CPPGroup Plc
Annual Report & Accounts 2013
About CPP
CPPGroup Plc is an international assistance
business operating in the UK and overseas
within the financial services, telecommunications
and travel sectors.
Our report
This year’s Annual Report includes a strategic report and increased governance content to help our stakeholders
better understand our business. We hope you find it useful and informative.
Group overview
02
Financial overview and Key Performance
Indicators
04 At a glance
Strategic report
06 Chairman’s statement
08 Chief Executive Officer’s statement
10 Q&A with our new Chief Executive Officer
12 Our business model and strategy
14 Our stakeholders and Corporate Responsibility
16 Operating review
18 Financial review
23 Risk management and principal risks
Introduction from the Chairman
Corporate governance
28
30 Board of Directors and Company Secretary
32 Corporate Governance report
36 Report of the Audit Committee
39
40
Report of the Risk & Compliance Committee
Report of the Nomination & Governance
Committee
41 Remuneration report
54 Directors’ report
57 Statement of Directors’ responsibilities
Access our corporate website at
cppgroupplc.com
Financial statements
59
Independent Auditor’s report
62 Consolidated income statement
63
Consolidated statement of comprehensive
income
64 Consolidated balance sheet
65 Consolidated statement of changes in equity
66 Consolidated cash flow statement
67 Notes to the consolidated financial statements
102 Company balance sheet
103 Notes to the Company financial statements
111 Company offices
112 Shareholder information
CPPGroup Plc Annual Report & Accounts 2013 01
Group overview
ǔ About CPP
Financial overview and Key Performance Indicators
At a glance
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Group overview and
strategic report
Group overview
02 Financial overview and Key Performance Indicators
04 At a glance
Strategic report
06 Chairman’s statement
08 Chief Executive Officer’s statement
10 Q&A with our new Chief Executive Officer
12 Our business model and strategy
14 Our stakeholders and Corporate Responsibility
16 Operating review
18 Financial review
23 Risk management and principal risks
www.cppgroupplc.comGroup overviewCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013
02
Financial overview and Key Performance Indicators
Revenue
continuing operations only
£178.0m
(2012: £269.9m)
Underlying operating (loss)/profit1
continuing operations only
Reported loss after tax
continuing and discontinued operations
£(1.8)m
(2012: £26.7m profit restated)
£(32.9)m
(2012: £(17.2)m)
Live policies (KPI)2
Annual renewal rate (KPI)2
Revenue by major product (KPI)
10.2m
9.1m
76.0%
73.5%
69.4%
7.1m
Packaged and wholesale revenue
Retail insurance revenue
Retail assistance revenue
£293.3m
£261.6m
£177.5m
2011
2012
2013
2011
2012
2013
2011
2012
2013
Definition:
The total number of active policies that provide
continuing cover or services to policyholders.
Definition:
The net amount of annual retail policies
remaining on book after the scheduled renewal
date, as a proportion of those available to renew.
Definition:
Revenue from the Group’s major product
offerings (defined in note 5 of the financial
statements). This excludes non-policy revenue.
Performance:
The live policy base is 2.0 million lower than
December 2012 due to UK factors including the
loss of the RBS Mobile Phone Insurance (MPI)
contract and declining Card Protection and
Identity Protection renewals, including the impact
of increased cancellations following Scheme of
Arrangement (Scheme) correspondence and
associated publicity. The on-going Voluntary
Variation of Permissions (VVOP) restrictions in
the UK are limiting the Group’s ability to increase
its live policy base. Live policies outside the UK
have declined marginally.
Performance:
The annual renewal rate for 2013 has declined
by 4.1 percentage points since December 2012.
This reflects a reduction in the Card Protection
and Identity Protection renewal rates in the UK
following amendments to the renewal process
implemented in late 2012 and increased
cancellations resulting from Scheme
correspondence and associated publicity.
Performance:
Revenue from retail assistance policies
has declined compared to 2012, reflecting
the decline in Card Protection and Identity
Protection renewals. The continued new
retail sales restrictions associated with the
VVOP, mainly in the UK, restricts the Group’s
ability to grow retail revenue. Revenue from
retail insurance and packaged and wholesale
have declined year-on-year as a result of lost
Business Partner contracts in the UK. This
measure excludes non-policy revenue of
£0.5 million in 2013 (2012: £8.3 million).
As the Scheme progresses through 2014, the level of claims will have an impact on some of our KPIs.
ц Our live policies will reduce because an accepted claim in the Scheme results in a cancellation of the relevant policy. However, the majority
of claims are anticipated to be in respect of policies that were already cancelled before the Scheme began and do not therefore form part
of the current live policy base. Only those cancelled policies which are part of the live base will impact this measure going forward.
ц Our renewal rate will not be directly impacted by Scheme cancellations because these policies are considered not available to renew in
the normal course of business and do not therefore fall within the renewal rate definition. Additionally, as it is anticipated the majority of
claims are in respect of policies that cancelled before the Scheme began, these policies are already reflected in historical renewal rates.
ц Scheme claims will be funded through cash retained in CPPL, which is currently restricted by the terms of the VVOP. As a result,
VVOP restricted cash and the Group total cash balance will reduce significantly in 2014. At the time of approving the accounts,
redress payments have been made to date totalling £16.5 million.
ц Further Scheme detail is provided on page 6.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013
03
Group overview
About CPP
ǔ Financial overview and Key Performance Indicators
At a glance
“ As expected, our financial performance during
2013 is reflective of the challenges of the Group’s
environment, particularly in the UK, and has been
compounded by the loss of key business contracts.”
Cost/income ratio (KPI)2
Underlying operating (loss)/profit margin (KPI)3 Group cash balances (KPI)2
70.7%
14.0%
61.0%
54.4%
9.9%
Free cash
VVOP restricted cash
Regulated cash
£66.9m
£48.7m
£53.2m
2011
2012
2013
2011
2012
2013
2011
2012
2013
(1.0)%
Definition:
Cost of sales (excluding commission)
and other administrative expenses as
a percentage of revenue.
Definition:
Operating (loss)/profit before exceptional
items as a percentage of revenue.
Performance:
Our cost income ratio has increased by
9.7 percentage points year-on-year largely
due to declining Card Protection and
Identity Protection renewal revenue in the
UK. This impact has been partly offset by
the significant steps taken by the Group in
2013 to reduce its cost base through the
commencement of a restructuring
programme, the benefits of which will
continue in 2014.
Performance:
Our underlying operating margin has
decreased 10.9 percentage points due to
a decline in renewal income for Card
Protection and Identity Protection and
reducing MPI margins in the UK through
increasing direct costs relative to revenue.
The impact is partly offset by the
significant steps taken by the Group in
2013 to reduce its cost base through the
commencement of a restructuring
programme, the benefits of which will
continue in 2014.
Definition:
Group cash balances allocated between
regulatory funds, VVOP restricted funds
and free cash available to utilise
throughout the Group.
Performance:
Regulatory and VVOP restricted funds
have increased year-on-year reflecting the
cash generated in the UK’s main trading
entities, Card Protection Plan Ltd (CPPL)
and Homecare Insurance Ltd (HIL), which
cannot be distributed to the wider Group
due to solvency requirements and/or the
terms of the VVOP.
The decline in free cash reflects the
cash used by the wider Group compared
to the cash generated principally by its
overseas operations. This is mainly due
to refinancing costs incurred in the year,
Group overhead requirements and continued
investment in developing markets.
1. Underlying operating (loss)/profit excludes exceptional items of £37.5 million (2012: £43.9 million). Exceptional items in the year include customer redress
and associated costs, restructuring costs and IT asset impairments.
2. 2011 & 2012 have been restated to exclude the North American operation which is discontinued.
3. 2011 & 2012 have been restated to exclude the North American operation and Home3 joint venture which are discontinued.
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04
At a glance
About CPP
CPP is an international assistance business operating in the UK
and overseas within the financial services, telecommunications
and travel sectors. Our retail, wholesale and packaged products
help to provide security for our customers worldwide and are
designed to make everyday life easier to manage. Our core
products provide assistance, protecting items that are
important to our customers. Our travel service product
enhances the experience of leisure and business travel.
Our products
Our products are offered to our customers worldwide.
7.1
million
live policies
worldwide
Europe and
Latin America
Revenue contribution
£42.6m
24% of Group revenue
Underlying operating profit
£7.1m
Latin
America
We are evolving our business...
Find out more on page 17
Our business model
We primarily operate a business-to-business-to-
consumer (B2B2C) business model. The Group
provides services and retail, wholesale and packaged
products to customers through Business Partners
and direct to consumer.
Our emerging strategy
We are evolving and repositioning the business.
We have developed a short term business plan
and are identifying opportunities that will create
sustainable growth in the future.
Our business model page 12
Our strategy page 13
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013
05
Group overview
About CPP
Financial overview and Key Performance Indicators
ǔ At a glance
UK and Ireland
Revenue contribution
£129.0m
72% of Group revenue
Underlying operating loss
£(8.1)m
69.4%
annual
renewal rate
Find out more on page 16
Europe
1,100+
employees
worldwide
Asia Pacific
Revenue contribution
£6.4m
4% of Group revenue
Underlying operating loss
£(0.8)m
Find out more on page 17
Our vision
To be a responsible assistance business
offering products with improved value,
choice, service and delivery.
Our performance
As expected, our performance during 2013 reflects the
on-going challenges experienced by the Group,
particularly in the UK. You can find out more about our
performance in this report.
Corporate Responsibility pages 14 and 15
Financial review pages 18 to 22
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06
Chairman’s statement
Duncan McIntyre
Non-Executive Chairman
We are now in a stronger position and have the opportunity
to take the Group forward
Progress, challenge and change
I joined CPP in January 2011 as a
Non-Executive Director, shortly before the
onset of what has been a turbulent period
for the Group. We have faced three years of
immense challenge and uncertainty and the
impact on the business has been profound.
The Board has clearly recognised the
seriousness of past failings identified by
the Financial Conduct Authority (FCA)
investigation that began in 2011 into sales
practices in the UK business. The investigation
concluded in late 2012 and the Group, as agreed
with the FCA, has operated with restrictions
to the regulated permissions of the regulated
entities under a Voluntary Variation
of Permissions (VVOP). The vehicle for
providing redress – the Scheme of
Arrangement (Scheme) – was formalised in
August 2013, through which CPP and certain
of its Business Partners can review claims and,
where appropriate, pay redress. The Scheme
was approved in early 2014 and will conclude
on 30 August 2014. I am therefore pleased
that redress is now being paid to customers
who were mis-sold our products.
We acknowledge that, as a result of the
period of uncertainty and challenges we
have faced, concerns of our stakeholders have
been heightened. Therefore, with the Scheme
underway and due to conclude in August, we
hope that as we begin to rebuild the business
we can collectively start to look forward
together. It will be a substantial task to
rebuild the Group and it will take time before
our performance improves and our credibility
is restored. Our challenges will continue and
further change is required as we move forward
to a more stable position. Nonetheless, we are
pleased that we are now in a stronger position
and have the opportunity to take the Group
forward for the next phase of its development.
Turning to 2013, encouraging progress was
made in a challenging year and we achieved
a number of milestones. We disposed of the
North American business; began restructuring
the Group; continued to reduce our costs
substantially; successfully refinanced the
Group through our existing lenders and
certain Business Partners; formalised the
Scheme; and strengthened our Executive
Management team. We also continued to
place particular emphasis on our operating
and IT capabilities and the improvements
required to our governance.
In late 2013, we began developing a new
business plan to return the Group to a
position of stability and strength. We also
identified our key priorities, with particular
focus on cost reduction, our operational and
IT environment, reviewing the strategic fit of
certain markets and our joint venture
in Home3. We have a short term business
plan which is evolving as the future of the
Group becomes more certain. In addition
to completing the Scheme, our objectives
are to continue to improve our operational
capability, controls and governance,
implement a new IT infrastructure and
modernise the business.
Our aim is to progress towards improved
performance and ensure we operate as a
customer-led business. Importantly, we
need to be confident that we are rebuilding
the business on solid foundations which
ultimately will allow us to apply to remove
the restrictions on our regulatory permissions.
Once the Scheme is concluded, we can
start to embed our longer term plans.
Risk management
pages 23 and 24
Principal risks
pages 25 and 26
Corporate governance
pages 28 to 57
Remuneration report
pages 41 to 53
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 20132013 milestones• May 2013: disposal of the North American business • May 2013: began the process to restructure the Group and continued to reduce costs• July 2013: successfully refinanced the Group • August 2013: formalised the Scheme of Arrangement • September 2013: appointed new Executive Management teamOur objectives• Complete the Scheme of Arrangement• Rebuild the business on solid foundations • Improve our operational and IT capability, controls and governance• Develop longer term business plan• Modernise the business• Progress towards improved performance • Ensure we operate as a customer-led business 07
Strategic report
ǔ Chairman’s statement
Chief Executive Officer’s statement
Q&A with our new Chief Executive Officer
Our business model and strategy
Our stakeholders and Corporate Responsibility
Operating review
Financial review
Risk management and principal risks
“ Encouraging progress was made in a challenging
year; nonetheless, it will take time before our
performance improves and our credibility is restored.”
Duncan McIntyre, Non-Executive Chairman
We are currently in consultation with our
key stakeholders regarding a possible
requirement for future funding.
In view of the challenges we have faced,
the Board continues to believe it is not
appropriate to pay a dividend.
Reporting developments
This year’s Annual Report incorporates
a number of new disclosure requirements
to make our strategy, performance and
Directors’ remuneration easier to understand.
An enhanced Audit Committee report and
Auditor’s report is also included in this year’s
report. The Board provides its confirmation
on page 57 that the report presents a fair,
balanced and understandable assessment
of CPP’s position and prospects.
Risk management
In 2013, we continued to develop our risk
management and internal control framework,
focusing on the principal risks that the Group
faces. Effective risk management and robust
internal control, which is summarised on pages
23 and 24, is central to the achievement of
our business plans and strategic objectives
as we move forward and develop the Group
for the future.
Governance
We continue to make improvements which
are required to strengthen the governance
and control environment. During 2013, these
included enhancements to our Business
Incident Management system, risk register
and the introduction of minimum standards
across the Group. The Board is committed to
implementing a strong governance framework
throughout the business, supported by our
Committees. Full details of our approach to
governance can be found on pages 32 to 35.
Remuneration
Looking ahead
As I said in my opening comments, we have
made encouraging progress; however our
journey is in its infancy and our performance
in 2014 will continue to be constrained as we
concentrate our efforts to rebuild the business.
Until the Scheme draws to a close on 30
August 2014, material uncertainty remains. It
is evident that the financial impact will be
significant and the Group’s financial resources
will be reduced.
The Board is taking what it collectively
believes to be an appropriate course of
action to improve our performance within a
realistic timeframe. Much work will continue
to take place during 2014 to complete the
improvements and changes required to
reposition the Group whilst we also resolve
the challenges that remain and complete
the Scheme. The Board is actively assessing
the options for value creation going forward
and building on our strengths and progress
made, our key objective is to create a
sustainable business proposition for the
long term.
I would like to thank our people for their
continued commitment and loyalty and the
Board is grateful for the on-going support of
our stakeholders.
Duncan McIntyre
Non-Executive Chairman
23 April 2014
Our objective is to ensure that our
remuneration policies clearly reflect our
business objectives and performance and
that the interests of the management team
and shareholders are aligned. During the
year, the Remuneration Committee
reviewed the remuneration policies to
ensure that they remained appropriate.
The Board
In December 2013, Charles Gregson
announced his intention to step down as
Non-Executive Chairman and in January
2014, I was appointed as Non-Executive
Chairman with the support of the Group’s
largest shareholders. On behalf of the Board
I would like to thank Charles for his
significant contribution during his tenure.
During the year, the Group made a number
of changes to the Board. With effect from
1 September 2013, Brent Escott and Craig
Parsons became Chief Executive Officer
and Chief Financial Officer respectively to
lead the Group forward. They succeeded
Paul Stobart and Shaun Parker who stepped
down from their respective roles at the end
of August 2013. I would like to thank both
Paul and Shaun for their hard work and
commitment to the Group during a period
of immense challenge.
A number of Non-Executive Director changes
took place during the year. Mr Hamish Ogston,
who founded CPP in 1980, stepped down
from his role as Non-Executive Director in
June 2013. In September and October 2013
respectively, we announced the appointments
of Shaun Astley-Stone and Ruth Evans to the
Non-Executive team, broadening the skillset
and experience of the Board. Furthermore,
Les Owen has indicated his intention to retire
from the Board once a successor has
been identified.
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Chief Executive Officer’s statement
Brent Escott
Chief Executive Officer
We are moving forward and building a stronger business
to realise our future opportunities
Our progress
In my first review as Chief Executive Officer
of CPP I am encouraged by the progress that
the Group has made, despite the challenges
it has faced. I joined CPP in June 2013 as
Interim Deputy CEO before being appointed
Group CEO in September 2013. It is clear
to me that the journey for CPP has been
difficult and that the milestones achieved
would not have been possible without the
hard work of our people. I give great credit
to them for their continued dedication to
both CPP and our customers.
Much work took place during 2013 and we
have made considerable progress in a short
time; evident in the sale of the US business,
the successful refinancing, repositioning the
Group and streamlining our cost base. Since
my appointment in September, there has
been a clear focus on reducing cost,
assessing the capability of the operational and
IT environment and undertaking a thorough
assessment of the future potential of the
existing business model – both products
and distribution. At the same time, we have
successfully commenced the Scheme and we
are encouraged that those who voted were
overwhelmingly in support of the Scheme.
We have refocused our international business
development and sales efforts, minimum
standards have been introduced across the
Group and we are finalising plans to embed
a cost-effective IT platform and a more
efficient operational environment. The review
of our existing activities has resulted in the
planned exit from France and Singapore and
we also completed the sale of our
shareholding in Home3, a joint venture with
Mapfre. Most importantly, we have
identified and delivered further operational
cost savings, expected to be £15 million
year-on-year.
There is more work ahead as we modernise,
reposition the business and complete the
required changes to our operating and IT
environment. Nevertheless, the progress
made has provided CPP with a more stable
platform from which to move forward and
build the foundations that will support our
future growth.
Our performance
As expected, our financial performance
during 2013 reflects the challenges of the
Group’s environment, particularly in the UK,
and has been compounded by the loss of
key business contracts. Revenue reduced
to £178.0 million (2012: £269.9 million) and
underlying operating performance which
excludes exceptional items reduced from
a profit in 2012 to a loss of £1.8 million
(2012: £26.7 million profit). The Group has
recognised significant exceptional items in the
period of £37.5 million (2012: £43.9 million),
mainly comprising customer redress
and associated costs, restructuring costs
and IT asset impairments that reflect the
write-down of historical capital expenditure
on the balance sheet. This has resulted in
a reported operating loss of £39.3 million
(2012: £17.3 million). At a Group level,
renewal rates for the year were 69.4%
(2012: 73.5%) and live policies totalled
7.1 million (2012: 9.1 million).
In the face of these challenges and the
significant risks and uncertainties the Group
has endured, it has been difficult to grow
the business in recent years.
Scheme letters were issued from 12 February
2014 and Scheme claims are tracking broadly
within our expectations. We have further
increased the provision for customer redress
and associated costs by £4.0 million since
20 December 2013, resulting in the total cost
Our business model
page 12
Our strategy
page 13
Our stakeholders and Corporate
Responsibility
pages 14 and 15
Operating review
pages 16 and 17
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013Progress made• Refinanced the Group, commenced restructure and streamlined the cost base• Reviewed operational and IT capabilities, existing products and distribution • Improved internal governance and controls• Developed a clear short term plan for the business• Strengthened the depth and expertise of managementOur priorities• Complete the Scheme of Arrangement• Implement a robust and efficient operational and IT environment• Strengthen governance and controls across the Group• Modernise our products to enhance our customer experience • Apply to remove the restrictions on our regulatory permissions in the UK (removal of VVOP) • Strengthen Business Partner relationships• Engage with stakeholders to agree the long term future of the business 09
Strategic report
Chairman’s statement
ǔ Chief Executive Officer’s statement
Q&A with our new Chief Executive Officer
Our business model and strategy
Our stakeholders and Corporate Responsibility
Operating review
Financial review
Risk management and principal risks
“ The progress made has provided CPP with a more
stable platform from which to move forward and build the
foundations that will support our future growth.”
Brent Escott, Chief Executive Officer
provided to date of £69.8 million. This
increase reflects the current best estimate
of customer responses and associated
costs and is based on the latest information
available to the Board. We have also been
granted an amendment to our loan facilities
with our existing lenders to increase the
covenant default limit regarding customer
response rates leading to a successful
claim under the Scheme from 32 per cent
to 40 per cent. This increase provides the
Group further headroom and additional
comfort as the Scheme progresses. The
Group has worked hard to ensure it has
sufficient financial resources to complete
the Scheme and whilst there continues
to be risk in this area, the Group continues
to make positive progress regarding its
financial stability. It is however anticipated
that the Group total cash balance will reduce
significantly in 2014 as a result of redress
payments.
We have identified a number of core priorities
and developed a realistic short term business
plan from which we can move forward in
the next phase of reshaping our organisation.
It is essential that we implement a robust
and efficient operational environment and
cost-effective IT platform whilst we also
continue to strengthen our governance,
controls, compliance and risk management
capabilities. Rebuilding the business on solid
foundations will provide a stronger position
from which we can apply to remove the
restrictions on our regulatory permissions.
We will also place great emphasis on our
people, our customers, our performance and
strengthening relationships with our Business
Partners. These aspects are central to achieving
an optimal balance for the business and
moving towards our aim of being an efficient
organisation which is compliant and looks
after customers well.
Change for the better
Our plan
Since 2011, a review of our business has
been undertaken in the light of legitimate
concerns raised by the UK regulator, the
FCA. Recognising and understanding where
CPP went wrong is a pivotal step in the
journey to rebuilding a responsible, modern,
customer-led business. A number of positive
steps have been taken and substantial
changes have been made to practices and
culture, yet there is more that we need to do
in order to fully realise this ambition and have
the full confidence of our stakeholders.
Our priorities
Following my appointment as Chief Executive
Officer in September 2013, a key priority has
been to clearly understand the issues that
the organisation faces, how we can address
those challenges and identify the expertise
required to achieve our goals. In parallel,
we have worked constructively with the
FCA and Business Partners in relation to the
Scheme, with a clear priority to achieve the
best outcome for customers and complete
the Scheme.
The Board and I have developed a clear plan
to stabilise the Group whilst we complete
the Scheme, resulting from a realistic
understanding of our strengths, market
opportunities and the challenges that
remain. The key aspects of our immediate
business plan are outlined on page 13,
which encompasses four elements: rebuild,
improve, modernise and evolve.
As we gain greater certainty and the Scheme
progresses, we will continue to engage with
key stakeholders to agree the future plans
for the Group. We can then begin to build
the foundations that will support the longer
term direction of the business. Once these
uncertainties are removed we expect to
move into 2015 in a stronger position.
During 2014, our aim is to complete the
improvements required as we begin to
modernise our products and service channels
to enhance our customer experience, with a
renewed focus on realising the demand for
solutions in the digital environment. We will
continue to work with our stakeholders as we
explore the emerging opportunities for CPP
in order to clearly understand the long term
growth potential of the business.
Understanding and engaging with
our stakeholders
We proactively seek to maintain strong
relationships with our stakeholders
through frequent, transparent dialogue
and consultation. In view of the difficult
and exceptional circumstances that the
Group has faced, we believe this is critical
to re-establishing positive perceptions of
the Group and sustaining valued relationships.
The Group has a credible plan, a strong team
and my commitment is to do everything
to ensure our business operates in a
responsible and accountable way, meeting
the needs of all stakeholders.
Looking ahead
We are moving forward with a clear short
term plan and objectives that will support
the development of our longer term strategy.
There is a long way to go and we need to
place great focus on completing
the changes and improvements required,
whilst concluding the Scheme.
We are taking decisive action and are
focused on working hard to deliver against
our plans. Nonetheless, material uncertainties
remain, particularly in relation to the Scheme,
liquidity and the execution and delivery of
our plans. As a result, the outlook continues
to reflect the significant challenges and risks
ahead and performance in 2014 will
continue to be constrained. However, my
team and I are concentrating our efforts on
rebuilding the business and realising the
future opportunities that will bring success
and sustainable growth back to CPP.
Brent Escott
Chief Executive Officer
23 April 2014
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Q&A with our new Chief Executive Officer
Brent Escott gives his views on the organisation and its performance, reflects on the
challenges and looks ahead to the future. Brent has over 25 years’ experience in the
insurance industry and has been Chief Executive Officer of CPP since September 2013.
Why did you take this job and what
experience do you bring with you to CPP?
Above all else, the determination of our
people here at CPP is very compelling.
In spite of the significant challenges over
the past few years, their determination
and team spirit is unsurpassed. At a macro
level I was excited by the opportunity to
leverage the strengths of CPP and recognise
what I believe to be the growing global
opportunities within our market. As
importantly, I bring relevant skills and
experience to support CPP through the
challenges we face, towards a period
of stability and growth in the future.
I have led many different organisations,
both large and small and also in the various
stages of growth and distress. My knowledge
of insurance and regulation is extremely
beneficial in addressing the immediate
issues within CPP, particularly as retaining
revenue from the existing backbook is
fundamental to the Group’s performance,
but longer term I’m excited by the
opportunity of rebuilding CPP.
What were your initial priorities when you
became CEO of CPP?
The Group has undergone a difficult period
and challenging times require focused action.
Therefore, my priority was to take the time
to listen and speak with our people across the
Group and our stakeholders in order to move
the business forward and emerge stronger.
Managing change and rebuilding a business
requires a specific skillset different to
managing growth in a steady environment.
You have to act rapidly, identify key issues
and take decisive action.
At CPP, we had to act decisively to preserve
cash and review all expenditure across the
Group. We also had to ensure that we really
understood the true state of our operations
and the robustness of our existing products
and distribution model. In parallel, I wanted
to strengthen the management team
and expertise that supports our future
development. At the same time, it was
critical that we worked with the FCA to
ensure that the Scheme became operational
in order for us to put right the mistakes of
the past. We’ve achieved an enormous
amount in a short period of time.
Taking people on this journey is important
as they need to believe in the plan and look
towards a better future.
Can you explain what you believe are
CPP’s strengths?
CPP has many strengths and knowledge
that we can build on. We see demand for our
products from our customers who value the
support we provide during difficult times and
also with our Business Partners where we
enable them to enhance their customer offering.
We look after 7.1 million live policies from
operational centres around the world, our
renewal rates are 69.4% and we have strong
telemarketing capabilities. An over-riding
factor though is our people, who are our most
important asset and their commitment,
professionalism and willingness to embrace
change is critical to our success in the future.
2013 was an important year for the
Group; can you explain why?
We made good progress during the year
to support the next phase of the Group’s
development and achieved a number of
milestones which provided the business
with a position of greater stability.
That said, we’re on a journey to re-engineer
the business and there is much work that
remains. However, as a result of the actions we
are taking, the milestones achieved and the
investment to strengthen our management
capabilities, things are changing for the
better and we can now look forward.
What is the main focus for the year ahead?
We need to stabilise the operational
environment, implement a new IT
infrastructure and further strengthen our
governance to ensure we meet the necessary
regulatory standards across all the countries
we operate in. This, ultimately, will allow us
to apply to remove the restrictions on our
regulatory permissions. At the same time,
we will review all our country activities,
product and distribution channels and
work to strengthen our Business Partner
relationships.
A key focus for 2014 is our commitment
to achieving the best outcome for customers
through the Scheme and completing the
process to review claims and, where
appropriate, pay redress to customers.
What do you believe has changed to
address the legacy issues of the past?
CPP was very successful and grew rapidly.
However, the governance, controls and
framework required to operate a sustainable
business were lacking. The way a business
acts and behaves is central to its success
and the delivery of sustainable financial
performance. Our culture is customer
focused; providing the right product at the
right price matched with a high quality
service that our customers deserve. The
organisation has changed considerably from
the practices and culture that existed in the
past, which resulted in the well documented
regulatory challenges that the business has
faced and we should be judged on our
current merits rather than past mistakes.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 11
Strategic report
Chairman’s statement
Chief Executive Officer’s statement
ǔ Q&A with our new Chief Executive Officer
Our business model and strategy
Our stakeholders and Corporate Responsibility
Operating review
Financial review
Risk management and principal risks
What do you believe is the value that CPP
can bring to customers?
What does the future hold for CPP?
Our focus over the next few years is to
show that CPP can return to growth in its
core products and markets. At the same time,
we will invest more resource into understanding
emerging opportunities for CPP which will
lead to another phase of development. But
we have to make sure that the building blocks
are in place first and I envisage a scenario
where we will completely reinvent CPP. The
business, as a result, will be more efficient
and modern and I am excited about the
longer term prospects for the Group.
Our products provide assistance at times
of need to our customers. We continue to
monitor customer feedback and track our
net promoter score (NPS) to ensure our
customers place value on the products and
the services we offer. The world is rapidly
changing and customer needs are changing
with it. This provides an exciting opportunity
for us to lead the development and distribution
of new products and services as we move
forward.
When do you expect financial
performance to return to growth?
The Group’s headline financial results
reflect the overall challenges of our
environment and on-going risks that we
face. Our plans are therefore subject to
execution risk and the on-going challenges
and uncertainties which remain, particularly
related to the Scheme and liquidity.
Nonetheless, we are investing in people,
expertise and technology to improve
our business processes and increase
operational efficiency and, in parallel,
managing our costs is key as we create
a sustainable business that will generate
growth in the longer term.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 12
Our business model and strategy
Who we are and what we do
Our products and channels
We operate internationally in three regions,
working with our Business Partners
and servicing 7.1 million live policies.
Our people are central to delivering our
business-to-business-to-consumer (B2B2C)
operating model, designed to distribute,
service and manage claims of our core
assistance products. These are offered
in three formats; retail, wholesale and
packaged products through our Business
Partners to their customers and where CPP
provides direct to consumers.
Our business model targets revenue growth
through sustainable renewal rates, new
income and cash generation focused on
improved performance with the objective
of generating value and delivering longer
term value for shareholders and other
stakeholders. We measure our progress
against the performance of our KPIs
(details on pages 2 and 3).
.
Our core products help provide security
against the unexpected by protecting items
that are important to how our customers live
their everyday lives, as well as enhancing the
experience of leisure and business travel.
These include Card Protection, Travel Services,
Mobile Phone Assistance, Mobile Phone
Insurance, Identity Protection and
Legal Protection.
Our product, distribution and service channel
ambitions are focused on innovation in a
fast-paced, technological environment, where
we see an increasing move towards digital
products and platforms. Our aim is to
progressively enhance our value proposition,
modernise our products in line with customer
and Business Partner needs, delivering an
improved experience through our customer
service channels. Looking ahead, our people
are essential to our product and channel
development plans. We are developing our
digital plans in order to realise the market
opportunities that exist, particularly as
smartphone and tablet penetration increases
and advances in mobile payments gain traction.
This will also allow us to engage with consumers
through various channels across our markets.
Key Performance Indicators
pages 02 and 03
Operating review
pages 16 and 17
Financial review
pages 18 to 22
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013“ We have developed a realistic short term business plan which takes account of our strengths and market opportunities whilst we manage the challenges that remain for the Group. This will provide a platform from which we can move forward in the next phase of reshaping our organisation.” 13
Strategic report
Chairman’s statement
Chief Executive Officer’s statement
Q&A with our new Chief Executive Officer
ǔ Our business model and strategy
Our stakeholders and Corporate Responsibility
Operating review
Financial review
Risk management and principal risks
Our immediate priorities are to complete
the Scheme whilst we rebuild the business,
establishing a robust operational and IT
environment, improving our governance and
processes and modernising how we operate.
This will establish a platform from which we
can evolve in the longer term. Once fully
realised, we will have established a strong
position from which we can begin to achieve
our future ambitions. The success of our
emerging strategy has inherent risks and
uncertainties and also depends on a number
of factors that include maintaining and
developing key stakeholder relationships and
the expertise and retention of our people.
