CPP Group
Annual Report & Accounts 2015
Contents
Group overview
Financial highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
At a glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Strategic report
Our business model and strategy . . . . . . . . . . . . . . . . . . . . . . . 6
Chairman’s statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Chief Executive Officer’s statement . . . . . . . . . . . . . . . . . . . . 10
Our people . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Our customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
New proposition launch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Operational review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Key performance indicators . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Risk management and principal risks . . . . . . . . . . . . . . . . . . . 26
Corporate governance
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Corporate governance report . . . . . . . . . . . . . . . . . . . . . . . . . 30
Report of the Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . 34
Directors’ remuneration report . . . . . . . . . . . . . . . . . . . . . . . . 36
Directors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Statement of Directors’ responsibilities . . . . . . . . . . . . . . . . . 41
Financial statements
Independent Auditor’s report . . . . . . . . . . . . . . . . . . . . . . . . . 42
Consolidated income statement . . . . . . . . . . . . . . . . . . . . . . . 45
Consolidated statement of comprehensive income . . . . . . . . 46
Balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Consolidated and Company statements of changes in equity 48
Consolidated cash flow statement . . . . . . . . . . . . . . . . . . . . . 49
Notes to the financial statements . . . . . . . . . . . . . . . . . . . . . . 50
Company offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Shareholder information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Helping people live their
lives in a less stressful way
by helping them look after
what’s important to them.
During 2015, CPP has continued to
provide services to customers who
may have concerns about, or may
have actually suffered some sort of
personal loss; had their wallet stolen,
suffered an attack on their identity,
maybe lost or damaged their mobile
phone or simply lost a bunch of
keys. We will continue to provide
such services, however in the future
as our assistance-based propositions
evolve we want to help people to
avoid those situations in the first
place; to provide peace of mind for
our customers, helping them go about
their lives in a less stressful way.
1
Financial highlights
A year of significant transformation
Revenue
(continuing & discontinued operations)
£89.9m
(2014: £108.8m)
Underlying operating profit/(loss)1
(continuing & discontinued operations)
£8.9m
(2014: £(0.6)m)
Underlying operating profit1
(continuing operations)
£6.9m
(2014: £2.8m)
Reported profit/(loss) for the year
(continuing & discontinued operations)
£20.8m
(2014: £(6.7)m)
1. Underlying operating profit/(loss) excludes exceptional items and Matching Share Plan charges.
2
CPPGroup Plc Annual Report & Accounts 2015 Basic earnings/(loss) per share
(continuing & discontinued operations)
2.72 pence
(2014: (3.94) pence)
Net assets/(liabilities)
£10.0m
(2014: £(30.9)m)
Operational highlights
• Clear strategic initiatives implemented to enhance
the customer experience and value propositions –
creating a business platform from which to drive
sustainable growth
• Created a stable financial platform, improved
liquidity and reduced costs
• New executive team in place – Stephen Callaghan
as CEO and Michael Corcoran as CFO
• Structural reorganisation complete to create a
more dynamic business with greater accountability,
supported by the appointment of many high
impact colleagues
• Ceased provision of non-core and historically
unprofitable airport lounge access services
(Airport Angel)
•
Implementing a new, transformational IT system
in the UK which will drive significant improvements
in 2016
• Focus on bringing to market new, innovative product
propositions with global appeal; the first due to launch
in Q2 2016
• Winner of the Institute for Turnaround ‘Listed
Company Turnaround of the Year’ award in
November 2015
Strategic report Financial highlights
3
At a glance
CPP has made progress over the
last year to maintain a meaningful
presence in the markets that are well
established and to grow in those
that present opportunities. With Group
backing we provide local execution
and support to our Business Partners,
keeping our customers’ needs at
the heart of what we do.
Group revenue
UK & Ireland1
Europe & Latin America
Asia Pacific
£56.1m
£25.5m
£8.3m
1. From continuing and discontinued operations.
Operational review
pages 20 and 21
Our services
Established
Personal items
Phones, credit and debit
cards and keys are indispensable.
Our cover means that wherever
our customers are in the world,
one call to CPP will resolve
a stressful situation.
Identity
Identity theft continues to
grow and is increasingly complex.
Our customers are alerted to
changes in their credit file and
risks to their data online knowing
that personalised support will
step in to restore their identity.
4
CPPGroup Plc Annual Report & Accounts 2015
>30yrs
protecting customers
72.9%
annual renewal rate
>700
employees worldwide
3.8m
live policies worldwide
Growing
Developing
Legal, protection and
automotive assistance
Whether home or abroad, getting
the right support in times of need
is critical. We help our customers
avoid expensive legal fees and
manage the impact of an assault.
Our propositions mean that
customers are supported in
difficult circumstances.
New propositions
Our research found that helping
people look after things that are
important to them is something
they value; physical things and
data related things. We have
prototypes and plan to launch
new services in 2016.
Strategic report At a glance
5
Our business model
and strategy
Our strategy has evolved in 2015. We are moving from primarily
providing insurance-backed products that assist customers
when they encounter a problem, to an organisation that will help
to prevent those stressful situations from occurring in the first
place, or help remedy them before they become a real issue.
Cost management
Streamlining our costs effectively is vital for our
sustained success.
Opportunities for future revenue growth
Customer-centric propositions relevant to
our markets, attracting new Business Partners
outside of our traditional financial services sector
and maintaining strong existing relationships
is a priority.
Business transformation
Significant changes to internal processes and
workflow, IT systems, management structures and
the introduction of high impact key personnel have
been made. The systems and processes that drive
our business growth have been reviewed, developed
and adapted in 2015 to ensure that we are on track.
Our priorities for 2016
•
Show incremental value to our customers
by offering them simplified and consistent
product benefits at a lower price point.
Launch our direct to consumer propositions
across our geographies.
Develop our digital technologies to facilitate
multi-channel customer interactions reaching
customers in ways that work for them.
Implement performance marketing in support
of our new digital go-to-market focus.
•
•
•
Historically CPP has worked exclusively through
Business Partners to reach consumers. However,
we see opportunities in 2016 and beyond to engage
directly with consumers with enhanced digital
propositions as well as through Business Partners.
