 
unprovided services. The amount deferred is sufficient to cover future claims handling costs and an appropriate profit margin, and is calculated  
by reference to historical experience of claims handling costs and incidence. Provisions for cancellations are made at the time revenue is recorded 
and are deducted from revenue. 

In the US, and certain other of the Group’s assistance products there are no introduction fees. In these arrangements, revenue is comprised of the 
subscriptions received from members, net of underwriting fees and exclusive of any sales taxes. These subscriptions are recognised over the life 
of the service provided. 

Wholesale, Packaged Accounts and other revenue is generally comprised of fees billed directly to Business Partners, exclusive of any sales taxes, 
and is recognised as those fees are earned. 

Non-policy revenue is comprised of fees billed directly to customers or Business Partners for services provided under separate non-policy based 
arrangements. Such revenue is recognised, exclusive of any sales taxes, as those fees are earned. 

Cost of sales  
Cost of sales attributable to the Group’s assistance products represents the costs of acquiring customers and includes marketing costs and 
commissions paid to Business Partners. Commissions are recognised in line with the revenue to which they relate. Marketing costs include all 
telemarketing, direct mail and fulfilment costs. These costs are expensed as incurred. 

Insurance contracts 
Insurance contracts are those contracts that transfer significant insurance risk at the inception of the contract. Insurance risk is transferred when 
the Group agrees to compensate a policyholder if a specified uncertain future event (other than a change in a financial variable) adversely affects 
the policyholder. 

Recognition of revenue 
Revenue attributable to the Group’s insurance contracts comprises premiums paid by customers and is exclusive of any sales taxes and similar 
duties. Premiums from insurance policies are recognised as revenue on a straight line basis over the life of the policy. 

Provisions for unearned premiums are made, representing the part of gross premiums written that is estimated to be earned in the following or 
subsequent financial periods, on a straight line basis for each policy. The provision for unearned premiums is recorded under insurance liabilities  
on the consolidated balance sheet. 

Cost of sales 
Cost of sales attributable to the Group’s insurance contracts consists of the costs, both direct and indirect, of acquiring insurance policies, 
commissions, reinsurance premiums payable to third parties and insurance claims incurred (net of reinsurance recoveries). 

Acquisition costs are amortised over the life of the average policy. Acquisition costs which are expensed in the following or subsequent accounting 
periods are recorded in the balance sheet as deferred acquisition costs and include a proportionate allowance for commissions and post sale set up 
costs incurred in respect of unearned premium not amortised at the balance sheet date. 

Reinsurance premiums are accounted for in the same accounting period as the premiums for the related business.  

Insurance claims provisions 
Claims incurred comprise the Group’s claims payments and internal settlement expenses during the period together with the movement in the 
Group’s provision for outstanding claims over the period, including an estimate for claims incurred but not reported. Differences between the 
estimated cost and subsequent settlement of claims are recognised in the consolidated income statement in the year in which they are settled. 

Reinsurance recoveries are accounted for in the same accounting period as the related claims. 

Equalisation reserve 
An equalisation reserve has been established in accordance with the requirements of the Equalisation Reserve Rules contained within the 
Prudential Sourcebook for Insurers and the General Prudential Sourcebook. Movements on the reserve are shown as a movement between 
retained earnings and the equalisation reserve. 

1

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60 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

3. Significant accounting policies continued 
Goodwill 
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the 
identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition. Goodwill is initially recognised as an asset 
at cost and is subsequently measured at cost less any accumulated impairment losses. 

Goodwill is not subject to amortisation but is tested for impairment annually. 

On disposal of a subsidiary or joint venture operation, the attributable amount of goodwill is included in the determination of the gain or loss  
on disposal. 

Impairment 
For the purpose of impairment testing, goodwill is allocated to cash generating units. If the recoverable amount of a cash generating unit is less 
than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit. An impairment 
loss recognised for goodwill is not reversed in a subsequent period. 

Intangible assets 
Externally acquired software 
Externally acquired software is measured at purchase cost and is amortised on a straight line basis over its estimated useful life of four years. 

Internally generated software 
Internally generated intangible assets arising from the Group’s software development programmes are recognised from the point at which  
the following conditions are met: 

–(cid:3) An asset is created that can be identified; 

–(cid:3) It is probable that the asset created will generate future economic benefits; and  

–(cid:3) The development cost of the asset can be measured reliably. 

Internally generated software is amortised on a straight line basis over its estimated useful life of four years. 

Contractual arrangements with third parties 
Some of the Group’s contractual arrangements give rise to intangible assets. Where a contractual payment gives access to and control of future 
economic benefits, in the form of future renewal income streams, this amount is recognised as an asset and then amortised in line with the 
forecast benefits over the shorter of the contractual arrangement and the period when benefits are expected to arise. 

Intangible assets arising on business combinations 
Intangible assets arising from business combinations are initially stated at their fair values and amortised over their useful economic lives  
as follows: 

Business Partner relationships:  

In line with projected related revenues 

Business Partner relationships represent the present value of net revenues and costs expected to arise from contractual arrangements and  
non-contractual relationships with existing and pipeline Business Partners at the date of acquisition. 

Amortisation of contractual arrangements with third parties is charged to cost of sales, amortisation of all other intangible assets is charged  
to other administrative expenses. 

Property, plant and equipment 
Property, plant and equipment are shown at purchase cost, net of accumulated depreciation. 

Depreciation is provided at rates calculated to write off the costs, less estimated residual value, of each asset over its expected useful life  
as follows: 

Freehold property:  
Computer systems: 
Furniture and equipment: 
Leasehold Improvements:  

Freehold land is not depreciated. 

40 years straight line 
4 years straight line 
4 years straight line 
Over the shorter of the life of the lease and the asset 

Cash and cash equivalents 
Cash and cash equivalents comprise cash in hand and bank deposits with a term from inception of three months or less, less bank overdrafts 
where there is a right to offset. Bank overdrafts are presented as current liabilities to the extent that there is no right to offset with cash balances  
in the same currency. 

Leases 
Operating lease rentals are charged to the consolidated income statement on a straight line basis over the term of the lease. 

 
 
 
CPPGroup Plc Annual Report and Accounts 2011

61

3. Significant accounting policies continued 
Taxation 
The current tax payable is based on the taxable profit for the year. The Group’s liability for current tax is calculated using tax rates that have been 
enacted or substantially enacted by the balance sheet date. 

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial 
statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability 
method. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are regarded as recoverable  
and therefore recognised only to the extent that it is probable that taxable profits will be available against which deductible temporary differences 
can be utilised. 

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiary undertakings and jointly controlled 
entities except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will  
not reverse in the foreseeable future. 

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax  
is charged or credited in the consolidated income statement, except when it relates to items charged or credited directly to equity, in which case 
the deferred tax is also dealt with in equity. 

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities  
and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities  
on a net basis. 

Pension costs 
Pension costs represent contributions made by the Group to defined contribution pension schemes. These are expensed as incurred. 

Foreign currencies 
In preparing the financial information of the individual entities that comprise the Group, transactions in currencies other than the entity’s  
functional currency are recorded at the rates of exchange prevailing on the date of the transactions. At each balance sheet date, monetary assets 
and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items  
that are measured in terms of historical cost in a foreign currency are not retranslated. 

On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet  
date. Income and expense items are translated at the average exchange rates for the period. Exchange differences are classified as equity and 
transferred to the Group’s translation reserve.  

Goodwill and fair value adjustments arising on the acquisition of foreign entities are treated as assets and liabilities of the foreign entity and are 
translated at the closing rate. 

On disposal of foreign operations, the cumulative amount of exchange differences previously recognised directly in equity for that foreign operation 
are to be transferred to the consolidated income statement as part of the profit or loss on disposal. Cumulative retranslation differences have been 
reset to zero at 1 January 2007, the date of transition to IFRS. 

Financial instruments 
Financial assets and financial liabilities are recognised in the consolidated balance sheet when the Group becomes a party to the contractual 
provisions of the instrument. 

Financial Assets 
Trade receivables, loans, other receivables, cash, and cash equivalents that have fixed or determinable payments that are not quoted in an active 
market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less 
allowance for any estimated irrecoverable accounts.  

Equity instruments 
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.  
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. 

Financial liabilities 
Financial liabilities, including borrowings, are initially measured at the proceeds received, net of transaction costs. They are subsequently measured 
at amortised cost using the effective interest method. 

Derivative financial instruments 
The Group’s activities expose it to the financial risks of changes in interest rates. For material risks the Group uses derivative financial instruments, 
principally interest rate swaps, to reduce its exposure to interest rate movements.  

When derivatives are used they are initially recognised at fair value at the date a derivative contract is entered into and are subsequently  
re-measured to their fair value at each balance sheet date. The resulting gain or loss is recognised in the consolidated income statement 
immediately unless the derivative is designated and effective as a hedging instrument. 

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62 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

4. Critical accounting judgements and key sources of estimation uncertainty  
Critical judgements in applying accounting policies 
Recognition of deferred tax assets 
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be available  
in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future 
financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognised.  

A deferred tax asset in relation to US goodwill has not been recognised on the basis that a change in control of the Group may result in a loss  
of that asset. This is considered appropriate as the Directors are not entitled to direct or restrict trading in the Company’s shares and so are not  
in a position to conclude on the likelihood of such a change in ownership. Recognition of this deferred tax asset would reduce the tax charge  
for the year. 

Key sources of estimation uncertainty 
Fair values of share based payments 
Determining the fair value of share options granted requires estimation of share price volatility, expected option exercise dates within a range, 
risk free rates of return and dividend yields. Details of the assumptions made are given in note 30. 

Changes to assumptions would change the share based payment charge for current and subsequent periods. Valuations for equity settled share 
based payments are set at grant and revised for changes in non market conditions. 

Amortisation of deferred insurance acquisition costs 
Determining the amortisation period for deferred acquisition costs of insurance revenues requires estimation of the lives of insurance policies  
and cancellation profiles based on historical information, taking account of known events impacting on forecast lives and cancellations. Details  
of assumptions made are given in note 7. 

Changes to assumed policy lives or cancellation profiles would change the periods in which the acquisition costs are charged to the consolidated 
income statement. 

Goodwill impairment reviews 
Determining whether goodwill is impaired requires an estimation of the value in use of the cash generating units to which goodwill has been 
allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash generating unit and  
a suitable discount rate in order to calculate present value. Details of key assumptions made are given in note 14. 

Any shortfall between the carrying amount of goodwill and its fair value is recognised as an impairment charge in the consolidated income 
statement. 

FSA associated costs 
A provision of £14.8 million has been recorded at 31 December 2011 for costs associated with the FSA investigation into the Group’s sales 
processes in the UK described in the Directors’ Report on page 34. The provision includes anticipated compensation payable to customers  
through a Past Business Review in relation to sales or renewals 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), together with other costs and professional fees 
associated with the investigation and Past Business Review. Approximately half of the amount provided relates to an estimate for the agreed  
Past Business Review, this element of the provision could vary depending upon customer response rates. 

Intangible assets arising from contractual arrangements with third parties 
Where contractual payments have given rise to future economic benefits, these amounts are carried in intangible assets and amortised over 
the contract terms. The amortisation profile is calculated by estimated future renewal performance. This performance is derived from historical 
renewal performance. 

Changes to the estimates of renewal performance would change the periods in which the contractual payments are charged to the consolidated 
income statement. 

Current tax 
The Group is required to estimate the corporation tax payable for the year in each of the territories in which it operates. Applicable tax regulations 
are complex and require that judgement be exercised in calculating the taxable profit. In many countries in which the Group operates, filed tax 
positions remain open to challenge by local tax authorities for several years. Corporation tax is therefore accrued based on the Directors’ 
assessment of territory specific tax law and likelihood of settlement. 

Any changes to estimates of uncertain tax positions would be reflected in the consolidated income statement. 