Our plan and emerging strategy
Our marketplace has changed in recent years
as a result of regulatory developments, the
economic climate and consumer behaviours.
We are evolving to adapt to the challenges
the business has faced whilst proactively
shaping how we operate due to changes in
customer trends, technology, regulation and
the competitive landscape.
Our vision is to be a responsible assistance
business offering products with improved
value, choice, service and delivery to
consumers.
In order to realise this vision, an extensive
review of the business, our product propositions
and multi-country footprint commenced in
September 2013 led by a new management
team. We identified our core priorities and
began the process to establish a business
plan to provide greater stability for the Group.
As a result, we have developed a realistic short
term business plan which takes account of
our strengths and market opportunities whilst
we manage the challenges that remain for the
Group. This will provide a platform from which
we can move forward in the next phase
of reshaping our organisation and longer term
strategy.
We are working with key stakeholders as we
evolve our business plan for the longer term,
focused on achieving sustainable growth in
the future. This takes account of our markets,
our products and distribution channels, our
people, customers, Business Partners and
wider stakeholder groups as we strengthen
our organisational culture, with the end
customer at the heart of what we do.
In addition to completing the Scheme, the key aspects of our immediate plan are to:
Rebuild
Improve
Modernise
Evolve
m
A
i
t
u
p
t
u
O
Optimise resource and
capabilities
Deliver operational
excellence through a new
IT platform
Increase centralisation and
cross-Group collaboration to
leverage benefits of scale
Robust global platforms,
data capability and
governance
Realise value from current
product propositions and
markets
Simplify and standardise
operational processes
Compliant processes and
robust governance
Improve and strengthen
relationships
Leaner, efficient cost
base aligned to overhead
structure
Skillset to support our plans
and market opportunities
New cost-effective
operational IT system
Stakeholders increased
confidence in our
compliance and customer
experience
Efficient infrastructure in
place
Propositions and markets
produce attractive returns
Platform for sustainable
performance established
Enhanced service for
customers and Business
Partners
Effective data analytics, less
duplication and increased
efficiency
Update and innovate our
product propositions
Strong stakeholder
relationships
Test and develop new
channels to market
Deliver an effective risk/
reward profile
Develop a successful,
modern product portfolio
Strong retention and
renewal of policies and new
income generation
Enhanced product set that
matches customers and
Business Partner needs
Improved competitive
position
Multi-channel platform
across all markets
Wider sector appeal and
opportunities
Attractive returns across all
markets
Profitable and sustainable
growth platform
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 14
Our stakeholders and Corporate Responsibility
Employees by location 2013
1,167
UK and Ireland 714
Europe and Latin America 407
Asia Pacific 46
Employees by gender 2013
1,167
Our stakeholders
We proactively seek to build positive relationships with our stakeholders in all the
markets we serve. The main stakeholder groups who have an interest in, or are
affected by, our activities comprise:
Directors
Male 5
Female 1
Senior Management
Male 34
Female 17
Other employees
Male 431
Female 679
Our people
Business Partners
Regulators
Our people
Our aim is to provide a working environment
that supports and develops our people. Our
success depends on our people, helping
them to perform at their best and achieve
their full potential and meet our business
objectives. Our people are a huge testament
to how far we have progressed, despite our
challenges and the structural and cultural
changes that we have made.
Open and regular communication is
fundamental to our employee engagement.
Our initiatives include regular forums with
the Leadership team, face to face briefings,
interactive group sessions and through
regular digital communications across the
Group. We also want to understand what is
important to our people and we gain insight
through our Employee Communication
Forum and global people surveys, where
Read more on cppgroupplc.com
Our customers
Shareholders
Lenders
72% of our people responded in 2013.
Our approach allows us to develop and
deliver action plans that focus on the things
that really matter to our people, our customers
and the business.
The Group recognises that our culture is an
important part of ensuring that our progress
is sustainable. During 2013, we integrated
a consistent model of behaviour through
our leadership framework focusing on how we
do things. This encompasses five behavioural
categories: Innovate in what we do; Shape
our plans and methods of working; Build
capability and talent for the future; Lead
performance and customer focused
behaviour; and Deliver on our objectives.
A key focus in 2014 is to define how we
operate through our values and beliefs,
which will drive the things we do and
the decisions we make.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013A responsible approach Our approach to Corporate Responsibility is aimed at meeting all stakeholders’ expectations in a responsible, ethical and sustainable manner. We have a Company philosophy that starts with our people who are committed to our customers in order to deliver sustainable, long term performance. Our vision is to be a responsible assistance business offering products with improved value, choice, service and delivery to consumers.
15
Strategic report
Chairman’s statement
Chief Executive Officer’s statement
Q&A with our new Chief Executive Officer
Our business model and strategy
ǔ Our stakeholders and Corporate Responsibility
Operating review
Financial review
Risk management and principal risks
net promoter data. Critically, and in spite of
the challenges the business has faced, many
of our customers have chosen to retain our
products.
and compliance areas and have effected
change throughout the organisation both
in people and processes, in order to make
sure that our regulatory responsibilities are
clearly understood.
During 2013, to support the delivery of our
plans we placed emphasis on strengthening
our leadership and talent capability. We also
invested in building the skills of our people
through training programmes, with particular
emphasis on key compliance issues, regulatory
requirements and Treating Customers Fairly.
Diversity, health, safety and the well-being of
our people are an essential part of how we do
business and meet the needs of our customers.
We take all reasonable steps to support our
people with respect and fairness and to
achieve a healthy and safe working environment.
Our customers
Customer trust is essential and critical
to rebuilding positive perceptions of our
business. To earn and retain that trust we
need to manage our operations responsibly
and conduct our business in an ethical and
transparent way. In 2013, we reinforced our
commitment to Treating Customers Fairly by
our approach to putting the customer at the
heart of what we do. Our aim is to improve
the customer’s end-to-end experience and
ensure we operate with a customer focused
culture. The principles of Treating Customers
Fairly have been commonplace in our business
for a number of years and the six key aspects
are outlined in figure 1. As an international
business, we apply these principles tailored
to the local environment.
Our key initiative is to listen to the voice of the
customer and understand their requirements
and expectations, developing compelling and
relevant products and assessing the level of
service and complaints handling process we
provide. Based on independent customer
research and feedback, we are confident that
customers place value on the products and
services offered. Our customers like our
products and they like what we do; they tell
us so through our customer satisfaction and
Business Partners
Our products are distributed through our
Business Partners to customers either via
their own service channels or through
channels managed directly by CPP. Through
regular engagement and working closely
with our current Business Partners and
prospective new partners, we endeavour to
act responsibly to our customers and provide
products and services that are tailored to
their needs.
Shareholders
Understanding the views of our investors
is a key part of managing our business.
Our regular dialogue and engagement
ensures that we effectively communicate
with the investment audience to encourage
a clear understanding of our performance
and prospects. We actively engage with
shareholders and the wider investment
community through the Group’s investor
relations programme, led by the Chief
Executive Officer, Chief Financial Officer
and Head of Investor Communications. The
Non-Executive Chairman meets regularly
with major shareholders and is available for
meetings at the request of shareholders.
Regulators
We operate in a regulated environment in
many markets around the world and our
experience in the UK has meant that we
place great emphasis on our regulatory
responsibilities and developing relationships
with regulators. To support our customers
and business we have evaluated our legal
Figure 1
Treating Customers Fairly – putting customers at the heart of our business
Lenders
Our lenders have an interest in our business
as a result of the financial facilities which
they provide to the Group. Our financing
arrangements comprise our lending banks
and certain Business Partner deferral
of commission payments. Building and
maintaining strong relationships with
our lenders has a positive impact on the
financial stability of the Group, as well
as meeting our financial obligations.
Through regular dialogue and engagement,
particularly with the Chief Financial Officer,
our aim is to ensure we maintain the
support of our lenders.
Our communities and environment
We aim to play an active role and make a
positive contribution through our involvement
in local community projects in many of our
markets. During 2013, we provided support
and volunteering by our people at all levels of
the organisation, focused on issues of social
inclusion and charitable projects that support
the communities in which we operate.
We also recognise the importance of our
impact on the environment, which we
consider to be low. To make sure that we
protect the environment and endeavour to
minimise our environmental impacts where
possible, we are committed to managing our
use of energy, water and paper to ensure
that our impact is minimal. During the year,
we established a framework to monitor our
greenhouse gas emissions (GHG), details of
which are reported on page 55.
Human rights
The Group respects all human rights and
seeks to anticipate, prevent and mitigate
any potential negative human rights impacts
through its policies regarding employment,
equality and diversity, Treating Customers
Fairly and information security. The Group
has not been made aware of any incident in
which its activities have resulted in an abuse
of human rights.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 16
Operating review
Regional performance
UK and Ireland
– Revenue
– Underlying operating (loss)/profit1
Europe and Latin America
– Revenue
– Underlying operating profit1
Asia Pacific
– Revenue
– Underlying operating loss1
1 Excluding exceptional items.
2013
£’m
2012
£’m
Growth
Constant
currency
growth
129.0
215.3
(40)% (40)%
(8.1)
18.9
(143)% (143)%
42.6
7.1
48.0
8.9
(11)% (14)%
(20)% (25)%
6.4
(0.8)
6.5
(1.1)
(2)%
25%
2%
30%
During the year, the Group revised its operating segments to UK and Ireland; Europe and
Latin America; and Asia Pacific. The principal change was the transfer of operational control
of Germany and Turkey to the newly formed Europe and Latin America region. Comparative
information has been restated to reflect this change.
UK and Ireland
Regional trends 2013
g
n
i
t
a
r
e
p
o
g
n
y
i
l
r
e
d
n
U
1
)
£
(
e
c
n
a
m
r
o
f
r
e
p
C
C
1
)
£
(
e
u
n
e
v
e
R
C
C
UK
Ireland
)
%
(
1
)
£
(
l
s
e
a
s
w
e
N
C
C
s
e
t
a
r
l
a
w
e
n
e
R
C
D
)
%
(
i
s
n
g
r
a
M
C
C
Finance review
pages 18 to 22
Financial statements:
segmental reporting
pages 74 to 77
D Increase A Level C Decrease
1. On a constant currency basis.
Financial performance
Revenue for 2013 decreased 40% on
a constant currency basis compared to
the same period in 2012, to £129.0 million
(2012: £215.3 million). Underlying operating
performance has declined for the full year
to a loss of £8.1 million (2012: £18.9 million
profit).
Review
Operating in the UK and Ireland, the region
accounts for 72% of Group full year revenue
(continuing operations). A challenging
environment continued to impact performance
during 2013. This is reflective of the on-going
restriction on retail sales, reduced Card
Protection and Identity Protection renewal
revenues and Business Partner contract
losses since October 2012. These include
T-Mobile (Everything Everywhere), RBS
Packaged Accounts, the decision by
Santander to simplify its product range and
cease offering packaged current bank
accounts in the UK and the Airport Angel
contract with Diners Club International
(Diners). During the year, Airport Angel
signed a five year contract with Visa Canada
launching Airport Angel with their customers
in January 2014 and, in addition, signed a new
contract with International SOS. The new
contracts are expected to mitigate the loss of
the RBS contract that will cease in July 2014
and the Diners contract with Airport Angel.
As expected, revenue reduced in the Mobile
Phone Insurance (MPI) business as a result
of the on-going VVOP restrictions and the
impact of Business Partner contract losses.
Across the industry, during 2013, the FCA
completed a thematic review of MPI products.
To reflect the findings of this review, HIL
has recently written to all customers with
MPI to ensure they are on up-to-date terms
and conditions.
During the year, we made good progress to
ensure that the UK business was appropriately
structured with the operating capabilities,
resource and cost-management that reflect
the current scale of the business and support
our plans as we move forward. The key
objectives during the year have been to
reduce our cost base and stabilise our
operating environment. The benefits of the
initiatives taken Group-wide are expected to
produce annualised operating cost savings
of £15.0 million, the majority of which are
UK-related.
In Ireland, we continued to renew the
existing Card Protection and Identity
Protection customer base. During the year,
we made improvements to the customer
renewal process to be consistent with the
process in the UK. There has been no new
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013We operate internationally in three regions: the UK and Ireland; Europe and Latin America; and Asia Pacific.OverviewPerformance of the three regions reflects the on-going challenges of the operating environment, whilst the performance of Latin America reflects the early stage of its development.
17
Strategic report
Chairman’s statement
Chief Executive Officer’s statement
Q&A with our new Chief Executive Officer
Our business model and strategy
Our stakeholders and Corporate Responsibility
ǔ Operating review
Financial review
Risk management and principal risks
revenue and underlying operating profit and
in Brazil, market entry activities continued.
and China. New and renewal revenue
increased in India.
India continued to perform well during the
year as a result of campaigns with existing
Business Partners. A programme of product
development was completed during the
year, which included enhancements to
the existing product propositions as well
as a focus on opportunities in the Mobile
Phone sector. We are encouraged by
the performance of the business in India,
which continues to provide future growth
opportunities for the Group.
In Hong Kong, we implemented a
restructuring and cost-management
programme during 2013, resulting in the
more efficient and cost-effective provision
of regional services to the wider Asia Pacific
region. In Singapore, revenue declined as a
result of reduced new campaigns and the
Group has taken the decision to exit this
market through the sale of the renewal
book. In Malaysia, performance declined
and our priority has been focused on
repositioning the business and reviewing
our product portfolio to identify future
opportunities. In China, we continue to
balance start-up investment costs while
we work to improve our revenue position.
During 2014, our focus will be on channel
and product development, identifying
opportunities where we can produce
attractive returns from established and
new Business Partner relationships.
In Spain, we renewed our contract with
Citibank and signed new wholesale and
servicing agreements with Samsung and
AON. Our contract with Yoigo did not perform
in line with expectations in the year and
impacted underlying operating performance
for the year as a result. In Italy we began
working with a number of Business Partners
again including Samsung and LG. We also
confirmed new relationships with Business
Partners in Turkey. Our principal Business
Partner contract in France expires in 2014
and subsequently, we have taken the
decision to exit this market.
In 2014, our focus will be on reviewing our
cost base, developing our core product, Card
Protection, and improving our distribution
channels, product usability and the experience
we provide to our customers. A key objective
is to strengthen and build our Business
Partner relationships. In Latin America, we will
continue to review the market opportunities
and identify where we can produce
sustainable returns.
Asia Pacific
Regional trends 2013
g
n
i
t
a
r
e
p
o
g
n
y
i
l
r
e
d
n
U
1
)
£
(
e
c
n
a
m
r
o
f
r
e
p
D
D
D
D
C
1
)
£
(
l
s
e
a
s
w
e
N
D
C
C
C
C
1
)
£
(
e
u
n
e
v
e
R
D
India
Hong Kong C
Singapore C
C
Malaysia
China
C
)
%
(
s
e
t
a
r
l
a
w
e
n
e
R
C
C
D
D
C
)
%
(
i
s
n
g
r
a
M
D
D
D
D
C
D Increase A Level C Decrease
1. On a constant currency basis.
Financial performance
Revenue is 2% higher on a constant currency
basis compared to the same period in 2012,
at £6.4 million (2012: £6.5 million). The
underlying operating loss has reduced for the
full year to £0.8 million (2012: £1.1 million).
Review
Operating during 2013 in India, Hong Kong,
Singapore, Malaysia and China; Asia Pacific
represents 4% of Group full year revenue
(continuing operations).
The development of this region is at a slower
rate of growth reflecting challenging operating
conditions resulting in a year-on-year revenue
decline in Hong Kong, Singapore, Malaysia,
revenue during 2013 reflective of the VVOP
restrictions. In early 2014, the Group made
the decision to exit the MPI market in Ireland
due to its loss making position.
Our future priorities place emphasis on
reshaping our business, reducing operating
costs, creating differentiated products and
service offerings and developing opportunities
with Business Partners. In parallel, our
commitment is to ensure that the Scheme
is completed successfully, continuing to work
on the initiatives and enhancements agreed
with the FCA and at the appropriate time,
apply to remove the restrictions on our
regulatory permissions.
Europe and Latin America
Regional trends 2013
g
n
i
t
a
r
e
p
o
g
n
y
i
l
r
e
d
n
U
1
)
£
(
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a
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f
r
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p
C
C
D
C
D
C
D
D
1
)
£
(
l
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a
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N
D
C
C
C
C
D
C
D
1
)
£
(
e
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v
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R
C
C
C
C
D
C
D
D
Spain
Italy
Portugal
France
Germany
Turkey
Mexico
Brazil
)
%
(
s
e
t
a
r
l
a
w
e
n
e
R
D
C
D
C
C
C
D
)
%
(
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s
n
g
r
a
M
C
D
D
C
D
C
D
n/a D
D Increase A Level C Decrease
1. On a constant currency basis.
Financial performance
Revenue has decreased 14% on a constant
currency basis compared to the same period
in 2012, to £42.6 million (2012: £48.0 million).
Underlying operating profit has consequently
reduced for the full year to £7.1 million
(2012: £8.9 million), 25% lower on a constant
currency basis.
Review
Operating during 2013 in Spain, Italy, Portugal,
France, Germany, Turkey, Mexico and Brazil;
Europe and Latin America accounts for
24% of Group full year revenue
(continuing operations).
During the year, performance in Europe
reflected the on-going challenges of the
operating environment and continued
weaker trading conditions in the Eurozone.
Performance in Latin America during 2013
is reflective of the early stage of its
development. In Mexico, we increased
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013
18
Financial review
Craig Parsons
Chief Financial Officer
This has been a challenging year in which we have refinanced
for the medium term, sold our North American operation and we
continue to restructure to best position ourselves for the future
Overview
This financial review includes analysis of
the underlying (loss)/profit of the Group,
which excludes exceptional items. We
believe that the underlying figures aid
comparison and understanding of the
Group’s financial performance.
The Group has worked hard to ensure
that it has sufficient financial resources
to implement and deliver on the Scheme.
Whilst there continues to be risk in this area
the Group has made positive progress
regarding the Group’s financial stability.
The Group has faced a challenging trading
year with the VVOP restrictions and on-going
Scheme publicity continuing to impact the
UK business, as well as affecting some
stakeholder relationships globally. As a
result, the Group has taken significant steps
in the year to reduce its cost base through
a restructuring programme. In the UK,
measures have included significant
redundancy programmes, closure of the
Chesterfield site and a streamlining of the
organisational structure. The UK measures
together with cost saving initiatives in
our overseas operations are expected
to achieve an annual net reduction in
costs of approximately £15.0 million,
the benefit of which will also impact 2014.
The Group also faced the expiry of its loan
facility in March 2013. After a short term
extension to the facility, on 31 July 2013 the
Group agreed new financing arrangements
which are expected to total approximately
£33.0 million. The arrangement comprises
£13.0 million being provided by a three-year
extension to the loan facility to 31 July 2016
and approximately £20.0 million through
the deferral of twelve months commission
payments to certain Business Partners,
with repayment due on 31 July 2017. The
reduction in UK renewal rates following
publicity surrounding the Scheme has
resulted in the expected final commission
deferral balance being lower than initially
announced. The arrangement provides
medium term financing for the Group.
As part of the refinancing the Group also
completed the sale of its North American
business, CPPNA Holdings Inc. and its
subsidiaries, to AMT Warranty Corp.
(AmTrust) on 3 May 2013 for consideration
of £26.1 million ($40.0 million). The net
proceeds after costs associated with the
disposal were £18.1 million, £16.5 million
of which was used to part-prepay the
existing loan facility.
The Group continues to strategically review
its operations. As a result, on 24 March
2014 the Group disposed of its interest in
the Home3 joint venture to Mapfre Abraxas
Software Limited (Mapfre). The disposal
process commenced in 2013 and at the
year end the Board was committed to
the disposal. In 2014, the Group has also
divested its operations in Singapore and
will withdraw from the French market.
These strategic measures will enable the
Group to focus on its core business and
markets to best position itself for the future.
In accordance with accounting standards,
the North American business and Home3
joint venture are presented as discontinued
operations within this review and in the
consolidated financial statements.
Primarily, this review focuses on the
performance of the continuing operations
of the Group.
Revenue
£178.0m
2012: £269.9m
Underlying operating (loss)/profit
£(1.8)m
2012: £26.7m
Operating review
pages 16 and 17
Report of the Audit Committee
pages 36 to 38
Financial statements
pages 62 to 110
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013Summary• Secured medium term financing totalling approximately £33.0 million• Completed the disposal of the North American business for cash consideration of £26.1 million• Continued restructuring activities to reduce the Group’s cost base leading to expected annualised savings of £15.0 million• Net funds position of £44.3 million, which will be significantly reduced in 2014 as a result of funding the Scheme 19
Strategic report
Chairman’s statement
Chief Executive Officer’s statement
Q&A with our new Chief Executive Officer
Our business model and strategy
Our stakeholders and Corporate Responsibility
Operating review
ǔ Financial review
Risk management and principal risks
Revenue (£ millions)
Gross profit (£ millions)
Operating (loss)/profit (£ millions)
– Reported1
– Underlying2
(Loss)/profit before tax (£ millions)
– Reported1
– Underlying2
Reported loss per share (pence)
Basic and diluted
Cash generated by operations (£ millions)3
Dividends (pence)
2013
178.0
65.9
(39.3)
(1.8)
(43.2)
(5.7)
(26.43)
23.0
—
2012
269.9
107.6
(17.3)
26.7
(19.5)
24.5
(12.13)
17.4
—
Change
(91.9)
(41.7)
(22.0)
(28.5)
(23.8)
(30.2)
(14.30)
5.6
n/a
1. Reported figures are from continuing operations only.
2. Excluding exceptional items from continuing operations of £37.5 million (2012: £43.9 million).
3. Includes cash flows from continuing and discontinued operations.
Summary
Group revenue from continuing operations has declined by 34%
to £178.0 million as a result of revenue reducing by 40% in the
UK and Ireland, 11% in Europe and Latin America and 2% in Asia
Pacific. On a constant currency basis Group revenue also declined
by 34%; however, when removing the impact of foreign exchange
movements Asia Pacific has recognised 2% growth.
Overall expenditure on Business Partner commissions has
remained broadly stable with the prior year at 30% of revenue
(2012: 29%). Cost of sales have increased to 63% of revenue (2012:
60%) reflecting the mix impact of the declining renewal book which
typically carries lower direct costs. As a result, gross profit declined
by 39% to £65.9 million and was 37% of revenue (2012: 40%).
The Group’s underlying operating performance has changed from
a profit in 2012 to an underlying operating loss of £1.8 million
(2012: £26.7 million profit) as a result of the impact of reduced
sales and lower gross profit. This impact is partially mitigated
by a reduction in overheads of 16% which reflects the benefit of
restructuring measures taken in 2013, particularly in the UK, to reduce
the overhead base. Annualised cost savings as a result of the 2013
measures are expected to be approximately £15.0 million.
This performance, together with exceptional items of £37.5 million,
(2012: £43.9 million), which mainly comprises customer redress
and associated costs, restructuring costs and IT asset impairments,
resulted in a reported operating loss for 2013 of £39.3 million
(2012: £17.3 million). The IT impairment reflects the write-down
of historical capital expenditure on the balance sheet.
Net interest and finance costs of £3.9 million (2012: £1.3 million)
are 203% higher than 2012 reflecting the costs associated with the
six month loan facility extension, which have been fully amortised
in the year. The Group’s level of gross debt has decreased in the
year. There were no disposals of minor subsidiaries in the year
(2012: £0.9 million loss).
As a result, the reported loss before tax was £43.2 million
(2012: £19.5 million) whereas underlying performance before
tax has changed from a profit in 2012 to a loss of £5.7 million
(2012: £24.5 million profit).
Discontinued operations, which represents the Group’s North
American business and Home3 joint venture, delivered profit after
tax of £12.5 million (2012: £3.7 million). The increase reflects the
profit on disposal of the North American business in the year
partly offset by losses attached to the Home3 joint venture.
Underlying loss after tax from continuing operations, excluding
exceptional items, was £8.0 million (2012: £17.4 million profit).
Exceptional items after tax during the year were £37.3 million,
this results in a reported loss after tax from continuing operations
of £45.3 million (2012: £20.9 million loss).
Basic loss per share has increased from 12.13 pence in 2012 to
26.43 pence for 2013.
Cash generated by operations has increased to £23.0 million
(2012: £17.4 million), which is reflective of a one-off reduction in
the Group’s working capital requirement. The Group’s net funds
position also improved from £13.6 million at 31 December 2012
to £44.3 million at 31 December 2013.
The Group will not be paying a dividend for 2013 in line with
the Group’s performance and financial position (2012: nil).
Group revenue breakdown
Retail assistance policies
Retail insurance policies
Packaged and wholesale
policies
Non-policy revenue
2013
£’m
117.1
28.1
32.3
0.5
2012
£’m
163.8
41.2
56.6
8.3
Total Group revenue
178.0
269.9
Growth
(29)%
(32)%
(43)%
(93)%
(34)%
Revenue from retail assistance policies has materially declined
compared to 2012, reflecting the continued restrictions on new
sales associated with the VVOP, mainly in the UK, and a decline in
Card Protection and Identity Protection renewals. Retail insurance
revenue, packaged and wholesale revenue and non-policy revenue
have all declined in the year as a result of lost Business Partner
contracts in the UK. These lost contracts include T-Mobile
(Everything Everywhere) (October 2012) albeit we have retained the
existing book and the right to renew policies, RBS Packaged Accounts
(March 2013), Santander Packaged Accounts (October 2013) and
the non-policy Airport Angel contract with Diners (January 2013).
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 20
Financial review continued
Underlying financial performance
Reported operating loss
Exceptional items:
2013
£’m
(39.3)
2012
£’m
(17.3)
Customer redress and associated costs
18.2
26.3
IT asset impairments
Restructuring costs
Impairment of goodwill, intangible
balances and freehold property
Regulatory penalties
Strategic project costs
Legacy scheme share based payments
Total exceptional items
Underlying operating (loss)/profit
Reported loss after tax
Exceptional items:
8.1
5.5
5.8
—
—
—
37.5
(1.8)
—
4.9
3.7
8.5
0.4
0.2
43.9
26.7
(45.3)
(20.9)
Customer redress and associated costs
18.2
22.0
IT asset impairments
Restructuring costs
Impairment of goodwill, intangible
balances and freehold property
Regulatory penalties
Strategic project costs
Legacy scheme share based payments
Total exceptional items after tax
Underlying (loss)/profit after tax
8.0
5.4
5.7
—
—
—
37.3
(8.0)
—
3.8
3.4
8.5
0.4
0.2
38.3
17.4
The Group’s statutory results are adjusted for exceptional items
to arrive at measures which better reflect underlying performance.
After making the adjustments for exceptional items, underlying
operating performance has changed from a profit in 2012 to a loss
of £1.8 million (2012: £26.7 million profit). On the same basis,
underlying performance after tax has declined to a loss of £8.0 million
(2012: £17.4 million profit). Basic underlying loss per share was
4.69 pence (2012: 10.18 pence earnings) and diluted underlying
loss per share was 4.69 pence (2012: 9.95 pence earnings).
Exceptional items of £37.5 million, of which £13.9 million
represent non-cash items, comprise the following main areas:
ц £18.2 million customer redress and associated costs
(2012: £26.3 million) includes the estimated costs of
compensating UK customers mis-sold the Group’s Card
Protection and Identity Protection products. This also includes
costs associated with other redressable items.
ц £8.1 million of IT asset impairments (2012: £nil) relate to a
re-assessment of the carrying value of the Group’s IT asset base
as a result of the IT transformation programme.
ц £5.5 million of restructuring costs (2012: £4.9 million) relate to
redundancy costs incurred as part of the Group’s overall review
of its cost base, along with costs associated with the closure
of the Chesterfield office in the UK.
Other exceptional items relate to goodwill, intangible assets and
freehold property impairment of £5.8 million (2012: £4.3 million,
also included strategic project costs and legacy scheme share
based payment costs).
Total customer redress and associated costs
Customer redress
Regulatory fine
Adviser fees
Total
2013
£’m
18.2
—
—
18.2
2012
£’m
16.9
8.5
9.4
34.8
2011
£’m
9.8
2.0
5.1
16.9
Total
£’m
44.8
10.5
14.5
69.8
As announced on 14 January 2014, the Scheme was sanctioned
by the High Court as the vehicle through which CPP and certain
of its Business Partners will review claims and, where appropriate,
pay redress to customers that have been affected by historical issues
in the UK. The Scheme became effective on 31 January 2014 and
will complete on 30 August 2014.
The Group has incurred expenditure on, and provided for, customer
redress and associated costs and regulatory penalties in the period
2011 to 2013. On 20 December 2013, the Group announced that it
had increased its customer redress and associated costs provision
by £10.0 million. Since this announcement, the Group has provided
a further £4.0 million in respect of its latest estimate of customer
redress. As a result, the total cost is currently estimated to be
£69.8 million, of which £51.7 million has been charged in the
prior years. £23.9 million of the provision within the balance sheet
has already been utilised (£9.7 million being utilised in 2013
and £14.2 million in prior years). The remaining provision at
31 December 2013 is £37.4 million (2012: £29.0 million). £36.2 million
(2012: £22.0 million) has been estimated as the remaining cost of
the customer redress element of the overall provision. The provision
does not include an amount for the outstanding element of the
regulatory fine of £8.5 million, which is disclosed under current
and non-current payables.
The Group has agreed with the FCA to further defer the outstanding
element of the fine, with the payment profile expected to be
£1.6 million in December 2014, £1.6 million in March 2015 and
the remainder in 2016.
Discussions are on-going with the Central Bank of Ireland (CBI) in
respect of Card Protection sales made by Irish banks to customers in
the Republic of Ireland. A provision for redress has been reflected in
respect of direct sales made by the Group, but no provision has been
made for redress where the sale was concluded by a Business
Partner. Further detail is provided in note 26 to the consolidated
financial statements.
Investment in developing markets
Despite continuing challenging circumstances in a number of its
established markets, the Group has sought to maintain a level of
investment in its new and developing markets. This investment
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, Mexico,
China and Brazil (2012 also included Home3, which is now disclosed
as discontinued). In 2013, the total investment in start-up losses in the
Group’s developing markets was £2.2 million (2012: £2.6 million).
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 21
Strategic report
Chairman’s statement
Chief Executive Officer’s statement
Q&A with our new Chief Executive Officer
Our business model and strategy
Our stakeholders and Corporate Responsibility
Operating review
ǔ Financial review
Risk management and principal risks
Tax
Cash flow1
The tax charge on continuing operations of £2.1 million is higher
than the prior year (2012: £1.5 million). This is principally due to the
de-recognition of a deferred tax asset in respect of capital allowances
in the UK, which is required as the Group does not expect taxable
profits to arise in the UK in the immediate future. The Group’s
overall loss has not resulted in a tax credit due to a number of
factors, including the de-recognition of the brought forward deferred
tax asset, no relief being obtained for tax losses incurred in the
current year and taxes payable on profits in overseas jurisdictions.
As in 2012, the effective tax rate is not a representative measure.
Discontinued operations
The Group has two separate businesses classified as discontinued in the
current year; its North American business and its Home3 joint venture.
The total profit after tax from discontinued operations of £12.5 million
comprises £13.3 million profit in relation to the North American
business and £0.8 million loss relating to the Home3 joint venture.
Revenue
Operating profit
Profit after tax
Profit/(loss) on disposal
Profit for the year
Net assets held for sale
2013
£’m
15.6
3.0
2.1
10.4
12.5
—
2012
£’m
49.8
9.6
6.4
(2.7)
3.7
12.9
On 3 May 2013, the Group completed the sale of its North
American business for a total cash consideration of £26.1 million
($40.0 million) to AmTrust, a Delaware corporation and wholly
owned subsidiary of AmTrust Financial Services Inc. The proceeds,
together with costs associated with the disposal and the carrying
value of the net assets held for sale, generated a profit on disposal
of £10.4 million. The North American business also generated
trading profits after tax of £2.9 million up to the disposal date of
3 May 2013 (2012: £6.9 million representing a full year trading).
On 24 March 2014, the Group completed the disposal of its share
of the Home3 joint venture to Mapfre. The disposal transaction
included the Group investing an additional £1.0 million into Home3,
the capital for which has been loaned by Mapfre to the Group. The
consideration on disposal is £0.3 million. The transaction together
with trading losses will result in the Group recognising further
losses in 2014 of approximately £0.8 million. In 2013, the Group has
recognised £0.8 million losses (2012: £0.5 million losses) which
relate to the trading performance of the joint venture.