Informed by extensive global insight-led market
research, work has been done in the past year to
prepare us for a new strategy and approach.
Our 2015 focus has been on: cost management,
opportunities for future revenue growth, and
business transformation. Through this lens we
have laid the foundations for our future.
“I’ve been delighted with the
clear appetite for change inside
the business. The foundations
we have put in place during the
year, together with a significant
cultural shift, provides us with
a great platform to develop the
business in 2016.”
Stephen Callaghan, Chief Executive Officer
6
CPPGroup Plc Annual Report & Accounts 2015 Our approach places
customers at the centre
of our business model
C o s t m anagement
nels
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Customers
Performa n c
market i n g
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F u t
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e r e v e n ue gro
Channels
Appropriate routes to market that
demonstrate cultural understanding
and takes into consideration consumer
need and the way in which they want to
engage with the business.
Propositions
Developing consumer-focused
propositions that embrace digital
technology and help customers
manage what’s important to them.
Performance marketing
Through innovative direct to consumer
propositions our performance marketing
approach will ensure we are sensitive to
the geographies in which we operate and
via test-and-learn methodologies, we
will optimize our performance and
create sustainable growth.
Strategic report Our business model and strategy
7
Chairman’s statement
The start of a new era for CPP
I joined the Board of CPP in May 2015 and in my
first year I have spent time with the leadership team
developing an in-depth knowledge of the Group.
CPP has come through a very challenging few years
since the FSA investigation in 2011.
The newly formed Executive Team, under the
leadership of Chief Executive Officer Stephen Callaghan,
is now complete and they are operating at pace,
demonstrating the required focus to take us forward
and realise our potential to be a global business with
a sustainable and profitable outlook.
The equity funding at the beginning of the year,
whilst concurrently restructuring the Group’s liabilities
and refinancing its debts, was a critical activity to
establish a solid foundation. The successful completion
provided the Group with a stronger and more stable
financial footing and signalled the start of a new era
for CPP. Results at the half-year demonstrated that
the new Executive Team was also getting to grips with
some of the more gritty aspects of a turnaround situation:
discontinuing businesses that were not performing
and had little prospect of being profitable, focusing
on cost control and revenue generation in parts of the
Group where there was opportunity to do so, whilst
undertaking business transformation activities and
IT system changes. The team has made real progress
during 2015 reflected in a set of results that show
what can be achieved with focused execution.
Roger Canham
Chairman
8
CPPGroup Plc Annual Report & Accounts 2015 At the heart of CPP are our colleagues. They
have real passion, want to go the extra mile for our
customers and they are committed to the business.
Ensuring that we continue to provide opportunities
for our people by both developing existing colleagues
and attracting new talent to the business remains
a key priority. By so doing, the Group will be better
placed to capitalise on the opportunities that lie
ahead. As Chairman, I participated in an extended
leadership team development programme in
October during which the team were given methods
and techniques to make them more impactful as
individuals and as business leaders. It was an
inspirational activity and I continue to provide my
full support to the Executive Team in this regard
as they deepen and broaden their colleague
engagement and development programme during
2016. It is only by having the right people and doing
the right thing by customers that we create real
impact and deliver sustainable value to our
shareholders and other stakeholders.
CPP has also added to the new Executive Team.
Having secured the services of Stephen Callaghan
as Chief Executive Officer (CEO) during the first
half of the year, in the second half we appointed our
new Chief Financial Officer (CFO), Michael Corcoran.
Michael has extensive international and regulated
business experience and expertise in managing
strong financial, operational, governance and
compliance frameworks. Additional executive hires
before year end included a new Chief Marketing
Officer and Chief Technology Officer.
Board changes
There have been a number of Board changes during
the year, not least my own appointment in May
before taking over as Chairman in July. We welcome
Abhai Rajguru as Chairman of our Audit Committee
and as a member of the Risk and Compliance
Committee. Abhai brings years of experience at
a senior level in the financial services sector and
additionally possesses a wealth of digital and
technology knowledge to complement our insight
and proposition development activities. Ruth Evans
resigned after the year end to allow her more time to
focus on her other portfolio roles. Shaun Astley-Stone
has extended his duties in support of the Board and
is now Chairman of the Remuneration Committee
as well as holding the office of Senior Independent
Director. We will continue to evaluate opportunities
to strengthen the Board with individuals that
have relevant experience and will add value.
The Board’s focus is now very much one of
supporting the management team as they introduce
a new digital range of products, and enter into
dialogue with the FCA regarding its existing and
new product offerings to customers in the UK.
Corporate governance
pages 29 to 41
General meeting
As announced on 21 March 2016, Schroder
Investment Management Limited (Schroders)
has filed a notice requisitioning a general meeting
of the Company’s shareholders (the Requisition).
The Requisition proposes resolutions to remove the
CEO and current Non-Executive Directors from the
Board and to replace them with individuals proposed
by Schroders. It is believed that Schroders are
working with Mr Hamish Ogston, one of the Group’s
major shareholders and founder of the Company.
The Board is surprised by the Requisition given
the significant improvement in the Group’s
performance and the strong rise in the share price
since the new management team have been in
place. The Board does not believe that the actions
proposed would be in the best interests of CPP’s
customers, employees or other shareholders.
The Requisition, if successful, will likely have a
detrimental impact on the future strategy and
performance of the business.
Looking ahead
Notwithstanding the Requisition, a priority for
me and the leadership team will be to ensure that
an appropriate culture continues to exist in the
Group underpinned by the necessary governance
structure to support the business.
2015 was a year during which remedial actions,
team building and clinical execution have resulted
in underlying transformational business and
cultural changes to CPP in addition to a set of
improved financial results. Leadership is to be
congratulated on bringing colleagues on a journey
which has delivered confidence, commitment
and high energy levels across the Group. Looking
forward, I am convinced that the strategic direction
already set will deliver on the promise of creating
a global assistance business whose mission is to
help customers look after the things that are
important to them.
Roger Canham
Chairman
6 April 2016
“It is only by having the
right people and doing the
right thing by customers
that we create real impact
and deliver sustainable
value to our shareholders
and other stakeholders.”