 
 
 
CPPGroup Plc Annual Report and Accounts 2011

63

5. 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: 

–(cid:3) Northern Europe (UK, Ireland, Germany and Turkey); 

–(cid:3) Southern Europe and Latin America (Spain, Portugal, France, Italy, Mexico and Brazil); 

–(cid:3) North America (USA); and 

–(cid:3) Asia Pacific (Hong Kong, Singapore, Malaysia, India and China) 

Segment revenues and performance have been as follows: 

Northern 
Europe 
2011 
£’000 

Southern 
Europe and 
Latin America 
2011 
£’000 

Year ended 31 December 2011 

Revenue – external sales 

Cost of sales 

Gross profit 

Depreciation and amortisation 

Other administrative expenses 

249,487 

(149,050) 

100,437 

(7,884) 

(58,982) 

44,356 

(22,411) 

21,945 

(304) 

North 
America 
2011 
£’000 

45,752 

(27,084) 

18,668 

(205) 

Asia 
Pacific 
2011 
£’000 

6,541 

(3,684) 

2,857 

(33) 

(4,974) 

(11,011) 

(11,596) 

Regional operating profit/(loss) before legacy scheme share 
based payments, FSA associated costs and joint ventures 

33,571 

10,630 

6,867 

(2,150) 

Share of loss of joint venture 

FSA associated costs 

Legacy scheme share based payments 

Operating profit after legacy scheme share based payments, 
FSA associated costs and joint ventures 

Investment revenues 

Finance costs – non-derivative instruments 

Profit before taxation 

Total 
2011 
£’000 

346,136 

(202,229) 

143,907 

(8,426) 

(86,563) 

48,918 

(1,181) 

(16,892) 

(1,167) 

29,678 

423 

(1,795) 

28,306 

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64 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

5. Segmental analysis continued 

Year ended 31 December 2010 

Revenue – external sales 

Cost of sales 

Gross profit 

Depreciation and amortisation 

Other administrative expenses 

Northern 
Europe 
2010 
£’000 

Southern 
Europe and 
Latin America 
2010 
£’000 

234,945 

(137,682) 

97,263 

(6,979) 

(54,722) 

46,718 

(25,689) 

21,029 

(303) 

North  
America 
2010 
£’000 

38,479 

(22,154) 

16,325 

(139) 

(10,266) 

(10,319) 

Asia 
Pacific 
2010 
£’000 

5,661 

(3,552) 

2,109 

(27) 

(4,392) 

Regional operating profit/(loss) before legacy scheme share 
based payments and joint ventures 

35,562 

10,460 

5,867 

(2,310) 

Share of operating loss of joint venture 

Legacy scheme share based payments 

Operating profit after legacy scheme share based payments 
and joint ventures 

Investment revenues 

Finance costs – non-derivative instruments 

Profit before taxation 

Total 
2010 
£’000 

325,803 

(189,077) 

136,726 

(7,448) 

(79,699) 

49,579 

(843) 

(3,841) 

44,895 

341 

(5,482) 

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 £1,222,000 (2010: £1,178,000) presented within Northern 
Europe in the tables above which have been charged to other regions for statutory purposes. 

Segment assets 

Northern Europe 

Southern Europe and Latin America 

North America 

Asia Pacific 

Total segment assets 

Unallocated assets 

Consolidated total assets 

Goodwill, deferred tax and investments in joint ventures are not allocated to segments. 

Capital expenditure 

Northern Europe 

Southern Europe and Latin America 

North America 

Asia Pacific 

Consolidated total additions 

2011 
£’000 

117,399 

9,348 

18,478 

2,346 

147,571 

18,508 

166,079 

2010 
£’000 

91,543 

8,379 

12,557 

2,158 

114,637 

20,529 

135,166 

Intangible assets 

  Property, plant and equipment 

2011 
£’000 

8,992 

8 

396 

21 

2010 
£’000 

13,112 

51 

108 

3 

2011 
£’000 

1,994 

322 

99 

20 

2010 
£’000 

4,597 

37 

291 

46 

9,417 

13,274 

2,435 

4,971 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

65

5. Segmental analysis continued 
Revenues from major products 

Retail assistance policies 

Retail insurance policies 

Packaged and wholesale policies 

Non-policy revenue 

Consolidated revenue 

2011 
£’000 

2010 
£’000 

258,048 

262,707  

38,529 

42,325 

7,234 

33,042 

26,630 

3,424  

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. 

Disclosures in notes 7, 18 and 22 regarding accounting for insurance contracts provide information relating to all contracts within the scope of  
IFRS 4, and therefore include both retail insurance policies and the insurance components of retail assistance and packaged and wholesale policies. 

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: 

Assistance products 

Insurance products 

Consolidated revenue 

2011 
£’000 

294,844 

51,292 

346,136 

2010 
£’000 

286,796  

39,007 

 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: 

UK 

USA 

Spain 

Other 

External revenues 

Non-current assets 

2011 
£’000 

2010 
£’000 

233,859 

221,474 

45,752 

26,717 

39,808 

38,479 

29,802 

36,048 

346,136 

325,803 

2011 
£’000 

38,698 

13,287 

551 

1,084 

53,620 

2010 
£’000 

39,609 

12,988 

497 

886 

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. 

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66 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

6. Profit for the year 

Profit for the year has been arrived at after charging/(crediting): 

Operating lease charges 

Net foreign exchange gains 

Depreciation of property, plant and equipment 

Amortisation of intangible assets  

Loss on disposal of property, plant and equipment 

FSA associated costs 

Equity settled share based payments 

Cash settled share based payments 

Total share based payments (see note 30) 

Other staff costs 

Total staff costs 

Movement on allowance for doubtful insurance receivables 

Government grant income 

Note 

2011 
£’000 

2010 
£’000 

16 

15 

25 

8 

18 

2,623 

(205) 

3,240 

8,850 

(13) 

16,892 

2,187 

72 

2,259 

63,372 

65,631 

(125) 

(325) 

 2,630  

 (34) 

 3,233  

 6,929  

 –  

– 

 4,279  

 464  

 4,743  

 66,279  

 71,022  

 – 

 (675) 

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 Directors’ Report on page 34. FSA associated costs comprise 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. 

Government grant income relates to the Chesterfield call centre opened in 2008. 

Fees payable to Deloitte LLP and their associates for audit and non-audit services are as follows: 

Payable to the Company’s Auditor for the audit of the Company and consolidated financial statements 

Fees payable to the Company’s Auditor and their associates for other services to the Group: 

– Audit of the Company’s subsidiaries, pursuant to legislation 

Total audit services 

Audit related assurance services 

Taxation compliance services 

Other taxation advisory services 

Corporate finance services 

Other services 

Total non-audit services 

2011 
£’000 

58 

429 

487 

59 

39 

9 

– 

64 

171 

658 

2010 
£’000 

 58  

 411  

 469 

53 

 34  

49 

 1,105  

–  

 1,241  

 1,710 

Corporate finance services in the prior year related to the Company’s issuance of new shares on IPO during that year and were charged to the 
share premium account. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

67

7. Insurance revenues and costs 
Revenues and costs arising from all of the Group’s insurance contracts as defined by IFRS 4 are set out below. An analysis of the Group’s retail 
insurance only policies is set out in note 5. 

Revenue earned from insurance activities 

Gross premiums written 

Change in provision for unearned premiums 

Earned premiums 

Costs incurred from insurance activities 

Reinsurance premiums incurred 

Claims paid 

– Gross amount 

– Reinsurers share 

– Increase in provision for gross claims 

– Decrease in provision for reinsurance claims 

Acquisition costs 

– Costs incurred 

– Movement in deferred acquisition costs 

Other expenses 

2011 
£’000 

77,044 

1,425 

78,469 

2011 
£’000 

6,289 

25,824 

(3,572) 

(180) 

(607) 

21,465 

20,707 

(139) 

20,568 

15,773 

64,095 

2010 
£’000 

 59,790  

 (183) 

 59,607  

2010 
£’000 

 3,489  

 14,130  

 (2,184) 

 1,254  

 (381) 

 12,819 

 22,399  

 (5,252) 

 17,147 

 11,281  

 44,736  

The following assumptions have a significant impact on insurance revenues and costs: 

–(cid:3) Unearned premiums on prepaid insurance policies are recognised as revenue on a straight line basis over the life of the policy. 

–(cid:3) Deferral of acquisition costs: Post sale set up costs are recognised on a straight line basis over the expected life of the policy. Commission costs 
are recognised on a straight line basis from the end of the initial acceptance period over the expected life of the relevant policies, taking account 
of the expected levels of cancellations. 

Changes to the expected life of classes of policies will therefore impact the period in which these items are recognised. 

There have been no significant changes in these assumptions during the current or previous years. 

8. Staff costs 
Staff costs during the year (including Executive Directors) 

Wages and salaries 

Social security costs 

Share based payments (see note 30) 

Pension costs 

Average number of employees 

Northern Europe 

Southern Europe 

North America 

Asia Pacific 

Details of remuneration of Directors are included in the Remuneration Report on pages 44 to 50. 

2011 
£’000 

2010 
£’000 

55,344 

 57,027  

6,464 

2,259 

1,564 

 6,420  

 4,743  

 2,832  

65,631 

 71,022  

2011 

1,577 

275 

191 

48 

2010 

1,716 

306 

150 

48 

2,091 

2,220 

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68 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

9. Investment revenues 

Interest on bank deposits 

10. Finance costs – non-derivative instruments 

Bank loan interest 

Amortisation of capitalised loan issue costs 

Other 

2011 
£’000 

423 

2011 
£’000 

1,316 

366 

113 

1,795 

2010 
£’000 

 341 

2010 
£’000 

1,628 

3,739 

115 

5,482 

Amortisation of capitalised loan issue costs includes £ nil (2010: £3,119,000) of accelerated amortisation arising on early repayment of the Group’s 
previous bank loans. 

11. Taxation 

Current tax charge: 

UK corporation tax 

Foreign tax 

Adjustments in respect of prior years 

Total current tax 

Deferred tax charge/(credit): 

Origination and reversal of timing differences 

Impact of change in UK tax rates 

Adjustments in respect of prior years 

Total deferred tax 

Total taxation charge 

2011 
£’000 

5,370 

4,030 

(115) 

9,285 

1,330 

164 

(524) 

970 

10,255 

2010 
£’000 

 8,520  

 3,594  

 (656) 

 11,458  

 225 

 67  

 854  

 1,146 

 12,604 

UK corporation tax is calculated at 26.5% (2010: 28%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated 
at the rates prevailing in the respective jurisdictions. 

The charge for the year can be reconciled to the profit per the consolidated income statement as follows: 

Profit before tax 

Effects of:  

Tax at the UK corporation tax rate of 26.5% (2010: 28%) 

Net income not chargeable for tax purposes 

Overseas tax losses not recognised 

Higher tax rates on overseas earnings 

Joint venture results presented net of taxation 

Adjustments in respect of prior years 

Impact of change in future tax rates on deferred tax 

Shortfall of share option charge compared to tax allowable amount 

Total tax charged to income statement 

2011 
£’000 

2010 
£’000 

28,306 

39,754 

7,501 

(265) 

705 

823 

313 

(639) 

164 

1,653 

10,255 

 11,131  

 (106) 

 640  

 559  

 236  

 198 

 67  

 (121) 

 12,604  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

69

11. Taxation continued 
Income tax charged/(credited) to reserves during the year was as follows: 

Current tax credit: 

Movement on equalisation reserve 

Total current tax 

Deferred tax charge/(credit): 

Timing differences on equity settled share based charge 

Total deferred tax 

Total tax charged/(credited) to reserves 

12. Dividends 
Amounts recognised as distributions to equity holders in the year are as follows: 

Final dividend paid for the year ended 31 December 2010 of 5.12 pence per share (2009: nil pence per share) 

Interim dividend paid for the year ended 31 December 2011 of 2.42 pence per share (2010: 2.42 pence per share) 

Amounts recognised as distributions to equity holders in the period 

2011 
£’000 

(60) 

(60) 

1,027 

1,027 

967 

2011 
£’000 

8,776 

4,149 

12,925 

2010 
£’000 

 (358) 

 (358) 

 (1,078) 

 (1,078) 

 (1,436) 

2010 
£’000 

 –  

 4,127  

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. 