Underlying operating (loss)/profit2
Exceptional items3
Operating profit from discontinued
North American operation
Depreciation, amortisation and other
non-cash items
Increase in provisions
Working capital
Cash generated by operations
Tax
Operating cash flow4
Capital expenditure (including intangibles)
Investment in joint venture
Net proceeds from disposal of
discontinued operations
Net finance costs
Costs of refinancing
Loan note repayments
Net movement in cash/borrowings5
Net funds6
2013
£’m
(1.8)
2012
£’m
26.7
(23.6)
(40.2)
3.8
9.8
8.4
26.4
23.0
(2.8)
20.2
(2.8)
(0.8)
18.1
(0.7)
(4.6)
—
29.4
44.3
10.1
11.8
14.2
(5.2)
17.4
(5.4)
12.0
(6.3)
(0.5)
(0.9)
(0.9)
—
(0.9)
2.5
13.6
1 Cash flow from continuing and discontinued operations.
2 Continuing Group operating profit excluding exceptional items.
3 Excludes exceptional impairments that are non-cash items of £13.9 million
(2012: £3.7 million).
4 Excluding repayment of loan notes (2012 only).
5 Excluding effect of exchange rates and amortisation of debt issue costs.
6 Includes unamortised debt issue costs.
The Group has generated additional cash, excluding movements in
borrowings, of £29.4 million in the year reflecting the net proceeds
from the North American disposal and a one-off reduction in working
capital. This cash benefit has been partly reduced by the costs incurred
throughout the year in refinancing the Group along with tax payments
and capital expenditure, although these costs are at a reduced level
from the prior year. The Group’s cash position will be significantly
reduced in 2014 as a result of funding the Scheme.
Cash generated by operations amounted to £23.0 million
(2012: £17.4 million) and results primarily from a one-off reduction
in the working capital requirement of the Group. This benefit is due to
a reduction in our insurance balances following the conclusion of the
RBS MPI contract and balances associated with the reducing T-Mobile
book, along with focused working capital management across
the Group.
The disposal of the North American business in the year generated
positive cash flows of £18.1 million. The level of capital expenditure
(including intangibles) has decreased by £3.5 million to £2.8 million
(2012: £6.3 million) which reflects the prioritised approach to cash
management adopted by the Group due to the cash challenges it
faces in the short and medium term.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 22
Financial review continued
Cash flow continued
Net funds at 31 December 2013 were £44.3 million, an improvement of
£30.7 million compared to prior year, as a result of the net proceeds from
the disposal of the North American business and positive operating cash
flow, the benefit of which is partly reduced by the costs of refinancing.
The Group’s cash position will be significantly reduced in 2014 as a
result of funding the Scheme. The Group maintains cash deposits for
solvency purposes which were £27.8 million at 31 December 2013
(2012: £22.9 million). Allowing for these deposits results in an adjusted
Group net funds position of £16.5 million. Additionally, the terms of the
VVOP agreed with the FCA restrict the disposition of assets within the
UK’s regulated entities, CPPL and HIL. The net funds figure therefore
includes cash balances held within CPPL and HIL which cannot be
distributed to the wider Group, without FCA approval, of £32.7 million.
This restricted cash, although unavailable to distribute to the wider
Group, is available to the regulated entity in which it exists, including for
operational and customer redress purposes.
Dividend
As a result of the Group making a loss after tax in 2013 and the
cash challenges it currently faces, the Directors have decided not
to recommend the payment of a dividend. Furthermore, due to the
Group’s current performance and financial situation it is unlikely that
a dividend will be paid in the medium term.
Balance sheet and financing
Goodwill and intangibles
Property, plant and equipment
Net assets held for sale
Other net assets
Provisions
Current borrowings
Non-current borrowings
Non-current liabilities
Total net (liabilities)/assets
2013
£’m
3.3
5.1
—
37.3
45.7
(37.4)
—
(22.6)
(10.0)
(24.3)
2012
£’m
16.9
13.3
12.9
46.2
89.3
(29.0)
(43.4)
—
(7.2)
9.7
Goodwill and intangibles of £3.3 million has decreased by £13.6 million
from the prior year. The significant movements are associated with
the impairments incurred as a result of the IT transformation project
of £5.4 million, the full impairment of the Homecare goodwill balance
of £1.5 million, impairment of the contractual arrangement intangible
of £1.3 million and continued amortisation of the intangible balances
against reduced levels of additions.
The property, plant and equipment (PPE) balance of £5.1 million has
decreased in the year by £8.3 million. This reflects the impairment
of the freehold property to market value of £3.0 million, impairment
of computer hardware as a result of the IT transformation project
of £2.6 million and continued depreciation of PPE balances.
On 31 July 2013, the Group agreed new financing arrangements which
are expected to total approximately £33.0 million. The arrangement
comprises £13.0 million being provided by a three-year extension of
the debt facility to 31 July 2016 and approximately £20.0 million being
provided through the deferral of twelve months commission payments
to certain Business Partners, with repayment due on 31 July 2017.
The reduction in UK renewal rates following publicity surrounding the
Scheme has resulted in the expected final commission deferral balance
being lower than initially announced. The agreements, of which the
commission deferral is subordinate to the loan facility, are subject to
certain covenants and events of default. Further to the announcement
on 9 January 2014 that the response rate covenant had been increased
to 32%, in order to provide additional headroom the Group has
subsequently agreed with its lenders a further increase of this covenant
to 40%. There remains a risk that trading and customer redress
uncertainties could impact the Group’s ability to comply with the terms
of the borrowing agreements.
The new financing arrangements have changed the shape of the
balance sheet in 2013, with current borrowings being replaced by
non-current borrowings, reflecting the medium term stability the
arrangement provides. The bank loan has been reduced from
£43.5 million at the beginning of the year to £13.0 million, funded
principally through proceeds from the sale of the North American
business and transfer of restricted funds in CPPL held in favour of
the lenders. The commission deferral agreement will result in the
incremental build-up of a loan balance as the relevant commissions
are deferred on a monthly basis over a period of twelve months.
At 31 December 2013, the balance in respect of this agreement
is £11.3 million.
The Group’s balance sheet has changed in the year with the refinancing
arrangement resulting in current borrowings being replaced by non-current
borrowings, reflecting the medium term stability the arrangement
provides. In addition, the IT transformation and other exceptional items
have led to a reduction in our non-current assets. Consequently, the
Group’s balance sheet has declined in the year to a net liabilities position
of £24.3 million (2012: £9.7 million net assets).
Provisions of £37.4 million (2012: £29.0 million) are mainly for customer
redress and associated costs. The commencement of the Scheme results
in the provision expecting to be fully utilised in 2014. The remaining
instalments of the fine levied by the FCA are reported in other net assets
(£1.6 million) and non-current liabilities (£6.9 million).
Craig Parsons
Chief Financial Officer
23 April 2014
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 Risk management and principal risks
Board and Committee oversight
The Board has overall responsibility for
the Group’s system of internal control and
for monitoring its effectiveness. The Audit
Committee and Group Risk & Compliance
Committee operated throughout the year, each
overseeing the Group’s system of internal
control and risk management framework.
Material risk or control matters, together
with the appropriate management action,
are reported to the Board by the Risk &
Compliance Committee and/or the Audit
Committee. The Board monitors the on-going
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
& Accounts.
Internal control and compliance
The key elements of the Group’s system
of internal control include regular meetings
of the Group’s subsidiary Boards, together
with annual budgeting, monthly financial
reporting, Key Performance Indicators and
operational reporting for all businesses within
the Group. Compliance is the responsibility
of Management, supported and overseen by
the Group’s Compliance, Risk Management
and Internal Audit functions.
Included in the description of regulatory risk
on page 25 are the actions and initiatives taken
by the Board to improve the effectiveness
of its regulatory compliance, some of which
are currently in development. 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:
established procedures which are 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; the continuous
Group-wide process for formally identifying,
evaluating and managing significant risks to
the achievement of the Group’s objectives;
and reports to the Audit Committee and the
Risk & Compliance Committee on the
results of internal audit reviews and work
undertaken by other departments including
Risk Management, Legal, 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
Chairman’s statement
pages 06 and 07
Report of the Audit Committee
pages 36 to 38
Report of the Risk &
Compliance Committee
page 39
23
Strategic report
Chairman’s statement
Chief Executive Officer’s statement
Q&A with our new Chief Executive Officer
Our business model and strategy
Our stakeholders and Corporate Responsibility
Operating review
Financial review
ǔ Risk management and principal risks
and provides reasonable, 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 and the Group’s policies and
procedures are regularly updated and
distributed throughout the Group.
In 2013, the Group continued the work
commenced in 2012 to review and improve
the governance of the business. CPPL is
authorised and regulated by the FCA and HIL
is authorised by the Prudential Regulation
Authority (PRA) and regulated by the FCA
and the PRA. Each undertakes a solvency/
capital adequacy assessment on a regular
basis. Outputs from these assessments
are subject to review and approved by the
individual Boards of these companies and
are reviewed by the FCA and PRA 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 risks crystallising, the
potential materiality and effectiveness of
the control framework in mitigating each
risk. The purpose of each assessment is to
establish the level of capital resources that
the business should maintain under current
market conditions and a range of scenarios
in order to ensure that financial resources are
sufficient to successfully manage the impact
of any risk that may crystallise.
HIL is subject to the European Commission’s
Solvency II Directive, which it is anticipated will
come into operation from 1 January 2016.
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.
Throughout 2013, HIL had in place an
outsourcing contract with a third party
provider to secure operational capability
independent from other Group companies.
This investment significantly reduces the
operational risk that HIL may have faced
through a reliance on other Group operations.
This outsourcing contract also provides HIL
independent business continuity protection in
the event its existing operations are disrupted.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 Governance, risk management and internal controlGood governance, risk management and internal control must be central to the way we manage all aspects of our business. Responsible practices form the framework for our values, underpin our behaviours and cultivate growth in a disciplined and sustainable way. We are making our business more effective and efficient and so better able to deliver value to all our stakeholders. 24
Risk management and principal risks continued
Risk Management and Internal Audit functions
Risk management and control environment
Three lines of defence model
The Risk Management and Internal Audit
departments review the extent to which
the system of internal control is a) effective
and b) adequate to manage the Group’s
significant risks and safeguard the Group’s
assets. In conjunction with the Company
Secretary and the Group’s Legal and
Compliance teams, these departments
collectively ensure compliance with legal
and regulatory requirements, providing
independent and objective assurance on
risks and controls to the Board and Senior
Management. Internal Audit’s key focus is
on areas of greatest risk to the Group,
determined by a structured risk assessment
process involving Executive Directors and
Senior Management. The output is
summarised in an annual audit plan, which
is approved by the Audit Committee. The
Head of Internal Audit regularly reports to the
Audit Committee and Chief Financial Officer.
The role of Internal Audit and the scope of
its work is based on the Internal Audit
Manual that is developed in line with best
practice and has been approved by the
Audit Committee.
The Group has strengthened its governance,
risk management and control environment
establishing a clear framework, processes,
policies and systems to ensure decisions
are made at the appropriate level and
with accountability.
CPP operates a three lines of defence model
across the Group. Adopting enterprise risk
management, the Group manages its activities
by addressing risks identified by the Leadership
Team, supported by central governance
functions including Legal, Compliance and Risk.
CPP’s risk management approach is designed
to support the successful development and
delivery of the Group’s strategic objectives.
See diagram C
Governance functions
See diagram A
The aim of risk management is to identify
and manage the actions necessary to
mitigate any impact and maintain a high-quality
service to customers whilst ensuring that
Senior Management is informed of the risk
profile of the Group. Significant risks that
would impact on the Group’s delivery of its
business plan are considered and reviewed by
the Executive Directors and the appropriateness
of actions determined by the Group Risk &
Compliance Committee quarterly.
See diagram B
The governance functions are responsible
for providing robust frameworks which
support the Group and providing insight
to Senior Management which enables
them to assess and challenge risks that are
identified. The Group Risk and Compliance
functions provide oversight of these
activities and both the Head of Group Risk
and Head of UK Compliance provide quarterly
updates on functional activities and the
performance of the business in respect of
effective risk management.
During 2013, the Group continued to enhance
its risk management capability. Key actions
included the full roll-out of processes across
the Group to enable consistent and timely
reporting of operational issues that are
identified (Business Incident Management)
and a self-certification exercise for each
region to ensure compliance with Group
policies (minimum standards).
A. Effective risk management framework
B. Risk management model
Sustain and continually improve
Group
strategy
Group risk appetite
(Group Board)
Group policy
Oversight
(Group Risk & Compliance Committee /
Delegated Board Committee)
Risk infrastructure – People / Process / Systems
(Group Executive Committee /
Group Leadership Team)
Risk management approach
(Business functions)
C. Three lines of defence model
Management information:
business incident
management and business
functions profiling
1 Identify risks
2 Assess and evaluate risks
3 Respond to risks
4 Design, implement and
test controls
5 Monitor, assure and escalate
6 Embed solutions
Risk management tools
2
3
Communication, education,
training and guidance
1
Risk
management
approach
4
6
5
Business management
Operating within the Company’s risk
appetite, responsible for the identification,
management and monitoring of risks
Group risk management, compliance
and information security
Provision of frameworks, guidance, tools,
support and challenge
Internal audit
Risk-based independent testing of the
design and operation of the governance
framework, risk management measures and
controls
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013
25
Strategic report
Chairman’s statement
Chief Executive Officer’s statement
Q&A with our new Chief Executive Officer
Our business model and strategy
Our stakeholders and Corporate Responsibility
Operating review
Financial review
ǔ Risk management and principal risks
Principal risks & uncertainties
Many of the risks outlined are consistent with those experienced by companies that have encountered difficult trading conditions and those
in the process of developing longer term business plans and strategy. Over the last two years, the Group has placed great focus on developing
a constructive relationship with the regulator in the UK, improving operational efficiency and ensuring that risk management is central in the
decision making process. Nonetheless, there remain significant risks to the execution and delivery of the Group’s business plan and development
of its longer term strategy. Following the refinancing agreements in July 2013, the Board no longer considers that retaining key supplier contracts
represents a significant risk to the Group in the short to medium term. During 2013, the focus of the Board has been on ensuring the best
outcome for all our policyholders including those eligible for redress under the Scheme. This has involved significant focus on the liquidity
position of the Group and a significant reduction of the cost base. This has created or increased the risk profile, particularly given the redundancy
programmes and reduction in investment in the infrastructure. The Group is addressing these risks as it rebuilds for the future.
Status
Risk profile increased
year-on-year
Risk profile no change
year-on-year
Risk profile decreased
year-on-year
New New risk
Financial risk – Going concern/capital/liquidity
Status
Potential risk & impact
Mitigation
The going concern status of the Group is impacted by trading
and customer redress uncertainties and the effect that these
could have on liquidity and compliance with the terms of the
borrowing facilities.
Current redress rates are within expectations, but there
remains a risk that response rates may reach a level which
cannot be funded under the revised funding arrangement.
In addition, the Group’s trading performance continues to be
affected by the VVOP restrictions which, amongst other
requirements, do not permit CPPL or HIL to make sales of
regulated products.
Market risk – Economic and political
Whilst redress rates are uncertain the current level of redress
rates is within expectations. The Board has improved the
financial stability of the business and its liquidity.
Options are being developed to secure additional capital,
if required.
The Board continues to focus on operational efficiency and
re-sizing the business, whilst work continues to develop the
business plan which may require additional funding.
Status
Potential risk & impact
Mitigation
The Group operates in a number of countries where the
economic outlook remains uncertain. Changes to the
economic or political climate may have an adverse impact
on operational performance.
The Group regularly monitors the performance of all its
businesses and will consider the viability of its operations
on a case-by-case basis. Operating in diversified geographic
markets mitigates the risk to any one country or currency.
Market risk – Competitive markets
Status
Potential risk & impact
Mitigation
There remains a risk that new competitors enter the market
offering competing products before CPP has completed its
business restructuring.
The Group Executives regularly monitor competitor activity.
The Group’s business plan involves the development of new,
market tested products that have continuing appeal to
consumers who require assistance products.
Operational risk – Regulatory
Status
Potential risk & impact
Mitigation
Operating in regulated markets worldwide, there is a risk that
a part of the Group may be subject to regulatory scrutiny and
possible censure. The risk may be increased as a result of the
Group being supported by a central IT platform and the
business model and product propositions that are derived
from the original model implemented in the UK.
There are current on-going discussions with the Central Bank of
Ireland (CBI) on potential redress to policyholders in Ireland who
bought the same products as were on offer in the UK. The Board
is also aware that regulators in some overseas territories are also
reviewing certain aspects of the business.
Throughout 2013, Senior Executives of the Group have been in
regular dialogue with the UK regulator to ensure that the FCA is
fully up to date of on-going actions that the business has taken,
the performance of the Scheme and the future plans of the Group.
The Board has sought to mitigate this risk through further
enhancement of its risk, compliance and governance approach
and where appropriate, working closely with local advisers.
The risk and internal control environment rolled out in the UK has
been extended to all territories. However, until all rectification
actions are completed there remains a risk that additional regulatory
restrictions may be placed on the Group if further irregularities are
identified that could potentially cause detriment to policyholders.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013
26
Risk management and principal risks continued
Operational risk – Business Partner retention/attraction
Status
Potential risk & impact
Mitigation
The current status and experience of the Group have increased
the requirement to attract new Business Partners and maintain
current relationships. In the absence of this engagement, there is
a risk that a significant route to market will become constrained.
Operational risk – Operational efficiency
Status
Potential risk & impact
The Board is aware that a number of challenges remain
towards achieving operational and IT efficiency, both in the UK
and overseas territories. The operating environment is in a
transformation period and until completed, there remains a risk
that any regulatory breaches or operational weaknesses may
be identified. Management is of the view that further changes
and improvements are required before the Group is in the
required position to apply to remove the restrictions on our
regulatory permissions.
The Group continues to engage with existing and previous
Business Partners in order to retain or build confidence.
Mitigation
To deliver on its business plan or develop its longer term strategic
objectives, the Group now has the opportunity to invest in the
improvement of its operational and IT environment. Whilst
designed to mitigate risks in the longer term these changes may
result in increased operational risk whilst the improvements
required are implemented.
Operational risk – Data security
Status
Potential risk & impact
Mitigation
The Group retains substantial sensitive data relating
to customers. Failure to safeguard this information could
result in censure, fines and reputational damage.
The Group takes the safeguarding of customer and business
data seriously. All new transformation plans ensure that data
security is central to any new infrastructure. The Group has a
dedicated Information Security Manager and seeks annual
certification of its information security standards through
annual PCI certification.
Operational risk – People and resources
Status
Potential risk & impact
Mitigation
In 2013 and 2014, a number of key personnel left the Group,
either as a result of redundancy programmes or natural
attrition. The loss of Senior Management and key functional
experts may result in the risk that significant knowledge and
capability is lost from the Group. The knowledge gap as a
result, may increase pressure on existing employees and
potential operational weaknesses.
The Group has identified key skills and role dependencies and is
taking the necessary action to retain and recruit the knowledge
required within the Group. The business also utilises interim
contractors where shorter term solutions are required. The
Board has identified this key risk and in view of the Scheme
commencing, has authorised further investment in people, both
to attract new experienced individuals and to seek to retain key
individuals within the Group.
Operational risk – Governance
Status
Potential risk & impact
Mitigation
New
CPP, a listed Company with regulated subsidiaries, has a
highly concentrated shareholder base. It is essential that the
organisation works within this framework. As a result, there is
a risk that support for the Board, the business plan and longer
term strategy is not forthcoming.
The Board proactively engages on a regular basis with the
largest shareholders to mitigate this risk, discussing rationale
and seeking support for the Board and its business plans.
The Strategic report section on pages 06 to 26 of this Annual Report has been reviewed and approved by the Board of Directors on
23 April 2014.
Brent Escott
Chief Executive Officer
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27
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Corporate
governance
Introduction from the Chairman
28
30 Board of Directors and Company Secretary
32 Corporate Governance report
36 Report of the Audit Committee
39
40
41 Remuneration report
54 Directors’ report
57 Statement of Directors’ responsibilities
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 28
Introduction from the Chairman
Duncan McIntyre
Non-Executive Chairman
Introduction to corporate governance
A responsible approach
Responsible practices form the framework
for our values, underpin our behaviours
and cultivate growth in a disciplined and
sustainable way. We are making our business
more effective and efficient and so better able
to deliver value to all our stakeholders.
Our commitment to governance during
2013 continued to evolve and focused on
strengthening our control environment. We
have spent a great deal of time establishing
the right framework, processes, policies and
systems to ensure decisions are made at the
appropriate level with accountability as we
work to regain the trust of our stakeholders.
We will continue to develop our practices
and a strong framework to ensure that we
adhere to high standards of corporate
governance and identify areas where
improvements are required. Ultimately,
the changes we are making will strengthen
the business and will enable us to move
forward with the systems, controls and
governance in place across the Group to
run a business that is focused on doing
the right thing by the customer.
acceptable short term outcomes. Our policy
is to appoint the best people for relevant
roles and we will continue to review the
composition of the Board to ensure we have
the right levels of skills and expertise, whilst
recognising the benefits of greater diversity.
In view of the challenges that the Group
has faced, the scale of the Company is
much reduced and we are now rebuilding
for the future. As our ultimate structure and
strategy is formed and as we finalise the
Scheme, it is our intention to review the
appropriateness of the skills and expertise
required and overall Board structure. All
Directors are committed to this review.
Biographical details of the members of
the Board are set out on pages 30 and 31.
Role of the Board
The role and responsibilities of the Board and
its various Committees are outlined on page
35. Our approach to corporate governance
and the role of the Board ensures that there
is a clear understanding of the necessary
requirements and leadership that support
the development of the business and address
the challenges ahead.
Board composition, effectiveness
and construct
Remuneration
Our remuneration structures ensure
performance is measured against
appropriate metrics that take into account
how results are delivered as well as the
actual delivery of those results.
The Board is responsible for providing strong
and effective leadership. At CPP, the Board
comprises me as Chairman, together with
two Executive Directors and three
independent Non-Executive Directors,
drawing on experience across various
industry sectors. The Board recognises the
benefits of providing the right balance,
strengths and diversity in the composition
of the Board. We aim to have an optimum
balance of skills and sector experience to
ensure the Board operates in a focused and
effective manner with the objective to
balance long term value creation with
Risk management approach
pages 23 and 24
Risk management framework
pages 23 and 24
Governance and Committees
pages 32 to 53
Governance framework
page 35
Remuneration report
pages 41 to 53
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Corporate governance
ǔ Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
Remuneration report
Directors’ report
Statement of Directors’ responsibilities
“ Our approach to corporate governance and the
role of the Board ensures that there is a clear
understanding of the necessary requirements and
leadership that support the development of the business
and address the challenges ahead.”
Duncan McIntyre, Non-Executive Chairman
Role of the Board
1
Provide leadership
to the Group
2
Set the Group’s long term
strategic objectives
3
Develop robust corporate
governance and risk
management practices
Board Committees
Audit Committee
Risk & Compliance Committee
Nomination & Governance Committee
Remuneration Committee
Executive Committee
Role and responsibilities of the Non-Executive Chairman
and Chief Executive Officer
The roles of the Non-Executive Chairman and Chief Executive Officer are separate,
clearly defined in writing and have been agreed by the Board.
Chief Executive Officer
The Chief Executive Officer, Brent
Escott, 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.
Details on the role of the Chief Executive
Officer can be found on page 33.
Chairman
The Non-Executive Chairman, Duncan
McIntyre, is responsible for the leadership
of the Board, ensuring its effectiveness
on all aspects of its role and setting
its agenda.
The Non-Executive Chairman has no
involvement in the day-to-day business
of the Group.
Details on the role of the Non-Executive
Chairman can be found on page 33.
Board balance
Brent
Escott
(CEO)
Duncan
McIntyre
(Chairman)
Craig Parsons
(CFO)
Ruth Evans
Non-Executive Chairman
Executive Directors
1
2
Independent Non-Executive Directors* 3
Shaun
Astley-Stone
Les Owen
* Shaun Astley-Stone is not considered independent
during 2013. He can be considered independent
going forward. Details can be found on page 33.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 30
Board of Directors and Company Secretary
Committees
A
Audit Committee
RC
NG
Risk & Compliance
Committee
Nomination &
Governance Committee
R
Remuneration Committee
Committee Chairman
1. Les Owen
Independent
Non-Executive Director
2. Shaun Astley-Stone
Independent
Non-Executive Director
3. Brent Escott
Chief Executive Officer
Appointment August 2010
Appointment September 2013
Appointment September 2013
Committee Memberships
A RC NG R
Skills and experience
Les Owen worked for 35 years in
retail financial services including
eleven years as Chief Executive
Officer of companies listed in the
UK and Australia. Les is a qualified
actuary and serves as Non-Executive
Director on the boards of a number of
national and international companies.
Other appointments
Appointments include Non-Executive
Director of Royal Mail Holdings Plc,
Jelf Group Plc, Discovery Ltd,
Computershare and Just Retirement
(Holdings) Limited.
Committee Memberships
Committee Memberships
RC
NG
Skills and experience
Shaun worked previously for the
Group as Interim UK Managing
Director from August 2012 until
May 2013, during which time
he was instrumental in building
the customer focus of the UK
business and in improving
regulatory relationships. Shaun
has over 25 years’ experience
of the retail financial services
and insurance sectors.
Other appointments
Chair of Card Protection Plan Limited
and Chief Executive Officer of EMC
Advisory Services Limited.
Skills and experience
Brent was appointed Chief Executive
Officer following a brief period in the
role of Interim Deputy Chief Executive
Officer. He has over 25 years’
experience in the insurance industry,
most recently as Managing Director,
General Insurance Division at Capita
plc and previously as Managing
Director of the UK division of Brit
Insurance Holdings PLC. He was
founder and Managing Director of
Club Direct Insurance Services Limited.
Other appointments
Director of Allendene Limited and
Clear Insurance Management Limited.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 31
Corporate governance
Introduction from the Chairman
ǔ Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
Remuneration report
Directors’ report
Statement of Directors’ responsibilities
4. Duncan McIntyre
Non-Executive Chairman
5. Craig Parsons
Chief Financial Officer
6. Lorraine Beavis
Company Secretary
7. Ruth Evans
Independent
Non-Executive Director
Appointment January 2014
Appointment September 2013
Appointment October 2013
Appointment October 2013
Committee Memberships
A RC NG R
Committee Memberships
RC
Skills and experience
Duncan was appointed as Group
Chairman in January 2014, following
three years as a Non-Executive
Director. A qualified accountant,
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, where he remained
as Chairman until October 2013.
Other appointments
Chairman of Climate Risk
Management Limited, Technetix
Group Limited and eg solutions plc.
Skills and experience
Craig is responsible for the Group’s
Finance, Tax, Treasury, Risk and Audit
functions. He has held a senior role
in CPP’s Group Finance function
since 2002, most recently as Director
of Tax and Treasury. He has primary
responsibility for the Group’s lender
relationships and played a leading role
in the successful refinancing of the
business in July 2013. He qualified
as a Chartered Accountant with
PwC in 1995 and has 18 years’
experience working in the financial
services industry.
Skills and experience
Lorraine is a Chartered Secretary
with broad experience as a company
secretary in a variety of businesses.
She joined the Group as Deputy
Company Secretary in April 2012,
assuming the role of Group Company
Secretary in October 2013.
Committee Memberships
NG R
Skills and experience
Ruth has an established track record
representing consumer interests
across a range of public and private
services, including the retail financial
services sector. She has extensive
experience in professional and
economic regulation having served
as Chair and Board member of
economic and professional
regulatory authorities.
Other appointments
Chair of the Authority for Television
on Demand and Independent
Commissioner of the Independent
Police Complaints Commission.
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32
Corporate Governance report
The Board is committed to high standards of corporate governance
Introduction
During 2013, the Board continued its focus
on improving the governance aspects of the
business. The governance framework has
been developed to ensure that it remains
appropriate to the business and the risk
and compliance functions continue to be
strengthened throughout the Group.
Compliance with the UK Corporate
Governance Code 2012
This report sets out how the Company
applied the principles of the UK Corporate
Governance Code as published by the
Financial Reporting Council in September
2012 and available on its website
www.frc.org.uk (‘the Code’) and the
extent to which the Company complied
with the provisions of the Code during
the year under review.
The Code defines a smaller company as one
that is below the FTSE 350 throughout the
year immediately prior to the reporting year.
In so far as is required of a smaller company
as so defined, the Directors consider that
the Company has been in full compliance
throughout the year with the provisions set
out in the Code, except as described below:
ц the Board has not considered the
appointment of a Senior Independent
Director appropriate, given the Company’s
size and financial position. This will remain
under review as the Company strategy and
Board structure develops; and
ц in view of the number of changes and issues
faced during the year, the Board has not
considered a formal Board effectiveness
review to be appropriate. This will be
reviewed once the Board and the Company
return to a position of greater stability and as
the structure of the Board develops.
Leadership
The role of the Board
The Board is responsible to shareholders for
the strategic direction, management and
control of the Company’s activities and is
committed to high standards of corporate
governance in delivering in these areas.
At the date of this report, the Board comprises:
Duncan McIntyre
as Non-Executive Chairman
Brent Escott
as Chief Executive Officer
Craig Parsons
as Chief Financial Officer
Les Owen, Shaun Astley-Stone
and Ruth Evans
as Independent Non-Executive Directors
Duncan McIntyre and Les Owen served
on the Board throughout the year, as did
Charles Gregson before he stepped down
in January 2014.
The following changes were made during
the year and up to the date of this report:
Duncan McIntyre
– appointed as Chairman on 29 January 2014
Brent Escott
– appointed on 1 September 2013
Craig Parsons
– appointed on 1 September 2013
Shaun Astley-Stone
– appointed on 2 September 2013
Ruth Evans
– appointed on 4 October 2013
Charles Gregson
– resigned on 29 January 2014
Paul Stobart
– resigned as Chief Executive Officer
on 31 August 2013
Shaun Parker
– resigned as Chief Financial Officer
on 31 August 2013
Hamish Ogston
– resigned as a Non-Executive Director
on 28 June 2013
Biographical notes of each of the current
Directors are given on pages 30 and 31.
How the Board operates
The Board has a formal schedule of matters
reserved to it, which is available on the
Company’s website, www.cppgroupplc.com.
This schedule was last reviewed and updated
in March 2014. Key matters that the Board is
specifically responsible for include:
ц approval of the Group’s long term ambitions,
objectives and commercial strategy;
ц material changes to the Group’s corporate
structure, including any acquisitions or
disposals;
ц ensuring maintenance of a sound system
of internal control and risk management;
ц approval of annual and half-year results,
interim statements and interim
management statements;
ц approval of the dividend policy; and
ц material capital investments.
Risk management and principal risks
pages 23 to 26
Board of Directors
pages 30 and 31
Committee reports
pages 36 to 53
Directors’ report
pages 54 to 56
Statement of Directors’ responsibilities
page 57
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013Summary• The Board continues to focus on improving the governance aspects of the business• The Board is responsible to shareholders for the strategic direction of the business and is committed to high standards of corporate governance• Various changes made during the year to ensure that the Board continues to comprise individuals with wide-ranging business skills and experience 33
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
ǔ Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Other powers are delegated to the various Board committees and to
Senior Management. Details of the roles and responsibilities of the
Board Committees are set out on pages 36 to 53 and copies of all terms
of reference are available on the Company’s website.
Details of attendance at scheduled Board and Committee meetings
during the year are set out in the table on page 34. Additional ad hoc
meetings were also arranged to deal with matters between scheduled
meetings as appropriate.
Papers for Board and Committee meetings are circulated in advance
of the relevant meeting and any Director who is unable to attend
receives a full copy of the papers and has the opportunity to
comment on the matters to be discussed.