Roger Canham, Chairman
Strategic report Chairman’s statement
9
Chief Executive
Officer’s statement
I was appointed Chief Executive Officer on 30 July 2015
and I continue to be firmly focused on establishing
a new strategic and operational plan for the business,
creating the right culture, building the right team to
execute that strategy and providing the required level
of high impact leadership to propel us forward.
CPP has operations in established markets such
as the UK, Spain, Germany, Italy and Portugal as well
as in emerging markets India, Mexico, Malaysia, Turkey
and China. I have spent a considerable amount of time
with colleagues across the business and I have visited
country operations to understand how they are run,
to see where we can make investments to improve
performance, identify where additional opportunities
may lie, and determine where we may be able to create
operational leverage and savings across the Group.
Stephen Callaghan
Chief Executive Officer
10
CPPGroup Plc Annual Report & Accounts 2015
Understanding immediate challenges
My initial focus was to carry out a fundamental
business review to determine what could be done
to reduce cash burn, to create a more profitable
cash generative business in the short term and
to put that cash to good use with the objective
of creating a sustainable growth platform for the
future. During 2015 we ceased our non-core and
historically unprofitable travel services business,
Airport Angel, reworked the basis of our commercial
relationships with banks in the UK and improved
our revenue performance where we were able
– whilst reducing costs wherever it made sense.
We worked hard to improve our customer
experience and we were able to track
improvements in renewal rates.
In addition to the financial measures, we
also focused on bringing about changes to our
UK business processes and technology platform;
our business transformation plan hits an important
milestone in summer 2016 when the new systems
go live.
Addressing the past
CPP has endured a number of challenging years,
particularly in the UK. In 2015 we have seen the UK
business undergo many organisational, people and
operational changes to fix issues that have been so
damaging to our reputation. A new UK leadership
team has been established operating to a change
agenda at pace to ensure the business conduct and
practices of the past are not repeated.
Following discussions with the FCA, the
Company must demonstrate that management
practices and shareholder influence of the past no
longer exist, before reinstatement of regulatory
permissions in the UK will be considered.
Reinstatement of regulatory permissions remains
a key part of the Group’s strategic plans.
Already in 2016, we have had initial engagement
with the FCA to agree a phased plan which will see
UK customers receive better value via a reduction
in renewal premiums and enhanced benefits for
regulated products. This has been facilitated by
changes in our commercial relationships with
Business Partners. Customer research shows a
strong desire for product simplification which we
plan to implement in summer 2016 and with new
systems live, we hope to sell the enhanced products
to new customers in the UK through digital channels.
During the FCA engagement we will actively
demonstrate that the UK business has rehabilitated
itself and now places the customer at the heart of
our operations with the appropriate culture, controls
and oversight befitting a regulated financial
services business.
Putting the customer at the heart of what we do
We have carried out extensive research into
customer needs on an international scale, not only
restricted to countries where CPP has a presence.
The findings provide insight into customer fears
about losing track of things, their anxiety over
personal details being compromised online, and the
preferred methods of interaction with the business.
Responding to this, we have developed new
products that will be available globally and have
evolved our communications channels to include
self-service websites and mobile applications to
complement our telephony services.
In 2016, we will launch CPP’s first ever 100%
digital product with global reach and we aim to
have customers live in five CPP geographies by
the end of the year - both direct to consumer and
in conjunction with Business Partners. Our new
and highly innovative product, Owl, signifies a
step change for CPP. It provides peace of mind for
our customers by monitoring key personal data on
the dark web, providing customers with alerts via
email or SMS in the event of a compromise, and
offering guided support to get them back on track
in a way that is appropriate and meaningful.
“In 2015 we have seen the
UK business undergo many
organisational, people and
operational changes to fix
issues that have been so
damaging to our reputation.”
Stephen Callaghan,
Chief Executive Officer
New proposition launch
pages 18 and 19
Strategic report Chief Executive Officer’s statement
11
Chief Executive Officer’s statement
continued
Leadership and culture fit for the future
Much of the progress seen at CPP in the past
12 months has been achieved with the existing
capacity and resources already in the business,
including over 700 employees and a similar
number of dedicated customer service agents.
However, leadership at every level is striving
to effect change, increase momentum and
create impact. We must continue to strive to be
a committed, trusted organisation that provides
a valuable service to its customers. As a part of
our culture shift we have embedded our colleague
derived core values of Commit, Collaborate and
Perform across the organisation. This is supported
by regular communications celebrating great
behaviours and achievements. We also continue
to focus on governance, leadership, controls and
to ensure that our product offerings are designed
to meet customer need.
Group performance – a stronger,
more profitable platform
The financial results for 2015 are much improved.
They demonstrate a return of confidence and signal
significant progress at CPP. We are now trading
from an improved and effective platform and we
have plans to further embrace digital technologies
to allow customers multi-channel access to services.
However, challenges remain and there continues
to be work to do for the Group to realise its strategy.
Consequently, there is some uncertainty whilst
this work is ongoing and new propositions are
launched globally. The Group remains confident
in the direction it is heading and understands the
importance of maintaining momentum in the
delivery of our plans.
Our people
pages 14 and 15
72.9%
annual renewal
rate
>700
employees
worldwide
>3.8m
live policies
worldwide
Towards an efficient and effective organisation
To provide more direct accountability, the business
structure was reorganised early in 2015. The regional
management layer was removed to create a structure
more appropriate for a business of our size. This brings
the Group executive closer to operations across our
geographies and allows me to work directly with
small teams to get things done. This helps us gain
pace with our initiatives and accelerate progress.
Our strategic approach is described on three
axes; innovative proposition development, channel
partner development and performance marketing.
The associated technology and proposition
developments are being led by our new Chief
Technology Officer, in close partnership with a
newly created Group Product and Proposition team.
New channel partner opportunities are being
explored in automotive, consumer finance, utility,
telecommunications, healthcare and travel sectors
led by our Chief Commercial Officer and his directly
reporting Country Managers.
Whilst financial Business Partners continue to
be part of our strategy, research shows that broader
market opportunity exists for a wider partnership
approach. The appointment of a Chief Marketing
Officer at the end of 2015 allows us to establish a
central performance marketing capability, creating
reusable marketing tools and knowledge base
to support countries in the launch of new
propositions, and to establish playbooks for
direct to consumer marketing.