13. 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 

Earnings for the purposes of basic and diluted earnings per share 

Legacy scheme share based payments (net of tax) 

FSA associated costs (net of tax) 

Exceptional amortisation of capitalised loan issue costs (net of tax) 

Earnings for the purposes of underlying basic and diluted earnings per share 

Number of shares 

Weighted average number of ordinary shares for the purposes of basic earnings per share 

Effect of dilutive potential ordinary shares: share options 

Weighted average number of ordinary shares for the purposes of diluted earnings per share 

Basic and diluted earnings per share from continuing operations: 

Basic 

Diluted 

Basic and diluted underlying earnings per share from continuing operations: 

Basic 

Diluted 

2011 
£’000 

18,215 

1,167 

12,976 

– 

32,358 

2010 
£’000 

27,150 

2,766 

– 

2,246  

32,162 

Number 
(thousands) 

Number 
(thousands) 

171,210 

787 

171,997 

166,278 

3,114 

169,392 

2011 
Pence 

10.64 

10.59 

18.90 

18.81 

2010 
Pence 

16.33 

16.03 

19.34 

18.99 

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70 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

14. Goodwill 

Cost and carrying value: 

At 1 January  

Recognised on the acquisition of a subsidiary 

Exchange adjustments 

At 31 December  

2011 
£’000 

2010 
£’000 

16,536 

16,053 

– 

(15) 

156 

327 

16,521 

16,536 

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benefit from that 
business combination. The carrying amount of goodwill has been allocated as follows: 

CPP North America LLC 
CPP Travel Services1 
Homecare Holdings Limited 

2011 
£’000 

12,473 

2,570 

1,478 

16,521 

2010 
£’000 

12,488 

2,570 

1,478 

16,536 

1  CPP Travel Services represents the entities currently trading as CPP Travel Services Limited and Concepts for Travel Limited. 

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. 

The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations  
are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management 
estimates discount rates using rates that reflect current market assessments of the time value of money and the risks specific to the CGUs.  
The growth rates are based on detailed business plans, and do not take account of any long term growth after this plan period of up to three  
years. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. The rate used  
to discount the forecast cash flows from the relevant CGUs at 31 December 2011 is 14% (2010: 12%). 

15. Other intangible assets 

Cost: 

At 1 January 2010 

Additions 

Exchange adjustments 

At 1 January 2011 

Additions 

Disposals 

Exchange adjustments 

At 31 December 2011 

Accumulated amortisation: 

At 1 January 2010 

Provided during the year 

Exchange adjustments 

At 1 January 2011 

Provided during the year 

Disposals 

Exchange adjustments 

At 31 December 2011 

Carrying amount: 

At 31 December 2010 

At 31 December 2011 

Contractual 
arrangements 
with third 
parties 
£’000 

Business 
relationships 
£’000 

Internally 
generated 
software 
£’000 

Externally 
acquired 
software 
£’000 

 4,744  

 8,109  

 –  

 12,853  

4,275 

– 

– 

 2,118  

 –  

 –  

 2,118  

– 

– 

– 

 12,159  

 2,344  

 6 

 14,509  

2,397 

– 

– 

 13,393  

 2,821  

 (15) 

 16,199  

2,745 

(107) 

(16) 

Total 
£’000 

 32,414  

 13,274  

 (9) 

 45,679  

9,417 

(107) 

(16) 

17,128 

2,118 

16,906 

18,821 

54,973 

 355  

 2,714  

 –  

 3,069  

3,663 

– 

– 

 –  

 158  

 –  

 158  

478 

– 

– 

7,804  

 2,068  

 4 

 9,876  

2,425 

– 

– 

 8,529  

 1,989  

 3 

 10,521  

2,284 

(107) 

(20) 

 16,688  

 6,929  

 7 

 23,624  

8,850 

(107) 

(20) 

6,732 

636 

12,301 

12,678 

32,347 

 9,784  

10,396 

 1,960  

1,482 

 4,633  

4,605 

 5,678  

6,143 

 22,055  

22,626 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

71

16. Property, plant and equipment 

Cost: 

At 1 January 2010 

Additions 

Disposals 

Exchange adjustments 

At 1 January 2011 

Additions 

Disposals 

Exchange adjustments 

At 31 December 2011 

Accumulated Depreciation: 

At 1 January 2010 

Provided during the year 

Disposals 

Exchange adjustments 

At 1 January 2011 

Provided during the year 

Disposals 

Exchange adjustments 

At 31 December 2011 

Carrying amount 

At 31 December 2010 

At 31 December 2011 

Freehold land 
& property 
£’000 

Leasehold 
improvements 
£’000 

Computer 
systems 
£’000 

Furniture & 
equipment 
£’000 

7,278 

5,534 

–  

–  

–  

7,278 

– 

– 

– 

92 

– 

(192) 

5,434 

235 

(1) 

(18) 

7,278 

5,650 

1,409 

213 

–  

–  

1,622 

165 

– 

– 

3,679 

196 

–  

(33) 

3,842 

230 

– 

(15) 

1,787 

4,057 

26,332 

4,489 

(3) 

(52) 

30,766 

1,771 

(1,969) 

(69) 

30,499 

21,240 

2,446 

(3) 

(20) 

23,663 

2,449 

(1,957) 

(18) 

24,137 

6,920 

390 

– 

(22) 

7,288 

429 

(38) 

(52) 

7,627 

5,872 

378 

– 

– 

6,250 

396 

(38) 

(8) 

6,600 

Total 
£’000 

46,064 

4,971 

(3) 

(266) 

50,766 

2,435 

(2,008) 

(139) 

51,054 

32,200 

3,233 

(3) 

(53) 

35,377 

3,240 

(1,995) 

(41) 

36,581 

5,656 

5,491 

1,592 

1,593 

7,103 

6,362 

1,038 

1,027 

15,389 

14,473 

Included in freehold land and property is freehold land at its cost value of £759,000 (2010: £759,000), which is not depreciated. 

17. Investment in joint venture 
Movements in the Group’s share in its joint venture are as follows: 

Carrying amount at 1 January 

Acquisition of share capital 

Share of losses for the year 

Carrying amount at 31 December 

2011 
£’000 

184 

997 

(1,181) 

– 

2010 
£’000 

 50  

 977  

 (843) 

 184  

The Group has a 50% economic interest in Home 3 Assistance Limited (Home 3), with 49% of the issued ordinary share capital being allotted  
to the Group. The Group has provided Home 3 with a subordinated loan facility of £1,200,000 during the year. This has been accounted for as an 
investment in Home 3 to the extent that losses have been incurred in the current year. The Group was allotted shares for cash consideration of 
£977,000 in 2010.  

Home 3 is incorporated in England and Wales. Its principal activity is provision of services in connection with assistance and insurance.  
This investment is considered to be jointly controlled based on the incorporation documents, shareholder agreement and the composition  
of the Board of Directors of Home 3. 

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72 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

17. Investment in joint venture continued 
The Group has a 50% interest in the economic assets of Home 3, as follows: 

Non-current assets 

Current assets 

Current liabilities 

Net (liabilities)/assets 

Group’s share of net (liabilities)/assets 

The Group has a 50% interest in the revenue and expenses of Home 3 as follows:  

Revenue 

Expenses 

Loss before taxation 

Taxation 

Loss after taxation 

Group’s share of loss after taxation 

18. Insurance assets 

Amounts due from policyholders and intermediaries 

Deferred acquisition costs 

Amounts recoverable from reinsurers in respect of outstanding claims 

Reconciliation of movement in deferred acquisition costs 

At 1 January 

Incurred during the year 

Amortised during the year 

At 31 December 

2011 
£’000 

168 

1,556 

(3,718) 

(1,994) 

(997) 

2011 
£’000 

1,774 

(4,726) 

(2,952) 

596 

(2,356) 

(1,181) 

2011 
£’000 

8,093 

15,376 

1,083 

24,552 

2011 
£’000 

15,237 

10,702 

(10,563) 

15,376 

2010 
£’000 

– 

916 

(548) 

368 

184 

2010 
£’000 

210 

(2,352) 

(2,142) 

456 

(1,686) 

(843) 

2010 
£’000 

 5,780  

 15,237  

 476  

 21,493  

2010 
£’000 

 9,985  

 14,081  

 (8,829) 

 15,237  

Of the above balance, £3,675,000 (2010: £4,576,000) relates to a period greater than 12 months from 31 December 2011. 

Amounts due from policy holders and intermediaries and amounts recoverable from reinsurers represent the total exposure to credit risk in respect 
of insurance activities. 

Credit is not generally offered to retail customers on insurance premiums. Where offered to wholesale insurance customers, the average credit 
period on insurance premiums is 45 days. The average credit period on amounts recoverable from reinsurers is 90 days. No interest is charged  
on insurance receivables at any time. 

Individually or collectively material insurance receivables are reviewed for recoverability when an adverse change in credit quality is identified  
or when they become overdue. Credit risk is limited as insurance receivables are dispersed amongst a number of counterparties. Credit ratings  
are not available for the substantial majority of insurance debtors. 

Included in the Group’s insurance receivable balance are debtors with a carrying amount of £1,329,000 (2010: £1,234,000) which are past due  
at the balance sheet date, for which the Group has not provided as there has not been a significant change in credit quality and the Group believes 
that the amounts are still considered recoverable.  

The average age of overdue but unprovided debts is 67 days (2010: 61 days). 

 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

73

18. Insurance assets continued 
Ageing of past due but not impaired insurance receivables 

Days outstanding since date of sales invoice: 

45 – 90 days 

90 –120 days 

Over 120 days 

Movement in the allowance for doubtful insurance receivables 

Balance as at 1 January 

Decrease in allowance recognised in income statement 

Amounts recovered during the year 

Balance as at 31 December 

19. Inventories 

Consumables and supplies 

20. Trade and other receivables 

Trade receivables 

Prepayments 

Other debtors 

2011 
£’000 

2010 
£’000 

1,260 

 1,200  

7 

62 

–  

 34  

1,329 

 1,234  

2011 
£’000 

 125  

(125) 

– 

– 

2011 
£’000 

329 

2011 
£’000 

13,587 

15,614 

1,466 

30,667 

2010 
£’000 

 253  

–  

 (128) 

 125 

2010 
£’000 

 289  

2010 
£’000 

13,679 

15,825 

771 

30,275 

Trade and other receivables are predominantly non-interest bearing. 

The majority of the Group’s trade receivables relate to customer payments awaiting collection. Since the timing of collection is controlled  
by the Group and is within a few days of processing the transaction, credit risk is considered not applicable to these items.  

Where credit is offered to customers, the average credit period offered is 34 days (2010: 41 days). No interest is charged on trade receivables  
at any time. Disclosures regarding credit risk below relate only to customers offered credit. 

Individually or collectively material trade receivables are reviewed for recoverability when an adverse change in credit quality is identified  
or when they become overdue. Credit risk is limited as exposure is spread over a large number of counterparties and customers. 

Included in the Group’s trade receivable balance are debtors with a carrying amount of £1,368,000 (2010: £1,402,000) which are past due at the 
reporting date, for which the Group has not provided as there has not been a significant change in credit quality and the Group believes that the 
amounts are still recoverable.  

The average age of overdue but unprovided debts is 89 days (2010: 82 days). 

Ageing of past due but not impaired receivables 

Days outstanding since date of invoice: 

Up to 90 days 

90 – 120 days 

Over 120 days 

2011 
£’000 

812 

221 

335 

2010 
£’000 

 926  

 269  

 207  

1,368 

 1,402  

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74 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

20. Trade and other receivables continued 
Movement in the allowance for doubtful receivables 

Balance as at 1 January 

Amounts written off during the year 

Balance as at 31 December 

21. Cash and cash equivalents 

Cash on demand 

Short term deposits 

2011 
£’000 

–  

– 

–  

2011 
£’000 

37,081 

17,843 

54,924 

Concentration of credit risk is reduced by placing cash on deposit across a number of institutions with high credit ratings. Credit quality of 
counterparties are as follows: 

AA 

A 

BBB 

B 

Rating information not available 

2011 
£’000 

11,219 

41,851 

1,657 

78 

119 

2010 
£’000 

 19 

 (19) 

–  

2010 
£’000 

 12,882  

 12,158  

 25,040  

2010 
£’000 

16,890 

7,188 

942 

– 

20 

Ratings are measured using Fitch’s long term ratings, which are defined such that ratings “AAA” to “BBB-” denote investment grade 
counterparties, offering low to moderate credit risk. “AAA” represents the highest credit quality, indicating that the counterparty’s ability  
to meet financial commitments is highly unlikely to be adversely affected by foreseeable events. 