Board members also receive a monthly performance pack which is
prepared at the end of each financial period and includes an update
on key performance targets, trading performance and detailed
financial data.
Each member of the Board has had access to all information
relating to the Group, and to the advice and services of the
Company Secretary (who is responsible for ensuring that Board
procedures are followed). All Board members also have access to
external advice at the expense of the Group, should they need it.
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, Duncan McIntyre, is responsible for the leadership
of the Board, ensuring its effectiveness in all aspects of its role
and setting its agenda. The Chairman has no involvement in the
day-to-day management of the Group.
The Chief Executive Officer, Brent Escott, 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.
Board balance, independence and appointments
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.
During the year, various changes have been made to ensure that the
Board continues to comprise individuals with wide ranging business skills
and experience and the Board has considered the structure, size and
composition of the Board; the membership of the various Board
Committees; the expected time commitment; and the policy for Board
appointments for Executive and Non-Executive Directors.
The Board’s aim is to ensure that the balance between Non-Executive
Directors and Executive Directors reflects the changing needs of the
business and allows the Board to exercise objectivity in decision making
and proper control of the Company’s business.
The Board has reviewed the independence of each of the
Non-Executive Directors that continue to serve on the Board and
concluded that Les Owen and Ruth Evans are independent. Shaun
Astley-Stone provided some consultancy services to the Group’s UK
regulated subsidiaries after his appointment to the Board, for which
he received fees over and above his Non-Executive Director fees.
The contract under which those services were provided has now
been terminated. The Board therefore considers that, whilst Shaun
Astley-Stone was not independent during the year under review, he
can be considered independent going forward. On his appointment
as Chairman, Duncan McIntyre satisfied 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 meets the Code requirement for smaller companies (as
defined by the Code) that at least two members of the Board should
be Independent Non-Executive Directors.
The Non-Executive Directors are considered to be of sufficient
calibre and experience to bring significant influence to bear on the
decision making process.
Throughout the year the outgoing Chairman, Charles Gregson, held
regular informal meetings with Non-Executive Directors without the
Executive Directors being present and Duncan McIntyre has
continued this practice since his appointment.
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 requires
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.
Information and professional development
The Board receives at its meetings detailed reports from Executive
Management on the performance of the Group 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. In addition
to any guidance that may be given from time to time by the Company
Secretary, Directors are encouraged to devote an element of their
time to self-development through available training.
All Directors have access to the advice and services of the Company
Secretary. The Company Secretary or her nominee is the secretary for
all 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, last carried out a formal Board
effectiveness review through an independent third party in 2011.
The evaluation was based on written questionnaires completed by
the Directors at the time and some face to face interviews. These
were used to create a written report with recommendations and
improvements made in the light of these. In view of the number of
changes and issues faced by the Board since that time, the Board has
not considered further formal evaluation to be appropriate. This will be
reviewed once the Board and the Company return to a position of
greater stability and once the Board is satisfied that its composition is
appropriate for the developing strategy of the Company.
Re-election
The Company’s Articles of Association require that newly appointed
Directors offer themselves for election at the first Annual General
Meeting (AGM) following their appointment and that all Directors stand
for re-election at least once every three years.
Accordingly, at the 2014 AGM, Brent Escott, Craig Parsons, Shaun
Astley-Stone and Ruth Evans will seek election for the first time.
Duncan McIntyre and Les Owen, having been re-elected at the 2013
AGM, are not required to stand for re-election at the forthcoming AGM.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 34
Corporate Governance report continued
Re-election continued
Duncan McIntyre took over as Chairman in January 2014 with the support
of the Group’s largest shareholders. Les Owen has indicated his
intention to retire from the Board once a successor has been identified.
The Board believes that its performance continues to be effective and
that the election of Directors is consistent with the Board’s evaluation
of the size, structure and composition of the Board. However, all
Directors understand that the Group is in transition and confirm that
if their skills and expertise cease to be relevant, they will step down.
Biographies for all Directors can be found on pages 30 and 31.
Relations with shareholders
The Board is committed to maintaining good relationships with
shareholders. There is regular dialogue with the Company’s key
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 are available for meetings with major and
institutional shareholders on request.
Key shareholders are 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. Irrespective of the
size of their shareholding, shareholders have the opportunity to
convey their views and make enquiries via e-mail or telephone
contact with the Head of Investor Communications.
The Chairman is responsible for ensuring that appropriate channels
of communication are established between the Chief Executive
Officer (and other Executive Directors) and shareholders, ensuring
that the views of shareholders are made known to the Board.
The Board is provided with an investor relations report on a monthly
basis. The Company recognises the importance of ensuring effective
communication with all of its shareholders and seeks to present the
Company’s position and prospects clearly.
The Annual Report & Accounts is distributed to all shareholders
and 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 at www.cppgroupplc.com.
The AGM provides the Board with an opportunity to meet informally
and communicate directly with private investors. Voting at the AGM
is conducted by way of a show of hands to encourage questions
from and interaction with private investors. Proxy votes lodged on
each AGM resolution are announced at the meeting and published
on the Company’s website.
Insurance
The Company has arranged appropriate insurance cover in respect
of any potential litigation against Directors.
Internal control and compliance
The Audit Committee and the Risk & Compliance Committee receive
regular reports on compliance with Group policies and procedures.
On behalf of the Board, the Audit Committee and the Risk &
Compliance Committee confirm that through discharging their
responsibilities under their terms of reference as described on pages 36
and 39, they have reviewed the effectiveness of the Group’s system of
internal controls and are able to confirm that necessary actions have
been or are being taken to remedy any failings or weaknesses identified.
Full details of the Group’s system of internal control and its relationship
to the corporate governance structure are contained in the Risk
management and principal risks section of this Report on pages 23 and 24.
Conflicts of interest
A register of conflicts of interest is maintained by the Company
Secretary. Directors are required to declare any specific conflicts that
arise from each Board agenda and a Director would refrain from voting
on any matter that caused an actual or potential conflict of interest.
Board Committees
The Audit Committee, the Risk & Compliance Committee, the
Nomination & Governance Committee and the Remuneration Committee
are standing Committees of the Board. The Company Secretary acts as
Secretary to all of the Board Committees. 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. Terms
of reference 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.
Directors’ attendance at scheduled Board and Committee meetings in 2013
Duncan McIntyre Non-Executive Director
Brent Escott
Chief Executive Officer
Craig Parsons
Chief Financial Officer
Les Owen
Non-Executive Director
Shaun Astley-Stone Non-Executive Director
Ruth Evans
Non-Executive Director
Board
10 (10)
3 (3)
3 (3)
9 (10)
3 (3)
2 (2)
Charles Gregson
Non-Executive Chairman
10 (10)
Paul Stobart
Chief Executive Officer
Shaun Parker
Chief Financial Officer
Hamish Ogston
Non-Executive Director
7 (7)
7 (7)
5 (5)
Audit
Committee
Risk &
Compliance
Committee
Remuneration
Committee
Nomination
Committee*
Governance
Committee*
6 (7)
—
—
7 (7)
—
—
7 (7)
—
—
—
5 (5)
—
1 (1)
5 (5)
1 (1)
—
5 (5)
—
4 (4)
—
4 (4)
—
—
3 (4)
—
1 (1)
4 (4)
—
—
—
—
1 (1)
—
2 (2)
—
1 (1)
2 (2)
1 (1)
—
—
3 (3)
—
—
—
—
—
3 (3)
—
—
—
The figures in brackets represent the maximum number of meetings for which the individual was a Board or Committee member.
*The Nomination Committee and Governance Committee were combined with effect from 17 September 2013.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 35
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
ǔ Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Governance framework
The Board of CPPGroup Plc
The Chairman, two Executive Directors, and three
Independent Non-Executive Directors
Key objectives
Responsible for the overall management of the Group and
for setting the Group’s strategy and commercial objectives
Role of the Board page 32
Roles and responsibilities of the Chairman and
Chief Executive Officer page 33
Audit Committee
One Independent
Non-Executive Director
plus Duncan McIntyre
Chairman
Les Owen
Key objectives
To monitor the integrity
of financial reporting
systems and the
effectiveness of internal
financial controls; oversee
the Internal Audit function
and provide an interface
with the external auditors
Risk & Compliance
Committee
Two Independent*
Non-Executive Directors
plus Duncan McIntyre
and Craig Parsons
Chairman
Duncan McIntyre
Key objectives
To assist the Board in
fulfilling its responsibilities
relating to the risk appetite
and risk management of
the Group, the compliance
framework and
governance structure
Nomination &
Governance
Committee
Two Independent
Non-Executive Directors
plus Duncan McIntyre and
Brent Escott
Chairman
Duncan McIntyre
Key objectives
Keep under review the
structure, size and
composition required
of the Board and make
recommendations to the
Board regarding any changes
Remuneration
Committee
Two Independent
Non-Executive Directors
plus Duncan McIntyre
Chairman
Ruth Evans
Key objectives
Determine and agree with
the Board a framework
and Board policy for
Executive remuneration
More detail page 36
More detail page 39
More detail page 40
More detail page 41
Executive Committee
Six members made up of the Executive Directors and
Group function heads
Chairman Brent Escott
Key objectives
Assist the CEO in the performance of his duties,
including the development and implementation of strategy;
monitoring operational and financial performance;
the assessment and control of risk and the prioritisation
and allocation of resources
* Shaun Astley-Stone, although not independent during the period under
review, is considered independent going forward.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013
36
Report of the Audit Committee
Les Owen
Audit Committee Chairman
Key objective
To assist the Board in discharging its duties
and responsibilities for financial reporting
and internal financial control to include:
monitoring the integrity of the financial
reporting systems; examining management’s
processes for ensuring the appropriateness
and effectiveness of internal financial controls;
overseeing the work of the Internal Audit
function; and providing an interface between
management and the external auditor.
Key responsibilities
ц review financial statements and any
financial information contained in certain
other documents;
ц keep under review the effectiveness of
the Group’s internal financial controls and
approval of any relevant disclosures;
ц advise the Board on its obligation to ensure
that the Annual Report & Accounts, taken as
a whole, is fair, balanced and understandable
and provides the information necessary for
shareholders to assess the Company’s
performance, business model and strategy;
ц review the Group’s procedures for
preventing and detecting fraud and bribery
and the arrangements for employees
to raise concerns, in confidence, about
possible wrongdoing in these or other
financial reporting matters;
ц review findings and reports from Internal
Audit, approving management action plans
and monitoring progress against those plans;
ц monitor and review the effectiveness of
the Company’s Internal Audit function in
the context of the Company’s overall
assurance system;
ц approve the external auditor’s
remuneration and terms of engagement,
keep under review the scope and results
of the audit work, its cost effectiveness
and the independence and objectivity of
the auditor, together with the volume and
nature of non-audit services provided by
the auditor;
ц consider and approve accounting policies;
and
ц oversee the relationship with the external
auditor, including recommendations to
the Board in relation to its appointment,
re-appointment and removal.
Committee meetings
Only Committee members have the right
to attend meetings, although others may
attend by invitation of the Committee
Chairman. During the year the external auditor,
Senior Management, Chief Executive Officer,
Chief Financial Officer and Head of Internal
Audit usually attended meetings or parts of
meetings to report to the Committee and
provide clarification and explanations where
appropriate. The Audit Committee Chairman
also meets with the Head of Internal Audit and
the external auditor without Executive
Management present on a regular basis.
Main activities during the year
The Committee fully recognises its role of
protecting the interest of shareholders as
regards the integrity of published financial
information and the effectiveness of the audit.
The main activities of the Committee during
the year were as follows:
Financial statements
The Committee reviewed and discussed
financial disclosures made in the annual
results announcement, the Annual Report
& Accounts and the half-yearly financial
report, together with any related
management letters, letters of
representation and reports from the
external auditor. Key financial reporting
and accounting issues are shown in the
table on page 38.
Financial review
pages 18 to 22
Auditor’s report
pages 59 to 61
Financial statements
pages 62 to 110
* Duncan McIntyre is considered by the Board to
have recent and relevant financial experience, in
accordance with the Code.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013Members• Les Owen (Chairman)• Duncan McIntyre*Meetings• SevenSummary• Continuing review of the Company’s going concern position in light of the Company’s financial circumstances, including redress forecasts• Committee effectiveness review carried out• New Internal Audit manual approved and permanent Head of Internal Audit appointed (January 2014)• Advised the Board on its obligation to ensure that the Annual Report & Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy 37
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
ǔ Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
Remuneration report
Directors’ report
Statement of Directors’ responsibilities
“ The Committee considers that this Report, taken
as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders
to assess the Company’s performance, business model
and strategy.”
Les Owen, Audit Committee Chairman
External auditor
The 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 Audit Committee meetings as appropriate and meets at
least annually with the Committee without Executive Management.
The Chairman of the Committee also meets privately with the
external auditor.
During the year, the 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. Non-audit services provided by the external auditor
are monitored by the Committee.
The Committee also reviewed detailed reports covering the
planning and results of external audit work, which included
challenge to management’s assumptions. In addition, the
Committee considered a review of the external auditor’s client
service provision. The 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 Committee has recommended that Deloitte be
re-appointed at the forthcoming AGM.
Auditor’s independence, objectivity and effectiveness
Fees paid to the external auditor are shown in note 7 to the
consolidated financial statements. The external auditor provides
some non-audit services, primarily in relation to corporate transactions
that may arise from time-to-time. The level of non-audit fees as a
proportion of the total fees paid to Deloitte was relatively high in 2013
due to an unusual level of non-recurring reporting, regulatory and
corporate activity, including work in relation to the sale of the US
business. The Committee is satisfied that all of this is work that would
normally fall to the Company’s auditor.
In order to ensure that auditor objectivity and independence are
safeguarded the following controls have been implemented:
ц a policy on the use of the auditor for non-audit work has been
agreed by the 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. This policy is appended to the Committee
terms of reference which is available on the Group’s website;
ц the Committee receives and reviews each year an analysis of all
non-audit work awarded to the auditor over the financial period; and
ц the 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 Committee.
To date, the effectiveness of the external auditor has been assessed
informally, through discussions with and reports from the Chief
Financial Officer (who attends most Committee meetings) and the
external auditor. More recently the Committee has agreed to
implement a formal process to assess the effectiveness of the external
auditor. This will be carried out annually following the completion of the
audit and will involve a detailed questionnaire to be completed by
members of the Committee and senior members of the finance team
who regularly interact with the external auditor. The results of the
questionnaire will be reported to and discussed by the Committee.
Internal audit
The Committee approves the annual internal audit plan and
methodology, monitors progress against the plan and receives
reports after each audit. 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 Committee at regular intervals.
The Internal Audit team comprises the Head of Internal Audit, who
is a Chartered Accountant with almost four years’ service with the
Company, and a further two experienced auditors. The Committee
has assessed the resources the department has to complete its remit
and has approved the use of external consultants to supplement
it if necessary, particularly in areas requiring specialist skills.
The appointment and removal of the Head of Internal Audit is the
responsibility of the Committee. The Internal Audit Department
continues to have unrestricted access to all Group documentation,
premises, functions and employees, as required. The Head
of Internal Audit has direct access to the Board and the Audit
Committee Chairman and is accountable to the Audit Committee,
meeting with the Committee from time to time, without Executive
Management present. The Committee approved the appointment of
a new full time permanent Head of Internal Audit in January 2014.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 38
Report of the Audit Committee continued
Main activities during the year continued
Other activities
Going concern
Throughout the year, the Committee received reports from
management and paid close attention to the continuing going
concern position of the Company in the light of various financial risks
including the Group cash position, developing information on likely
redress rates, and other risks that continue to face the Company.
As at the date of this report the Committee considers it appropriate
that the accounts are prepared on a going concern basis.
Committee effectiveness
During the year the Committee carried out a self-assessment
exercise to help it assess its own effectiveness. This comprised a
questionnaire completed anonymously by various participants and
analysed by the Head of Internal Audit prior to consideration by the
Committee. Certain changes were implemented as a result of this
exercise, including:
ц extending the time allowed for Committee meetings;
ц implementation of a formal process to assess the effectiveness
of the external auditor;
ц implementing an external independent review of internal audit
effectiveness to be carried out at least once every three years
and internally on an annual basis; and
Other activities of the Committee during the year included:
ц renewal of the Group’s lending arrangements;
ц monitoring the effectiveness of the Group’s whistle-blowing
procedures and any notifications made;
ц reviewing a gap analysis against “Effective Internal Audit in the
Financial Services Sector”;
ц implementation of a self-assessment procedure for Finance
functions in overseas territories;
ц approval of a new internal audit manual;
ц recruitment of a permanent Head of Internal Audit in January 2014;
ц reviewing and updating of the Committee’s own terms of reference.
Regular updates are provided to the Committee on developments in
financial reporting and related legal and corporate governance matters.
The Committee has access to the services of the Internal Audit
and Company Secretarial departments and is authorised to obtain
independent professional advice if it considers it necessary.
Priorities for 2014
ц development of an enhanced induction process for new
The Committee has identified the following key areas of focus for 2014:
Committee members.
Advice to the Board
Following the publication of the revised Code, the Board sought the
advice of the Committee as to whether the Annual Report & Accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company’s
performance, business model and strategy. The Committee adopted
a formal process to enable it to satisfy itself that this was the case,
before advising the Board.
ц carry out a formal annual review of the effectiveness of the
internal audit activities;
ц a post-audit effectiveness review to take place annually;
ц continue to monitor the going concern status of the Group;
ц monitor the appropriateness of regulatory provisions;
ц review internal audit plan and resources required for implementation;
and
ц develop the formal induction programme for new Committee
members.
Key financial reporting and accounting issues
The primary areas of judgement considered by the Committee in relation to the 2013 accounts, and how these were addressed
by management are shown below:
Area of judgement
Management action
Regulatory provisions
Going concern
The Committee considered and challenged the key judgements used in determining the overall level of the
redress provisions including response rates, the size of the population of relevant customer policies, the average
level of redress payable per customer and the eventual outturn of adviser costs. The Committee received
detailed explanations from Executive Management in relation to the key assumptions and the supporting
evidence behind them. Where appropriate, external and internal reports were obtained, for example in relation
to the response rates and the completeness of the populations, in order to provide additional assurance.
Throughout the year the Committee has received regular reports from management on the going concern
status of the Company taking account of the financial challenges that the Company has faced, in particular the
trading, regulatory and governance risks. Each report was supported by a detailed forecasting exercise and
included explanations of key judgements within those forecasts and the evidence on which those judgements
were based. The Committee reviewed and challenged each report and the underlying forecast assumptions
including expected growth rates and key factors such as renewal rates by reference to historical information
and the estimated impact of the on-going redress Scheme. Whilst mindful of the risks still facing the Company
in this regard, the Committee believes that the Company remains a going concern and that it is appropriate
that these accounts are prepared on a going concern basis.
Impairment of tangible and
intangible non-current
assets
Revenue recognition
The Committee received papers presenting management’s intended approach which included the technical
rationale for booking impairment charges and the linkage between the calculated impairment charges and
forecast business performance as set out in the Group’s detailed business forecasts. The Committee also
received reports from the external auditors in this regard.
The Committee reviews the Company’s policy on revenue recognition on an annual basis and, having considered
reports provided by the auditors, concluded that revenue recognition continues to be dealt with appropriately.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 Report of the Risk & Compliance
Committee
39
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
ǔ Report of the Audit Committee
ǔ Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Duncan McIntyre
Risk & Compliance
Committee Chairman
Key objective
Membership and meetings
To assist the Board in fulfilling its oversight
responsibilities with regard to the risk appetite
of the Group and the risk management and
compliance framework and the governance
structure that supports it.
Key responsibilities
ц review reports and recommendations
regarding the Group’s overall risk strategy,
appetite, policies, capacity and tolerances
and make recommendations to the Board;
ц review the appropriateness and
effectiveness of the Group’s management
systems and controls and approve any
related disclosures;
Only members of the Committee have the
right to attend Committee meetings, although
other individuals such as Executive Directors,
Group General Counsel and the Head of
Compliance may be invited to attend all
or part of any meeting as appropriate. The
Head of Risk Management is in attendance
at all meetings.
Main activities of the Committee during
the year
Specific matters dealt with during the year
include:
ц implementation of a Business Incident
Management system;
ц review appropriateness of the governance
ц minimum standards implemented
functions’ policies and procedures;
throughout the Group;
ц review reports from each governance
ц review of the Group’s internal control and
function, including those on adherence to
the Group’s policies and standards and the
maintenance of a risk and compliance
culture;
ц recommend to the Board the appointment
or removal of the Head of Risk Management
or the Head of Compliance;
ц keep under review the Group’s Information
Security Policy, and appropriate
accreditations; and
ц keep under review the adequacy and
effectiveness of the Group’s governance
functions and the timeliness and
effectiveness of management actions.
risk management systems;
ц review and update of the Group’s risk
strategy and risk appetite statements to
reflect the current operating environment
of the Group;
ц oversight of restructuring of Quality
Assurance and Compliance functions;
ц oversight of a project to review UK
governance and compliance arrangements;
ц review of the Group’s key risks and
management actions; and
ц review of the Committee’s own terms
of reference.
Risk framework
pages 23 and 24
Principal risks
pages 25 and 26
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013Members• Duncan McIntyre (Chairman)• Shaun Astley-Stone• Les Owen• Craig ParsonsMeetings• FiveSummary• Risk strategy and risk appetite statements reviewed and updated to reflect the current operating environment of the Group• Key risks and management actions monitored• Internal control and risk management systems reviewed and updated, as appropriate• Business Incident Management system implemented• Minimum standards implemented across the Group 40
Report of the Nomination & Governance Committee
Duncan McIntyre
Nomination & Governance
Committee Chairman
Key objective
To assist the Board in ensuring that the Board
and its Committees comprise individuals with
the requisite skills, knowledge and experience
to ensure they are effective in discharging
their responsibilities.
Key responsibilities
ц carry out a formal selection process for
Executive and Non-Executive Directors and
propose to the Board any new appointments;
ц oversee succession planning for Directors
and Senior Managers below Board level;
ц regularly review the structure, size and
composition of the Board (including the
skills, knowledge, experience and
diversity required);
ц make recommendations to the Board in
respect of the membership of the Audit,
Risk & Compliance and Remuneration
Committees in consultation with the
Chairmen of those Committees; and
ц make recommendations to the Board on
the re-appointment of any Non-Executive
Director at the conclusion of their
specified term of office.
Membership and meetings
In addition to Committee members, other
individuals and external advisers attend
meetings at the request of the Committee
Chairman. During the year, the Chief Financial
Officer, the Group General Counsel and the
Group HR Director have attended meetings to
report to the Committee and provide clarification
and explanations where appropriate.
Main activities of the Committee during
the year
The following principal items were considered
during the year:
ц appointment of new CEO and CFO;
ц appointment of Shaun Astley-Stone;
ц appointment of Ruth Evans; and
ц review of governance framework.
An external search consultancy, Sciteb,
was appointed for the recruitment of Ruth
Evans. Brent Escott was recruited through
EIM. Neither EIM nor Sciteb has any
connection with the Company.
During the early part of 2014, following
the announcement of Charles Gregson’s
intention to stand down, the Committee
has been involved in the recruitment of
a new Chairman. Because of the particular
circumstances of the Company at this time,
the Committee did not feel it appropriate
to appoint an external search consultancy
to carry out this process, but considered
two candidates identified by personal
recommendation, together with Duncan
McIntyre, an existing Non-Executive Director.
The selection process was carried out by
a sub-committee of the Nomination &
Governance Committee, led by Ruth Evans.
The outgoing Chairman was not involved in
the process to appoint his replacement.
Diversity
The Board considers itself diverse in terms
of the background and experience each
individual member brings to the Board,
although recognises the benefits that greater
diversity at the most senior levels of the
Company may bring. With this in mind, the
terms of reference of the Committee require
that in each appointment to the Board, the
Committee must “consider candidates on
merit and against objective criteria, and with
due regard for the benefits of diversity on the
Board, including gender” in identifying and
recommending candidates.
Board of Directors
pages 30 and 31
Corporate Governance report
pages 32 to 35
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013Members• Duncan McIntyre (Chairman)• Brent Escott• Les Owen• Ruth EvansMeetings• FiveSummary• Nomination & Governance Committees merged• New CEO and CFO appointed• Two new Non-Executive Directors appointed• New Chairman appointed in January 2014 Remuneration report
41
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
ǔ Report of the Nomination & Governance Committee
ǔ Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Ruth Evans
Remuneration Committee Chairman
Annual Statement from the Remuneration Committee Chairman
On behalf of the Board, I am pleased to
present the Directors’ Remuneration report
for the year ended 31 December 2013.
We have made no major changes to
our remuneration policy during the year,
although you will see changes in the format
of this year’s Remuneration report, reflecting
the new reporting requirements.
During the year a new management team
has been brought in to take the Company
through the turnaround of the business. The
Committee recognises that the team needs
to be appropriately incentivised to do this,
although this is difficult to achieve given the
current financial position of the Company
and the relatively small number of shares
available to offer as long term incentives.
The Company is also constrained by its
inability to recruit high quality permanent
staff during these uncertain times and is
consequently heavily reliant on expensive
interim contractors.
Board of Directors
pages 30 and 31
Directors’ remuneration policy report
pages 43 to 47
Review of 2013
Annual report on remuneration
pages 47 to 53
During 2013, we made good progress in
improving the governance of the business,
implementing the Scheme and undertaking an
assessment of the CPP business proposition.
In view of the general uncertainty surrounding
the business and its performance, the
Committee did not set bonus plan targets
in 2013 and no bonus payments were made
in respect of that year.
In December 2013, following a delay
necessitated by the restructuring of the
management team, awards were made
under the LTIP with stretching share price
targets in line with the recovery agenda and
the strategic priority of focusing on returns
to shareholders. The awards were made
at lower levels than allowed for under the
remuneration policy (as a percentage of
salary) given the depressed share price
and limited available headroom at the date
of grant.
LTIPs were granted in 2011, to which
performance conditions were attached
based on earnings per share (EPS) for the
period ending 31 December 2013 and Total
Shareholder Return (TSR) over the period
ending on the normal vesting date of 4
March 2014. As none of the performance
conditions were met these awards did not
vest and have therefore fully lapsed.
Remuneration policy for 2014
We do not anticipate that a further LTIP award
will be made during 2014.
The Committee fully recognises the need to
incentivise the new management team in
order to focus them on KPIs aligned with the
recovery agenda. This is reflected in the
proposed remuneration policy that follows,
which (subject to shareholder approval) will
apply for the next three years. However,
given the current financial constraints of
the Group, it is highly unlikely that any
bonus will be paid in 2014. The Committee
reserves the right to review this in the
event of a significant change in the financial
circumstances of the Company, but any
payout is likely to be at a much reduced level.
Executive salaries were not increased for
2014 and levels of fixed pay thus remain at
2013 levels. They will next be eligible for
review in January 2015.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013Members• Ruth Evans (Chairman from 1 January 2014)• Duncan McIntyre (Chairman to 31 December 2013)• Les OwenMeetings• FourSummary• New Senior Management team appointed • Challenging environment in which to devise appropriate management incentives • An uncertain environment has made it difficult to recruit high quality permanent Senior Managers 42
Remuneration report continued
Our strategic priorities for 2014
Interaction with shareholders
The Remuneration Committee actively seeks the views of
shareholders and understands that such consultation forms a key
part of the process of remuneration policy development. During
the year, the Committee engaged in a dialogue with our largest
shareholders. We also consulted with our largest shareholders
with regard to the long term incentivisation of the management
team, following which it was decided that awards would be made
at lower levels than allowed for under the remuneration policy so
as to remain within our existing dilution limits.
Remuneration disclosure
The report that follows is in two sections:
The Directors’ remuneration policy report (pages 43 to 47), which
contains details of the remuneration policy that we propose will
apply from the 2014 AGM (16 June 2014) subject to shareholder
approval. This section is subject to a binding shareholder vote.
The Directors’ annual remuneration report (pages 47 to 53), which
sets out details of how our remuneration policy was implemented
for the year ended 31 December 2013 and how we intend the policy
to apply for the year ending 31 December 2014. This section is
subject to an advisory shareholder vote.
Ruth Evans
Chair of the Remuneration Committee
23 April 2014
Our general approach to remuneration is driven by our ability to
attract, motivate and retain the right calibre of people as this is
critical to our long term performance not only for shareholders but
also for our customers. Our remuneration strategy seeks to deliver
and appropriately incentivise a strong Leadership Team, capable of
leading multiple operations across a number of geographies and of
delivering strategic, operational and financial objectives and adheres
to our internal control, risk and compliance processes.
The aim of our remuneration policy is to ensure that remuneration,
in particular variable pay and incentives, focuses on delivery of
stretching financial targets and personal objectives which are
aligned with the business strategy and the long term goals of the
business, promoting close alignment between management and
shareholders, always within the bounds of affordability. Our overall
policy represents our approach in a steady state business
environment. However, we recognise this will not be the case for
2014 and have presented what we believe is a balanced and
realistic view for 2014.
Activities of the Remuneration Committee
The Committee is responsible for recommending to the Board the
remuneration of the Chairman, Chief Executive Officer, Executive
Directors, Company Secretary and Executive Management.
The remuneration of Non-Executive Directors is a matter for
the Chairman and the Executive Members of the Board. The
Committee also recommends and monitors the level and structure
of remuneration for Senior Management.
The main activities of the Committee during the year under review were:
ц agree terms for senior exits and appointments;
ц incentivisation of Executive Directors and Senior Management team;
ц retention and reward in the UK;
ц review of performance conditions on 2010 LTIPs; and
ц strategy for year end salary reviews.
I assumed the role of Chair of the Committee with effect from
1 January 2014, taking over from Duncan McIntyre who stood
down at the end of 2013.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 43
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
ǔ Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Directors’ remuneration policy
This part of the Directors’ Remuneration report sets out the remuneration policy for the Company and has been prepared in accordance with The
Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The policy has been developed taking into
account the principles of the UK Corporate Governance Code 2012 and the views of our largest shareholders. The policy report will be put to a binding
shareholder vote at the 2014 AGM, and will take formal effect from the date of approval and is intended to apply for three years from that date.
The Remuneration policy is designed for three years and represents a steady state business environment. The Committee recognises this will not
be the case for 2014 and has included the differences within the table to provide a balanced and realistic view for 2014 Director remuneration.
The Committee will update this position in future Annual Reports and will review the remuneration policy annually to ensure it remains aligned
with the needs of the business and is appropriately positioned relative to the market. However, there is no intention to revise the policy more
frequently than every three years.
Future policy table
Element and how it supports
our strategic objectives
Base salary
To recruit and retain high
calibre and experienced
Executive Directors.
Performance metrics used and
time period applicable
The Committee considers the
salaries of the Executive
Directors each year taking
account of all the factors
described in how the policy
operates.
Operation of the element
Maximum potential value
Base salary paid in 12 equal monthly
instalments during the year.
No prescribed maximum
annual increase.
Salaries are reviewed annually and
changes are effective from 1 January.
Any increase will take account of:
ц role, experience and personal
performance;
ц external indicators such as inflation
and market conditions;
ц average change in workforce salary;
ц Company performance;
ц periodic account of practice in
companies of a comparable size,
scale and complexity.
Salary reviews take account
of Company and individual
performance.
The Committee is guided by the
general increase for the broader
employee population but on
occasions may need to
recognise, for example,
development in role, change in
responsibility, and/or a significant
change in the scale of the role or
value/complexity of the business.
The Committee has the flexibility
to set the salary of a newly
appointed Executive Director
at a discount to the market level
initially, with a series of planned
increases implemented over the
following few years to bring the
salary to the desired positioning,
subject to individual performance.
Benefits
To provide benefits that are
in line with market practice.
CPP pays an amount towards the
cost of providing benefits on a monthly
basis or as required for one-off events
delivered through a flexible benefits
programme.
A fixed sum of up to £20,000
is allowed to spend on a range
of benefits available within
the Company’s flexible
benefits scheme.
None.
The Committee has discretion to
pay a travel allowance according to
individual circumstances and based
on reasonable travel expenses.
Executive Directors are also eligible to
participate in any all-employee share
plans operated by the Company, in line
with HMRC guidelines currently
prevailing (where relevant), on the
same basis as for other eligible
employees.