“Our strategic approach
is described on three axes;
innovative proposition
development, channel
partner development and
performance marketing.”
Stephen Callaghan,
Chief Executive Officer
12
CPPGroup Plc Annual Report & Accounts 2015 Our global operations are making progress. During
2015 we recorded new business success in Spain
by developing a new Business Partner relationship
in the Automotive sector. In India, we have entered
the Non-Banking Financial Services sector,
providing new assistance and repair services to
mobile phone users and in Turkey we have
continued to develop our ATM channel to market
for customer acquisition for our Card Protection
product. Having appointed new management in
Mexico, we are rebuilding confidence and have
been successful in winning back Business Partners
and customers.
As expected, Group revenue from both continuing
and discontinued operations has reduced in the year
to £89.9 million (2014: £108.8 million) reflecting
the natural decline in the UK renewal book whilst new
regulated sales remain restricted. The underlying
operating profit from continuing and discontinued
operations has however, increased to £8.9 million
(2014: £0.6 million loss). This underlying operating
profit performance is a result of several initiatives
including ongoing and new cost control scrutiny,
adopting a new basis for commission payments
for Business Partners, and some benefits driven by
management action during the closure of Airport
Angel. Underlying operating profit from continuing
operations only is £6.9 million (2014: £2.8 million).
Following the equity raise and debt restructure
at the beginning of 2015 the Group’s net funds
position has improved significantly to
£37.6 million (2014: £7.9 million).
During 2016, the business intends to further
invest in the necessary capability to support
accelerated growth and introduce reduced
renewal premiums in the UK. The full benefit
of this investment is expected in a period
beyond the next financial year.
The Group’s annual renewal rate has increased
to 72.9% (2014: 71.4%) reflecting the value
customers continue to place on our products.
The live policy base has reduced to 3.8 million
(2014: 5.1 million) mainly due to a decline in UK
wholesale policies, which includes the closure of
Airport Angel.
Final word
We have made significant
progress in 2015 that I believe
will shape and positively
impact the long term future
development of the Group.
We have the resources
available for us to develop
and implement our strategy
which in turn will build our
future. These results reflect
a new beginning for CPP and
I would like to thank colleagues
worldwide for embracing the
changes with such enthusiasm
and personal commitment.
Stephen Callaghan
Chief Executive Officer
6 April 2016
Strategic report Chief Executive Officer’s statement
13
Our people
The spirit of CPP is captured in the culture we strive
for: enthusiastic, committed, energised colleagues
taking action to move us forward on our growth
agenda and placing our customers at the heart of
everything we do. Our people strategy focuses on
building capability, encouraging positive behaviours,
developing our talent, strong leadership and utilising
new, innovative techniques that will enable our
colleagues to be in the best possible state to deliver
sustainable revenue growth.
Colleague age groups (%)
18–20
21–30
31–40
41–50
51–60
61+
Female
Male
2
29
30
27
11
1
59
41
Gender split (%)
14
CPPGroup Plc Annual Report & Accounts 2015 Our talent
In 2015, progress was made in developing and
attracting talent to ensure we have the right people
in place to deliver our plans. Executive roles such
as the Chief Commercial Officer and Chief Operating
Officer, along with other high impact leadership
positions were filled internally by enthusiastic and
committed colleagues who provide a continuity
platform from which the organisation can
accelerate growth.
This foundation has been strengthened by
attracting new talent to both Group and Country
roles. Group appointments include a Chief Technical
Officer and Chief Marketing Officer. We have a new
Country Manager in Mexico and a number of local
Commercial Director and senior management roles
across the Group. All of them are highly experienced,
skilled, impactful people who chose to join CPP
to help transform the business and deliver on
our ambitions. Further senior appointments
are expected across all markets in 2016.
Our sponsorship programme supports talent
development through sharing expertise and best
practice, by building capability and through
individual colleague training plans.
Nurturing leadership
In 2015 we focused our energies on leadership
behaviours designed to drive change and to
generate momentum. Activities that were first
introduced at our leadership events, have been
adopted by leaders across the organisation and
we are now starting to see examples of colleagues
utilising these new tools and approaches to propel
the business forward. In addition, fourteen change
ambassadors, or ‘Accelerants’, from the UK
attended our Accelerant Boot Camp during which
they received intensive coaching on leadership best
practices and drills to help them to drive impact,
achieve higher levels of performance and contribute
to accelerated growth across the organisation.
We will be doing more of this to create a bigger
pool of international Accelerants during 2016.
In recognition of the important role that our
leadership plays, a number of senior leaders
were invited to participate in a Matching Share Plan
(MSP) during 2015. This enables them to align
their success with that of the business and creates
shareholder alignment at the most
fundamental level.
Colleague engagement
We engage and celebrate colleague achievements
in a number of ways across the Group. In the UK we
Length of service (%)
Creating a values driven culture
New values and behaviours that underpin
them, have been co-created by colleagues
from all CPP countries through collaborative
group workshops. Our values of “Commit,
Collaborate and Perform” reflect the essence
of how we do things at CPP and our desire
to provide a great customer experience
by putting them at the heart of everything
we do. The behaviours underpinning
the values are now being embedded
in the business – from performance
management through to colleague
reward – by our ‘behaviour champions’
working collaboratively with stakeholders
right across the business.
Our colleagues defined our values and
behaviours and are personally committed
to bringing them to life.
have a ‘Special Thanks And Recognition’ (S.T.A.R.)
scheme to recognise individual achievements, with
a similar initiative called ‘Schmusers’ in Germany.
In 2015, 184 S.T.A.R. nominations were submitted,
with 31 awards presented and four colleagues
crowned as S.T.A.R.s of the year, each rewarded for
their personal contribution and impact on the business.
We have implemented a regular drumbeat of
communications in native languages across a
number of channels. Our leadership teams regularly
engage with colleagues through activities such
as fortnightly ‘Breakfast with the Executive’ sessions
in Madrid and ‘Town Halls’ in the UK. Regular
senior leadership team videos and business
updates are released to share key messages,
strategy and to provide updates on progress
being made. We also have colleague-led forums
such as an Employee Representative Body in the UK
that consists of eight colleagues from different
departments. In Spain, we have two teams formed
of elected, representative colleagues. During 2015,
78 Long Service Awards were given in the UK to
celebrate colleagues that have been with the
organisation for either five, ten or fifteen years.