54,924 

25,040 

22. Insurance liabilities 

Claims reported 

Claims incurred but not reported 

Total claims 

Unearned premium 

Amounts payable to reinsurers 

Total insurance liabilities 

2011 
£’000 

2,450 

203 

2,653 

6,015 

210 

8,878 

2010 
£’000 

 2,657 

 176  

 2,833  

 7,440  

 144  

 10,417  

Provisions for claims reported and processed are based on estimated costs from third party suppliers. Provisions for claims incurred but not 
reported are an estimate of costs for the small number of claims not yet processed at the year end. Claims outstanding at the year end are 
expected to be settled within the following 12 months. 

Amounts payable to reinsurers fall due for payment within one month. 

Provision for unearned premiums 

At 1 January 

Written in the year 

Earned in the year 

At 31 December 

Unearned premiums are released as revenue on a straight line basis over the life of the relevant policy. 

2011 
£’000 

7,440 

77,044 

(78,469) 

6,015 

2010 
£’000 

 7,257 

 59,790  

 (59,607) 

 7,440  

 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

75

22. Insurance liabilities continued 
Reinsurance cover 
The Group reinsures certain of its insurance contracts. Claims provisions are stated gross of reinsurance in the consolidated balance sheet.  
The impact of reinsurance on the year end claims provision is as follows: 

Notified claims 

Incurred but not reported claims 

As at 31 December 2010 

Notified claims 

Incurred but not reported claims 

As at 31 December 2011 

Gross  
£’000 

 2,657  

 176  

 2,833  

2,450 

203 

2,653 

Reinsurance 
£’000 

 (462) 

 (14) 

 (476) 

(1,066) 

(17) 

(1,083) 

Net 
£’000 

 2,195  

 162  

 2,357  

1,384 

186 

1,570 

Movements in the claims provision, gross and net of reinsurance, are as follows. There have been no significant differences between year end 
claims provisions and the amounts settled in the subsequent year. 

As at 1 January 2010 

Cash (paid)/received for claims settled in the year 

Increase/(reduction) in liabilities arising from current year claims 

As at 1 January 2011 

Cash (paid)/received for claims settled in the year 

Increase/(reduction) in liabilities arising from current year claims 

As at 31 December 2011 

Equalisation reserve 

At 1 January 

Transfer from retained earnings 

At 31 December 

Gross  
£’000 

Reinsurance 
£’000 

 1,579  

 (14,130) 

 15,384  

 2,833  

(25,825) 

25,645 

2,653 

 (95) 

 2,184  

 (2,565) 

 (476) 

3,572 

(4,179) 

(1,083) 

2011 
£’000 

6,196 

227 

6,423 

Net 
£’000 

 1,484 

 (11,946) 

 12,819  

 2,357  

(22,253) 

21,466 

1,570 

2010 
£’000 

4,913 

1,283 

6,196 

Equalisation reserves are established in accordance with Chapter 7.5 of the Integrated Prudential Sourcebook (PRU) and are in addition to the 
provisions required to meet the anticipated ultimate cost of settlement at the balance sheet date. As no actual liability exists at the balance  
sheet date, no provision is made in relation to movements in the claims equalisation reserve. However, as a claims equalisation reserve is still a 
requirement of PRU, an amount equal to the claims equalisation reserve is transferred from retained earnings to other reserves in the shareholders’ 
funds. Deferred tax is not included in this transfer. 

23. Trade and other payables 

Trade creditors and accruals 

Other tax and social security 

Other payables 

Deferred income 

2011 
£’000 

44,438 

5,711 

5,050 

12,685 

67,884 

2010 
£’000 

46,735 

5,393 

4,715 

12,478 

69,321 

Trade creditors and accruals comprise amounts outstanding for trade purchases and ongoing costs. The average credit period for trade purchases  
is 18 days (2010: 20 days). Interest is not suffered on trade payables. The Group has financial management policies in place to ensure that all 
payables are settled within the pre-agreed credit terms. 

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76 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

24. Bank loans 
The carrying value of the Group’s financial liabilities, for short term borrowings and long term borrowings, are as follows: 

Repayments due within one year 

Less: unamortised issue costs 

Bank loans due within one year 

Repayments due outside of one year 

Less: unamortised issue costs 

Bank loans due outside of one year 

Analysis of repayments: 

Within one year 

In the second year 

In the third to fifth years 

Total repayments 

Less: unamortised issue costs 

Total carrying value 

2011 
£’000 

– 

– 

– 

43,500 

(459) 

43,041 

2011 
£’000 

– 

43,500 

– 

43,500 

(459) 

43,041 

2010 
£’000 

–  

–  

–  

 28,000  

 (801) 

 27,199  

2010 
£’000 

 –  

 –  

28,000  

 28,000 

 (801) 

 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. 

The weighted average interest rates paid during the year were as follows: 

Bank loans 

Weighted average 

2011 
% 

3.3 

3.3 

2010 
% 

3.0 

3.0 

At 31 December 2011 the Group had available £35.6 million (2010: £51.1 million) of undrawn committed borrowing facilities which expire in 2013 
and on which all conditions precedent had been met. 

25. Provisions 

At 1 January 

Charged to the income statement 

FSA associated costs paid in the year 

Loan notes repaid in the year 

At 31 December 

Cash settled 
share based 
payments 
2011 
£’000 

FSA 
associated 
costs 
2011 
£’000 

 1,719  

72 

– 

(897) 

894 

– 

16,892 

(2,114) 

– 

14,778 

Cash settled 
share based 
payments 
2010 
£’000 

FSA 
associated 
costs 
2010 
£’000 

3,048 

464 

– 

(1,793) 

1,719 

– 

– 

– 

– 

– 

Total 
2011 
£’000 

 1,719  

16,964 

(2,114) 

(897) 

15,672 

Total 
2010 
£’000 

 3,048 

 464  

– 

(1,793) 

 1,719  

Provisions in respect of cash settled share based payments represent loan notes issued by employees to the Group. Further details are provided  
in note 30. 

The loan notes are payable in accordance with vesting conditions summarised in note 30. 

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 Directors’ Report on page 34. 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. 

 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

77

25. Provisions continued 
Provisions are expected to be settled in the following periods: 

Within one year 

Outside of one year 

At 31 December 

Cash settled 
share based 
payments 
2011 
£’000 

894 

– 

894 

FSA 
associated 
costs 
2011 
£’000 

10,499 

4,279 

14,778 

Total 
2011 
£’000 

11,393 

4,279 

15,672 

Cash settled 
share based 
payments 
2010 
£’000 

FSA 
associated 
costs 
2010 
£’000 

860 

859 

1,719 

– 

– 

– 

Total 
2010 
£’000 

 860  

 859  

 1,719 

26. Deferred tax 
The following are the major deferred tax assets/(liabilities) recognised by the Group and the movements thereon during the current and prior years: 

At 1 January 2010 

Credited/(charged) to income statement 

Credited to equity 

At 1 January 2011 

Credited/(charged) to income statement 

Charged to equity 

At 31 December 2011 

Accelerated 
capital 
allowances 
£’000 

Tax losses 
£’000 

Share based 
payments 
£’000 

Other short 
term timing 
differences 
£’000 

 502 

 161  

 –  

 663  

368 

– 

1,031 

 134 

 (88) 

 –  

 46  

(46) 

– 

– 

 3,287  

 (862) 

 1,078 

 3,503  

(1,846) 

(1,027) 

630 

 (505) 

 (357) 

 –  

 (862) 

554 

– 

(308) 

Total 
£’000 

 3,418 

 (1,146) 

 1,078 

 3,350  

(970) 

(1,027) 

1,353 

Deferred tax assets and liabilities are stated at tax rates expected to apply on the forecast date of reversal, based on tax laws substantively enacted 
at the balance sheet date.  

Certain deferred tax assets and liabilities have been offset where the Group is entitled to and intends to settle tax liabilities on a net basis.  
The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: 

Deferred tax assets 

Deferred tax liabilities 

2011 
£’000 

1,987 

(634) 

1,353 

2010 
£’000 

 3,809 

 (459) 

 3,350 

At the balance sheet date the Group has unused tax losses of £9,245,000 (2010: £8,036,000) available for offset against future profits. No deferred 
tax asset has been recognised in respect of these losses due to the unpredictability of future profit streams in the underlying companies and 
restrictions on offset of taxable profits and losses between Group companies. Included in unrecognised deferred tax assets are losses of £457,000 
(2010: £688,000) that will expire in 2015, £969,000 (2010: £nil) that will expire in 2016 and £2,629,000 (2010: £2,286,000) that will expire in 2020. 
Other losses will be carried forward indefinitely. 

The Group’s share of tax losses carried forward in the Home 3 joint venture amount to £1,495,000 (2010: £1,070,000). These have not been 
recognised since utilisation of the losses is not yet sufficiently certain. 

There is no deferred tax liability on unremitted foreign earnings. 

27. Financial instruments 
Capital risk management 
The Group manages its capital to safeguard its ability to continue as a going concern. 

The Group does not have a target level of gearing but seeks to maintain an appropriate balance of debt and equity while providing returns  
for shareholders and benefits for other stakeholders. During 2011 the Group maintained sufficient debt facilities to ensure its objectives were  
met. The Group’s principal debt facility during the year was its £80 million Revolving Credit Facility, which expires on 31 March 2013. 

The Group makes adjustments to its capital structure in light of economic conditions. To maintain or adjust the capital structure the Group may 
adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Directors’ have considered the capital 
requirements of the Group, including as a result of the FSA investigation, and have not proposed a final dividend in respect of the current year. 

Externally imposed capital requirement 
Two of the Group’s principal subsidiaries, Card Protection Plan Limited and Homecare Insurance Limited, have capital requirements imposed by  
the FSA in the UK. Both subsidiaries have complied with their respective imposed capital requirements throughout the current and previous year. 

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78 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

27. Financial instruments continued 
Card Protection Plan Limited 
Card Protection Plan Limited is regulated by the FSA as an insurance intermediary, and is required to hold a minimum level of capital resources 
relative to regulated business revenue.  

The ratio of current and future capital resources to regulated business revenue is reported monthly to management to ensure compliance.  
There have been no instances of non-compliance in either the current or previous years. 

The Group has agreed with the FSA in connection with its investigation to additional restrictions on the disposition of assets by Card Protection 
Plan Limited. 

Homecare Insurance Limited 
Homecare Insurance Limited is regulated by the FSA as an insurance underwriter, and therefore maintains its capital resources in accordance  
with the FSA’s risk-based solvency regime, Individual Capital Adequacy Standards (ICAS). 

The current and future capital levels are reviewed each month to ensure ongoing compliance and are reported to the FSA quarterly.  
There have been no instances of non-compliance in either the current or previous years. 

Fair value of financial instruments 
The fair value of non-derivative financial instruments is determined using pricing models based on discounted cash flow analysis using prices  
from observable current market transactions. Financial assets and liabilities are carried at the following amounts: 

Financial assets 

Loans and receivables 

2011 
£’000 

2010 
£’000 

69,977 

39,586 

Loans and receivables comprise cash and cash equivalents, trade receivables and other receivables and taxes receivable. 

There is no significant difference between the fair value and carrying amount of any financial asset. 

Financial liabilities 

Financial liabilities at amortised cost 

2011 
£’000 

2010 
£’000 

(116,295) 

(91,109) 

Financial liabilities at amortised cost comprise bank loans, trade creditors, accruals, taxes payable and provision for FSA associated costs. 

There is no significant difference between the fair value and carrying amount of any financial liability, since liabilities are either short term in nature 
or bear interest at variable rates. 

Financial risk management objectives 
The Group’s activities expose it primarily to the risks of changes in foreign exchange rates and interest rates. The Board of Directors determines 
the Treasury Policy of the Group and delegates the authority for execution of the policy to the Head of Treasury. Any changes to the Treasury Policy 
are authorised by the Board of Directors. The limited use of financial derivatives is governed by the Treasury Policy and derivatives are not entered 
into for speculative purposes. 