Other benefits including relocation
expenses and expenses relating to
financial planning may be offered,
as appropriate.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 44
Remuneration report continued
Directors’ remuneration policy continued
Future policy table continued
Element and how it supports
our strategic objectives
Annual bonus plan
To ensure a market
competitive package
and to link reward to the
achievement of short to
medium term Company
business objectives.
Operation of the element
Maximum potential value
Performance metrics used and
time period applicable
Bonus payments are at the discretion of
the Committee.
Maximum bonus potential 100%
of salary.
In 2014, the Committee is
highly unlikely to pay bonuses,
unless circumstances change
significantly and then at a much
reduced rate.
Annual bonuses are paid after the
preliminary results for the financial year
have been announced.
Bonus awards up to 50% of the maximum
award are paid in cash. Any bonus award
in excess of this is paid half in cash, with
the balance converted into CPP shares
and deferred for three years under the
Deferred Share Bonus Plan (DSBP).
Clawback provisions are in place whereby
all or part of the bonus can be recovered if,
for example, in determining the value of a
bonus for any performance period, the
Committee relied on assumptions or facts
which it subsequently discovers to have
been incorrect or misrepresented.
All bonus payments are
dependent upon achievement of
threshold financial performance
by the Company.
Financial performance: at least
70% of maximum.
Personal objectives: up to 30%
of maximum.
Group performance is measured
by reported operating profit
calculated under IFRS, excluding
exceptional items, and subject to
a quality of earnings adjustment
as determined by the Group
Remuneration Committee.
Performance is measured over
the financial year.
Long term incentive plan (LTIP)
To increase alignment with
shareholders by providing
Executive Directors with
longer term interests in the
Company’s shares.
Annual grants of conditional share
awards or nil-cost options.
Vesting based on the achievement
of stretching share price targets and
service conditions.
Clawback provisions are in place
whereby all or part of the LTIP award
can be recovered if, for example,
there is a restatement of the financial
accounts or the individual is
dismissed for “cause”.
Maximum permitted grant
in the plan rules is 200% of
salary per annum. However,
the Committee’s normal policy
is to grant LTIP awards not
exceeding a face value of 125%
of salary to the Chief Executive
Officer and 100% of salary to
the Chief Financial Officer.
Service and performance
conditions must be met over
a three-year period.
Initial performance conditions are:
ц 25% of the award will vest if
the average share price reaches
a specified threshold.
In 2014, due to current headroom
limits, the Company is unlikely to
issue an LTIP.
ц 100% of the award will vest if
the average share price meets
or exceeds a specified target.
Awards will vest on a straight
line basis between threshold
and maximum.
The Committee reserves the
right to amend the above
measures to align with the
Company’s developing strategy.
Pension
To attract and retain high
performing Executive
Directors.
Notes to the policy table
Defined contribution plan with a
Company contribution.
Up to 15% of salary as
Company contribution paid
with monthly salary.
None.
Awards granted prior to the effective date
All historical awards that were granted but remain outstanding (detailed on pages 50 and 51 of the Annual Report on Remuneration),
remain eligible to vest based on their original award terms.
Discretion retained
The Committee will operate the annual bonus plan and LTIP according to the rules of each respective plan and consistent with normal market
practice and the Listing Rules, including flexibility in a number of regards. Circumstances where the Committee will retain flexibility include:
ц when to make awards and payments;
ц how to determine the size of an award, a payment, or when and how much of an award should vest;
ц who receives an award or payment;
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 45
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
ǔ Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Notes to the policy table continued
Discretion retained continued
ц how to deal with a change of control or restructuring of the Group;
ц whether an Executive Director or a Senior Manager is a good/bad
leaver for incentive plan purposes and whether and what proportion
of awards vest at the time of leaving or at the original vesting date(s);
ц how and whether an award may be adjusted in certain circumstances
(e.g. for a rights issue, a corporate restructuring or for special
dividends); and
ц what the weighting, measures and targets should be for the annual
bonus plan and LTIP from year-to-year.
The Committee also retains the ability within the policy to adjust targets
and/or set different measures, to alter weightings for the annual bonus
plan and to adjust targets for the LTIP, if events happen that cause
it to determine that the conditions are unable to fulfil their original
intended purpose.
Any use of the above discretions would, where relevant, be explained in
the Annual Report on Remuneration and may, as appropriate, be the
subject of consultation with the Company’s shareholders.
The use of discretion in relation to the Company’s ShareSAVE and
Share Incentive Plan will be as permitted under HMRC rules and the
Listing Rules.
Performance measures and targets
The Committee selects performance conditions that are consistent with
the Company’s overall strategy and are linked to the Key Performance
Indicators used by the Executive Directors to drive the operation of
the business. The performance targets are determined annually by
the Committee in consultation with the Risk & Compliance Committee
and are typically set so as to reward achievement measured against
stretching but achievable targets. Targets are set based on a sliding scale
that takes account of relevant commercial factors. Only modest rewards
are available for delivering threshold performance levels with maximum
rewards requiring substantial out-performance.
Longer term measures will be aligned to the key strategic objective
of growing returns to shareholders and turning round performance in
the value of the business linked to share price growth targets, such as
Group operating profit, earnings per share (EPS) and Total Shareholder
Return (TSR), together with pre-determined personal objectives. The
Committee is of the opinion that the detailed performance targets
for the annual bonus are commercially sensitive and that it may be
detrimental to the interests of the Company to disclose them before
the end of the financial year. The targets will be disclosed after the
end of the relevant financial year in that year’s Remuneration report.
Share ownership guidelines
There are guidelines in place relating to the ownership of shares by
Directors.
Differences in remuneration policy for all employees
All CPP employees are entitled to base salary, benefits and pension
and are eligible to participate in a bonus scheme relating to role. The
maximum opportunity available is based on the seniority and responsibility
of the role.
Conditional share awards are only available to Senior Executives and
Directors. There is a Restricted Stock Plan (RSP) which is a non-
performance based share plan aimed at incentivising 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.
The remuneration policy for the Executive Directors and for other Senior
Executives is more heavily weighted towards variable pay than that for
other employees. This aims to create a clear link between the value
created for shareholders and the progress of remuneration for the
Executive Directors.
Approach to recruitment remuneration
CPP operates in a specialised sector and many of its competitors for
talent are also actual or potential Business Partners or customers. The
Committee’s approach to recruitment remuneration is to pay no more
than is necessary to attract appropriate candidates to the role. However,
the Committee retains the discretion to make appropriate remuneration
decisions outside the standard policy to meet the individual circumstances.
The annual bonus would operate in accordance with the terms of the
approved policy, albeit with the opportunity pro-rated for the period
of employment. Depending on the timing and responsibilities of the
appointment it may be necessary to set different performance measures
and targets initially.
In determining appropriate remuneration arrangements on hiring a new
Executive Director, the Committee will take into account relevant factors
which may include the calibre of the individual; local market practice;
the existing remuneration arrangements for other Executives; and the
business circumstances. We seek to ensure that arrangements are
in the best interests of the Group and its shareholders and not to pay
more than appropriate.
Where it is necessary to ‘buy out’ an individual’s awards from a previous
employer, the Committee will seek to match the expected value
of awards by granting, wherever possible, awards that vest over a
timeframe similar to those given up, with a commensurate reduction
where the new awards will be subject to performance conditions that
are not as stretching as those attaching to the awards given up.
The maximum level of variable pay which may be awarded to new
Executive Directors, excluding buy out arrangements and awards in
the first year of employment detailed above, would normally be in line
with the maximum level of variable pay that may be awarded under the
annual bonus plan and performance share plan (i.e. 100% of salary), but
in any event the Committee would not make an award of annual variable
pay above 300% of base salary (being the maximum bonus of 100%
and the maximum 200% allowed by the LTIP rules).
For an internal Executive appointment, any variable pay element
awarded in respect of the prior role would be allowed to pay out
according to its terms, adjusted as relevant to take into account the
appointment. In addition, any other on-going obligations existing prior
to appointment would continue.
In the event that a Director is recruited from overseas, flexibility is
retained to provide benefits that take account of those typically provided
in their country of residence.
For external and internal appointments, the Committee may agree that
the Company will meet certain relocation expenses as appropriate.
Payments for loss of office
There are no predetermined special provisions for Executive
Directors with regard to compensation in the event of loss of office;
compensation is limited to base salary only over the notice period.
If notice is served by either party, the Executive Director can continue
to receive basic salary, benefits and pension for the duration of their
notice period during which time the Company may require the
individual to continue to fulfil their current duties or may assign
a period of garden leave.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 46
Remuneration report continued
Notes to the policy table continued
Payments for loss of office continued
In the event that a service agreement is terminated, and payment in
lieu of notice made, payments of base salary only to the Executive
Director may be staged over the notice period at the same interval
as salary would have been paid. In the event that the Executive
Director obtains alternative employment, payments by the Company
will be reduced to reflect payments received in respect of the
alternative employment.
The treatment of leavers under our LTIP and DSBP is determined
by the rules of those plans. The Committee will determine when
and whether awards should vest. The default treatment is that any
outstanding awards lapse on cessation of employment. However,
under the rules of the LTIP, in certain prescribed circumstances,
such as death, redundancy, disability, retirement, or other
circumstances at the discretion of the Committee (taking into
account the individual’s performance and the reasons for their
departure), “good leaver” status can be applied. In these
circumstances a participant’s awards vest on a time pro-rata basis
subject to the satisfaction of the relevant performance criteria with
the balance of the awards lapsing. The Committee retains discretion
to decide not to pro-rate if it is inappropriate to do so in certain
circumstances.
There are no automatic entitlements to annual bonus. Good leavers
may receive a pro-rated award at the discretion of the Committee
in the light of circumstances and performance.
Service contracts
Service contracts for new Executive Directors would normally be
six months but, in any event, would not exceed 12 months.
Policy on outside appointments
Executive Directors may accept one Board appointment in another
listed Company. The Group Chairman’s approval must be obtained
before accepting any appointment. Fees may be retained by the Director.
Non-Executive Director letters of appointment
The appointment of Non-Executive Directors is for a fixed term
of three years, during which period the appointment may be
terminated by either party on one month’s notice. The term may
be extended at the discretion of the Board.
Total remuneration opportunity
In view of the current low level of headroom and the depressed
share price the Committee do not anticipate an LTIP award in 2014.
This is reflected in the table below which shows the total remuneration
of each of the Executive Directors that could result from the proposed
remuneration policy in 2014. The Committee reserves the right to
revert to the maximum amounts contained in the remuneration policy
in 2015 and beyond. The table below shows a reduced bonus amount
that could be payable under the remuneration policy. However, the
current financial circumstances of the Company mean that the
Executive Directors are unlikely to receive any remuneration
substantially over and above the fixed pay element in 2014.
CEO
CFO
£(000s)
800
600
400
£393,750
£442,500
11.0%
£491,250
19.8%
100.0%
89.0%
80.2%
200
0
£210,500
£237,500
11.4%
£264,500
20.4%
100.0%
54.0%
79.6%
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Fixed pay
Annual bonus
Notes
1
2
The graph represents our realistic expectations and approach
for 2014.
Fixed pay is base salary for 2014 plus the value of pension and
benefits, excluding Brent Escott’s travel allowance, which is
subject to six-monthly review.
3 The LTIP award is zero for 2014.
4
The 2014 bonus is unlikely to be paid but the Committee reserves
the right to make a reduced bonus should circumstances change.
The maximum bonus potential is illustrated at 30% and mid-level
at 15%. In 2014, payments at the lower end of the scale will not
necessarily be reflective of performance due to the financial
circumstances of the business.
Non-Executive Directors’ fees policy
Element and how it supports
our strategic objectives
Operation of the element
To attract Non-Executive
Directors with a broad range of
experience and skills to oversee
the implementation of the
Company’s strategy.
The Chairman and Non-Executive Directors’ remuneration takes the form solely of fees.
Non-Executive Directors’ fees are set by the Board as a whole. The Chairman’s fees are set by the Committee.
Annual fees are paid in 12 equal monthly instalments during the year.
Fees are reviewed every year against those for Non-Executive Directors in companies of similar size and
complexity. Fees have remained at the same level since 2010 and will be reviewed in 2014.
Non-Executive Directors are not eligible for benefits and do not participate in incentive or pension plans.
Additional fees, over and above the base fee for the Non-Executive Directors, are payable to Committee Chairmen.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013
47
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
ǔ Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Consideration of employment conditions elsewhere
in the Company
Annual report on remuneration
The Company does not formally consult with employees on
Executive remuneration. However, the Committee has regard
to the pay structure across the wider workforce when setting
the remuneration policy for Executive Directors. The Committee
considers annually the proposals for salary reviews for the
employee population generally and takes due account of any
other changes to remuneration policy within the Company. The
Committee is guided by any salary increase made to the workforce
generally and normally limits any salary increase for Executive
Directors to the increase available to employees generally.
The Committee considers the performance targets for Executive
Directors’ bonuses and, with the CEO, considers the extent to which
these should be cascaded to other employees. The Committee
approves the overall annual bonus cost to the Company each year
and approves the grant of all LTIP and RSP awards across the Company.
The Committee takes due account of the remuneration structure for
members of the Group Executive Committee (GEC) and the Group
Leadership Team.
Consideration of shareholder views
When any significant changes are proposed to this policy, the
Committee Chairman will inform the largest shareholders of these
in advance. Details of votes cast for and against the resolution to
approve last year’s remuneration report are provided in the Annual
report on remuneration on page 53.
This part of the report has been prepared in accordance with The
Large and Medium-sized Companies and Groups (Accounts and
Reports) (Amendment) Regulations 2013 and 9.8.6R of the Listing
Rules. The Annual Remuneration report will be put to an advisory
shareholder vote at the 2014 AGM.
Statement of implementation of remuneration policy for 2014
Base salary
Neither of the Executive Directors received an increase in base
salary in 2013 whilst in role and salaries have not been increased
for the 2014 financial year. The next salary review date will be
1 January 2015.
Brent Escott
Craig Parsons
Base salary £’000
1 January 2013
1 January 2014
n/a
n/a
325
180
Percentage
increase
n/a
n/a
Pension and benefits
Executive Directors receive an employer defined contribution of
10% or 15% of salary.
Benefits provision for 2014 will be unchanged.
Annual bonus
The annual bonus plan provides for a bonus of up to 100% of salary
to be earned for achievement of Group financial performance and
specified personal objectives. Because of the financial constraints
of the Company, it is unlikely that any bonus will be paid in 2014,
although the Committee retains its discretion to pay a bonus in the
event that the Company’s circumstances change significantly.
Assuming the financial position of the Group so allows, 70% of the
total bonus in each case can be earned for achievement of financial
targets and 30% of the total for achievement of the personal objectives.
For a bonus to be earned on Group financial performance, a threshold
performance must be attained.
The Committee retains discretion over the payment of any bonus
taking into account the Company’s overall financial performance
in the year.
Clawback provisions will continue to allow all or part of an LTIP
award to be recovered if, for example, there is a restatement of
the financial accounts or the individual is dismissed for “cause”.
Where a 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.
Performance measures will be aligned to the key strategic objective
of growing returns to shareholders and turning round performance
in the value of the business linked to share price growth targets,
such as Group operating profit, earnings per share (EPS) and Total
Shareholder Return (TSR), together with pre-determined personal
objectives. The Committee is of the opinion that the detailed
performance targets for the annual bonus are commercially
sensitive and that it may be detrimental to the interests of the
Company to disclose them before the end of the financial year.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 48
Remuneration report continued
Annual report on remuneration continued
Statement of implementation of remuneration policy for 2014 continued
Non-Executive Directors’ annual fees
Non-Executive Director fees have been unchanged since 2010. They will be reviewed during 2014.
Rate
Chair
Board fees
Chair of Board Committee or Subsidiary Company
Fees £’000
1 January 2013
1 January 2014
Percentage
increase
125
40
10
125
40
10
—
—
—
Notes:
Ruth Evans is also a Director of Card Protection Plan Limited, for which she receives a fee of £5,000 per annum.
With effect from 29 January 2014, Duncan McIntyre received an additional £15,000 per annum, in recognition of the additional time
commitment anticipated in the first few months of his appointment. This element of his fee is subject to review in April 2014.
Single total figure of remuneration (audited information)
The following table shows a total single figure of remuneration in respect of qualifying services for the 2013 financial year for each
Executive Director, together with comparative figures for 2012.
Base salary/fees
£’000
Taxable
benefits £’000
Bonus £’000
LTIP £’000
Pension £’000
Total £’000
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Executive Directors
Brent Escott1
Craig Parsons2
Paul Stobart3
Shaun Parker4
Non-Executive Directors
Duncan McIntyre
Les Owen
Shaun Astley-Stone5
Ruth Evans6
Charles Gregson
Hamish Ogston7
108
60
530
320
50
50
16
11
125
20
—
—
450
268
50
50
—
—
—
—
24
4
43
15
—
—
—
—
—
—
—
—
58
15
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
16
6
57
40
—
—
—
—
—
—
—
—
68
40
—
—
—
—
—
—
148
70
630
376
50
50
16
11
125
20
—
—
576
323
50
50
—
—
125
40
1 Brent Escott was appointed as CEO on 1 September 2013. Included in the above figures is a travel allowance equal to £2,500 per month after deduction of tax and
National Insurance. This element of his remuneration is subject to six-monthly reviews.
2 Craig Parsons was appointed as CFO on 1 September 2013.
3 Paul Stobart received a travel allowance equal to £1,500 per month after the deduction of tax and National Insurance, which is included in the above figures. He resigned
as a Director on 31 August 2013. His employment contract terminated on 6 November 2013. The 2013 base salary figure includes £148,000 pay in lieu of notice.
4 Shaun Parker resigned as a Director on 31 August 2013. His employment contract terminated on 31 December 2013. The 2013 base salary figure includes £52,000 pay
in lieu of notice.
5 Shaun Astley-Stone was appointed on 2 September 2013. Until 31 December 2013, he provided additional consultancy services over and above his Non-Executive
Director duties. Details of fees paid for these services are given in note 34 to the financial statements on page 101.
6 Ruth Evans was appointed on 4 October 2013.
7 Hamish Ogston resigned as a Director on 28 June 2013.
Additional information in respect of the single total figure table (audited information)
Annual bonus
In view of the uncertainties surrounding the business in 2013, the Committee determined that it was not possible to set meaningful
targets for a bonus plan. Accordingly, no bonus plan was issued to the Executive Directors in 2013.
Performance conditions for LTIP vesting
The entry in the LTIP column in the 2013 single total figure of remuneration table refers to the conditional award granted in 2011. Vesting
was dependent on performance over the three financial years ended 31 December 2013 (performance period) and continued service until
the vesting date on 4 March 2014. Performance during the relevant period did not meet the threshold level required for any shares to vest
and hence a zero value is shown in the table.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 49
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
ǔ Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Annual report on remuneration continued
Pension
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:
The pension contributions reflect the Company’s contribution of
15% or 10% of base salary as a defined contribution.
TSR ranking against the
comparator group
Vesting percentage of 75%
of the total award
Payments for loss of office
Paul Stobart ceased to be CEO on 31 August 2013. He received
his contractual pay and benefits, excluding travel allowance, for
four months of the 12 month notice period and has received the
remaining eight months as pay in lieu of notice in accordance with
the terms of his contract. No bonus payment was made in respect
of 2013. The Committee treated him as a “good leaver” for the
purpose of LTIP awards but has exercised no other discretions
in respect of his LTIP awards.
Shaun Parker ceased to be CFO on 31 August 2013. He received his
contractual pay and benefits for four months of the six month notice
period and has received the remaining two months as pay in lieu
of notice in accordance with the terms of his contract. No bonus
payment was made in respect of 2013. The Committee treated him
as a “good leaver” for the purpose of LTIP awards but has
exercised no other discretions in respect of his LTIP awards.
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 prior to 2012 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:
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:
Vesting percentage of 75%
of the total award
EPS growth over the
performance period
Less than 12% p.a.
Equal to 12% p.a.
Equal to or greater than 17% p.a.
Below median
Median
Upper quintile
0%
25%
100%
Between median and upper
quintile
On a straightline 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.
LTIP awards made in 2012 were subject to different performance
conditions to the above. At its meeting on 16 May 2012, the
Committee agreed that the following two interdependent
performance conditions would apply to the award:
ц The award would be subject to a performance condition under the
terms of which the Company’s TSR performance would be ranked
against the TSR of a comparator group comprising the companies
constituting the FTSE SmallCap (excluding investment trusts)
on the date of grant of the award; and
ц The TSR based performance condition would normally be
measured over a three-year period starting on the date of grant of
the award and would be satisfied if the Company’s TSR was at
least at the median of a ranking of the TSR of each of the
members of the comparator group over the same period.
If the TSR condition is not satisfied then no part of the award
would be capable of vesting and the award would lapse. If the TSR
condition is satisfied, then the number of shares capable of vesting
under the award shall be determined by reference to a performance
condition based on the achievement of absolute average share price
targets measured at the end of a three-year performance period
commencing on the date of grant of the award.
0%
25%
100%
As soon as reasonably practicable after the end of the performance
period, the Committee shall determine the highest average share
price and the number of shares (if any) in respect of which the award
may vest in accordance with the following table:
Between 12% p.a. and 17% p.a.
On a straight line basis
Highest average share price
Percentage of award vesting
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 EPS calculation is based on a fully diluted
basis, adjusted for taxation and other items to reflect underlying
financial performance.
Below 75 pence
75 pence (the “Threshold Target”)
150 pence or higher (the
“Maximum Target”)
Between 75 pence and 150 pence
0%
25%
100%
Between 25% and 100%
on a straight line basis
The performance conditions for the 2013 awards are structured
in the same way as the 2012 awards and it is anticipated that
the performance conditions of any future LTIP awards will be
similarly structured.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 50
Remuneration report continued
Annual report on remuneration continued
Long term incentive schemes continued
2010 Long term incentive plan (LTIP) continued
For the 2013 awards, assuming the TSR condition is satisfied, as soon as reasonably practicable after the end of the performance period,
the Committee shall determine the highest average share price and the number of shares (if any) in respect of which the award may vest
in accordance with the following table:
Highest average share price
Below 20 pence
20 pence (the “Threshold Target”)
45 pence or higher (the “Maximum Target”)
Between 20 pence and 45 pence
Percentage of award vesting
0%
25%
100%
Between 25% and 100% on a straight line basis
Scheme interests awarded during the financial year (audited information)
In December 2013, following a delay necessitated by the restructuring of the management team, awards were made under the LTIP with
stretching share price targets in line with the recovery agenda and the strategic priority of focusing on returns to shareholders.
Details of the awards are shown below.
Director
Brent Escott
Craig Parsons
Scheme
LTIP
LTIP
Face value
£
97,750
51,000
Percentage
vesting at
threshold
performance
Number of
share options
awarded
Performance
period end date
25
25
1,150,000
31 December 2016
600,000
31 December 2016
Directors’ shareholding and share interests (audited information)
Long term incentive plans
Details of awards held, granted and exercised in respect of the LTIPs are detailed below.
Director
Brent Escott
Craig Parsons
Paul Stobart
Shaun Parker
Balance held at
1 January
2013
Number of share
options granted
in year
Number of share
options exercised
in year
Number of share
options lapsed
in year
Balance held at
31 December
2013
—
1,150,000
163,192
600,000
1,368,656
572,736
—
—
—
—
—
—
—
1,150,000
31,277
731,915
—
1,368,656
110,638
462,098
The 2013 LTIP awards for Brent Escott and Craig Parsons were granted as nil-cost options on 31 December 2013 and will vest on 31
December 2016 subject to performance conditions. When awards were granted, the market value of shares was 8.50 pence. Awards vest
subject to continued employment and the satisfaction of performance conditions as set out on page 49.
The market price of ordinary shares of the Company as at 31 December 2013, was 8.00 pence and the range during the year was 2.53
pence to 29.00 pence.
The 2011 LTIP awards were subject to performance conditions as outlined on page 49. As none of these conditions were met, these
awards lapsed in their entirety as at the normal vesting date of 4 March 2014.
Under the 2012 LTIP Paul Stobart was awarded 801,862 shares and Shaun Parker 381,758. Under the plan rules, these lapsed 90 days
after termination of their employment, that is on 4 February 2014 and 30 March 2014 respectively.
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 2010 at an option price of 198 pence and in September 2011 at an option price of 125 pence, in each case
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. No offer was made under this scheme in 2013.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 51
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
ǔ Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Annual report on remuneration continued
Other share plans continued
Deferred Share Bonus Plan (DSBP)
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 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. Shares held during the year under the DSBP plan are as follows:
Director
Shaun Parker
Balance as at
1 January
2013
Number of share
options granted
in year
Number of share
options exercised
in year
Number of share
options lapsed
in year
Balance as at
31 December
2013
9,967
—
—
—
9,967
Note: in accordance with the plan rules, the above shares vested on termination of Shaun Parker’s employment on 31 December 2013.
Legacy Plans
Prior to Admission, the Company operated the CPP Executive Share Option Plan 2005 (the 2005 Plan) and the CPP Group Holdings Exit
Plan 2008 (the 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 CPPGroup 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.
The following options are held by Craig Parsons and Shaun Parker under the 2005 Plan and the 2008 Plan:
Director
Legacy Plan
Option price
Balance as at
1 January
2013
Number of share
options granted
in year
Number of share
options exercised
in year
Number of share
options lapsed
in year
Balance as at
31 December
2013
Craig Parsons
Shaun Parker*
2005
2008
2005
2008
£2.28
£1.79
£2.28
£1.79
41,864
40,000
415,648
352,000
—
—
—
—
—
—
—
—
—
—
—
—
41,864
40,000
415,648
352,000
Expiry date
21/12/19
19/06/18
21/12/19
19/06/18
* In accordance with the Plan rules, Shaun Parker has six months after termination of his employment (i.e. to 30 June 2014) in which to exercise these options, otherwise they will lapse.
The market price of ordinary shares of the Company as at 31 December 2013, was 8.00 pence and the range during the year was 2.53 pence
to 29.00 pence.
Shareholder dilution
In line with the ABI guidelines, the rules of the above incentive schemes provide that:
ц 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 ten-year period commencing on Admission of the Group’s shares to
the London Stock Exchange (Admission); and
ц 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 ten-year period commencing on Admission.
Current headroom under these limits is 6.55% and 1.62% respectively.
As well as the LTIP and the restricted stock plan the Company operates a savings-related share option plan approved by HM Revenue &
Customs for all UK employees. Newly issued shares are currently used to satisfy the exercise of all employee and Executive options.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 52
Remuneration report continued
Annual report on remuneration continued
Directors’ shareholdings (audited information)
Share ownership guidelines
Brent Escott has 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 and a half year’s salary is met.
Share ownership guidelines for both Executive and Non-Executive
Directors are currently under review, bearing in mind the changed
circumstances of the Company since they were originally drafted.
Performance graph and table
The Directors of the Company have beneficial interests in the
Company’s ordinary shares as follows:
Ordinary shares
held at
31 December
2013
Ordinary shares
held at
31 December
2012
Brent Escott
Craig Parsons
Duncan McIntyre
Les Owen
—
—
13,340
22,984
—
—
13,340
22,984
Interests
in unvested
shares under
incentive plans
1,150,000
813,779
—
—
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 Index and FTSE SmallCap Index.
There have been no purchases of shares by Directors since
31 December 2013 to the date of this report.
)
£
(
e
u
a
V
l
200
180
160
140
120
100
80
60
40
20
0
18 March
2010
31 December
2010
31 December
2011
31 December
2012
31 December
2013
CPPGroup plc
FTSE 250 Index
FTSE Small Cap Index
Source: Thomson Reuters
Table of historic data
The following table shows the total remuneration, as defined by the regulations, and the amount vesting under short term and long term
incentives as a percentage of the maximum that could have been achieved, in respect of the Chief Executive Officer. Figures are given to
2010 only, being the date that the Company was admitted to the London Stock Exchange.
Director
Single figure of total remuneration £’000
Annual bonus against maximum opportunity %
Long term incentive vesting rates against maximum opportunity %
2013
Paul Stobart1
2013
Brent Escott2
2012
Paul Stobart
2011
Paul Stobart
2011
Eric Woolley3
2010
Eric Woolley
6304
—
—
148
—
n/a
576
—
n/a
144
—
n/a
494
—
n/a
2,8745
72%
n/a
1 Paul Stobart was appointed on 1 October 2011 and resigned on 31 August 2013.
2 Brent Escott was appointed on 1 September 2013.
3 Eric Woolley resigned as a Director on 1 October 2011.
4 This figure includes an amount of £148,000 pay in lieu of notice.
5 Mr Woolley held 1,296,400 options under the legacy schemes which vested on 24 March 2010. These were not subject to performance conditions and so are not
treated as long term incentives for the purposes of this table. The figure includes Mr Woolley’s aggregate gain on vesting which was £1,747,096 plus £367,573, being
a cash enhancement due to the restructuring of the business.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013
53
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
ǔ Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Annual report on remuneration continued
Percentage change in remuneration levels
The table below shows the movement in the remuneration of the
Chief Executive Officer compared to that of UK-based employees.
This comparator group has been chosen as the Group CEO is
UK-based and this is a sizeable representation of our employee
base.
Salary
Benefits
Bonus
Chief Executive Officer
Average per employee
0%1
0%2
See note 3 below
See note 4 below
See note 5 below
See note 5 below
1 The Group CEO, Brent Escott, was appointed on 1 September 2013. His salary
on appointment was £325,000 which has not changed and will remain unchanged
for 2014. His salary on appointment was set at a lower level than his predecessor,
whose base salary was £450,000 per annum.
2 UK-based employees have had their base salaries frozen since 2011 due to business
challenges and uncertainties. Any exceptional or one-off changes to salaries due, for
example, to promotions or role changes within the year have been excluded.
3 As Brent Escott was only CEO for four months of 2013, it is not possible to give
a comparison to 2012. However, the Company has provided the same type and
level of benefits to Brent Escott as to his predecessor, Paul Stobart, with the
exception of his travel allowance, details of which are given on page 48.
4 The Company operates a flexible benefits scheme, whereby UK-based employees
are allocated an amount of money, determined by their seniority, to spend on a
range of benefits. Flexible benefits allowances have not changed. With effect from
1 November 2013, following the introduction of auto-enrolment employees received
a 2% contribution into a defined contribution pension scheme.
5 No bonus payments were made either to the CEO or to UK-based employees
in 2012 or 2013.
Relative importance of spend on pay
2013
£’000
2012
£’000
Percentage
change
Outside appointments
Neither of the Executive Directors currently hold an outside listed
company appointment.
Non-Executive Director fees for 2014
Non-Executive Director fees will be reviewed during 2014.
Advisers to the Remuneration Committee
The Committee appointed and received advice over the year
from independent remuneration consultants New Bridge Street
(NBS) – a trading name of Aon Hewitt Limited (an Aon plc
company). NBS is a signatory to the Remuneration Consultants
Group Code of Conduct and any advice provided by it is governed
by that Code. Other than acting as independent consultant to the
Committee NBS provided no further services to the Company
during the year.
Work undertaken by NBS included:
ц annual review of Remuneration Committee terms of reference;
ц annual trends in Executive compensation review;
ц advice and preparation on 2013 LTIP;
ц review of Chairman and Non-Executive Director fees; and
ц review of Executive Director compensation.
The Committee reviews the objectivity and independence of the
advice it receives from NBS. The Committee is satisfied that NBS
is providing robust, professional and independent advice. For the
year under review NBS’s total fees charged were £37,713.00.
In the course of its deliberations, the Committee considers the
views of the Chief Executive Officer on the remuneration and
performance of the Executive Committee. The Committee also
asks for and receives information from the Group HR Director.
Total expenditure on pay1
34,734
49,331
(29.6)%
Dividends paid2
—
—
—
No other advisers have provided significant services to the
Committee in the year.
Statement of voting at Annual General Meeting
At the AGM held in 2013 votes cast by proxy and at the meeting in
respect of the Directors’ remuneration report were as follows:
For
%
Against
%
Abstain
%
Reasons
Action
for votes
against,
taken by
if known Committee
2012
Remuneration
report
98.07
1.76
0.17
n/a
n/a
The disclosure in the 2013 remuneration report will include details of
the binding shareholder vote on the 2013 Directors’ remuneration policy.