0–4 years
5–10 years
10+ years
51
32
17
Strategic report Our people
15
Our customers
Delivering excellent customer experience on a global
scale is our number one priority. CPP is committed
to placing customers at the heart of what we do and
to becoming a more consumer-focused business
offering relevant and engaging products across our
geographies. To get there we have made investments
in colleagues, research, partnerships, technology
and our processes.
Engaging with customers in a way that’s
meaningful to them
Our reputation for always being there to help
customers when they have lost personal items
of significance like wallets or mobile phones
continues to drive value in the minds of consumers
and Business Partners. Our research shows that
customers value the option of having a real person
at the end of a phone or available via live chat so
while we fully embrace digital and online channels,
we have also enhanced our existing telephony
services. Not only will this benefit our customers, it
also ensures that CPP retains valuable competitive
differentiation at a time when many organisations
are moving away from human interaction.
New propositions to meet customer needs
In the past decade, internet enabled services
have grown rapidly. The increase in smartphones,
tablet computers and televisions connected to
the internet provide ease of connectivity and
convenience. This has created a digital lifestyle
where providing our personal information online
to businesses and social networks is now common
place. Despite this, consumers still feel unease
when it comes to the control and security of their
information. Our research highlights that many
express concern about their payment card details
being compromised and their emails being hacked
into. The majority of us try to protect ourselves
against these external risks with the use of
firewalls and anti-virus software but our desire
for convenience can mean that our best intentions
can often fall short. Indeed, Ofcom found that just
over half (51%) of all internet users use the same
passwords for most, if not all websites. This
corresponds to a figure of 48% from CPP’s own
quantitative research study.
16
CPPGroup Plc Annual Report & Accounts 2015 Nevertheless, consumer appetite to take
more control over their personal information
is increasing. Our research found that 68% of
consumers feel that it is up to them to look after
their personal information. They want early
detection if their information is where it shouldn’t
be and they want to be able to stop the spread of
that information.
We have identified four long term trends that
will drive this category forward:
•
The ongoing rise of smartphones and the
‘Internet of Things’;
• The increase of living our lives online;
• The need for control of data; and
• The need for immediate gratification.
As a result of our insight-driven research and
subsequent new proposition development, we are
now well-positioned to leverage our distribution
and service capability and to drive growth from
these new customer propositions. They provide
instant value and peace of mind by responding to
real-life issues being faced by consumers today.
Our research tells us that data security and
privacy management are also key concerns.
To respond to this we have developed a new
proposition called Owl. It offers customers value
on a truly global basis and monitors and protects
consumer privacy and associated personal data.
Our go-to-market strategy for Owl is contemporary
and agile and delivered via acquisition and service
channels that make the most sense to consumers.
Owl is the first of many new launches being planned
by CPP, with the intention being to launch at least
one more new proposition in 2016.
Doing what we do best, but better
The strong performance of CPP’s
established portfolio with renewal rates
being above 75% in many countries,
confirms that there is considerable
consumer and financial value in CPP’s
existing proposition set. Customers
around the world value the services
that CPP already provides and we will
continue to leverage this position. CPP is
well progressed with a programme that
will simplify existing offerings, bring key
benefits to the fore and will also allow
customers to interact with CPP using
enhanced digital channels. Delivering
excellent value for money will remain
a core principle as we grow the business.
We will also ensure that customers are
listened to and understood and that we
remain focused on delivering value in
a way that encourages engagement,
loyalty and renewal.
Our fast-paced and insight-informed
New Product Development roadmaps
are designed to maximise the customer
value of new and existing propositions.
To enable our business plan, CPP has
made several appointments into key
executive and leadership positions.
Building strength and depth at both a
Group and in-country level is a priority
so that Business Partners and customers
benefit internationally from our
investment far into the future.
Strategic report Our customers
17
Being online has become an
essential part of our daily lives.
As we share personal
information with more people
and more organisations,
the more we risk our private
information getting into the
hands of those who can exploit
it for fraudulent purposes.
We know our personal
information is precious, but
unfortunately most of us are
in the dark about how to keep
it safe.
That’s why we’ve developed Owl.
18
CPPGroup Plc Annual Report & Accounts 2015
Owl is transformational for CPP
coupling a powerful proposition
with a superior user experience.
It’s underpinned by a dynamic
consumer brand. Owl will shine a
light on the dark web, delivering
an invaluable service to customers
for whom unrestricted online
activity is an essential part of
modern life. Our combination
of easy to digest digital support
and the monitoring of personal
information helps people regain
control and live their lives
freely online.
What is it?
Owl is a consumer-focused service that helps customers
protect their personal information in a simple, convenient
and intuitive way.
Behind the scenes, Owl uses state-of-the-art technology
from the world’s leading identity protection provider to
constantly monitor the internet and dark web for evidence
of personal information being shared.
The service will be available on mobile phone, tablet and PC
platforms, all backed up with our excellent telephone support.
How Owl meets customer needs
Owl alerts customers if their personal information is being
shared or traded online and will guide them through issue
resolution if anything abnormal or risky is detected.
When a customer initially signs up they enter details of the
personal data they want Owl to monitor, such as debit or credit
cards or identity documents, all stored securely within the Owl
system. Once details are entered they will be subject to a
historical scan which will cross reference their personal details
with a database of compromised data gathered over the last
seven years. If any issues are discovered, customers will be
alerted and presented with a personalised action plan laying
out a process they should take to secure their information.
Owl helps customers to take steps to protect their personal
information and identity with clear and simple tools, advice
and tips on how to do it.
Why Owl is a step change for CPP
Owl represents a new way of doing things for CPP and is the
first direct to consumer brand digitally delivered by the Group.
We want the proposition to be consumer friendly and so the
service will be offered on a monthly basis without the
customer having to commit to an annual plan.
Owl is the first of our ‘think global’ propositions and has
been developed centrally with a ‘digital first’ mentality to
ensure rapid deployment across the Group’s geographies.