Interest rate risk 
The Group is exposed to interest rate risk to the extent that short and medium term interest rates fluctuate. The Group manages this risk through 
the use of interest rate swaps when appropriate, in accordance with its Treasury Policy. The interest cover (being defined as the ratio of EBITDA  
to interest paid) at 31 December 2011 is 29 (2010: 32). 

Interest rate sensitivity analysis 
The Group is mainly exposed to movements in LIBOR. The following table details the Group’s sensitivity to a 2% increase in LIBOR rates 
throughout the year. 2% represents the Directors’ assessment of a reasonably possible change in LIBOR rates. The sensitivity analysis includes 
the impact of changes in LIBOR on yearly average cash and bank loans. 

Increase/(decrease) in profit before tax 

Increase/(decrease) in shareholders’ equity 

2011 
£’000 

21 

21 

2010 
£’000 

 (416) 

 (416) 

 
 
 
 
 
 
 
Card Protection Plan Limited is regulated by the FSA as an insurance intermediary, and is required to hold a minimum level of capital resources 

The ratio of current and future capital resources to regulated business revenue is reported monthly to management to ensure compliance.  

There have been no instances of non-compliance in either the current or previous years. 

The Group has agreed with the FSA in connection with its investigation to additional restrictions on the disposition of assets by Card Protection 

27. Financial instruments continued 

Card Protection Plan Limited 

relative to regulated business revenue.  

Plan Limited. 

Homecare Insurance Limited 

Homecare Insurance Limited is regulated by the FSA as an insurance underwriter, and therefore maintains its capital resources in accordance  

with the FSA’s risk-based solvency regime, Individual Capital Adequacy Standards (ICAS). 

The current and future capital levels are reviewed each month to ensure ongoing compliance and are reported to the FSA quarterly.  

There have been no instances of non-compliance in either the current or previous years. 

Fair value of financial instruments 

The fair value of non-derivative financial instruments is determined using pricing models based on discounted cash flow analysis using prices  

from observable current market transactions. Financial assets and liabilities are carried at the following amounts: 

Loans and receivables comprise cash and cash equivalents, trade receivables and other receivables and taxes receivable. 

There is no significant difference between the fair value and carrying amount of any financial asset. 

2011 

£’000 

2010 

£’000 

69,977 

39,586 

2011 

£’000 

2010 

£’000 

(116,295) 

(91,109) 

Financial liabilities at amortised cost comprise bank loans, trade creditors, accruals, taxes payable and provision for FSA associated costs. 

There is no significant difference between the fair value and carrying amount of any financial liability, since liabilities are either short term in nature 

The Group’s activities expose it primarily to the risks of changes in foreign exchange rates and interest rates. The Board of Directors determines 

the Treasury Policy of the Group and delegates the authority for execution of the policy to the Head of Treasury. Any changes to the Treasury Policy 

are authorised by the Board of Directors. The limited use of financial derivatives is governed by the Treasury Policy and derivatives are not entered 

The Group is exposed to interest rate risk to the extent that short and medium term interest rates fluctuate. The Group manages this risk through 

the use of interest rate swaps when appropriate, in accordance with its Treasury Policy. The interest cover (being defined as the ratio of EBITDA  

to interest paid) at 31 December 2011 is 29 (2010: 32). 

Interest rate sensitivity analysis 

The Group is mainly exposed to movements in LIBOR. The following table details the Group’s sensitivity to a 2% increase in LIBOR rates 

throughout the year. 2% represents the Directors’ assessment of a reasonably possible change in LIBOR rates. The sensitivity analysis includes 

the impact of changes in LIBOR on yearly average cash and bank loans. 

Increase/(decrease) in profit before tax 

Increase/(decrease) in shareholders’ equity 

2011 

£’000 

21 

21 

2010 

£’000 

 (416) 

 (416) 

Financial assets 

Loans and receivables 

Financial liabilities 

Financial liabilities at amortised cost 

or bear interest at variable rates. 

Financial risk management objectives 

into for speculative purposes. 

Interest rate risk 

CPPGroup Plc Annual Report and Accounts 2011

79

27. Financial instruments continued 
Foreign currency risk 
The Group has exposure to foreign currency risk where it has investments in overseas operations which have functional currencies other than 
Sterling and are affected by foreign exchange movements. The carrying amounts of the Group’s principal foreign currency denominated assets  
and liabilities are as follows: 

Euro 

US Dollar 

Liabilities 

Assets 

2011 
£’000 

9,487 

4,398 

2010 
£’000 

10,831 

3,587 

2011 
£’000 

9,684 

9,005 

2010 
£’000 

8,154 

9,623 

Foreign currency sensitivity analysis 
The following table details the Group’s sensitivity to a 20% decrease in Euro against Sterling and 15% decrease in US Dollars against Sterling  
exchange rates. These represent the Directors’ assessment of the reasonably possible change in foreign exchange rates. The sensitivity  
analysis includes only outstanding foreign currency denominated financial instruments and adjusts their translation at the year end for a change 
in foreign currency rates. 

Profit before tax 

Shareholders’ equity 

Euro currency impact 

US Dollar currency impact 

2011 
£’000 

(50) 

(33) 

2010 
£’000 

 (16)   

 339    

2011 
£’000 

 (7) 

(601) 

2010 
£’000 

 (1) 

 (558) 

Eurozone sensitivity analysis 
The Group operates in countries with Euro denominated currencies, and the potential for the Eurozone to break up represents a risk to the Group. 
Eurozone operations are in Germany, Ireland, Italy, France, Portugal and Spain. The total carrying amount of the Group’s net assets and profit 
before tax originating in the Eurozone are as follows: 

Net liabilities 

Profit before tax 

2011 
£’000 

(4,510) 

10,758 

2010 
£’000 

 (6,556) 

 8,586 

A 20% deterioration in the Sterling: euro exchange rate throughout the year would have reduced Group operating profit by  
£1,793,000 (2010: reduction of £1,431,000) 

Credit risk 
Credit risk refers to the risk that a counterparty defaults on its contractual obligations resulting in financial loss to the Group. The Group does  
not actively hedge its credit risk. Its trade and insurance receivables are not exposed to a significant concentration of risk as the Group generally 
sells to a broad base of customers but where concentration exists this is only with highly rated counterparties. 

Counterparty credit limits are determined in accordance with the Treasury Policy for cash and cash equivalents and the Counterparty and Credit 
Risk Policy for receivables. Any balance that falls into an overdue status is monitored. Further details of the monitoring of and provision for overdue 
debts is outlined for insurance receivables in note 18 and other receivables in note 20. 

The carrying amount of financial assets recorded in the consolidated financial statements, which is net of impairment losses, represents  
the Group’s maximum exposure to credit risk. 

Liquidity risk 
The Group manages its liquidity risk by maintaining adequate reserves, banking facilities and reserved borrowing facilities. The Group has a policy  
of repatriation and pooling of funding where possible in order to maximise the return on surplus cash or minimise the level of debt required.  
Group Treasury continuously monitors the level of short term funding requirements and balances the need for short term funding with the long 
term funding needs of the Group. Additional undrawn facilities that the Group has at its disposal to further reduce the liquidity risk are included  
in note 24. 

Compliance with financial ratios and other covenant obligations of the Group’s bank loans is monitored on a monthly basis by the Board  
of Directors. 

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80 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

27. Financial instruments continued 
Liquidity and interest risk tables 
Liabilities 
The following table details the Group’s remaining contractual maturity for its financial liabilities, based on the undiscounted cash flows of financial 
liabilities and the earliest date at which the Group can be required to pay. The table includes both interest and principal cash flows and assumes  
no changes in future LIBOR rates. 

2010 

Non-interest bearing liabilities 

Variable rate instruments 

2011 

Non-interest bearing liabilities 

Variable rate instruments 

Less than 
1 month 
£’000 

1-3 
months 
£’000 

3 months 
to 1 year 
£’000 

1-5  
years 
£’000 

Over 
5 years 
£’000 

 43,579 

 11,270 

 75  

 137  

 43,654  

 11,407  

26,625 

99 

26,724 

19,389 

298 

19,687 

 7,671  

 305  

 7,976  

16,487 

795 

17,282 

 589  

 28,064  

 28,653  

9,875 

43,566 

53,441 

–  

 –  

 – 

419 

 – 

419 

Total 
£’000 

 63,109 

 28,581  

 91,690 

72,795 

44,758 

117,553 

Assets 
The following table details the Group’s expected maturity for its non-derivative financial assets, based on the undiscounted contractual maturities  
of the financial assets. 

2010 

Non-interest bearing assets 

Variable interest rate instruments 

2011 

Non-interest bearing assets 

Variable interest rate instruments 

Weighted 
average 
effective 
interest rate 
% 

n/a 

1.0% 

n/a 

1.0% 

Less than 
1 month 
£’000 

1-3 
months 
£’000 

3 months 
to 1 year 
£’000 

7,048 

24,983 

32,031 

11,876 

54,738 

66,614 

7,267 

57 

7,324 

2,744 

23 

2,767 

188 

–  

188 

187 

163 

350 

1-5 
years 
£’000 

43 

–  

43 

246 

 – 

246 

Total 
£’000 

14,546 

25,040 

39,586 

15,053 

54,924 

69,977 

Insurance risk 
The Group applies a prudent approach to its management of potential exposure to risks arising from its insurance contracts. 

The lines of policies underwritten are limited to General Insurance Classes underwritten by an entity within the Group which is authorised by the 
FSA. The lines of risk underwritten are restricted by the Group to those lines where the Group either has substantial experience or lines where  
the Group wishes to move into where it can enter such a line of business in a risk-controlled manner after appropriate Board consideration. 

The Group’s lines of insurance business and thus its insurance risk portfolio are primarily focused on high volume, low transaction value, short term 
individual lines. 

The Group has in place reinsurance arrangements to transfer a level of claims risk to third parties. The level reinsured is determined by periodic, 
and at least annual reviews. 

The Group’s policy is to establish a specific claims reserve at any point in time on each line of business, based on claims reported up to and 
including the last day of each accounting period including an element to represent claims incurred but not yet reported. Details of claims reserves 
carried are provided in note 22. 

The Directors consider the following to be the principal insurance risks and actions taken reducing risk to an acceptable level: 

Changes in rates of claims 
Trends in claim rates and other market data are reviewed on a regular basis and premiums for new contracts adjusted accordingly. Each class  
of contract has a large population of homogeneous policyholders and no insurance contracts are subject to concentration risk. 

A 10% deterioration in the loss ratio during the year would have resulted in a £1,568,000 reduction in profit before tax and shareholders’ equity 
(2010: £917,000), 10% representing the Directors’ assessment of the reasonably possible change in the loss ratio. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

81

27. Financial instruments continued 
Changes in settlement cost per claim 
The quantum or nature of settlement amounts is specified in policy documentation and the Group is not exposed to significant open ended 
commitments, since where settlement costs are not capped they vary within a small range. Where possible, contractual arrangements with 
suppliers and other parties seek to limit the amount per claim.  

Reliance on key suppliers 
The Group makes use of third party suppliers to efficiently settle some claims. The performance and financial position of key suppliers is regularly 
monitored and alternative lines of supply sourced as necessary. 

The Group therefore considers its exposure to risk arising from its insurance contracts to be appropriately managed. 

28. 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 and incentive and loyalty programmes. 

Since incorporation, I-Deal has contributed revenue of £0.3 million and losses after taxation of £0.3 million to the consolidated income statement. 

29. Share capital 

Called-up and allotted: Ordinary Shares of 10 pence each 

At 1 January  

Issue of shares in connection with: 

Incorporation of company 

Initial Public Offering 

Exercise of share options 

At 31 December 

2011 
Number 
(Thousands) 

2011 
£’000 

2010 
Number 
(Thousands) 

2010 
£’000 

170,616 

17,024 

151,521 

15,152 

– 

– 

814 

– 

– 

82 

 500  

 12,766  

 5,829  

171,430 

17,106 

170,616 

 12  

 1,277  

 583  

17,024 

During the year the Company issued 813,770 shares for total consideration of £1,081,000. The Company was incorporated in 2010, and issued 
500,000 ordinary shares on 11 February 2010 for consideration of £12,000. 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 £1,081,000. Further details relating to share options are 
provided in note 30. 

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. 