1 Total expenditure on pay is based on continuing operations only and includes
wages and salaries; social security costs; share based payments and pension
costs as detailed in note 9 to the consolidated financial statements on page 80.
2 The Directors have not considered it appropriate to recommend payment of
dividends in either 2012 or 2013 due to the Company’s financial circumstances.
Service contracts
The current Executive Directors have service contracts with a notice
period of six months by either party.
Copies of Directors’ service contracts and letters of appointment are
available for inspection by shareholders at the Company’s registered
office. The dates of their service contracts and letters of appointment
are shown below:
Name
Date of service contract/
letter of appointment
Effective date of
appointment
Duncan McIntyre
29 January 2014
29 January 2014
Brent Escott
Craig Parsons
30 August 2013
1 September 2014
30 August 2013
1 September 2014
Shaun Astley-Stone
1 August 2013
2 September 2014
Ruth Evans
Les Owen
5 September 2013
4 October 2014
22 June 2010
25 August 2010
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 54
Directors’ report
Strategic report
Pages 6 to 26
Directors’ biographies
Pages 30 and 31
Corporate Governance report
Pages 32 and 35
Committee memberships
Pages 36 to 41
Remuneration report
Pages 41 to 53
The Directors present their Annual Report and
audited financial statements of the Group for
the year ended 31 December 2013.
Principal activities
The principal activity of the Group is the
provision of assistance products. Further
information on the Group’s business can
be found in the following sections of the
Annual Report, which are incorporated by
reference into this report:
ц Chairman’s statement on pages 6 to 7; and
ц Strategic report on pages 6 to 26.
Dividends
The Directors recommend that no final
dividend be paid in respect of 2013. The total
dividend paid for the year is nil (2012: nil).
Directors
In accordance with best practice all serving
Directors voluntarily retired from the Board at
the AGM on 17 June 2013 and, being eligible,
all offered themselves for re-election and
were re-appointed on 17 June 2013.
The Directors who served throughout
the year except as noted are shown
in the table below.
The Company’s Articles of Association
require that newly appointed Directors offer
themselves for election at the first AGM
following their appointment and that all
Directors stand for re-election at least once
every three years.
Accordingly, Brent Escott, Craig Parsons,
Shaun Astley-Stone and Ruth Evans following
their appointment in 2013, will seek election to
the Board for the first time at the 2014 AGM.
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 report on pages 32 to 35.
Biographical details for each Director
are set out on pages 30 and 31. Details
of Committee memberships are set
out on pages 36 to 41 of the Corporate
Governance report.
Details of Directors’ beneficial interests
in and options over the Company’s shares
are set out in the Remuneration report on
pages 41 to 53.
These sections are by reference part of the
Directors’ report.
Annual General Meeting
The AGM of the Company is to be held
on 16 June 2014. The notice of the AGM
and an explanation of the non-routine
business are set out in the explanatory
circular that accompanies this Annual
Report. The notice of the AGM 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.
Directors
Duncan McIntyre1
Non-Executive Chairman
(appointed 29 January 2014)
Brent Escott
Craig Parsons
Les Owen
Chief Executive Officer
(appointed 1 September 2013)
Chief Financial Officer
(appointed 1 September 2013)
Non-Executive Director
Shaun Astley-Stone
Non-Executive Director
(appointed 2 September 2013)
Ruth Evans
Non-Executive Director
(appointed 4 October 2013)
Charles Gregson
Non-Executive Chairman
(resigned 29 January 2014)
Paul Stobart
Shaun Parker
Chief Executive Officer
(resigned 31 August 2013)
Chief Financial Officer
(resigned 31 August 2013)
Hamish Ogston
Non-Executive Director
(resigned 28 June 2013)
1. Duncan McIntyre was a Non-Executive Director of the Company for the period prior to his appointment
as Non-Executive Chairman.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013Summary• The Group remains a going concern despite material uncertainty • The composition of the Board has undergone significant change in the year • We have reported our greenhouse gas emissions for the first time 55
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
Remuneration report
ǔ Directors’ report
Statement of Directors’ responsibilities
Details of the Group’s employee share schemes are set out in note 30.
Greenhouse gas emissions
A special resolution was passed at the Company’s AGM on
17 June 2013, 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. 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.
Substantial shareholdings
On 31 December 2013, the Company had been notified, in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
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 31 December 2013 no person had a beneficial interest
in 3% or more of the voting share capital except for the following:
Name
Mr Hamish Ogston1
Schroder Investment Management Ltd
Ordinary shares
(thousands)
98,021
22,311
%
57%
13%
Subsequent to the year end and up to the date of this report, there
have been the following significant changes:
1. The holding of Mr Hamish Ogston is 96,332,000 (56%).
Mr Hamish Ogston currently holds 56% of the issued shares of the
Company. Under the terms of a Relationship Agreement between
Mr Hamish Ogston and the Company dated 18 March 2010, for
so long as Mr 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) Mr Hamish Ogston (and each person connected to him)
shall not:
ц 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 Mr Hamish
Ogston (and each person connected to him);
ц take any action which precludes any member of the Group from
carrying on its business independently of Mr Hamish Ogston (and
each person connected to him); and
ц 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.
The Group’s principal activity is the provision of assistance products
and although we acknowledge our business has an impact on the
environment, we consider our overall environmental impact to be
low. The main environmental impacts for the Group are limited to
environmental issues which are common to all businesses, such
as resource use.
The information disclosed is the required mandatory reporting of
greenhouse gas emissions pursuant to the Companies Act 2006
(Strategic Report & Directors’ Report) Regulations 2013.
Reporting year
Our reporting year is the same as our fiscal year, being 1 January 2013
to 31 December 2013. This greenhouse gas reporting year has been
established to align with our financial reporting year. As this is the
first year of mandatory reporting of greenhouse gas emissions
comparative information is not presented.
Scope 1:
Combustion of fuel
Scope 2:
Directly purchased electricity
Total scope 1 and 2
Intensity ratio (per £million of revenue)
Tonnes CO2e
2013
208
2,400
2,608
14.7
Reporting boundary
We have reported on all material emission sources which we
deem ourselves to be responsible for. These sources align with
our financial control boundary. We do not have responsibility
for any emission sources that are beyond the boundary of our
financial control.
We disposed of our North American business on 3 May 2013;
consequently this information has not been included in our
reported figures.
Methodology
The methodology used to calculate our emissions is based on the
‘Environmental Reporting Guidelines: Including mandatory greenhouse
gas emissions reporting guidance’ (June 2013) issued by the
Department for Environment, Food and Rural Affairs (Defra). We have
utilised Defra’s 2013 conversion factors within our reporting methodology.
In some instances we have used estimation techniques where usage
information is not available within some of our leased properties.
Intensity ratio
In order to express our annual emissions in relation to a quantifiable
factor associated with our activities, we have used continuing
Group revenue as our intensity ratio as this is considered to provide
the best comparative measure over time.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013
56
Directors’ report continued
Going concern
In reaching their view on the preparation of the Group’s financial
statements on a going concern basis, the Directors are required to
consider whether the Group can continue in operational existence
for the foreseeable future. The Directors have made appropriate
enquiries and taken into account the Group’s business activities,
together with the factors likely to affect its future performance and
position which are set out in the Strategic report on pages 6 to 26.
During the year, the Group has made good progress agreeing new
financing arrangements which are expected to total approximately
£33.0 million, with £13.0 million being provided by a three-year
extension of the debt facility to 31 July 2016 and approximately
£20.0 million being provided through the deferral of twelve months
commission payments to certain Business Partners, with
repayment due on 31 July 2017. The disposal of the North
American business has been completed with the net disposal
proceeds being used to repay part of the debt facility.
The Group has continued to look at its strategic positioning and as a
result has divested its operations in Singapore and its investment in
the Home3 joint venture and will withdraw from the French market.
Additional measures have been taken by the Group to address its
cost base including significant redundancy programmes in the UK
in 2012 and 2013, closure of the Chesterfield site in the UK in May
2013 and a streamlining of the Group’s organisational structure. This,
together with cost saving initiatives in our overseas operations and
reductions in capital expenditure, have had and will continue to have
a beneficial impact on the Group’s overhead base.
Nevertheless, despite this progress a level of uncertainty remains
over the Group’s future due to the Scheme, together with the
associated publicity, which has had and will continue to have an
adverse impact on the Group’s ability to generate new business
and renew business with existing customers. The Scheme has
commenced and there is greater clarity around the level of the
redress rates. At the time of approving the accounts, redress
rates were within our expectations. As the Scheme will not be
complete until 30 August 2014 there remains a residual risk that the
response rates may reach a level which cannot be funded under the
revised funding arrangements. In addition, the Group’s trading
performance continues to be affected by the on-going VVOP
restrictions agreed with the FCA in November 2012 by the Group’s
subsidiaries CPPL and HIL. Amongst other requirements, the VVOP
does not permit CPPL or HIL to make new sales of regulated retail
products.
The bank loan facility is subject to a number of financial covenants,
which include a covenant relating to a maximum level of response
rates in a past business review exercise. The Business Partner
commission deferral agreement, although subordinate, provides
substantially the same security as that granted under the bank debt
facility. There is a risk that response rates in the Scheme or
continued business performance result in the Group being unable
to satisfy the covenants, which could lead to the lending banks or
Business Partners seeking repayment of the facility or exercising
their right to security over assets.
Given the possible impact of trading and customer redress uncertainties,
and the effect this could have on liquidity and compliance with the
terms of the borrowing facilities, there is material uncertainty that casts
significant doubt as to the Group’s ability to continue as a going
concern, and therefore it may be unable to realise its assets and
discharge its liabilities in the normal course of business. As a result of
this material uncertainty the Independent Auditor’s report on page
59, whilst unqualified, includes an emphasis of matter in this
regard.
However, having considered the above uncertainties and all the
available information, the Directors have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the foreseeable future and accordingly the Directors
have continued to adopt the going concern basis in preparing the
financial statements.
Auditor
Each of the persons who is a Director at the date of approval of this
report confirms that:
ц so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
ц the Director has taken all the steps that he/she ought to have
taken as a Director in order to make himself/herself 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 has expressed its willingness to continue in office
as auditor. Accordingly, a resolution to re-appoint Deloitte will be
proposed at the Annual General Meeting.
By order of the Board
Lorraine Beavis
Company Secretary
23 April 2014
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 Statement of Directors’ responsibilities
57
Corporate governance
Introduction from the Chairman
Board of Directors and Company Secretary
Corporate Governance report
Report of the Audit Committee
Report of the Risk & Compliance Committee
Report of the Nomination & Governance Committee
Remuneration report
ǔ Directors’ report
ǔ Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report &
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.
In preparing the consolidated financial statements, International
Accounting Standard 1 requires that Directors:
ц properly select and apply accounting policies;
ц present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
ц provide additional disclosures when compliance with the specific
requirements in IFRS 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
ц 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:
ц select suitable accounting policies and then apply them
consistently;
ц make judgements and estimates that are reasonable and prudent;
ц state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
ц prepare the Company financial statements on the going concern
basis unless it is inappropriate to presume that the Company will
continue in business.
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.
We confirm that to the best of our knowledge:
ц 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;
ц the Strategic 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 as a whole,
together with a description of the principal risks and uncertainties
that they face; and
ц the Annual Report & Accounts, taken as a whole, are fair,
balanced and understandable and provide the information
necessary for shareholders to assess the Company’s
performance, business model and strategy.
By order of the Board
Brent Escott
Chief Executive Officer
23 April 2014
Craig Parsons
Chief Financial Officer
23 April 2014
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 58
Financial
statements
Consolidated statement of comprehensive income
59
Independent Auditor’s report
62 Consolidated income statement
63
64 Consolidated balance sheet
65 Consolidated statement of changes in equity
66 Consolidated cash flow statement
67 Notes to the consolidated financial statements
102 Company balance sheet
103 Notes to the Company financial statements
111 Company offices
112 Shareholder information
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 Independent Auditor’s report
to the members of CPPGroup Plc
59
Financial statements
ǔ 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
Notes to the consolidated financial statements
Company balance sheet
Notes to the Company financial statements
Opinion on financial statements of CPPGroup Plc
Emphasis of matter – Going concern
In our opinion:
ц the financial statements give a true and fair view of the state of the
Group’s and of the parent company’s affairs as at 31 December
2013 and of the Group’s loss for the year then ended;
ц the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
ц the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
ц the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
group financial statements, Article 4 of the IAS Regulation.
The financial statements 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 48. The financial reporting
framework that has been applied in the preparation of the Group
financial statements is applicable law and 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).
Risk
Going concern
The Group faces significant uncertainty in relation to the
eventual cost of the customer redress scheme, restrictions on
new regulated business sales, and the requirement to trade in
line with expectations and maintain compliance with lending
covenants.
As explained above in the emphasis of matter – going concern,
we considered going concern to be a key risk.
Completeness of provisions for customer redress and
associated costs
The determination of the value of the provision for customer
redress and associated legal and professional adviser costs
requires significant judgement in the selection of key
assumptions such as future customer redress response rates,
the size of the population of underlying customer policies
affected by historical mis-selling, the average level of redress
payable per customer and the eventual outturn of adviser costs.
As required by the Listing Rules we have reviewed the Directors’
statement on page 56 in respect of the Group’s ability to continue
as a going concern.
As detailed in note 3, the going concern status of the Group is
impacted by the combined effect of restrictions on new regulated
business sales as a result of the Voluntary Variation of Permissions,
uncertainty over the eventual cost of the redress scheme, and the
ability of the Group to trade in line with forecasts and comply with
the terms of its borrowing facilities.
Whilst we have concluded that the Directors’ use of the going
concern basis of accounting in the preparation of the financial
statements is appropriate, these conditions indicate the existence
of a material uncertainty which may give rise to significant doubt
over the Group’s ability to continue as a going concern. We describe
below how the scope of our audit has responded to this risk.
Our opinion is not modified in respect of these matters.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below
are those that had the greatest effect on our audit strategy, the
allocation of resources in the audit and directing the efforts of
the engagement team:
How the scope of our audit responded to the risk
We evaluated the going concern assessment prepared by
Management. This involved assessing the design and
implementation of key controls in relation to the monitoring and
evaluation of going concern, such as the production and review of
forecasts used by Management. We challenged the underlying
forecast and budget assumptions including expected growth rates
and key factors such as renewal rates by reference to historical
information and the estimated impact of the on-going redress
scheme. We also evaluated historical forecasting accuracy, the
sensitivity of the going concern status to assumptions inherent in
the customer redress and associated costs provisions, current and
forecast compliance with the terms of the Group’s borrowing
facilities, and the impact of other uncertainties including potential
regulatory actions.
We include above the conclusion of our review of the Directors’
statement in respect of the Group’s ability to continue as a
going concern.
We evaluated the appropriateness of Management’s assumptions
in deriving the provisions for customer redress and associated
costs, utilising internal regulatory specialists to benchmark the
key assumptions, including expected response rates under the
Group’s past business review, by comparing these against the
Group’s experience to date and other comparable situations
in the wider market.
We also reviewed regulatory correspondence to assess the Group’s
compliance with laws and regulations across the jurisdictions in
which it operates, tested the completeness of the redressable
population through agreement of policies to source systems,
and independently recalculated the redress provision.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 60
Independent Auditor’s report continued
to the members of CPPGroup Plc
Our assessment of risks of material misstatement continued
Risk
Impairment of tangible and intangible non-current assets
As a result of recent degradations in performance and a material
restructuring of the Group’s business, the risk of impairment of
the carrying value of non-current assets is heightened. The
Group’s consideration of the potential impairment of non-current
assets is a judgemental process which involves the assessment
of indicators that an asset may be impaired, such as restrictions
on the Group’s business model as a result of regulatory
restrictions and future business performance.
Revenue recognition
There are significant judgements involved in applying the Group’s
revenue recognition policies including multiple revenue streams
and insurance revenues, and also in determining revenue refunds
and claw-backs to customers who cancel during the ‘cooling off’
periods on buying or renewing the Group’s products.
How the scope of our audit responded to the risk
Focusing on the Group’s significant IT asset base, we evaluated
Management’s assessment of indicators of impairment by reference
to future corporate plans, and cash flow forecasts and budgets. We
also considered Management’s identification of Cash Generating Units
and the associated identification and allocation of cash flows for the
purposes of impairment reviews.
We evaluated Management’s value in use calculations, including
challenging the appropriateness of the identified cash flow forecasts,
performing sensitivities and benchmarking discount rates used; and
we independently validated Management’s analysis of obsolete assets
by reference to business plans.
We tested the controls over revenue recognition including the
reconciliation of underlying policy collections to recorded revenue,
and the calculation of claw-back provisions. We also performed
tests of key controls in relation to the Group’s core policy
administration systems supporting the revenue cycle.
We evaluated the appropriateness of the revenue recognition
policies applied by reference to the terms and conditions of the
underlying products, Group policies, and the relevant accounting
standards. We also carried out testing to source documentation
of adjustments made by Management at the year end in relation
to policy refunds by reference to post balance sheet experience.
The Audit Committee’s consideration of these risks is set out on
page 38.
An overview of the scope of our audit
Our audit procedures relating to these matters were designed in the
context of our audit of the financial statements as a whole, and not
to express an opinion on individual accounts or disclosures. Our
opinion on the financial statements is not modified with respect to
any of the risks described above, and we do not express an opinion
on these individual matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed
or influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
We determined materiality for the Group to be £1.8 million, which
is 1% of revenue. We used revenue to determine materiality
because profit before tax has been unusually volatile and is not
considered to be the key benchmark at the current time.
We agreed with the Audit Committee that we would report to
the Committee all audit differences in excess of £38,000, as well
as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
Our Group audit was scoped by obtaining an understanding of the Group
and its environment, including Group-wide controls, and assessing the
risks of material misstatement at the Group level. Based on that
assessment, we focused our Group audit scope primarily on the audit
work at four locations (the United Kingdom, Spain, Italy and Turkey) all
of which were subject to a full audit. These four locations represent the
principal business units within the Group’s reportable segments and
account for 92% of the Group’s total assets, 92% of the Group’s
revenue from continuing operations, 94% of the losses before tax of
loss making components, and 93% of the profits before tax of profit
making components. They were also selected to provide an appropriate
basis for undertaking audit work to address the risks of material
misstatement identified above. Our audit work at the four locations was
executed at levels of materiality applicable to each individual entity
which were lower than Group materiality.
At the parent entity level we also tested the consolidation process and
carried out analytical procedures to confirm our conclusion that there
were no significant risks of material misstatement of the aggregated
financial information of the remaining components not subject to audit
or audit of specified account balances.
The Group audit team continued to follow a programme of planned
visits that has been designed so that a senior member of the Group
audit team visits each of the locations where the Group audit scope was
focused at least once every two years and the most significant of them
at least once a year. In years when we do not visit a significant
component we include the component audit team in our team briefing,
discuss their risk assessment, and review documentation of the
findings from their work.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 61
Financial statements
ǔ 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
Notes to the consolidated financial statements
Company balance sheet
Notes to the Company financial statements
Respective responsibilities of Directors and auditor
As explained more fully in the 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. We also comply with International Standard on Quality
Control 1 (UK and Ireland). Our audit methodology and tools aim to
ensure that our quality control procedures are effective, understood
and applied. Our quality controls and systems include our dedicated
professional standards review team, strategically focused second
partner reviews and independent partner reviews.
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.
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 parent 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 and to identify any information that is
apparently materially incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
Christopher Powell FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Leeds, United Kingdom
23 April 2014
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
ц the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
ц the information given in the Strategic Report and 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
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if,
in our opinion:
ц we have not received all the information and explanations we
require for our audit; or
ц adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
ц the parent company financial statements are not in agreement
with the accounting records and returns.
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in
our opinion certain disclosures of Directors’ remuneration have not
been made or the part of the Directors’ Remuneration Report to be
audited is not in agreement with the accounting records and
returns. We have nothing to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review the part
of the Corporate Governance Statement relating to the Company’s
compliance with nine provisions of the UK Corporate Governance
Code. We have nothing to report arising from our review.
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are
required to report to you if, in our opinion, information in the Annual
Report is:
ц materially inconsistent with the information in the audited
financial statements; or
ц apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
ц otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the Directors’ statement that they consider the
Annual Report is fair, balanced and understandable and whether
the Annual Report appropriately discloses those matters that we
communicated to the Audit Committee which we consider should
have been disclosed. We confirm that we have not identified any
such inconsistencies or misleading statements.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 62
Consolidated income statement
For the year ended 31 December 2013
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Exceptional items
Other administrative expenses
Total administrative expenses
Operating loss
Operating (loss)/profit before exceptional items
Operating loss after exceptional items
Investment revenues
Other gains and losses
Finance costs: non-derivative instruments
Loss before taxation
Taxation
Loss for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations
Loss for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
Basic and diluted (loss)/earnings per share
Continuing operations
Discontinued operations
Total
Note
2013
£’000
2012
restated
(note 3)
£’000
178,031
(112,174)
65,857
269,869
(162,295)
107,574
(37,506)
(67,663)
(43,942)
(80,902)
(105,169)
(124,844)
(1,806)
(39,312)
394
—
(4,305)
(43,223)
(2,112)
(45,335)
12,468
(32,867)
(32,867)
—
(32,867)
Pence
(26.43)
7.27
(19.16)
26,672
(17,270)
580
(891)
(1,869)
(19,450)
(1,474)
(20,924)
3,694
(17,230)
(17,118)
(112)
(17,230)
Pence
(12.13)
2.15
(9.98)
6
10
11
12
15
7
14
14
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 Consolidated statement
of comprehensive income
For the year ended 31 December 2013
Loss for the year
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Currency translation differences reclassified on disposal
Other comprehensive expense for the year net of taxation
Total comprehensive expense for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
63
Financial statements
Independent Auditor’s report
ǔ Consolidated income statement
ǔ Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated financial statements
Company balance sheet
Notes to the Company financial statements
2013
£’000
2012
£’000
(32,867)
(17,230)
387
(1,618)
(1,231)
(616)
—
(616)
(34,098)
(17,846)
(34,098)
—
(17,734)
(112)
(34,098)
(17,846)
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 64
Consolidated balance sheet
As at 31 December 2013
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment in joint venture
Deferred tax asset
Current assets
Insurance assets
Inventories
Trade and other receivables
Cash and cash equivalents
Assets classified as held for sale
Total assets
Current liabilities
Insurance liabilities
Income tax liabilities
Trade and other payables
Borrowings
Provisions
Liabilities directly associated with assets held for sale
Net current liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Trade and other payables
Total liabilities
Net (liabilities)/assets
Equity
Share capital
Share premium account
Merger reserve
Translation reserve
Equalisation reserve
ESOP reserve
Retained earnings
Note
16
17
18
15
27
19
20
21
22
15
23
24
25
26
15
25
27
24
29
23
Total equity attributable to equity holders of the Company
Approved by the Board of Directors and authorised for issue on 23 April 2014 and signed on its behalf by:
Brent Escott
Chief Executive Officer
Craig Parsons
Chief Financial Officer
Company registration number: 07151159
2013
£’000
—
3,299
5,061
—
142
8,502
3,387
149
20,511
66,900
90,947
—
90,947
99,449
(3,989)
(742)
(49,004)
—
(37,398)
(91,133)
—
(91,133)
(186)
(22,597)
(527)
(9,494)
(32,618)
2012
£’000
1,478
15,458
13,316
—
2,902
33,154
27,241
299
29,034
53,198
109,772
20,007
129,779
162,933
(7,525)
(2,379)
(56,587)
(43,408)
(28,967)
(138,866)
(7,130)
(145,996)
(16,217)
—
(716)
(6,500)
(7,216)
(123,751)
(153,212)
(24,302)
9,721
17,120
33,292
(100,399)
609
8,129
11,688
5,259
(24,302)
17,111
33,297
(100,399)
1,840
7,984
11,638
38,250
9,721
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013
Consolidated statement
of changes in equity
For the year ended 31 December 2013
65
Financial statements
Independent Auditor’s report
Consolidated income statement
Consolidated statement of comprehensive income
ǔ Consolidated balance sheet
ǔ Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated financial statements
Company balance sheet
Notes to the Company financial statements
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 2012
17,106
33,300
(100,399)
2,456
6,423
11,606
56,824
27,316
(164)
27,152
Total comprehensive
income
Movement on
equalisation reserve
Current tax credit on
equalisation reserve
movement
Equity settled share
based payment charge
Deferred tax on share
based payment charge
Exercise of share
options
Adjustment arising
from change in
non-controlling
interest
23
12
12
29
(616)
—
—
(17,118)
(17,734)
(112)
(17,846)
—
—
—
—
—
5
—
—
—
—
—
(3)
—
—
—
—
—
—
—
1,561
—
(1,561)
—
—
—
—
—
—
—
—
—
—
34
—
(2)
382
382
—
(1)
—
34
(1)
—
—
—
—
—
—
—
382
34
(1)
—
276
—
—
9,721
—
—
—
—
—
—
(276)
(276)
At 31 December 2012
17,111
33,297
(100,399)
1,840
7,984
11,638
38,250
9,721
Total comprehensive
income
Movement on
equalisation reserve
Current tax credit on
equalisation reserve
movement
Equity settled share
based payment charge
Deferred tax on share
based payment charge
Exercise of share
options
23
12
12
29
—
—
—
—
—
9
—
—
—
—
—
(5)
—
—
—
—
—
—
(1,231)
—
—
—
—
—
—
145
—
—
—
—
— (32,867)
(34,098)
—
(34,098)
—
(145)
—
50
—
—
31
—
(1)
(9)
—
31
50
(1)
(5)
—
—
—
—
—
—
31
50
(1)
(5)
At 31 December 2013
17,120
33,292 (100,399)
609
8,129
11,688
5,259
(24,302)
— (24,302)
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 66
Consolidated cash flow statement
For the year ended 31 December 2013
Net cash from operating activities
Investing activities
Interest received
Purchases of property, plant and equipment
Purchases of intangible assets
Cash consideration in respect of sale of discontinued operation
Costs associated with disposal of discontinued operations
Cash disposed of with discontinued operations
Investment in joint venture
Net cash from/(used in) investing activities
Financing activities
Repayment of bank loans
Proceeds from new borrowings
Interest paid
Costs of refinancing
Issue of ordinary share capital
Net cash used in financing activities
Net increase 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
Analysed as:
Continuing operations
Discontinued operations
Note
31
22
15
2013
£’000
20,158
404
(332)
(2,460)
26,086
(4,215)
(3,731)
(780)
14,972
(30,500)
11,249
(1,089)
(4,633)
(5)
(24,978)
10,152
(287)
57,035
66,900
66,900
—
66,900
2012
£’000
11,086
589
(2,485)
(3,807)
—
(905)
—
(477)
(7,085)
—
—
(1,520)
—
2
(1,518)
2,483
(372)
54,924
57,035
53,198
3,837
57,035
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 Notes to the consolidated
financial statements
67
Financial statements
Independent Auditor’s report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
ǔ Consolidated cash flow statement
ǔ Notes to the consolidated financial statements
Company balance sheet
Notes to the Company 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 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
IAS 19 (revised 2011)
IAS 27 (revised 2011)
Subject
Employee benefits
Separate Financial Statements
IAS 28 (revised May 2011)
Investments in Associates and Joint Ventures
IFRS 10
IFRS 11
IFRS 12
IFRS 13
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interest in Other Entities
Fair Value Measurement
Amendments to IAS 1 (June 2011)
Presentation of Items of Other Comprehensive Income
Amendments to IFRS 1 (March 2012)
Government Loans
Amendment to IFRS 7 (December 2011)
Disclosures – Offsetting Financial Assets and Financial Liabilities
Annual improvements to IFRSs
(2009–2011) Cycle
Standards not yet applied
At the date of authorisation of these financial statements, the following relevant 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 IAS 32 (December 2011)
Offsetting Financial Assets and Financial Liabilities
31 December 2014
Amendments to IAS 36
Recoverable Amount Disclosures for Non-financial Assets 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 62 to 110 present the performance of the Group for the year ended 31 December 2013.
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.
In preparing the consolidated financial statements the comparative amounts have been restated to reflect the Home3 joint venture as
discontinued and the re-organisation of the operating segments to UK and Ireland, Europe and Latin America, and Asia Pacific.
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68
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 Directors’ report on page 56.
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 achieved when the Company: has power over the investee; is exposed, or has rights to variable return from its involvement with the
investee; and has the ability to use its power to affect its returns.
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 the Company’s equity holders.
Exceptional items
Items which are exceptional, being material in terms of size and/or nature, are presented separately from underlying business performance
in the consolidated income statement. The separate reporting of exceptional items helps provide an indication of the Group’s underlying
business performance.
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 on-going 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 legal or constructive 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.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 69
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
ǔ Notes to the consolidated financial statements
Company balance sheet
Notes to the Company financial statements
3. Significant accounting policies continued
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 exceptional items
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.
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 un-provided 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.
For 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.
Cost of sales attributable to the assistance elements of the Group’s Packaged Account and wholesale products represents the costs of
providing those services including third party costs. This includes all mailing and fulfilment costs which are expensed as incurred. Third
party costs relate to relationships with suppliers who provide elements of the service and 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.
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Notes to the consolidated financial statements continued
3. Significant accounting policies continued
Insurance contracts continued
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.
Assets and liabilities classified as held for sale and discontinued operations
Assets and liabilities are classified as held for sale when their carrying amount is to be recovered principally through a sale transaction
and the sale is highly probable. Assets and liabilities classified as held for sale are stated at the lower of carrying amount and fair value
less costs to sell. They are not depreciated or amortised from the point they are recognised as held for sale. Operations are classified
as discontinued when they are either disposed or are part of a single co-ordinated plan to dispose, and represent a major line of business
or geographical area of operation.
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 programs are recognised from the point at which
the following conditions are met:
ц An asset is created that can be identified;
ц It is probable that the asset created will generate future economic benefits; and
ц 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.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 71
3. Significant accounting policies continued
Intangible assets continued
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.
Impairment
Annually the Group reviews the carrying amounts of its intangible assets to determine whether there is indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss, if any. Recoverable amount is the higher of the fair value less costs to sell and value in use. In assessing value in use,
the estimated future cash flows are discounted at their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the assets for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of
the asset or cash generating unit is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit may be increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would
have been determined had no impairment loss been recognised for the asset or cash generating unit in prior years.
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: Over the shorter of the life of the lease and the useful economic life of the asset
40 years straight line
4 years straight line
4 years straight line
Freehold land is not depreciated.
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.
Taxation
The current tax payable is based on the taxable profit or loss 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 profits or losses, 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.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013Financial statementsIndependent Auditor’s reportConsolidated income statementConsolidated statement of comprehensive incomeConsolidated balance sheetConsolidated statement of changes in equityConsolidated cash flow statement ǔNotes to the consolidated financial statementsCompany balance sheetNotes to the Company financial statements 72
Notes to the consolidated financial statements continued
3. Significant accounting policies continued
Taxation continued
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.
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 amounts.
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, with interest expense recognised on an effective yield basis.
Derivative financial instruments
The Group’s activities expose it to the financial risks of changes in interest rates. For material risks the Group evaluates and considers
the use of 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.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 73
4. Critical accounting judgements and key sources of estimation uncertainty
The preparation of consolidated financial statements in accordance with IFRS requires the use of assumptions, estimates and judgements
about future conditions. The use of available information and application of judgement are inherent in the formation of estimates. Actual
results in the future may differ from those reported. The key estimates and assumptions used in these consolidated financial statements
are set out below.
Critical judgements in applying accounting policies
Going concern
The financial statements have been prepared on a going concern basis, as the Board of Directors have a reasonable expectation that
the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. The going concern
assessment considered the risks and uncertainties facing the Group, which include trading and customer redress. Further details of
the assessment are provided in the Directors’ report on page 56.