We see the pace of technological change showing no signs
of slowing and customer expectations continue to create
opportunity in this regard.
Strategic report New proposition launch
19
Operational review
During 2015 our priority has been to
continue to focus on customer service
and value creation. This has been whilst
driving costs down to a level consistent
with our business size and going through
a process and technology transformation.
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UK
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Europe and Latin America
Spain
Italy
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Germany
Turkey
Mexico
Asia Pacific
India
China
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D Increase
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Level C Decrease
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UK and Ireland
Financial performance
Revenue for 2015 decreased by 25% compared
to the same period in 2014 to £43.0 million
(2014: £57.4 million, excluding Airport Angel).
Underlying operating performance has improved
to a profit of £2.0 million (2014: £2.1 million loss,
excluding Airport Angel).
Review
The UK and Ireland region accounted for 56%
of Group full year revenue in 2015. New retail business
performance in the UK and Ireland continues to be
constrained by the ongoing Voluntary Variation of
Permissions (VVOP) which, amongst other things,
restricts our ability to sell new regulated products
in the UK. Despite these constraints however, our
renewal performance was strong and encouraging.
While the underlying trading performance
confirms that our customers value our existing
products, we launched a fast-paced programme
of product revitalisation in 2015 that will develop
our core propositions further. Improving the
operational and commercial readiness of our UK
and Ireland business has been a key focus throughout
2015 to ensure that we have a positive take-to-market
strategy in place once the restrictions have been
lifted. We have taken active steps to address
loss-making and non-core interests like our Airport
Angel business, have analysed and improved core
customer processes and have invested in key
personnel positions that will enable customer
experience gains and lift both our revenue and
profit. Specific examples of such people investment
are; Commercial Director, Operations Director and
Category/Product Management.
We view the UK and Ireland region as having high
growth potential and the UK is a priority market
for new customer propositions. These will be
performance-marketed via direct to consumer
and business to business models to ensure that
we are reaching customers in the most meaningful
and appropriate way for them.
Europe and Latin America
Financial performance
Revenue has decreased by 13% on a constant
currency basis compared to the same period
in 2014 to £25.5 million (2014: £32.5 million).
The underlying operating profit has reduced to
£4.6 million (2014: £5.2 million).
Review
The Europe and Latin America region includes; Spain,
Italy, Portugal, Germany, Turkey and Mexico. Europe
and Latin America accounts for 33% of Group full year
CPPGroup Plc Annual Report & Accounts 2015
The operational performance
level achieved in 2015
demonstrates that we have
established a new momentum
in the business. We’ve made
significant progress and
can now look forward to
operating from a much
improved global platform.
revenue. Having taken the strategic decision in 2014
to exit Brazil, this process was completed in 2015.
The core European markets each delivered solid
renewal performance, operational efficiencies and
Business Partner engagement throughout 2015.
There was also encouraging new revenue growth
in Turkey although renewal performance was below
expectations, in part due to market conditions.
Country Managers have focused on market
development actions that seek to win new business
partnerships in new sectors and channels, with the
automotive industry in Spain and the ATM channel
in Turkey being two successful initiatives.
In addition, in 2015 we reviewed the in-country
skill sets and local structures to ensure that we are
well placed to capitalise on Group-led proposition,
brand and marketing initiatives as well as capitalising
on local product offers. Driving profitable new
revenue from both new and existing propositions
remains a priority. We are actively building strength
and depth in all countries; appointments have
been made of a new Country Manager in Mexico
and a Sales Director in Turkey.
Asia Pacific
Financial performance
Revenue has increased by 23% on a constant
currency basis compared to the same period
in 2014, to £8.3 million (2014: £6.7 million).
The underlying operating performance has
improved to a profit of £0.3 million
(2014: £0.2 million loss).
Review
Our Asia Pacific region’s main trading operations
are in India, China, Malaysia and Hong Kong and
accounts for 11% of the Group’s full year revenue.
Both India and China performed well, growing
revenue and improving operating performance
during 2015. This growth is underpinned by new
Business Partner wins and new product and
channel development activity. Progress in India,
which is a very competitive market, is particularly
strong and encouraging. Our Indian team has secured
new Business Partner contracts and has successfully
launched a mobile phone assistance product during
2015. Progress in China continues to be stilted
in what is a difficult market to break. However,
the opportunities are immense and we remain
focused on accessing the potential of this market.
Malaysia’s renewal performance continues
to perform as expected and in January 2016 we
signed a new Business Partner contract to deliver
a new proposition which will re-start new revenue
activities in the market.
Having taken the strategic decision in
2014 to move towards a more cost effective
and higher performing structure, we repositioned
the Hong Kong, Malaysia and China operations in
2015. This involved the termination of Hong Kong
services provided to China and Malaysia.
Significant cost savings have subsequently been
realised and the operating capabilities of China
and Malaysia have improved as a result. The renewal
metrics of the Hong Kong customer base continues
to perform well.
Strategic report Operational review
21
Financial review
Overview
The Group completed the equity raise and
debt restructure in February 2015, which
represented an essential and significant
milestone in restoring the Group’s financial
stability and provided a platform from which
it can accelerate progress in its development.
Michael Corcoran
Chief Financial Officer
Financial highlights 2015
Revenue (£ millions)
Gross profit (£ millions)
Administrative expenses1 (£ millions)
Underlying operating profit (£ millions)
Exceptional items (£ millions)
MSP charges (£ millions)
Reported operating profit/(loss) (£ millions)
Net finance costs (£ millions)
Reported profit/(loss) before tax (£ millions)
Earnings per share (pence)
– Basic
– Diluted
Net assets/(liabilities) (£ millions)
Net funds (£ millions)
1. Excluding exceptional items and MSP charges.
22
2015
Discontinued
operations
Continuing
operations
2014
Continuing
operations
13.1
4.3
(2.2)
2.1
0.1
—
2.1
(0.2)
1.9
0.30
0.30
n/a
n/a
76.8
44.4
(37.6)
6.9
17.8
(1.7)
23.0
(1.1)
21.9
2.42
2.41
10.0
37.6
96.5
46.6
(43.8)
2.8
(6.0)
—
(3.2)
(1.7)
(4.9)
(1.90)
(1.90)
(30.9)
7.9
Total
89.9
48.7
(39.8)
8.9
17.9
(1.7)
25.1
(1.3)
23.8
2.72
2.71
10.0
37.6
CPPGroup Plc Annual Report & Accounts 2015 In 2015, the Group’s underlying operating
performance has improved, which reflects the
financial benefits of difficult but necessary
decisions that have been taken in 2015 and earlier.