30. Share based payment 
Legacy schemes 
Legacy scheme share based payment charges in the income statement of £1,167,000 (2010: £3,841,000) arise from the Group’s 2005 and 2008 
ESOP Schemes and share based loan notes, which had been implemented in previous years to incentivise certain employees. Options in these 
schemes are exercisable at a price determined by the Board of Directors on the date of grant. The vesting conditions of the loan notes are broadly 
consistent with the options they replaced. The loan notes have been accounted for as cash settled share based payments.  

The IPO during 2010 represented a trigger event for the 2005 and 2008 ESOP Schemes. On the date of the IPO, 50% of the options outstanding 
vested, with 25% vesting in 2011 and 25% in 2012. Options lapse if not exercised within ten years of original grant and may lapse if the employee 
leaves the Group. 

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82 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

30. Share based payment continued 
Details of share options outstanding during the year under the legacy schemes are as follows: 

2005 ESOP Scheme1 

Outstanding at 1 January 

Forfeited during the year 

Exercised during the year 

Outstanding at 31 December 

Exercisable at 31 December 

2008 ESOP Scheme1 

Outstanding at 1 January 

Granted during the year 

Forfeited during the year 

Exercised during the year 

Outstanding at 31 December 

Exercisable at 31 December 

2011 

2010 

Number of 
share options 
(thousands) 

Weighted 
average 
exercise  
price  
(£) 

Number of 
share options 
(thousands) 

Weighted 
average 
exercise 
price 
(£) 

 3,619  

(38) 

(446) 

3,135 

1,016 

 4,504 

– 

(270) 

(368) 

3,866 

2,820 

1.93 

1.22 

1.24 

2.03 

2.08 

1.79 

– 

1.79 

1.79 

1.79 

1.79 

 6,561  

 (65) 

(2,877) 

 3,619  

151  

 7,388  

 168  

 (102) 

(2,950) 

 4,504 

212  

1.88 

0.82 

1.86 

1.93 

2.01  

1.66 

1.79 

1.79 

1.46  

1.79 

1.79  

1   As part of the Group reconstruction in March 2010, each option over 1 share of CPP Group Plc was rolled over into an option over 16 shares in the Company, with equivalent terms to the option 

it replaced. Option numbers and prices in the table above have been restated to reflect the rolled over amounts. 

The weighted average share price at the dates of exercise during the year was £2.84 (2010: £2.45). 

The options outstanding at 31 December 2011 had a weighted average remaining contractual life of nil years (2010: one year) in the 2008 Scheme 
and nil years (2010: one year) in the 2005 Scheme. 

No options were granted in the year. The aggregate estimated fair value of the options granted during 2010 was £171,000. 

The principal assumptions underlying the valuation of share options granted during 2010 at the date of grant are as follows: 

Weighted average share price 

Weighted average exercise price 

Expected volatility 

Expected life 

Risk free rate 

Expected dividend yield 

2008 ESOP Scheme 

2005 ESOP Scheme 

2011 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

2010 

£2.35 

£1.79 

43.00% 

1 year 

2.98% 

0.00% 

2011 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

2010 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

Expected volatility was determined by calculating the historical volatility of comparable quoted companies’ share prices. 

Post IPO plans 
Other administrative expenses include £1,092,000 (2010: £902,000) of charges arising from the Long Term Incentive Plan, the Restricted Stock 
Plan, the Deferred Share Bonus Plan and the ShareSAVE Plan. Options have been granted during the year under the LTIP, RSP and DSBP to 
incentivise certain employees. UK based staff have been invited to participate in the ShareSAVE Plan during the year. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

83

30. Share based payment continued 
Details of share options outstanding during the period under these plans are as follows: 

LTIP 

Outstanding at 1 January 

Granted during the year 

Forfeited during the year 

Outstanding at 31 December 

RSP 

Outstanding at 1 January 

Granted during the year 

Forfeited during the year 

Outstanding at 31 December 

DSBP 

Outstanding at 1 January 

Granted during the year 

Outstanding at 31 December 

ShareSAVE Plan 

Outstanding at 1 January 

Granted during the year 

Forfeited / cancelled during the year 

Outstanding at 31 December 

2011 

2010 

Number of 
share options 
(thousands) 

Weighted 
average 
exercise  
price  
(£) 

Number of 
share options 
(thousands) 

Weighted 
average 
exercise 
price 
(£) 

1,271 

1,809 

(176) 

2,904 

135 

106 

(41) 

200 

– 

61 

61 

800 

1,073 

(638) 

1,235 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

– 

1.98 

1.25 

1.98 

1.35 

 –  

 1,323  

(52) 

1,271 

 –  

 146  

(11) 

135 

 –  

 –  

 –  

 –  

826 

(26) 

800 

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

1.98 

1.98 

1.98 

Nil-cost options and conditional shares granted during the year under the LTIP normally vest after three years, lapse if not exercised within  
ten years of grant and may lapse if option holders cease to be employed by the Group. Vesting of LTIP options and shares are also subject  
to achievement of performance criteria including earnings per share growth and total shareholder return over a three year period. 

Nil-cost options and conditional shares granted during the year under the RSP normally vest after three years, lapse if not exercised within ten 
years of grant, and may lapse if option holders cease to be employed by the Group. 

Nil-cost options and conditional shares granted during the year under the DSBP normally vest after three years, lapse if not exercised within ten 
years of grant and may lapse if option holders cease to be employed by the Group. The DSBP is a scheme to retain and further incentivise senior 
management by awarding a portion of their annual bonus in the form of share options. 

Options granted during the year under the ShareSAVE Plan entitle option holders to contribute up to £250 per month to the plan. At the vesting 
date of either three or five years, option holders choose between return of their contributions in cash or purchase of shares at a discount to the 
market price on the date of grant. Options normally lapse and cash deposited is returned to option holders who cease to be employed by the  
Group during the vesting period. 

The options outstanding at 31 December 2011 had a weighted average remaining contractual life of two years (2010: two years) in the LTIP,  
two years (2010: two years) in the RSP, two years in the DSBP (2010: n/a) and three years (2010: four years) in the ShareSAVE Plan. 

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84 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

30. Share based payment continued 
The principal assumptions underlying the valuation of the options granted during the year at the date of grant are as follows: 

Weighted average share price 

Weighted average exercise price 

Expected volatility 

Expected life 

Risk free rate 

Dividend yield 

ShareSAVE 

LTIP 

RSP 

DSBP 

2011 

£1.33 

£1.25 

35.72% 

3 years 

1.16% 

5.68% 

2010 

£2.68 

£1.98 

33.49% 

4 years 

1.45% 

3.28% 

2011 

£2.17 

£nil 

2010 

£2.62 

£nil      

36.95% 

3 years 

33.67% 

3 years 

1.49% 

1.94% 

n/a 

n/a 

2011 

£2.79 

£nil 

n/a 

2010 

£2.62 

£nil  

n/a 

2011 

£3.00 

£nil 

n/a 

3 years 

3 years 

3 years 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

2010 

n/a 

n/a  

n/a 

n/a 

n/a 

n/a 

The aggregate estimated fair value of the options and shares granted under the LTIP, RSP, DSBP and ShareSAVE is £4,230,000 (2010: £4,181,000). 

Expected volatility was determined by calculating the historical volatility of comparable quoted companies’ share prices. 

31. Reconciliation of operating cash flows 

Profit for the year 

Adjustment for: 

Depreciation and amortisation 

Equity settled share based payment expense 

Loss on disposal of property, plant and equipment 

Share of loss of joint venture 

Investment revenues 

Finance costs – non derivative instruments 

Income tax expense 

Operating cash flows before movements in working capital 

Increase in inventories 

Increase in receivables 

Increase in insurance assets 

Increase in payables 

(Decrease)/Increase in insurance liabilities 

Increase in provisions 

Cash generated by operations 

Exercise of share options 

Income taxes paid 

Net cash from operating activities 

2011 
£’000 

2010 
£’000 

18,051 

27,150 

12,090 

2,169 

13 

1,181 

(423) 

1,795 

10,255 

45,131 

(40) 

(770) 

(3,059) 

605 

(1,539) 

14,850 

55,178 

(1,059) 

(12,572) 

41,547 

10,162 

4,279 

–  

843 

(341) 

5,482  

12,604 

60,179  

(130) 

(7,134) 

(7,441) 

5,655 

1,420 

464 

53,013 

(5,530) 

(9,121) 

38,362  

32. Contingent liabilities 
Having regard to the disclosure in note 25, 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. 

 
 
 
 
 
   
 
   
 
 
   
 
   
 
   
 
   
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

85

33. Commitments 
Operating lease commitments 
The Group has entered into commercial leases on certain properties, motor vehicles and items of machinery. The leases have normal terms, 
escalation clauses and renewal rights. 

Future minimum lease payments under non-cancellable operating leases expiring: 

Within one year 

In the second to fifth years inclusive 

After five years 

2011 
£’000 

351 

4,163 

6,093 

10,607 

2010 
£’000 

 716  

 2,868  

 2,597  

 6,181 

34. 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. The Group 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  
from 2005, and to offer appropriate redress to customers. The agreement with the FSA is detailed on page 34.  

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 £14.8 million for FSA associated costs in note 25. 

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  
£3-4 million. 

35. 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: 

Costs rechargeable to Home 3 incurred by the Group 

Balance receivable from Home 3 at 31 December 

2011 
£’000 

361 

1,090 

2010 
£’000 

366 

27 

Amounts receivable from Home 3 include £1,200,000 (2010: £ nil) 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: 

Short term employee benefits 

Post employment benefits 

Termination benefits 

Share based payments  

Required disclosures regarding remuneration of the Directors are included in the Remuneration Report on pages 44 to 50. 

2011 
£’000 

3,436 

231 

142 

1,153 

4,962 

2010 
£’000 

 3,986 

 161  

 240  

 2,871  

 7,258  

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86 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: COMPANY BALANCE SHEET

COMPANY BALANCE SHEET 

For the year ended 31 December 2011 

Fixed assets 

Tangible fixed assets 

Investment in subsidiaries 

Current assets 

Debtors 

Cash and cash equivalents 

Creditors: amounts falling due within one year 

Net current assets 

Total assets less current liabilities 

Provisions 

Net assets 

Capital and reserves 

Called up share capital 

Share premium account 

Share based payment reserve 

Profit and loss reserve 

Equity shareholders’ funds 

Approved by the Board of Directors and authorised for issue on 26 March 2012 and signed on its behalf by: 

Paul Stobart 
Chief Executive Officer 

Shaun Parker 
Chief Financial Officer 

Company registration number: 07151159 

Note 

39 

40 

41 

2011 
£’000 

2010 
£’000 

5 

15,787 

15,792 

59,477 

9,901 

69,378 

5 

15,321 

15,326 

42,619 

10,957 

53,576 

43 

(12,128) 

(10,023) 

44 

45 

46 

46 

46 

57,250 

73,042 

(2,176) 

70,866 

17,106 

33,300 

4,980 

15,480 

70,866 

43,553 

58,879 

(1,719) 

57,160 

17,024 

32,301 

2,973 

4,862 

57,160 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011
FINANCIAL STATEMENTS: NOTES TO THE COMPANY FINANCIAL STATEMENTS

87

NOTES TO THE COMPANY  
FINANCIAL STATEMENTS 

36. Parent company profit and loss account 
The Company has taken advantage of the exemption in the Companies Act 2006, Section 408, not to present its own profit and loss account.  
The Company reported a profit after tax for the year of £23,543,000 (2010: £8,989,000) including dividends received from subsidiary undertakings 
of £30,000,000 (2010: £13,500,000) during the year. 

37. Significant accounting policies 
Basis of preparation 
The Directors have chosen to present these Company financial statements under the historical cost basis in accordance with applicable law and 
accounting standards generally accepted in the United Kingdom (UK GAAP).  

The Company was incorporated as Cranberry 1 Plc on 9 February 2010 and changed its name to CPPGroup Plc on 10 March 2010. The comparative 
information is therefore based on a 46 week period.  

Cash flow statement 
Under FRS 1 (revised) “Cash Flow Statements” the Company is not required to include a cash flow statement within these Company financial 
statements, since a consolidated cash flow statement for the Group is publicly available. 

Dividend income 
Dividend income from investments is recognised when the Company’s right to receive payment has been established. 