Impairment of tangible and intangible non-current assets
As a result of the IT transformation programme, the IT asset base was reviewed in detail during the year which led to the recognition of
impairments totalling £8,058,000. In making its judgement, Management considered the value in use of assets in respect of cash flow
forecasts for identified Cash Generating Units (CGUs) over the period of the IT transformation programme. Further detail is included
in notes 6 and 17.
Key sources of estimation uncertainty
Customer redress and associated costs
The customer redress and associated costs provision relates to costs associated with the FCA investigation into the Group’s sales
processes in the UK. At 31 December 2013 the remaining balance of the provision is £37.4 million. The provision includes anticipated
compensation payable to customers through a customer redress exercise together with professional fees associated with the customer
redress exercise.
The customer redress exercise is on-going and whilst response rates are as expected there is a residual risk that they may exceed the level
that is currently provided. Changes to the assumptions on response rates would lead to a change in the customer redress provision which
would be reflected through the consolidated income statement.
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 in line with the forecast future benefits over the shorter of the contractual
arrangement and the period when benefits are expected to arise. The future economic benefits are estimated by reference to future
renewal performance, taking into account historical renewal performance and the latest assumption of response rates in a customer
redress exercise.
Changes to the estimates of renewal performance or the response rates in a customer redress exercise would change the periods in
which the contractual payments are charged to the consolidated income statement.
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Notes to the consolidated financial statements continued
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 three broad geographical regions:
ц UK and Ireland;
ц Europe and Latin America (Spain, Portugal, France, Italy, Germany, Turkey, Mexico and Brazil);
ц Asia Pacific (Hong Kong, Singapore, Malaysia, India and China).
Segment revenues and performance have been as follows:
Year ended 31 December 2013
Continuing operations
Revenue – external sales
Cost of sales
Gross profit
Depreciation and amortisation
Other administrative expenses
Regional operating (loss)/profit before exceptional items
Exceptional items (note 6)
Operating loss after exceptional items
Investment revenues
Finance costs: non-derivative instruments
Loss before taxation
Taxation
Loss for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations (note 15)
Loss for the year
UK and Ireland
2013
£’000
Europe and
Latin America
2013
£’000
128,990
(87,825)
41,165
(5,869)
42,603
(21,317)
21,286
(548)
(43,402)
(13,605)
(8,106)
7,133
Asia
Pacific
2013
£’000
6,438
(3,032)
3,406
(40)
(4,199)
(833)
Total
2013
£’000
178,031
(112,174)
65,857
(6,457)
(61,206)
(1,806)
(37,506)
(39,312)
394
(4,305)
(43,223)
(2,112)
(45,335)
12,468
(32,867)
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 £1,983,000 presented within UK and
Ireland in the tables above which have been charged to other regions for statutory purposes.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 UK and Ireland
2012
£’000
Europe and
Latin America
2012
£’000
215,343
(134,981)
80,362
(7,229)
(54,264)
18,869
47,982
(24,176)
23,806
(523)
(14,373)
8,910
Asia
Pacific
2012
£’000
6,544
(3,138)
3,406
(35)
(4,478)
(1,107)
5. Segmental analysis continued
Year ended 31 December 2012 – restated (note 3)
Continuing operations
Revenue – external sales
Cost of sales
Gross profit
Depreciation and amortisation
Other administrative expenses
Regional operating profit/(loss) before exceptional items
Exceptional items (note 6)
Operating loss after exceptional items
Investment revenues
Other gains and losses
Finance costs: non-derivative instruments
Loss before taxation
Taxation
Loss for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations (note 15)
Loss for the year
75
Total
2012
£’000
269,869
(162,295)
107,574
(7,787)
(73,115)
26,672
(43,942)
(17,270)
580
(891)
(1,869)
(19,450)
(1,474)
(20,924)
3,694
(17,230)
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 £1,933,000 presented within UK
and Ireland in the tables above which have been charged to other regions for statutory purposes.
Segment assets
UK and Ireland
Europe and Latin America
Asia Pacific
Total segment assets
Assets relating to discontinued operations
Unallocated assets
Consolidated total assets
Goodwill, deferred tax and investments in joint ventures are not allocated to segments.
2013
£’000
85,913
11,002
2,392
99,307
—
142
2012
restated
(note 3)
£’000
123,611
12,365
2,570
138,546
7,783
16,604
99,449
162,933
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Notes to the consolidated financial statements continued
5. Segmental analysis continued
Capital expenditure
Continuing operations
UK and Ireland
Europe and Latin America
Asia Pacific
Additions from continuing operations
Discontinued operations
Consolidated total additions
Revenues from major products
Continuing operations
Retail assistance policies
Retail insurance policies
Packaged and wholesale policies
Non-policy revenue
Revenue from continuing operations
Discontinued operations
Consolidated total revenue
Intangible assets
Property, plant and equipment
2013
£’000
1,450
128
26
1,604
—
1,604
2012
restated
(note 3)
£’000
2,979
472
55
3,506
43
3,549
2013
£’000
194
42
5
241
—
241
2013
£’000
2012
restated
(note 3)
£’000
1,366
523
42
1,931
246
2,177
2012
£’000
117,066
163,766
28,153
32,272
540
41,174
56,649
8,280
178,031
269,869
15,634
193,665
49,802
319,671
Major product streams are disclosed on the basis monitored by the Board of Directors. For the purpose of this product analysis, “retail assistance
policies” are those which may be insurance backed but contain a bundle of assistance and other benefits; “retail insurance policies” are
those which protect against a single insurance risk; “packaged and wholesale policies” are those which are provided by Business Partners
to their customers in relation to an on-going product or service which is provided for a specified period of time; “non-policy revenue” are
those which are not in connection with providing an on-going service to policyholders for a specified period of time.
Disclosures in notes 8, 19 and 23 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.
Geographical information
The Group operates across a wide number of territories, of which the UK and Spain are considered individually material. Revenue from
external customers and non-current assets (excluding investments in joint ventures and deferred tax) by geographical location are
detailed below:
Continuing operations
UK
Spain
Other
Total continuing operations
Discontinued operations
External revenues
Non-current assets
2013
£’000
2012
£’000
125,432
19,767
32,832
178,031
15,634
193,665
211,186
21,620
37,063
269,869
49,802
319,671
2013
£’000
7,008
432
920
8,360
—
8,360
2012
£’000
28,159
529
1,564
30,252
12,481
42,733
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 77
5. Segmental analysis continued
Information about major customers
There are no customers in the current year from which the Group earns more than 10% of its revenue (2012: £28.8 million from the
Group’s largest customer at that time).
6. Exceptional items
Customer redress and associated costs
Impairment of IT assets
Restructuring costs
Impairment of goodwill, intangible assets and freehold property
Regulatory penalties
Legacy scheme share based payments
Strategic project costs
Exceptional items included in operating loss
Tax on exceptional items
Total exceptional items after tax
Note
26
17,18
7
16,17,18
30
2013
£’000
2012
£’000
18,168
26,273
8,058
5,503
5,822
—
—
(45)
37,506
(222)
37,284
—
4,874
3,711
8,500
196
388
43,942
(5,663)
38,279
The customer redress and associated costs of £18,168,000 (2012: £26,273,000) relates to the further costs required to compensate
customers and professional fees associated with the customer redress exercise.
Impairment of IT assets £8,058,000 relates to the re-assessment of the carrying value of the Group’s IT asset base as a result of the IT
transformation programme.
The restructuring costs of £5,503,000 (2012: £4,874,000) relate to redundancy programmes and associated costs across the Group, along
with costs associated with the closure of the Chesterfield office. The majority of this cost is located in the UK.
Impairment of goodwill, intangible assets and freehold building totals £5,822,000 (2012: £3,711,000) which comprises:
ц £1,478,000 write down of the Homecare (Holdings) Limited goodwill balance (2012: £3,120,000 goodwill and intangible impairment of
CPP Travel Services Limited).
ц £1,299,000 (2012: £591,000) impairment of the intangible asset for contractual arrangements with third parties, which reflects the
impact the expected response rates in a customer redress exercise would have on the discounted forecast cash flows of the arrangement.
ц £3,045,000 impairment of the freehold property in the UK to its current market value.
Regulatory penalties represents the fine imposed by the FCA in 2012 as a result of its investigation into the Group’s sales processes in the UK.
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Notes to the consolidated financial statements continued
7. Loss for the year
Continuing operations
Discontinued operations
Note
2013
£’000
2012
£’000
2013
£’000
Loss 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
Customer redress and
associated costs
Impairment of IT assets
Other restructuring
Impairment of goodwill, intangible
assets & freehold
Regulatory penalties
Strategic project costs
Share based payments
Restructuring costs
Other staff costs
Total staff costs
18
17
6
6
6
6
6
6
30
6
9
Write-down of inventories recognised
as an expense
Movement on allowance for doubtful
trade receivables
21
2,346
61
2,684
6,868
200
18,168
8,058
2,580
5,822
—
(45)
50
2,923
34,684
37,657
163
456
2,318
(41)
2,652
8,648
135
26,273
—
—
3,711
8,500
388
37
4,874
49,294
54,205
—
—
2012
£’000
202
—
246
102
—
—
—
—
—
—
68
—
—
—
—
—
—
—
—
—
3,259
2,715
—
—
2,600
2,600
—
—
—
—
8,920
8,920
—
—
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
Total
2013
£’000
2,414
61
2,684
6,868
200
18,168
8,058
2,580
5,822
—
3,214
50
2,923
37,284
40,257
163
456
2013
£’000
67
371
438
30
27
2
314
42
415
853
2012
£’000
2,520
(41)
2,898
8,750
135
26,273
—
—
3,711
8,500
3,103
37
4,874
58,214
63,125
—
—
2012
£’000
65
464
529
242
52
28
246
37
605
1,019
Corporate finance services of £314,000 (2012: £246,000) relates to the preparation of a working capital report on the Group to support
the issue of the circular required pursuant to the disposal of CPPNA Holdings Inc. which constituted a Class 1 transaction for the Group.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 79
8. 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
revenue from 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
– Reinsurer’s share
– (Decrease)/increase in provision for gross claims
– Increase/(decrease) in provision for reinsurance claims
Acquisition costs
– Costs incurred
– Movement in deferred acquisition costs
Other expenses
2013
£’000
45,303
1,298
46,601
2013
£’000
5,085
22,415
(4,435)
(2,240)
577
16,317
3,675
8,889
12,564
16,659
50,625
2012
£’000
86,625
2,242
88,867
2012
£’000
7,299
38,331
(5,155)
960
(225)
33,911
15,782
5,085
20,867
18,602
80,679
The following assumptions have a significant impact on insurance revenues and costs:
ц Unearned premiums on prepaid insurance policies are recognised as revenue on a straight line basis over the life of the policy.
ц 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.
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Notes to the consolidated financial statements continued
9. Staff costs
Staff costs during the year (including Executive Directors)
Wages and salaries
Social security costs
Restructuring costs
Share based payments (see note 30)
Pension costs
Average number of employees
Continuing operations
UK and Ireland
Europe and Latin America
Asia Pacific
Total continuing operations
Discontinued operations
Continuing operations
Discontinued operations
2013
£’000
29,354
4,379
2,923
50
951
37,657
2012
£’000
42,934
5,102
4,874
37
1,258
54,205
2013
£’000
2,338
187
—
—
75
2,600
2012
£’000
8,019
643
—
—
258
8,920
Total
2013
£’000
2012
£’000
31,692
50,953
4,566
2,923
50
1,026
40,257
2013
713
408
46
1,167
41
1,208
5,745
4,874
37
1,516
63,125
2012
restated
(note 3)
1,098
383
51
1,532
179
1,711
Details of remuneration of Directors are included in the Remuneration report on pages 41 to 53.
10. Investment revenues
Interest on bank deposits
Continuing operations
Discontinued operations
Total
2013
£’000
394
2012
£’000
580
2013
£’000
10
2012
£’000
9
2013
£’000
404
2012
£’000
589
11. Finance costs: non-derivative instruments
Interest on borrowings
Amortisation of capitalised loan issue costs
Other
Continuing operations
Discontinued operations
Total
2013
£’000
1,190
3,072
43
4,305
2012
£’000
1,458
367
44
1,869
2013
£’000
—
—
—
—
2012
£’000
—
—
18
18
2013
£’000
1,190
3,072
43
4,305
2012
£’000
1,458
367
62
1,887
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 12. Taxation
Continuing operations
Current tax (credit)/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 continuing operations
Discontinued operations
81
2013
£’000
2012
£’000
34
1,761
(2,241)
(446)
(468)
696
2,330
2,558
2,112
921
3,033
610
2,211
(1,019)
1,802
(788)
306
154
(328)
1,474
3,191
4,665
UK corporation tax is calculated at 23.25% (2012: 24.5%) of the estimated assessable profit for the year. Taxation for other jurisdictions
is calculated at the rates prevailing in the respective jurisdictions. The UK Finance Act 2013 was enacted on 2 July 2013. It provides for
a reduction in the main rate of UK corporation tax from 23% to 21% effective from 1 April 2014 and a further reduction to 20% from
1 April 2015. As these rates were substantively enacted prior to 31 December 2013, they have been reflected in the UK deferred tax
balance at 31 December 2013.
The charge for the year can be reconciled to the loss per the consolidated income statement as follows:
Loss before tax from continuing operations
Effects of:
2013
£’000
2012
restated
(note 3)
£’000
(43,223)
(19,450)
Tax at the UK corporation tax rate of 23.25% (2012: 24.5%)
(10,049)
(4,765)
Regulatory penalties
Movement in unprovided deferred tax
Derecognition of deferred tax asset previously provided
Net expenses not deductible for tax purposes
Overseas tax losses not recognised
Higher tax rates on overseas earnings
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
—
5,731
2,960
1,249
569
873
88
696
(5)
2,112
2,083
843
1,436
1,156
463
418
(865)
306
399
1,474
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82
Notes to the consolidated financial statements continued
12. Taxation continued
Income tax credited to reserves during the year was as follows:
Current tax credit:
Movement on equalisation reserve
Total current tax credit
Deferred tax charge:
Timing differences on equity settled share based charge
Other short term timing differences
Total deferred tax charge
Total tax credited to reserves
2013
£’000
(31)
(31)
1
—
1
2012
£’000
(382)
(382)
4
(3)
1
(30)
(381)
13. Dividends
The Directors have not proposed a final dividend for the year ended 31 December 2013.
14. (Loss)/earnings per share
Basic and diluted (loss)/earnings per share have been calculated in accordance with IAS 33 “Earnings per Share”. Underlying (loss)/earnings
per share have also been presented in order to give a better understanding of the performance of the business.
(Loss)/earnings
Continuing operations
Discontinued operations
Total
2013
£’000
2012
restated
(note 3)
£’000
2013
£’000
(45,335)
37,284
(20,812)
38,279
12,468
(10,389)
2012
restated
(note 3)
£’000
3,694
2,608
2013
£’000
(32,867)
26,895
2012
£’000
(17,118)
40,887
(8,051)
17,467
2,079
6,302
(5,972)
23,769
(Loss)/earnings for the purposes of basic
and diluted (loss)/earnings per share
Exceptional items (net of tax)
(Loss)/earnings for the purposes
of underlying basic and diluted
(loss)/earnings per share
Number of shares
Weighted average number of ordinary shares for the purposes of basic and diluted (loss)/earnings per share
171,546
171,457
Effect of dilutive potential ordinary shares on underlying earnings: share options
—
4,095
Weighted average number of ordinary shares for the purposes of underlying diluted
(loss)/earnings per share
171,546
175,552
Number
(thousands)
Number
(thousands)
Continuing operations
Discontinued operations
Total
2013
Pence
2012
restated
(note 3)
Pence
2013
Pence
2012
restated
(note 3)
Pence
2013
Pence
2012
Pence
Basic and diluted (loss)/earnings per share:
Basic and diluted
(26.43)
(12.13)
7.27
2.15
(19.16)
(9.98)
Basic and diluted underlying
(loss)/earnings per share:
Basic
Diluted
(4.69)
(4.69)
10.18
9.95
1.21
1.21
3.68
3.59
(3.48)
(3.48)
13.86
13.54
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 83
15. Discontinued operations
On 3 May 2013 the Group completed the sale of CPPNA Holdings Inc. and its subsidiaries, which carried out all of the Group’s North
American operation. The gross consideration on disposal was fixed at £26.1 million ($40 million).
As at 31 December 2013 the Board was committed to the disposal of its share of the Home3 joint venture. The disposal subsequently
completed on 24 March 2014 for cash consideration of £0.3 million, further details are provided in note 33.
In accordance with IFRS5 ‘Non-Current Assets Held for Sale and Discontinued Operations’ these operations have been presented as
discontinued operations.
The consolidated income statement, summary of cash flows and assets and liabilities of these businesses are set out below:
(i) Consolidated income statement
North America
£’000
2013
Home3
£’000
Total
£’000
North America
£’000
2012
Home3
£’000
Revenue
Cost of sales
Gross profit
Administrative expenses
Share of loss of joint venture
Operating profit/(loss)
Investment revenues
Finance costs: non-derivative instruments
Profit/(loss) before taxation
Taxation
Profit/(loss) after tax
Profit/(loss) on disposal
Profit/(loss) for the year
15,634
(7,962)
7,672
(3,902)
—
3,770
10
—
3,780
(921)
2,859
10,403
13,262
—
—
—
—
(780)
(780)
—
—
(780)
—
(780)
(14)
(794)
15,634
(7,962)
7,672
(3,902)
(780)
2,990
10
—
3,000
(921)
2,079
10,389
12,468
49,802
(26,578)
23,224
(13,138)
—
10,086
9
(18)
10,077
(3,191)
6,886
(2,715)
4,171
On 3 May 2013 the Group completed the sale of its North American operation to AmTrust.
Proceeds
Net assets sold
Costs associated with disposal
Currency translation differences reclassified on disposal
Profit/(loss) on disposal
(ii) Summary of cash flows
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Cash consideration in respect of sale of discontinued operation
Costs associated with the disposal of discontinued operation
Cash disposed of with discontinued operation
Investment in joint venture
Net cash inflow/(outflow)
—
—
—
—
(477)
(477)
—
—
(477)
—
(477)
—
(477)
2013
£’000
26,086
(14,042)
(3,259)
1,618
10,403
2013
£’000
2,216
(27)
(1,266)
26,086
(4,215)
(3,731)
(780)
18,283
Total
£’000
49,802
(26,578)
23,224
(13,138)
(477)
9,609
9
(18)
9,600
(3,191)
6,409
(2,715)
3,694
2012
£’000
—
—
(2,715)
—
(2,715)
2012
restated
(note 3)
£’000
4,181
1,225
(6,973)
—
(905)
—
(477)
(2,950)
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Notes to the consolidated financial statements continued
15. Discontinued operations continued
(iii) Assets and liabilities
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax asset
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets held for sale
Liabilities
Current liabilities
Trade and other payables
Income tax liabilities
Non-current liabilities
Other creditors
Total liabilities held for sale
Net assets held for sale
Movements in the Group’s share in its joint venture are as follows:
Carrying amount at 1 January
Increase in investment
Losses recognised for the year
Carrying amount at 31 December
2013
£’000
2012
£’000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2013
£’000
—
780
(780)
—
11,934
204
343
290
12,771
3,399
3,837
7,236
20,007
(6,530)
(469)
(6,999)
(131)
(131)
(7,130)
12,877
2012
£’000
—
477
(477)
—
The Group has a 50% economic interest in Home3, with 49% of the issued ordinary share capital being allotted to the Group. The Group
has provided Home3 with a subordinated loan facility, as well as incurring further costs which are subject to recharge to Home3 but will
not be repaid and will be capitalised as part of the disposal transaction. These balances have been accounted for as investments in Home3
with the trading losses recognised limited to the level of investment.
16. Goodwill
Cost and carrying value:
At 1 January
Exchange adjustments
Impairment
Transfer to assets classified as held for sale
At 31 December
2013
£’000
2012
£’000
1,478
—
(1,478)
—
—
16,521
(539)
(2,570)
(11,934)
1,478
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 85
16. Goodwill continued
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:
Homecare (Holdings) Limited
2013
£’000
—
2012
£’000
1,478
The recoverable amounts of CGUs are determined from value in use calculations. The key assumptions for the value in use calculations
are those regarding discount rates, renewal rates and expected 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. The pre-tax rate used to discount the forecast cash flows from the relevant CGUs at
31 December 2013 is 16% (2012: 16%).
At 31 December 2013, as a result of the discounted cash flow forecasts of the CGU the Directors decided to recognise a full impairment
of the Homecare (Holdings) Limited goodwill balance. The impairment loss of £1,478,000 has been recognised as an exceptional item
in the consolidated income statement.
17. Other intangible assets
Cost:
At 1 January 2012
Additions
Disposals
Exchange adjustments
Transfer to assets classified as held for sale
At 1 January 2013
Additions
Disposals
Exchange adjustments
At 31 December 2013
Accumulated amortisation:
At 1 January 2012
Provided during the year
Disposals
Exchange adjustments
Impairment
Transfer to assets classified as held for sale
At 1 January 2013
Provided during the year
Disposals
Exchange adjustments
Impairment
At 31 December 2013
Carrying amount:
At 31 December 2012
At 31 December 2013
Contractual
arrangements
with third parties
£’000
Business
relationships
£’000
Internally
generated
software
£’000
Externally
acquired
software
£’000
Total
£’000
2,118
16,906
18,821
54,973
—
(907)
—
—
1,571
—
(10)
(237)
1,686
(112)
(129)
(1,027)
17,420
1,211
18,230
19,239
—
—
—
—
—
—
1,248
—
—
356
(144)
(49)
17,420
1,211
19,478
19,402
57,511
3,549
(1,019)
(139)
(1,264)
56,100
1,604
(144)
(49)
32,347
8,750
(500)
(36)
1,141
(1,060)
40,642
6,868
(12)
(9)
6,723
54,212
12,301
2,400
12,678
2,335
636
525
(500)
—
550
—
—
(11)
—
(233)
1,211
14,457
—
—
—
—
1,211
1,804
—
—
2,920
19,181
—
(25)
—
(827)
14,161
2,023
(12)
(9)
2,504
18,667
—
—
3,773
297
5,078
15,458
735
3,299
17,128
292
—
—
—
6,732
3,490
—
—
591
—
10,813
3,041
—
—
1,299
15,153
6,607
2,267
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Notes to the consolidated financial statements continued
17. Other intangible assets continued
At 31 December 2013 as a result of the IT transformation programme which is reviewing the Group’s current IT platforms an impairment
of £5,424,000 was recognised in relation to internally generated software and externally acquired software. These assets were identified
as being located in CGUs that are not forecast to be cash generative over the term of the IT transformation programme and therefore have
no value in use to the business. The forecast cash flows were discounted using the Group’s pre-tax discount rate of 16%. As a result an
impairment of these assets was considered appropriate. This methodology also applies to the £2,634,000 impairment of computer
systems included in note 18.
An impairment of £1,299,000 was recognised in the year within other intangible assets in respect of contractual arrangements with third
parties. Current forecasts, which include a reduction in the expected renewal performance of the arrangement as a result of claims through
the Scheme, results in the recognition of an impairment loss.
These impairment losses have been recognised as exceptional items through the consolidated income statement. The total impairment
loss of £6,723,000 relates to the following segments; UK and Ireland £6,491,000; Europe and Latin America £165,000; and Asia Pacific
£67,000.
18. Property, plant and equipment
Cost:
At 1 January 2012
Additions
Disposals
Exchange adjustments
Transfer to assets classified as held for sale
At 1 January 2013
Additions
Disposals
Exchange adjustments
At 31 December 2013
Accumulated depreciation:
At 1 January 2012
Provided during the year
Disposals
Exchange adjustments
Transfer to assets classified as held for sale
At 1 January 2013
Provided during the year
Disposals
Exchange adjustments
Impairment
At 31 December 2013
Carrying amount
At 31 December 2012
At 31 December 2013
Freehold land &
property
£’000
Leasehold
improvements
£’000
Computer
systems
£’000
Furniture &
equipment
£’000
Total
£’000
7,278
5,650
—
—
—
—
553
(60)
(19)
(240)
7,278
5,884
—
—
—
15
(249)
(14)
30,499
1,386
(234)
(159)
(1,912)
29,580
157
(649)
(15)
7,627
238
(41)
(70)
(585)
7,169
69
(573)
(32)
51,054
2,177
(335)
(248)
(2,737)
49,911
241
(1,471)
(61)
7,278
5,636
29,073
6,633
48,620
1,787
165
—
—
—
1,952
163
—
—
2,063
4,178
5,326
3,100
4,057
326
(52)
(20)
(174)
4,137
265
(205)
5
982
5,184
24,137
2,057
(223)
(115)
(1,718)
24,138
2,028
(635)
7
2,634
28,172
6,600
350
(32)
(48)
(502)
6,368
228
(563)
(8)
—
6,025
36,581
2,898
(307)
(183)
(2,394)
36,595
2,684
(1,403)
4
5,679
43,559
1,747
452
5,442
901
801
608
13,316
5,061
Included in freehold land and property is freehold land at its cost value of £759,000 (2012: £759,000), which is not depreciated.
During the year the Group has recognised impairment losses in respect of freehold land and property and leasehold improvements totalling
£3,045,000. This reflects a revision of the carrying value of the freehold property to its current market value. The impairment loss has
been recognised as an exceptional item through the consolidated income statement and relates to the UK and Ireland segment.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 87
2013
£’000
1,362
1,402
623
3,387
2013
£’000
10,291
548
(9,437)
1,402
2012
£’000
15,642
10,291
1,308
27,241
2012
£’000
15,376
15,623
(20,708)
10,291
19. 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
Of the above balance, £nil (2012: £2,104,000) relates to a period greater than 12 months from 31 December 2013.
Amounts due from policyholders 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 credit is 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 reduced as insurance receivables are dispersed amongst a broad customer base
and where concentration exists the Group’s main counterparties are typically large companies with established credit records. Credit risk
is mitigated through maintaining and managing the customer base.
Included in the Group’s insurance receivable balance are debtors with a carrying amount of £216,000 (2012: £1,782,000) 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 un-provided debts is 179 days (2012: 65 days).
Ageing of past due but not impaired insurance receivables
Days outstanding since date of sales invoice:
45 – 90 days
91 – 120 days
Over 120 days
20. Inventories
Consumables and supplies
2013
£’000
19
9
188
216
2013
£’000
149
2012
£’000
1,694
6
82
1,782
2012
£’000
299
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Notes to the consolidated financial statements continued
21. Trade and other receivables
Trade receivables
Prepayments and accrued income
Other debtors
2013
£’000
8,441
10,928
1,142
20,511
2012
£’000
14,842
12,358
1,834
29,034
Trade and other receivables are predominantly non-interest bearing.
The Group’s trade receivables continue to relate to retail customer payments awaiting collection and wholesale counterparties.
Since the timing of retail customer collection is controlled by the Group and is received within a specified period of processing the
transaction, credit risk is considered low for these items.
Where wholesale counterparty balances are individually or collectively material, they are reviewed for recoverability when an adverse
change in credit quality is identified or when they become overdue. The Group has low historical levels of customer and counterparty
credit defaults, due in part to the quality of relationship it has with its counterparties and their credit ratings.
Where credit is offered to customers, the average credit period offered is 44 days (2012: 37 days). No interest is charged on trade
receivables at any time. Disclosures regarding credit risk below relate only to counterparties or customers offered credit.
Overall exposure continues to be mainly spread over a large number of customers but where concentration exists this is with highly
rated counterparties.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £897,000 (2012: £1,045,000) 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 un-provided debts is 76 days (2012: 83 days).
Ageing of past due but not impaired receivables
Days outstanding since date of invoice:
Up to 90 days
91 – 120 days
Over 120 days
Movement in the allowance for doubtful receivables
At 1 January
Increase in allowance recognised in the income statement
At 31 December
2013
£’000
589
176
132
897
2013
£’000
—
456
456
2012
£’000
620
236
189
1,045
2012
£’000
—
—
—
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 22. Cash and cash equivalents
Cash on demand
Short term deposits
89
2013
£’000
39,085
27,815
66,900
2012
£’000
31,470
21,728
53,198
Short term deposits of £27,815,000 (2012: £21,728,000) represents cash deposits maintained by the Group’s insurance businesses
for solvency purposes.
The terms of the VVOP agreed with the FCA restrict the disposition of assets within the UK’s regulated entities CPPL and HIL. Cash
on demand includes cash balances of £32,706,000 (2012: £20,426,000) which cannot be distributed to the wider Group without FCA
approval. This restricted cash whilst being unavailable to distribute to the wider Group, is available to the regulated entity in which it
exists including for operational and customer redress purposes.
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
BB
B
Rating information not available
2013
£’000
1,607
62,444
2,559
167
—
123
2012
£’000
6,570
42,782
3,480
294
63
9
66,900
53,198
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.
23. Insurance liabilities
Claims reported
Claims incurred but not reported
Total claims
Unearned premium
Amounts payable to reinsurers
Total insurance liabilities
2013
£’000
1,144
230
1,374
2,475
140
3,989
2012
£’000
3,291
323
3,614
3,773
138
7,525
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.
2013
£’000
3,773
45,303
2012
£’000
6,015
86,625
(46,601)
(88,867)
2,475
3,773
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Notes to the consolidated financial statements continued
23. 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 2012
Notified claims
Incurred but not reported claims
As at 31 December 2013
Gross
£’000
3,291
323
3,614
1,144
230
1,374
Reinsurance
£’000
(1,294)
(14)
(1,308)
(639)
(92)
(731)
Net
£’000
1,997
309
2,306
505
138
643
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 2012
Cash (paid)/received for claims settled in the year
Increase/(reduction) in liabilities arising from current year claims
As at 1 January 2013
Cash (paid)/received for claims settled in the year
Increase/(reduction) in liabilities arising from current year claims
As at 31 December 2013
Equalisation reserve
At 1 January
Transfer from retained earnings
At 31 December
Gross
£’000
Reinsurance
£’000
2,653
(38,330)
39,291
3,614
(22,415)
20,175
1,374
(1,083)
5,155
(5,380)
(1,308)
4,435
(3,858)
(731)
2013
£’000
7,984
145
8,129
Net
£’000
1,570
(33,175)
33,911
2,306
(17,980)
16,317
643
2012
£’000
6,423
1,561
7,984
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.
24. Trade and other payables
Current liabilities
Trade creditors and accruals
Other tax and social security
Other payables
Deferred income
Non-current liabilities
Other payables
Total trade and other payables
2013
£’000
2012
£’000
32,103
35,533
3,207
5,317
8,377
6,305
7,016
7,733
49,004
56,587
9,494
58,498
6,500
63,087
Trade creditors and accruals comprise amounts outstanding for trade purchases and on-going costs. The average credit period for trade
purchases is 28 days (2012: 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.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 25. Borrowings
The carrying value of the Group’s financial liabilities, for short term borrowings and long term borrowings, are as follows:
Bank loans due within one year
Less: unamortised issue costs
Borrowings due within one year
Bank loans due outside of one year
Less: unamortised issue costs
Commission deferral agreement
Borrowings 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
2013
£’000
—
—
—
13,000
(1,653)
11,250
22,597
2013
£’000
—
—
24,250
24,250
(1,653)
22,597
91
2012
£’000
43,500
(92)
43,408
—
—
—
—
2012
£’000
43,500
—
—
43,500
(92)
43,408
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 July 2016.
The RCF bears interest at a variable rate of LIBOR plus a margin of 4%. It is secured by fixed and floating charges on certain assets of
the Group. The RCF includes a prepayment fee which increases over the term of the loan to a maximum level of 8% of the outstanding
principal balance. 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.
During the year the Group reached agreement with certain of its Business Partners to defer payment of commission that would otherwise
become due over the twelve months up to 30 June 2014 (Commission Deferral Agreement), subject to all amounts outstanding falling due
for repayment on expiry of the agreement on 31 July 2017. The Commission Deferral Agreement bears interest at a fixed rate of 3.5% and
is secured by charges over the assets of CPPL in substantially similar form and terms to the security granted under the RCF.
The weighted average interest rates paid during the year were as follows:
Bank loans
Commission deferral agreement
Weighted average
At 31 December 2013 the Group does not have any undrawn committed borrowing facilities (2012: £35.6 million).