During 2015, the Group made the positive
decision to cease paying commissions in the UK
to Business Partners where they have no ongoing
involvement in the renewal process and do not
provide any service to the customer. Discussions with
certain Business Partners regarding this change
remain ongoing. It is the Group’s intention to
re-invest this commission saving in improving the
customer value experience. The Group is committed
to: providing products that meet the specific needs
of consumers; improving the value proposition of
existing products; and improving the overall
customer experience.
The Group’s customer redress activities are now
substantially complete and reflect the end of a very
difficult chapter. The various redress programmes
have had a substantial impact on the business.
The Group’s processes have been significantly
improved as we now embark on the next stage
of the Group’s development.
Exceptional items in the year are a net
credit which totals £17.8 million comprising:
a gain from the compromise of the Commission
Deferral Agreement, net of associated costs,
of £19.4 million; further residual customer redress
costs of £0.9 million; and restructuring costs
of £0.7 million. The £19.4 million gain from the
commission deferral compromise reflects the
settlement of £20.9 million Commission Deferral
Agreement for a compromise payment of £1.3 million
and £0.2 million costs associated with the
arrangement. Costs relating to the compromise
agreement incurred in 2014 were £0.7 million.
Share option charges relating to the Group’s
new share plan in the year, MSP, were £1.7 million.
The charge in the year reflects both the charge related
to investing individuals who purchased ordinary
shares at a discount to market value, and ongoing
accounting charges relating to the matching options.
The size of the charge has been impacted by the
increasing share price through 2015.
The exceptional items and MSP charges,
contribute to a reported operating profit of
£23.0 million (2014: £3.2 million loss).
The Group’s overseas operations have contributed
Net interest and finance costs of £1.1 million
(2014: £1.7 million) are 37% lower than 2014
reflecting the reduction in the Group’s level of
borrowings in the year. A significant proportion
of this year’s charge relates to the write-off of
unamortised issue costs on the previous debt
facility, which was refinanced midway through
a three year term.
As a result, the reported profit before tax
from continuing operations was £21.9 million
(2014: £4.9 million loss) and the reported
profit after tax from continuing operations
was £18.5 million (2014: £3.3 million loss).
Discontinued operations, which represent the
Airport Angel business in 2015, have reported a
profit after tax of £2.3 million (2014: £3.5 million loss).
Basic earnings per share from continuing
operations have improved from a loss of 1.90 pence
in 2014 to earnings of 2.42 pence for 2015.
to the improved operating performance during
2015; there have been strong new retail policy sales
in India and Turkey and whilst trading conditions
remain challenging in some of our established
European countries, cost control initiatives have
helped to improve operating profit margins.
As a reflection of the renewed energy and
optimism in the business, certain key management
has taken the opportunity to invest more than
£400,000 to purchase newly issued shares through
the MSP. The plan is designed to provide management
with a vested interest in driving growth and directly
align their aspirations with those of shareholders.
The closure of Airport Angel is now complete
and, accordingly, the results of Airport Angel
are being disclosed as discontinued operations
within this review and the consolidated financial
statements. Airport Angel has historically been
a loss-making business; however, due to management
focus on resolving prior operational issues and
certain benefits driven by closure activities it has
reported a £2.3 million profit for this financial year.
Summary
Group revenue from continuing operations has
declined by 20% to £76.8 million mainly reflecting
the natural decline in Card Protection and Identity
Protection renewals in the UK whilst new regulated
sales remain restricted. On a regional basis revenue
has reduced by 25% in the UK and Ireland and 22%
(13% on a constant currency basis) in Europe and
Latin America. Revenue in Asia Pacific has grown
by 25% (23% on a constant currency basis).
The underlying operating profit in the year
from continuing operations is £6.9 million,
which is a £4.1 million improvement on 2014.
This improvement is largely a result of the actions
taken to reduce the cost base (including the impact
of reviewing commission arrangements in the UK)
and improved contribution from Asia Pacific driven
largely by growth in India, both of which offset the
impact of declining revenue.
Strategic report Financial review
23
Financial review continued
Cash flow and net funds
The Group has generated additional cash, excluding
movements in borrowings, of £11.2 million in the
year, including the impact of the equity raise partly
reduced by expenditure on the new core platform
IT system. Cash used in operations amounted to
£0.2 million (2014: £33.8 million) and includes
£4.8 million paid in residual redress exercises. Cash
used in operations has improved by £33.6 million
year-on-year, which reflects the impact of significant
redress payments through the UK Scheme in 2014.
As expected, the Group’s net funds position has
improved significantly in the year by £29.7 million
to £37.6 million as a result of the equity raise and
commission deferral compromise. Capital expenditure
in the year is £4.6 million (2014: £0.6 million) as the
Group continues to develop its new core platform
IT system, with planned implementation expected
to be in Q3 2016 in the UK. The net funds figure
includes cash balances of £33.9 million held in
the UK’s regulated entities, Card Protection Plan
Limited (CPPL) and Homecare Insurance Limited
(HIL). These cash balances cannot be distributed
to the wider Group without the regulator’s approval,
as they are either held for regulatory capital purposes
or are restricted by the terms of the VVOP. This
restricted cash is, however, available to use in
the regulated entity in which it exists. This much
improved financial position provides the platform
from which the Group can now invest to accelerate
future growth.
Dividend
The Directors have decided not to recommend
the payment of a dividend. Furthermore, the Board
continues to believe it is not appropriate to pay
a dividend until cash generated by operations is
more than adequate to cover the Group’s future
investment plans.
Balance sheet and financing
The equity raise and debt restructure has had a
fundamental impact on the Group’s balance sheet
position, returning it to net assets of £10.0 million
at 31 December 2015 from net liabilities of
£30.9 million in 2014.