Provisions 
Provisions are recognised when the Company has a present obligation as a result of a past event, it is probable that the Company will be required 
to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best 
estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties 
surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount  
is the present value of those cash flows. 

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised 
as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 

Share based payments 
Prior to the Company’s shares being listed on the London Stock Exchange on 24 March 2010, the Company issued share options to certain of the 
Group’s employees through the ESOP. Subsequent to its listing, the Company has issued share options to certain of the Group’s employees under 
the LTIP, the RSP, the DSBP and the ShareSAVE Plan. 

Share options are treated as equity settled if the Company has the ability to determine whether to settle exercises in cash or by the issue of 
shares. Share options are measured at fair value at the date of grant, based on the Company’s estimate of shares that will eventually vest, and 
adjusted for the effect of non-market based vesting conditions each period. The fair value of equity settled share based payments is charged to  
the profit and loss account on a straight line basis over the vesting period, with a corresponding increase in reserves, subject to adjustment for 
forfeited options. 

Share options are treated as cash settled, if the terms of the scheme require or the Directors intend to settle share options with a cash payment. 
Cash settled options are measured at fair value at date of grant and subsequently revalued at each period end. For cash settled share based 
payments, a liability is recognised for a proportion, based on the vesting period, of the fair value as calculated at the balance sheet date. 
Movements in the provision are charged to the profit and loss account. 

The fair value of the options are measured by use of the Black Scholes option pricing model and Monte Carlo simulation model. 

Pension costs 
Pension costs represent contributions made by the Company to defined contribution pension schemes. These are expensed as incurred. 

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88 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

37. Significant accounting policies continued 
Taxation 
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid or recovered using the tax rates and laws that 
have been enacted or substantively enacted by the balance sheet date. 

Deferred taxation is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay 
less tax at a future date, at rates expected to apply when they crystallise based on tax rates and law. Timing differences arise from the inclusion  
of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. 
Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and 
liabilities are not discounted. 

Tangible fixed assets 
Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Depreciation is provided at rates calculated to write 
off the cost, less estimated residual value, of each asset over its expected useful life, as follows: 

Computer systems:  

4 years straight line 

Investment in subsidiaries 
Investments in subsidiaries are stated at cost less provision for impairment. As permitted by Section 615 of the Companies Act 2006, shares 
issued as consideration for acquisition of a subsidiary already under common control are deemed to have been issued at their par value. 

Cash at bank and in hand 
Cash at bank and in hand comprises cash in hand and bank deposits with a term from inception of three months or less, less bank overdrafts 
where there is a right to offset. Bank overdrafts are presented as current liabilities to the extent that there is no right to offset with cash balances  
in the same currency. 

Financial assets 
Financial assets of the Company are classified according to their nature and purpose which is determined at the time of initial recognition. All of  
the financial assets held by the Company are classified as “loans and receivables”. 

Financial liabilities and equity 
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. All financial 
liabilities of the Company are classified as “other financial liabilities”. 

Equity instruments 
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.  
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. 

38. Dividends 
Amounts recognised as distributions to equity holders in the year are as follows: 

Final dividend paid for the period ended 31 December 2010 of 5.12 pence per share 

Interim dividend paid for the year ending 31 December 2011 of 2.42 pence per share (2010: 2.42 pence per share) 

Amounts recognised as distributions to equity holders in the year 

2011 
£’000 

8,776 

4,149 

12,925 

2010 
£’000 

– 

4,127 

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. 

 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

89

Computer 
systems 
£’000 

6 

 – 

6 

1 

 – 

1 

5 

5 

2011 
£’000 

2010 
£’000 

15,321  

466 

15,787 

 –  

 15,321  

 15,321  

39. Tangible fixed assets 

Cost: 

At 1 January 2011 

Additions 

At 31 December 2011 

Accumulated Depreciation: 

At 1 January 2011 

Provided during the year 

At 31 December 2011 

Carrying amount 

At 31 December 2010 

At 31 December 2011 

40. Investment in subsidiaries 

Cost and carrying value 

At 1 January 

Acquisitions 

At 31 December 

Acquisitions of £466,000 during the year relate to the exercise of share options held by overseas employees which are treated as capital 
contributions to the employing subsidiaries and therefore recognised as investments in subsidiary companies. 

In 2010 as part of the Group reconstruction, the Company acquired 100% of the issued share capital of CPP Group plc, the previous holding 
company of the CPP group of companies. The Company issued 151,520,832 ordinary shares to the then shareholders of CPP Group plc in 
consideration. 

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90 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

40. Investment in subsidiaries continued 
Investments in Group entities at 31 December 2011 are as follows: 

Investments in subsidiary undertakings held directly 

CPP Group Plc 

CPP Worldwide Holdings Limited 

Investments in subsidiary undertakings held through an  
intermediate subsidiary 

Airport Angel Limited 

Card Protection Plan Limited 

Concepts for Travel Limited 

CPP Assistance Limited 

CPP Assistance Services Limited 

CPP European Holdings Limited 

CPP Group Finance Limited 

CPP Holdings Limited 

CPP Insurance Administration Limited 

CPP International Holdings Limited 

CPP Services Limited 

Detailregion Limited 

Green Suite Limited 

Homecare Assistance Limited 

Homecare (Holdings) Limited 

Homecare Insurance Limited 

CPP Travel Services Limited 

I-Deal Promotions Limited 

CPP Brasil Servicos de Assistencia Pessoal LTDA 

CPP Commerical Consulting Services (Shanghai) Co Limited 

CPP France SA 

CPP Creating Profitable Partnerships GmbH 

One Call GmbH 

White Rock Limited 

CPP Asia Limited 

CPP Assistance Services Private Limited 

Servicios de Asistencia a Tarjetahabientes CPP Mexico, S.de R.L.de C.V 

Profesionales en Proteccion Individual, S.de R.L de C.V 

CPP Mediacion Y Proteccion SL 

CPP Proteccion Familiar SL 

CPP Proteccion Y Servicios de Asistencia SAU 

CPP Responding to Life SL 

Key Line Auxiliar SL 

CPP Sigorta Aracilik Hizmetleri Anonim Sirketi 

CPP Yardim ve Destek Hizmetleri Anonim Sirketi 

CPP Direct LLC 

CPP Florida LLC 

CPP Insurance Agency LLC 

Country of 
incorporation/registration 

Class of shares held 

Percentage 
of share 
capital held 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

100% 

100% 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

England & Wales 

Ordinary Shares 

Brazil 

China 

France 

Germany 

Germany 

Guernsey 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

* 

Hong Kong 

Ordinary Shares 

India 

Mexico 

Mexico 

Spain 

Spain 

Spain 

Spain 

Spain 

Turkey 

Turkey 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

Ordinary Shares 

United States 

Ordinary Shares 

United States 

Ordinary Shares 

United States 

Ordinary Shares 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

51% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

100% 

99.99% 

99.99% 

100% 

100% 

100% 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

91

40. Investment in subsidiaries continued 
CPP NA Holdings Inc 

CPP North America LLC 

CPP Travel LLC 

CPP Warranties LLC 

Investments in joint venture undertakings held via an  
intermediate subsidiary 

Home 3 Assistance Limited 

*   Quasi-subsidiary Protected Cell Company 

United States 

Ordinary Shares 

United States 

Ordinary Shares 

United States 

Ordinary Shares 

United States 

Ordinary Shares 

100% 

100% 

100% 

100% 

England & Wales 

Ordinary Shares 

49% 

The principal activity of all of the subsidiaries is to provide services in connection with the Group’s major product streams. 

41. Debtors 

Amounts due from Group entities 

Prepayments 

Deferred tax asset 

Other debtors 

2011 
£’000 

2010 
£’000 

58,532 

41,680 

69 

745 

131 

33 

894 

12 

59,477 

42,619  

Amounts receivable from Group entities are unsecured, have no fixed date of repayment and bear interest at LIBOR plus a variable margin. 

42. Deferred tax 
Movements in deferred tax assets recognised by the Company are as follows: 

At 1 January 

Transferred from other Group companies 

Charged to profit and loss 

At 31 December 

Share based 
payments 
2011 
£’000 

Share based 
payments 
2010 
£’000 

 894  

 – 

(149) 

745 

– 

 1,140  

(246) 

894 

Deferred tax assets are stated at the UK Corporation Tax rate of 25% expected to apply on the forecast date of reversal, based on tax laws 
substantively enacted at 31 December 2011. 

43. Creditors: amounts falling due within one year 

Trade creditors 

Amounts payable to Group entities 

Accruals 

Other taxation and social security 

2011 
£’000 

 140 

10,702 

1,286 

 – 

2010 
£’000 

176 

8,675 

1,163 

9 

12,128 

10,023 

Amounts payable to Group companies are unsecured, have no fixed date of repayment and suffer interest at a rate of LIBOR plus a variable margin. 

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92 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

44. Provisions 

At 1 January 

Transferred from other Group entities 

Charged to the profit and loss account 

FSA associated costs paid in the year 

Repayment of loan notes 

At 31 December 

Cash 
settled 
share 
based 
payments 
2011 
£’000 

1,719 

–  

72 

– 

(897) 

894 

FSA 
associated 
costs 
2011 
£’000 

– 

– 

2,109 

(827) 

– 

Cash 
settled 
share 
based 
payments 
2010 
£’000 

 –  

Total 
2011 
£’000 

1,719 

– 

3,169  

2,181 

(827) 

(897) 

343 

– 

(1,793)  

1,282 

2,176 

1,719 

FSA 
associated 
costs 
2010 
£’000 

 –  

 –  

 –  

– 

–  

 –  

Total 
2010 
£’000 

– 

3,169 

343 

– 

(1,793) 

1,719 

Cash settled share based payments represent loan notes issued to employees of Group entities. Further details are provided in note 46. 

As a consequence of the IPO, 50% of the loan notes fell due for repayment during 2010, 25% fell due for repayment in 2011 and 25% will fall  
due in 2012. 

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 Directors’ Report on page 34. Provision for FSA associated costs comprises professional fees associated with the investigation. 

FSA associated costs are anticipated to be settled within one year of the balance sheet date. 

45. Share capital 

Issued: 

At 1 January 

Issue of shares: 

Incorporation of company 

Group reorganisation 

Initial Public Offering 

Exercise of share options 

At 31 December 

2011 
Number 
(Thousands) 

2011 
£’000 

2010 
Number 
(Thousands) 

2010 
£’000 

170,616 

17,024 

–  

 –  

–  

–  

–  

814 

– 

–  

–  

82 

500 

151,521 

12,766 

5,829 

171,430 

17,106 

170,616 

12 

15,152 

1,277 

583 

17,024 

The Company was incorporated in 2010, and issued 500,000 ordinary shares on 11 February 2010 for consideration of £12,000. 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. 

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 £1,081,000. Further details relating to share options are 
provided in note 48. 

Of the 171,429,503 ordinary shares issued at 31 December 2011, 170,929,504 are fully paid and 499,999 are partly paid. 

 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

93

46. Reserves 

At 1 January 2011 

Profit for the year 

Dividends paid 

Equity settled share based payment charge 

Exercise of share options 

At 31 December 2011 

Share premium 
account 
£’000 

Share based 
payment 
reserve 
£’000 

32,301 

2,973 

 – 

–  

 – 

999 

33,300 

 – 

– 

2,007 

 – 

4,980 

47. Reconciliation of movement in equity shareholders’ funds 

Profit for the year 

Dividends paid 

Equity settled share based payment charge 

Exercise of share options 

Initial purchase offering 

Other shares issued 

Movement in equity shareholders’ funds 

Equity shareholders’ funds at 1 January 

Equity shareholders’ funds at 31 December 

Profit 
and loss 
reserve 
£’000 

4,862 

23,543 

Total 
£’000 

40,136 

23,543 

(12,925) 

(12,925) 

 – 

 – 

15,480 

2011 
£’000 

23,543 

(12,925) 

2,007 

1,081 

 – 

 – 

13,706 

57,160 

70,866 

2,007 

999 

53,760 

2010 
£’000 

8,989 

(4,127) 

2,973 

8,574 

25,587 

15,164 

 57,160  

– 

 57,160 

48. Share based payment 
Legacy schemes 
Legacy schemes comprise the 2005 and the 2008 ESOP Schemes, including the related loan notes (see note 44), which had been implemented  
in previous years, to incentivise certain employees. Details of options outstanding held by the Company’s employees under these schemes  
are as follows: 

2005 ESOP Scheme 

Outstanding at 1 January 
Rolled over during the year/period1 
Forfeited in the year/period 

Exercised during the year/period 

Transferred in from other Group companies 

Outstanding at 31 December 

Exercisable at 31 December 

2011 

2010 

Number of 
share options 
(Thousands) 

Weighted 
average 
exercise  
price  
£ 

Number of 
share options 
(Thousands) 

Weighted 
average 
exercise 
price 
£ 

 2,253  

 – 

(16) 

(299) 

435 

2,373 

633 

1.84 

 – 

0.82 

1.12 

2.28 

2.02 

2.05 

 –  

 3,881  

 –  

 (1,628) 

 –  

 2,253  

18 

– 

1.80 

 –  

1.74 

 –  

1.84 

0.82 

1   As part of the 2010 Group reconstruction, each option over 1 share of CPP Group plc was rolled over into an option over 16 shares in the Company, with equivalent terms to the option  

it replaced. 