2013
%
3.8
3.5
3.8
2012
%
3.4
—
3.4
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Notes to the consolidated financial statements continued
26. Provisions
At 1 January
Charged to the income statement
Customer redress and associated costs
paid in the year
Loan notes repaid in the year
Restructuring
costs
2013
£’000
—
1,750
—
—
Transfer to trade and other payables
(1,750)
Customer
redress and
associated
costs
2013
£’000
28,967
18,168
Total
2013
£’000
28,967
19,918
(9,737)
(9,737)
—
—
—
(1,750)
37,398
Cash settled
share based
payments
2012
£’000
894
3
—
(897)
—
—
Customer
redress and
associated
costs
2012
£’000
14,778
26,273
Total
2012
£’000
15,672
26,276
(12,084)
(12,084)
—
—
(897)
—
28,967
28,967
At 31 December
—
37,398
The customer redress and associated cost provision comprises anticipated compensation payable to customers through a customer
redress exercise and associated professional fees.
Following discussions with the FCA and Central Bank of Ireland (CBI) an amount is included in the customer redress and associated costs
provision for redress to Irish Card Protection customers where the sale was concluded directly by a Group company. No provision for redress
has been made where the sale was concluded by a Business Partner.
Customer redress and associated costs are expected to be settled within one year of the balance sheet date.
27. 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 2012
Credited/(charged) to income statement
(Charged)/credited to equity
Transfer to assets classified as held for sale
At 1 January 2013
(Charged)/credited to income statement
Credited to equity
Exchange differences
At 31 December 2013
Accelerated
capital
allowances
£’000
1,031
1,507
—
(135)
2,403
(2,424)
—
—
(21)
Share based
payments
£’000
630
(626)
(4)
—
—
6
(1)
—
5
Other short
term timing
differences
£’000
(308)
243
3
(155)
(217)
(140)
—
(12)
(369)
Total
£’000
1,353
1,124
(1)
(290)
2,186
(2,558)
(1)
(12)
(385)
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.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 93
27. Deferred tax continued
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
2013
£’000
142
(527)
(385)
2012
£’000
2,902
(716)
2,186
At the balance sheet date the Group has unused tax losses of £38,100,000 (2012: £11,349,000) 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 £nil (2012: £463,000) that will expire in 2013, £nil (2012: £129,000) that will expire in 2014, £380,000 (2012: £417,000) that
will expire in 2015, £551,000 (2012: £937,000) that will expire in 2016, £1,102,000 (2012: £1,102,000) that will expire in 2017, £557,000
(2012: £557,000) that will expire in 2018, £701,000 (2012: £701,000) that will expire in 2019, £39,000 (2012: £39,000) that will expire in
2020, £674,000 (2012: £674,000) that will expire in 2021 and £555,000 (2012: £nil) that will expire in 2023. Other losses will be carried
forward indefinitely.
There is no deferred tax liability on unremitted foreign earnings.
28. 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. The Group’s principal debt facility is a £13.0 million RCF, this replaced the £80.0 million
RCF which was in place during the prior year and which expired on 31 March 2013 and was extended until 31 July 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 customer redress obligations and the availability of cash reserves, 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 FCA in the UK. Both subsidiaries have complied with their respective imposed capital requirements throughout the current
and previous year.
Card Protection Plan Limited
Card Protection Plan Limited is regulated by the FCA 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 FCA, as part of the VVOP, to additional restrictions on the disposition of assets by Card Protection Plan Limited.
Homecare Insurance Limited
Homecare Insurance Limited is authorised by the PRA and regulated by the FCA as an insurance underwriter, and therefore maintains its
capital resources in accordance with the FCA’s risk-based solvency regime, Individual Capital Assessment Standards (ICAS).
The current and future capital levels are reviewed each month and reported to the FCA to ensure on-going compliance and to support
the quarterly FCA returns. There have been no instances of non-compliance in either the current or previous years.
The Group has agreed with the FCA, as part of the VVOP, to additional restrictions on the disposition of assets by Homecare Insurance Limited.
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, hence all are classified as Level 2 in the fair value hierarchy. Financial assets and
liabilities are carried at the following amounts:
Financial assets
Loans and receivables
2013
£’000
2012
£’000
76,471
69,874
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.
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Notes to the consolidated financial statements continued
28. Financial instruments continued
Fair value of financial instruments continued
Financial liabilities
Financial liabilities at amortised cost
2013
£’000
2012
£’000
(112,366)
(130,200)
Financial liabilities at amortised cost comprise bank loans, trade creditors, accruals, taxes payable and provision for customer redress
and 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 underlying EBITDA to interest paid) at 31 December 2013 is 7x (2012: 25x).
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.
Decrease in loss before tax
Increase in shareholders’ equity
2013
£’000
617
617
2012
£’000
236
236
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
2013
£’000
9,983
—
2012
£’000
8,673
3,719
2013
£’000
7,392
63
2012
£’000
8,647
6,454
The Group disposed of its US Dollar operation on 3 May 2013 therefore the Group’s exposure to US Dollar foreign currency movements
has significantly reduced.
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.
Loss before tax
Shareholders’ equity
Euro currency impact
US Dollar currency impact
2013
£’000
(86)
432
2012
£’000
(139)
4
2013
£’000
(8)
(8)
2012
£’000
(51)
(357)
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013
95
28. Financial instruments continued
Foreign currency risk continued
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
2013
£’000
(6,528)
4,389
2012
£’000
(4,764)
8,006
A 20% deterioration in the Sterling: Euro exchange rate throughout the year would have increased Group operating loss
by £731,000 (2012: £1,334,000).
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.
The Group’s retail trade and insurance receivables are mainly with a broad base of individual customers and are therefore not generally
exposed to any one customer, resulting in low credit risk.
The Group’s Packaged Account and Wholesale activities can result in material balances existing with a small number of counterparties
and therefore increased credit risk exists. The Group considers that it mitigates this increased credit risk through good quality relationships
with counterparties and only partnering with counterparties with established credit ratings.
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 are outlined for insurance receivables in note 19 and other receivables in note 21.
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 has a policy of repatriation and pooling of funding where possible in order to maximise the return on surplus cash. 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. The terms of the three year RCF to 31 July 2016, have led to the amount committed being reduced to
£13.0 million which is fully drawn, liquidity risk has therefore increased in the period.
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.
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.
2012
Non-interest bearing liabilities
Variable rate instruments
2013
Less than
1 month
£’000
23,698
83
23,781
1-3
months
£’000
3 months
to 1 year
£’000
1-5
years
£’000
Over
5 years
£’000
14,990
43,666
58,656
37,452
10,289
—
—
37,452
10,289
Non-interest bearing liabilities
12,366
10,844
49,701
Fixed rate instruments
Variable rate instruments
—
49
—
97
—
438
12,415
10,941
50,139
14,960
12,857
14,964
42,781
Total
£’000
86,700
43,749
130,449
88,117
12,857
15,548
271
—
271
246
—
—
246
116,522
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Notes to the consolidated financial statements continued
28. Financial instruments continued
Liquidity and interest risk tables continued
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.
Weighted
average
effective
interest rate
%
Less than
1 month
£’000
1-3
months
£’000
3 months
to 1 year
£’000
2012
Non-interest bearing assets
n/a
11,546
2,294
2,006
Variable interest rate
instruments
2013
Non-interest bearing assets
Variable interest rate
instruments
1.0%
n/a
1.0%
36,345
47,891
16,713
19,007
3,980
4,548
43,412
47,392
23,169
27,717
140
2,146
641
319
960
1-5
years
£’000
830
—
830
384
—
384
Over
5 years
£’000
—
—
—
18
—
18
Total
£’000
16,676
53,198
69,874
9,571
66,900
76,471
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 FCA. 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 23.
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 £1,443,000 increase in loss before tax and reduction in
shareholders’ equity (2012: £2,809,000), 10% representing the Directors’ assessment of the reasonably possible change in the loss ratio.
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. Although settlement costs are not capped they generally vary within a small range, limiting the Group exposure.
Reliance on key suppliers
The Group makes use of third party suppliers to fulfil the majority of 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.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 97
29. Share capital
Called-up and allotted: Ordinary Shares of 10 pence each
At 1 January
Issue of shares in connection with:
Exercise of share options
At 31 December
2013
Number
(thousands)
2013
£’000
2012
Number
(thousands)
2012
£’000
171,487
17,111
171,430
17,106
101
9
57
171,588
17,120
171,487
5
17,111
During the year, the Company issued 101,522 shares to option holders for total consideration of £4,000. Further details relating to share
options are provided in note 30.
Of the 171,588,412 ordinary shares issued at 31 December 2013, 171,088,413 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
The Group’s 2005 and 2008 ESOP Schemes were 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. There is no legacy scheme share based
payment charge included in the income statement in the current year (2012: £196,000).
The IPO during 2010 represented a trigger event for the 2005 and 2008 ESOP Schemes. All outstanding legacy scheme options have
now vested. Options lapse if not exercised within ten years of original grant and may lapse if the employee leaves the Group.
Details of share options outstanding during the year under the legacy schemes are as follows:
2005 ESOP Scheme
Outstanding at 1 January
Forfeited during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
2008 ESOP Scheme
Outstanding at 1 January
Forfeited during the year
Outstanding at 31 December
Exercisable at 31 December
2013
2012
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
2,358
(295)
—
2,063
2,063
1,365
(492)
873
873
1.97
1.32
—
2.06
2.06
1.79
1.79
1.79
1.79
3,135
(773)
(4)
2,358
2,358
3,866
(2,501)
1,365
1,365
2.03
2.22
0.82
1.97
1.97
1.79
1.79
1.79
1.79
There have been no exercises in the current year, the weighted average share price at the date of exercise in the prior year was £1.12.
The options outstanding for the 2005 Scheme and 2008 Scheme at 31 December 2013 had no remaining contractual life in either the
current year or the prior year.
No 2005 Scheme or 2008 Scheme options have been granted in either the current or prior year.
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Notes to the consolidated financial statements continued
30. Share based payment continued
Post-IPO plans
Other administrative expenses include a charge of £50,000 (2012: £159,000 credit) arising from the Long Term Incentive Plan (LTIP), the
Restricted Stock Plan (RSP), the Deferred Share Bonus Plan (DSBP) and the ShareSAVE Plan. Options have been granted during the year
under the LTIP to incentivise certain employees.
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
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
DSBP
Outstanding at 1 January
Forfeited during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
ShareSAVE Plan
Outstanding at 1 January
Forfeited / cancelled during the year
Outstanding at 31 December
2013
2012
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
5,911
3,000
(1,117)
7,794
643
—
(149)
(89)
405
44
29
—
(13)
16
16
334
(222)
112
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,904
4,542
(1,535)
5,911
200
588
(106)
(39)
643
57
61
(18)
(14)
29
9
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.34
1.31
1.35
1,235
(901)
334
1.35
1.35
1.34
Nil-cost options and conditional shares granted during the year under the LTIP normally vest after three years, lapse if not exercised within
10 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 total shareholder return and an absolute share price measure over a three year period.
There have been no LTIP options exercised in either the current or prior year.
Nil-cost options and conditional shares granted during the year under the RSP normally vest after three years, lapse if not exercised within
10 years of grant, and may lapse if option holders cease to be employed by the Group.
Nil-cost options and conditional shares granted during 2011 under the DSBP normally vest after three years, lapse if not exercised within
10 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. There have been no DSBP options
granted in either the current or prior year.
Options granted during 2011 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. There have been no ShareSAVE plan options granted or exercised in either the current or
prior year.
The options outstanding at 31 December 2013 had a weighted average remaining contractual life of two years (2012: two years) in the LTIP,
one year (2012: two years) in the RSP, nil years in the DSBP (2012: one year) and one year (2011: two years) in the ShareSAVE Plan.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 99
30. Share based payment continued
Post-IPO plans 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
2013
2012
2013
£0.08
—
2012
£0.48
—
—
—
— 154.00%
75.19%
— 3 years
3 years
—
—
0.92%
0.47%
—
—
RSP
2013
—
—
—
—
—
—
2012
£0.45
—
—
3 years
—
—
DSBP
2013
2012
—
—
—
—
—
—
—
—
—
—
—
—
The aggregate estimated fair value of the options and shares granted in the year under the LTIP is £20,000 (2012: £329,000 LTIP and RSP).
31. Reconciliation of operating cash flows
Loss for the year
Adjustment for:
Depreciation and amortisation
Equity settled share based payment expense
Impairment loss on goodwill, intangible assets and freehold property
Impairment of IT assets
Loss on disposal of property, plant and equipment
(Profit)/loss on disposal of discontinued operations
Share of loss of joint venture
Investment revenues
Other gains and losses
Finance costs: non-derivative instruments
Income tax expense
Operating cash flows before movements in working capital
Decrease in inventories
Decrease/(increase) in receivables
Decrease/(increase) in insurance assets
(Decrease)/increase in payables
Decrease in insurance liabilities
Increase in provisions
Cash generated by operations
Exercise of share options
Income taxes paid
Net cash from operating activities
2013
£’000
2012
£’000
(32,867)
(17,230)
9,552
50
5,822
8,058
200
(10,389)
780
(404)
—
4,305
3,033
(11,860)
150
8,464
23,854
(2,526)
(3,535)
8,431
22,978
—
(2,820)
20,158
11,648
34
3,711
—
135
2,715
477
(589)
891
1,887
4,665
8,344
30
(2,063)
(2,689)
916
(1,353)
14,192
17,377
(899)
(5,392)
11,086
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Notes to the consolidated financial statements continued
32. Commitments
Operating lease commitments
The Group has entered into commercial leases on certain properties and motor vehicles. 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
2013
£’000
2,297
4,423
898
7,618
2012
£’000
2,803
6,672
1,093
10,568
33. Events after the balance sheet date
On 24 March 2014, the Group announced that it had completed the sale of its 49% shareholding in Home3 Assistance Limited (Home3)
to Mapfre Abraxas Software Limited (Mapfre). Home3 was previously a joint venture company between the Group and Mapfre. As part
of its exit of the joint venture the Group agreed to invest a further £1,000,000 to absorb its share of unrecognised losses in Home3.
The £1,000,000 capital will be loaned by Mapfre to the Group with repayments occurring over a two-year period. Balances currently
owed by Home3 to the Group will also be capitalised as part of the transaction (see note 34). The consideration for the Group’s entire
holding of share capital in Home3 is £275,000 and will be offset against the loan balance.
On 7 April 2014, the Group entered into an agreement to transfer the majority of the Group’s business in Singapore to ACE Insurance
Limited (ACE) for consideration of approximately £163,000. The transaction is expected to complete in May 2014.
As announced on 14 January 2014, the High Court sanctioned the Scheme, which is a vehicle to review claims and, where appropriate,
pay redress to customers. The Scheme became effective on 31 January 2014 and will complete on 30 August 2014. The claims process
is on-going and the Group has made provision for the expected level of redress, which is detailed in note 26. As the Scheme is not yet
complete a risk remains that the response rates may exceed the level currently provided.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 101
34. Related party transactions and control
Ultimate controlling party
The Group is controlled by the Company’s majority shareholder, Mr Hamish Ogston.
Transactions with joint ventures
Transactions between the Group and its joint venture represent related party transactions.
The Group has undertaken the following transactions with its joint venture entity, Home3:
Costs rechargeable to Home3 incurred by the Group
Balance receivable from Home3 at 31 December
2013
£’000
138
2,299
2012
£’000
743
2,565
The disposal of Home3 completed on 24 March 2014. As part of the disposal agreement the amounts receivable from Home3 of £2,299,000
have been capitalised as an investment in the joint venture. £2,254,000 of this balance has already been provided through the consolidated
income statement between 2011 and 2013. Further detail of the transaction is included in note 33.
Transactions with related parties
On 23 March 2013, the Group entered into an agreement with Mr Hamish Ogston to reimburse on demand any legal fees, costs and
expenses which Mr Hamish Ogston had incurred or were incurred on his behalf in relation to the refinancing activities of the Group.
The aggregate amount of costs reimbursed by the Group was £133,000.
As part of the disposal of CPPNA Holdings Inc., agreements were entered into with David Pearce and Gregory Mazza who were directors
of a subsidiary of CPPNA Holdings Inc. for the payment of a “sale” retention bonus. The aggregate amount paid was $466,000 in the case
of David Pearce and $311,000 in the case of Gregory Mazza.
On 4 September 2013, Shaun Astley-Stone was appointed a Non-Executive Director of the Group. Subsequent to his appointment
Shaun Astley-Stone continued to provide consultancy services to certain companies within the Group, the fees in respect of these
services totalled £32,000.
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
2013
£’000
3,769
184
547
(144)
4,356
2012
£’000
3,782
229
684
(91)
4,603
Required disclosures regarding remuneration of the Directors are included in the Remuneration report on pages 41 to 53.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013Financial statementsIndependent Auditor’s reportConsolidated income statementConsolidated statement of comprehensive incomeConsolidated balance sheetConsolidated statement of changes in equityConsolidated cash flow statement ǔNotes to the consolidated financial statementsCompany balance sheetNotes to the Company financial statements 102
Company balance sheet
For the year ended 31 December 2013
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
Note
38
39
40
2013
£’000
1
15,122
15,123
52,805
1,069
53,874
42
(14,540)
43
44
45
45
45
39,334
54,457
(402)
54,055
17,120
33,292
5,062
(1,419)
54,055
2012
£’000
5
15,717
15,722
49,322
14,454
63,776
(15,010)
48,766
64,488
(408)
64,080
17,111
33,297
5,012
8,660
64,080
Approved by the Board of Directors and authorised for issue on 23 April 2014 and signed on its behalf by:
Brent Escott
Chief Executive Officer
Craig Parsons
Chief Financial Officer
Company registration number: 07151159
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013
Notes to the Company
financial statements
103
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
Notes to the consolidated financial statements
ǔ Company balance sheet
ǔ Notes to the Company financial statements
35. 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 loss after tax for the year of £10,069,000 (2012: £6,820,000 loss). There have been no dividends
received from subsidiary undertakings in either the current or prior year.
36. 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).
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 legal or constructive 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.
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.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013
104
Notes to the Company financial statements continued
36. Significant accounting policies continued
Cash and cash equivalents
Cash and cash equivalents 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.
37. Dividends
The Directors have not proposed a final dividend for the year ended 31 December 2013.
38. Tangible fixed assets
Cost:
At 1 January 2013
Additions
Disposals
At 31 December 2013
Accumulated Depreciation:
At 1 January 2013
Provided during the year
Disposals
At 31 December 2013
Carrying amount:
At 31 December 2012
At 31 December 2013
39. Investment in subsidiaries
Cost and carrying value:
At 1 January
Acquisitions
Disposals
At 31 December
Computer
systems
£’000
8
—
(2)
6
3
2
—
5
5
1
2013
£’000
2012
£’000
15,717
15,787
39
(634)
—
(70)
15,122
15,717
The disposal of £634,000 (2012: £70,000) relates to options previously exercised in relation to North America employees which were
recognised as an investment at that time, and therefore formed part of the North American operation disposal transaction on 3 May 2013.
The acquisition of £39,000 during the year (2012: £nil) relates to the share based payment charges in relation to share options held by
overseas employees which are treated as capital contributions to the employing subsidiaries and therefore recognised as investments
in subsidiary companies.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 105
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
Notes to the consolidated financial statements
Company balance sheet
ǔ Notes to the Company financial statements
Country of
incorporation/
registration
Class of
shares held
Percentage
of share
capital held
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
Italy
Mexico
Mexico
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
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99.99%
99.99%
39. Investment in subsidiaries continued
Investments in Group entities at 31 December 2013 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
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
CPP Brasil Servicos de Assistencia Pessoal LTDA
CPP Commercial 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
CPP Italia Srl
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 Y Servicios de Asistencia SAU
Key Line Auxiliar SL
CPP Real Life Services Support SL
CPP Sigorta Aracilik Hizmetleri Anonim Sirketi
CPP Yardim ve Destek Hizmetleri Anonim Sirketi
* A Protected Cell Company treated as a quasi-subsidiary.
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Notes to the Company financial statements continued
39. Investment in subsidiaries continued
Investments in joint venture undertakings held via
an intermediate subsidiary
Country of
incorporation/
registration
Class of
shares held
Percentage
of share
capital held
Home 3 Assistance Limited**
England & Wales
Ordinary Shares
49%
** Home 3 Assistance Limited was disposed by the Group on 24 March 2014.
The principal activity of all of the subsidiaries is to provide services in connection with the Group’s major product streams.
40. Debtors
Amounts due from Group entities
Prepayments
Other debtors
2013
£’000
2012
£’000
52,491
49,142
281
33
119
61
52,805
49,322
Amounts receivable from Group entities are unsecured, have no fixed date of repayment and bear interest at LIBOR plus a variable margin.
41. Deferred tax
Movements in deferred tax assets recognised by the Company are as follows:
At 1 January
Charged to profit and loss account
At 31 December
42. Creditors: amounts falling due within one year
Trade creditors
Amounts payable to Group entities
Accruals
Share based
payments
2013
£’000
Share based
payments
2012
£’000
—
—
—
2013
£’000
147
13,228
1,165
14,540
745
(745)
—
2012
£’000
542
12,757
1,711
15,010
Amounts payable to Group companies are unsecured, have no fixed date of repayment and incur interest at a rate of LIBOR plus
a variable margin.
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107
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
Notes to the consolidated financial statements
Company balance sheet
ǔ Notes to the Company financial statements
43. Provisions
At 1 January
Charged to the profit and loss account
Customer redress and associated costs
paid in the year
Repayment of loan notes
At 31 December
Cash settled
share based
payments
2013
£’000
Customer
redress and
associated costs
2013
£’000
—
—
—
—
—
408
261
(267)
—
402
Total
2013
£’000
408
261
(267)
—
402
Cash settled
share based
payments
2012
£’000
Customer
redress and
associated costs
2012
£’000
1,282
973
Total
2012
£’000
2,176
976
(1,847)
(1,847)
—
408
(897)
408
894
3
—
(897)
—
The customer redress and associated costs provision comprises other costs and professional fees associated with the customer redress exercise.
Customer redress and associated costs are anticipated to be settled within one year of the balance sheet date.
44. Share capital
Issued:
At 1 January
Issue of shares:
Exercise of share options
At 31 December
2013
Number
(thousands)
2013
£’000
2012
Number
(thousands)
2012
£’000
171,487
17,111
171,430
17,106
101
9
57
171,588
17,120
171,487
5
17,111
During the year 101,522 10 pence ordinary shares have been issued to option holders for total consideration of £4,000. Further details
relating to share options are provided in note 47.
Of the 171,588,412 ordinary shares issued at 31 December 2013, 171,088,413 are fully paid and 499,999 are partly paid.
45. Reserves
At 1 January 2013
Loss for the year
Equity settled share based payment charge
Exercise of share options
At 31 December 2013
46. Reconciliation of movement in equity shareholders’ funds
Loss for the year
Equity settled share based payment charge
Exercise of share options
Movement in equity shareholders’ funds
Equity shareholders’ funds at 1 January
Equity shareholders’ funds at 31 December
Share
premium
account
£’000
33,297
—
—
(5)
Share
based
payment
reserve
£’000
5,012
—
50
—
Profit
and loss
reserve
£’000
8,660
(10,069)
—
(10)
Total
£’000
46,969
(10,069)
50
(15)
33,292
5,062
(1,419)
36,935
2013
£’000
2012
£’000
(10,069)
(6,820)
50
(6)
(10,025)
64,080
54,055
32
2
(6,786)
70,866
64,080
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Notes to the Company financial statements continued
47. Share based payment
Legacy schemes
Legacy schemes comprise the 2005 and the 2008 ESOP Schemes which were 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
Forfeited in the year
Transferred in from other Group companies
Outstanding at 31 December
Exercisable at 31 December
2008 ESOP Scheme
Outstanding at 1 January
Forfeited in the year
Transferred in from other Group companies
Outstanding at 31 December
Exercisable at 31 December
2013
2012
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
1,987
(182)
—
1,805
1,805
1.98
0.82
—
2.10
2.10
2,373
(406)
20
1,987
1,987
2.02
2.28
2.28
1.98
1.98
2013
2012
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
1,045
(392)
—
653
653
1.79
1.79
—
1.79
1.79
3,022
(2,103)
126
1,045
1,045
1.79
1.79
1.79
1.79
1.79
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 10 years of original grant and
may lapse if the employee leaves the Group.
The options outstanding for the 2005 Scheme and 2008 Scheme at 31 December 2013 had no remaining contractual life in either
the current year or the prior year.
There have been no 2005 Scheme or 2008 Scheme exercises in the current year or prior year.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013
109
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
Notes to the consolidated financial statements
Company balance sheet
ǔ Notes to the Company financial statements
47. Share based payment continued
Post-IPO plans
Options have been granted by the Company to Group employees during the year under the LTIP to incentivise certain employees.
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
Exercised during the year
Transferred in from other Group companies
Outstanding at 31 December
Exercisable at 31 December
DSBP
Outstanding at 1 January
Forfeited during the year
Exercised during the year
Transferred in from other Group companies
Outstanding at 31 December
Exercisable at 31 December
ShareSAVE Plan
Outstanding at 1 January
Forfeited / cancelled during the year
Outstanding at 31 December
2013
2012
Number of
share options
(thousands)
Weighted
average
exercise
price
£
Number of
share options
(thousands)
Weighted
average
exercise
price
£
4,583
3,000
(489)
—
7,094
262
—
(38)
(20)
—
204
40
24
(8)
—
—
16
—
62
(31)
31
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.30
1.25
1.36
2,152
3,414
(1,063)
80
4,583
72
228
(32)
(18)
12
262
7
46
(13)
(14)
5
24
9
114
(52)
62
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1.31
1.31
1.30
Nil-cost options and conditional shares granted during the year under the LTIP normally vest after three years, lapse if not exercised within
10 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 total shareholder return and an absolute share price measure over a three year period.
There have been no LTIP options exercised in either the current or prior year.
Nil-cost options and conditional shares granted during the year under the RSP normally vest after three years, lapse if not exercised within
10 years of grant and may lapse if option holders cease to be employed by the Group.
Nil-cost options and conditional shares granted during 2011 under the DSBP normally vest after three years, lapse if not exercised within
10 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. There have been no DSBP options
granted in either the current or prior year.
Options granted in 2011 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. There have been no ShareSAVE Plan options granted or exercised in either the current or prior year.
The options outstanding at 31 December 2013 had a weighted average remaining contractual life of three years (2012: two years) in the
LTIP, one year (2012: two years) in the RSP, nil years in the DSBP (2012: one year) and one year (2012: two years) in the ShareSAVE Plan.
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013 110
Notes to the Company financial statements continued
47. Share based payment continued
Post-IPO plans continued
The principal assumptions underlying the valuation of the options granted during the year at the date of grant are as follows:
ShareSAVE
LTIP
RSP
DSBP
Weighted average share price
Weighted average exercise price
Expected volatility
Expected life
Risk free rate
Dividend yield
—
—
—
—
—
—
2013
2012
2012
2013
2012
2013
2012
2013
£0.08
—
—
—
£0.48
—
— 154.00%
75.19%
— 3 years
3 years
—
—
0.92%
0.47%
—
—
—
—
—
—
—
—
£0.45
—
—
3 years
—
—
—
—
—
—
—
—
—
—
—
—
—
—
The aggregate estimated fair value of the options and shares granted in 2013 under the LTIP is £20,000 (2012: £152,000 LTIP and RSP).
48. 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 2013 amounted to £13,000,000 (2012: £43,500,000). The Company is party to a cross-guarantee in respect of a
bank account netting arrangement in which it is a participant alongside certain other Group companies. Cash and cash equivalents includes
an overdraft of £1,500,000 (2012: £8,400,000 cash balance) which is held a bank account subject to this arrangement.
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 34 to the consolidated financial statements. Emoluments of the Company’s
Directors are set out in the Remuneration report on pages 41 to 53.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 Company offices
111
Financial statements
ǔ Notes to the Company financial statements
Shareholder information
ǔ Company offices
Shareholder information
Group Head Office
Europe & Latin America
Asia Pacific
CPPGroup Plc
Holgate Park
York
YO26 4GA
United Kingdom
Tel: +44 (0)1904 544500
Fax: +44 (0)1904 544933
www.cppgroupplc.com
www.cppdirect.co.uk
UK & Ireland
York Contact Centre
Holgate Park
York
YO26 4GA
United Kingdom
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
CPP Travel Services Limited
CPPGroup Plc
2 Castle Street
Manchester
M3 4LZ
United Kingdom
Tel: +44 (0)161 827 1483
Fax: +44 (0)161 827 1433
CPP India
114-117 Bestech Chambers
Radisson Blu Suites
B Block, Sushant Lok – I
Gurgaon – 122002
Haryana
India
Tel: +91 124 409 3900
Fax: +91 124 404 1004
CPP Hong Kong
14/F Chung Nam Building
1 Lockhart Road
Wanchai
Hong Kong
Tel: +852 3653 0000
Fax: +852 3653 0050
CPP Singapore
(Registered Office address)
80 Robinson Road
#02-00, Singapore 068898
Tel: +65 6333 6986
Fax: +65 6333 8637
CPP Malaysia
(Registered Office address)
3-2 3rd Mile Square
No. 151 Jalan Kelang Lama
Batu 3 ½
58100 Kuala Lumpur
Malaysia
Tel: +60 3-7987 5300
Fax: +60 3-7987 5200
(Business address)
Level 16
1 Sentral, Jalan Stesen
Sentral 5
KL Sentral
50470 Kuala Lumpur, Malaysia
Tel: +60 3 2168 5600
Fax: +60 3 2168 5799
CPP China
Room 6015, 6/F, The 21st Century Building
210 Century Avenue
Lujiazui, Pudong, Shanghai 200120
Tel: +86 21 5172 7312
Fax: +86 21 5172 7325
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 – 5º Piano
20041 Agrate Brianza
Monza e Brianza
Italy
Tel: +39 039 657801
Fax: +39 039 6894 293
CPP France
120 rue Jean Jaurès
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 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:13
Ofis: 22
34742 Kozyatagı Istanbul
Turkey
Tel: +90 216 665 25 25
Fax: +90 216 665 25 24
CPP Mexico
Cto. Guillermo Gonzalez Camarena
No. 1000 Piso 1, Desp. 102-B
Col. Centro Ciudad Santa Fe
Mexico, D.F.C.P.01210
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
www.cppgroupplc.comGroup overviewStrategic reportCorporate governanceFinancial statementsShareholder informationCPPGroup Plc Annual Report & Accounts 2013
112
Shareholder information
Registered office:
CPPGroup Plc
Holgate Park
York
YO26 4GA
Tel: +44 (0)1904 544500
The Company’s shares are listed on the London Stock Exchange
under share code ‘CPP.L’. Company information and share
price details are available on the corporate website at
www.cppgroupplc.com.
Company registration number:
07151159
Corporate brokers:
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
Auditor:
Deloitte LLP
1 City Square
Leeds
LS1 2AL
Legal advisers:
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London
EC2A 2HS
Shareholders who have a query regarding their shareholding
should contact the Company’s share registrars at:
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
By telephone +44(0)20 8639 3399
When contacting the registrar please have the investor code
and information relating to the name and address in which
the shares are held.
Investor relations
Requests for further copies of the Annual Report & Accounts,
or other investor relations enquiries, should be addressed to
the registered office.
www.cppgroupplc.comCPPGroup Plc Annual Report & Accounts 2013 Printed by Park Communications on FSC® certified paper.
Park is an EMAS certified CarbonNeutral ® company and its Environmental
Management System is certified to ISO14001.
100% of the inks used are vegetable oil based, 95% of press chemicals are
recycled for further use and, on average, 99% of any waste associated with
this production will be recycled.
This document is printed on Core Silk, a paper containing virgin fibre sourced
from well managed, responsible, FSC® certified forests.
The unavoidable carbon emissions generated during the manufacture and
delivery of this document, have been reduced to net zero through a verified
carbon offsetting project.
Head office:
CPPGroup Plc
Holgate Park
York YO26 4GA
United Kingdom
+44 (0)1904 544500
www.cppgroupplc.com
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