1

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2

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94 CPPGroup Plc Annual Report and Accounts 2011

FINANCIAL STATEMENTS: NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED

48. Share based payment continued 

2008 ESOP Scheme 

Outstanding at 1 January 
Rolled over during the year/period1 
Forfeited in the year/period 

Exercised during the year/period 

Transferred in from other Group companies 

Outstanding at 31 December 

Exercisable at 31 December 

2011 

2010 

Number of 
share options 
(Thousands) 

Weighted 
average 
exercise  
price  
£ 

Number of 
share options 
(Thousands) 

Weighted 
average 
exercise 
price 
£ 

 3,216  

– 

(116) 

(162) 

84 

3,022 

2,356 

1.79 

– 

1.79 

1.79 

1.79 

1.79 

1.79 

 –  

 5,052  

 (100) 

 (1,736) 

– 

 3,216  

76 

– 

1.60 

 1.79  

1.22 

– 

1.79 

1.79 

1   As part of the 2010 Group reconstruction, each option over 1 share of CPP Group plc was rolled over into an option over 16 shares in the Company, with equivalent terms to the option  

it replaced. 

The IPO during 2010 represented a trigger event for the 2005 and 2008 ESOP Schemes. On the date of the IPO 50% of the options outstanding 
vested, with 25% vesting in 2011 and 25% in 2012. Options lapse if not exercised within ten years of original grant and may lapse if the employee 
leaves the Group. 

The options outstanding at 31 December 2011 had a weighted average remaining contractual life of nil years (2010: one year) in the 2008 Scheme 
and nil years (2010: one year) in the 2005 Scheme. 

The weighted average share price at the dates of exercise during the year was £2.81 (2010: £2.44). 

Post IPO plans 
Options have been granted by the Company to Group employees during the period under the LTIP, RSP and DSBP to incentivise certain 
employees. UK based Group employees have been invited to participate in the ShareSAVE Plan during the year. 

Details of share options outstanding during the year held by the Company’s employees under the plans are as follows: 

LTIP 

Outstanding at 1 January 

Granted during the year 

Forfeited during the year 

Transferred in from other Group companies 

Outstanding at 31 December 

RSP 

Outstanding at 1 January 

Granted during the year 

Forfeited during the year 

Outstanding at 31 December 

DSBP 

Outstanding at 1 January 

Granted during the year 

Outstanding at 31 December 

ShareSAVE Plan 

Outstanding at 1 January 

Granted during the year 

Forfeited / cancelled during the year 

Outstanding at 31 December 

2011 

2010 

Number of 
share options 
(Thousands) 

Weighted 
average 
exercise  
price  
£ 

Number of 
share options 
(Thousands) 

Weighted 
average 
exercise 
price 
£ 

 848 

1,373 

(120) 

51 

2,152 

 45 

45 

(18) 

72 

– 

46 

46 

 57  

105 

(48) 

114 

 –    

– 

– 

– 

– 

 –    

 – 

 – 

 – 

– 

 –    

 –    

 1.98    

1.25 

1.98 

1.31 

 –  

 900  

(52) 

 –  

848 

 –  

 45  

 –  

45 

 –  

 –  

 –  

 –  

57 

 –  

57 

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

 –  

1.98 

 –  

1.98 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CPPGroup Plc Annual Report and Accounts 2011

95

48. Share based payment continued 
Nil-cost options and conditional shares granted during the year under the LTIP normally vest after three years, lapse if not exercised within  
ten years of grant and may lapse if option holders cease to be employed by the Group. Vesting of LTIP options and shares are also subject  
to achievement of performance criteria including earnings per share growth and total shareholder return over a three year period. 

Nil-cost options and conditional shares granted during the year under the RSP normally vest after three years, lapse if not exercised within  
ten years of grant and may lapse if option holders cease to be employed by the Group. 

Nil-cost options and conditional shares granted during the year under the DSBP normally vest after three years, lapse if not exercised within ten 
years of grant and may lapse if option holders cease to be employed by the Group. The DSBP is a scheme to retain and further incentivise senior 
management by awarding a portion of their annual bonus in the form of share options. 

Options granted during the year under the ShareSAVE Plan entitle option holders to contribute up to £250 per month. At the vesting date of either 
three or five years, option holders choose between return of their contributions in cash or purchase of shares at a discount to the market price on  
the date of grant. Options normally lapse and cash deposited is returned to option holders who cease to be employed by the Group during the 
vesting period. 

The options outstanding at 31 December 2011 had a weighted average remaining contractual life of two years (2010: two years) in the LTIP,  
two years (2010: two years) in the RSP, two years in the DSBP (2010: n/a) and three years (2010: four years) in the ShareSAVE Plan. 

The principal assumptions underlying the valuation of the options granted during the year at the date of grant are as follows: 

Weighted average share price 

Weighted average exercise price 

Expected volatility 

Expected life 

Risk free rate 

Dividend yield 

ShareSAVE 

LTIP 

RSP 

DSBP 

2011 

£1.33 

£1.25 

35.75% 

3 years 

1.15% 

5.68% 

2010 

£2.68 

£1.98 

33.49% 

3 years 

1.45% 

3.28% 

2011 

£2.08 

£nil 

36.88% 

3 years 

2010 

£2.62 

£nil    

33.67% 

3 years 

2011 

£2.70 

£nil 

n/a 

2010 

£2.62 

£nil    

n/a 

2011 

£3.00 

£nil 

n/a 

3 years 

3 years 

3 years 

1.45% 

1.94% 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

n/a 

2010 

n/a 

n/a  

n/a 

n/a 

n/a 

n/a 

The aggregate estimated fair value of the options and shares granted under the LTIP, RSP, DSBP and ShareSAVE is £2,837,000  
(2010: £2,306,000). 

Expected volatility was determined by calculating the historical volatility of comparable quoted companies’ share prices. 

49. Related parties and control 
Certain bank loans taken out by Group entities are secured against the assets of the Company. The total amount outstanding on these loans at  
31 December 2011 amounted to £43,500,000 (2010: £28,000,000) 

The Company has taken the exemption available under FRS 8 “Related Party Transactions” not to disclose transactions with subsidiaries all  
of whose shares are held within the Group. 

The Company’s ultimate controlling party is set out in note 35 to the consolidated financial statements. Emoluments of the Company’s Directors  
are set out in the Remuneration Report on pages 44 to 50.

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96 CPPGroup Plc Annual Report and Accounts 2011

CPP OFFICE ADDRESSES

CPP OFFICE ADDRESSES 

Global Headquarters 
CPPGroup Plc 
Holgate Park 
York 
YO26 4GA 
United Kingdom 
Tel: +44 (0)1904 544500 
Fax: +44 (0)1904 544933 
www.cppgroupplc.com  

Northern Europe 
York Contact Centre 
Holgate Park 
York 
YO26 4GA 
Tel: +44 (0)1904 544500 
Fax: +44 (0)1904 544933 

Tamworth Contact Centre 
Centurion Court 
Centurion Way 
Watling Street 
Wilnecote 
Tamworth 
Staffordshire 
B77 5PN 
United Kingdom 
Tel: +44 (0)1827 725023 
Fax: +44 (0)1827 725030 

Chesterfield Contact Centre 
Future Walk 
West Bars 
Chesterfield 
S49 1PF 
United Kingdom 
Tel: +44 (0)1246 648110 
Fax: +44 (0)1246 648197 

CPP Travel Services Limited 
Nelson House 
Park Road 
Timperley 
Altrincham 
Cheshire 
WA14 5BZ 
United Kingdom  
Tel: +44 (0)161 8771112 
Fax: +44 (0)161 8778157  

I-Deal Promotions Limited 
5 Progress House 
17 Cecil Road 
Hale 
WA15 9NZ 
Tel: +44 (0)161 9298844 

CPP Ireland 
1st Floor 
Plaza 212, Suite 6 
Blanchardstown Corporate Park 
Dublin 15 
Tel: +353 (0)1 899 1711 

CPP Germany 
Große Elbstraße 39 
22767 Hamburg 
Germany 
Tel: +49 40 76 99 67 0 
Fax: +49 40 76 99 67 111 

CPP Turkey 
Degirmen Sokak. Nida Kule Plaza. 
Kat:10 Ofis: 19 A 
34742 Kozyata˘gı 
Istanbul 
Turkey 
Tel: +90 216 665 25 25 
Fax: +90 216 665 25 24 

Southern Europe 
CPP Spain 
Parque Empresarial Alvento 
Via de los Poblados 1 
Edif. B, 2ª Planta 
28033 Madrid 
Spain 
Tel: +34 91 121 16 00 
Fax: +34 91 121 16 16 

CPP Italy 
Centro Direzionale Colleoni 
Via Paracelso, 22 – 50 Piano 
20041 Agrate Brianza 
Milan 
Italy 
Tel: +39 039 657801 
Fax: +39 039 6894 293 

CPP France 
120 rue Jean Jaurés 
92300 Levallois-Perret 
France 
Tel: +33 1 47 30 56 20 
Fax: +33 1 47 30 56 28 

CPP Portugal 
Avenida da Liberdade, 40–7º 
1269-041 Lisbon 
Portugal 
Tel: +351 213 241 730 
Fax: +351 213 479 688 

CPP Mexico 
Guillermo Gonzalez Camarena 
No. 1000 Piso 1 
Centro Ciudad Santa fe 
Mexico, D.F.C.P.05120  
Tel: +55 8000-3147 
Fax: +55 8000-3148 

CPP Brazil 
Alameda Mamore 
989-10th Floor 
06454-040 Alphaville 
Barueri 
São Paulo 
Brazil 
Tel: +55 11 4689 5757 
Fax: +55 11 4208 2942 

North America 
CPP North America 
5100 Gamble Drive, Suite 600 
St. Louis Park 
MN 55416 
USA  
Tel: +1 952 541 5800 
Fax: +1 952 541 5973 

Asia Pacific  
CPP Hong Kong 
14/F Chung Nam Building 
1 Lockhart Road 
Wanchai 
Hong Kong 
Tel: +852 3653 0000 
Fax: +852 3653 0050  

CPP Singapore 
77 High Street, 
#10-09 High Street Plaza 
Singapore 179433 
Tel: +65 6333 6986 
Fax: +65 6333 8637 

CPP Malaysia 
Suite 1618, Level 16 
1 Sentral, Jalan Stesen 
Sentral 5 
50470 Kuala Lumpur 
Malaysia 
Tel: +603 2168 5600 
Fax: +603 2168 5799 

CPP India 
114-117 Bestech Chambers 
Radisson Blu Suites 
Sushant Lok, B Block 
Gurgaon – 122009 
Haryana 
India 
Tel: +91 1244 0939 00 
Fax: +91 1244 0410 04 

CPP China 
CPP Commercial Consulting Services 
(Shanghai) Co., Ltd. 
Room 531, 5/F Standard Chartered Tower 
No 201 Shiji Avenue 
Lujiazui, Pudong 
Shanghai 200120 
Tel: +86 21 6182 6783 
Fax: +86 21 6182 6752 

The Forest Stewardship Council® (FSC) is an 
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