The Group’s borrowing arrangements comprise
a committed £5.0 million revolving credit facility
(RCF), which is available until February 2018
and a commission deferral balance of £1.3 million
which is due for repayment in January 2017.
The arrangements are much reduced, following
the debt restructure in February 2015, from the
previous £13.0 million debt facility and £20.9 million
commission deferral balance. The RCF has
£1.0 million drawn at the year end.
Michael Corcoran
Chief Financial Officer
6 April 2016
“The Group’s underlying
operating performance has
improved, which reflects the
financial benefits of difficult
but necessary decisions that
have been taken in 2015
and earlier.”
Michael Corcoran,
Chief Financial Officer
Customer redress
Our customer redress programmes are now
substantially complete, with current expectations
that the remaining customer redress provision
of £1.6 million will be paid during 2016. We are
therefore nearing the conclusion of a particularly
difficult chapter for the Group, which has had a
significant impact on the business. The business
has reflected on its historic practices and has taken
significant action to improve them, with the core
principle being to ensure that our actions ultimately
benefit our customers.
The Group has provided an additional £0.9 million
in the year reflecting the latest estimate of residual
customer redress activity. This additional provision
arises following the decision to cease paying
commissions to UK Business Partners. The remaining
customer redress and associated costs provision
of £1.6 million is in addition to the outstanding
element of the regulatory fine of £8.5 million,
which is due to be paid in 2016.
Tax
In 2015 there was a tax charge on continuing
operations of £3.4 million (2014: £1.7 million
credit). The charge mainly arises from the gain
following the compromise of the Commission
Deferral Agreement in the UK, a switch in the
utilisation of tax losses between continuing and
discontinued operations, and smaller overseas
charges on the profits made in Spain and Italy.
No relief is available for other Group losses.
Similar to 2014, the effective tax rate is not a
representative measure.
Discontinued operations
On 31 December 2015, the Group completed the
operational closure of its Airport Angel business.
This business has historically been loss-making;
however, due to management focus on resolving
prior operational issues and certain benefits from
closure activities, it has reported a profit after tax
of £2.3 million (2014: £2.7 million loss). Prior to
2015, the business had recorded cumulative losses
of £8.3 million. The 2014 discontinued loss was
£3.5 million in total, representing £2.7 million
for Airport Angel and a £0.8 million loss relating
to the disposal of Home3, which completed in
March 2014.
24
CPPGroup Plc Annual Report & Accounts 2015 Key performance indicators1
Live policies
Annual renewal rate
Revenue by
major product
6.8m
69.4%
71.4%
72.9%
£165.8m
4.7m
3.8m
£96.5m
£76.8m
Non-policy
revenue
Wholesale
Retail insurance
Retail assistance
2013
2014
2015
2013
2014
2015
2013
2014
2015
Performance:
The live policy base is 0.9 million lower
than December 2014 due to UK factors,
including an expected decline in
wholesale policies and declining retail
Card Protection policies as the VVOP
restrictions on the sale of regulated
products remain in place. Live
policies outside of the UK have
decreased marginally.
Performance:
The annual renewal rate for 2015 has
increased by 1.5 percentage points
since 31 December 2014 mainly due to
improving rates in the Group’s largest
renewal markets, the UK and Spain.
The annual renewal rate does not
include cancellations that have occurred
during the Scheme of Arrangement
(Scheme). If Scheme cancellations were
included, the annual renewal rate would
be 5.5 percentage points lower at 67.4%.
Performance:
Revenue from retail assistance
policies has declined compared to 2014
reflecting the decline in Card Protection
and Identity Protection renewals in the
UK. The continued new retail sales
restrictions associated with the UK
VVOP limit the Group’s ability to grow
retail revenue. Retail insurance revenue,
which relates to an historic UK Business
Partner contract, has continued to
decline as expected.
Cost/income ratio2
67.0%
64.2%
66.3%
Underlying operating
profit margin
Group cash balances
8.9%
£66.9m
2.9%
0.4%
£40.6m
£39.8m
Free cash
VVOP restricted
cash
Regulated cash
2013
2014
2015
2013
2014
2015
2013
2014
2015
Performance:
Our cost/income ratio has remained
broadly stable year-on-year largely due to
the impact of declining Card Protection
and Identity Protection renewal revenue
in the UK being offset by a reduction in
operating costs following the actions
taken by the Group to reduce its cost
base. The review of commission
arrangements in the UK does not
impact this measure.
Performance:
Our underlying operating margin has
increased 6.0 percentage points due
mainly to the actions taken by the Group
to reduce its cost base and the impact
of reviewing commission arrangements
in the UK, partly offset by a reduction in
Card Protection and Identity Protection
renewal revenue in the UK.
Performance:
Cash held in the Group’s UK regulated
entities has decreased year-on-year
due to continued funding of residual
redress and the core platform IT system
development, partly offset by the impact
of reviewing commission arrangements
in the UK.
Free cash is broadly stable year-on-
year. The cash benefit of the equity raise
and increased cash overseas has been
offset through a combination
of repayment of the bank loan and
associated fees and Group
overhead requirement.
1. 2013 and 2014 figures have been restated to exclude the Airport Angel business which is discontinued.
2. Cost of sales and administrative expenses (excluding commissions, exceptional items and MSP charges) as a percentage of revenue.
Strategic report Key performance indicators
25
Risk management
and principal risks
Overview
The Group has a risk framework that enables
risks to be identified, assessed, controlled
and monitored consistently and objectively.
We continue to progress the implementation
of the framework throughout the Group and
revise our risk framework as necessary to
maintain its effectiveness. The key elements
of our framework include: leadership and
culture; risk appetites; risk identification and
assessment; management and control of risk
exposures; Business Incident Management
process; and a robust policy and minimum
standard framework.
CPP operates a ‘three lines of defence’ model
across the Group. The business is responsible for
the identification and management of risks, with
oversight and challenge from the Group control
functions, and review independently provided
by Internal Audit.
The focus of our risk management framework is
to ensure we manage our business in a sustainable
and controlled way, making risk-based decisions
commensurate with our appetite and resources.
Internal control and oversight
The Group Board has overall responsibility for the
Group’s system of internal control and for monitoring
its effectiveness. The Audit Committee and 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 via the Risk & Compliance Committee
and/or the Audit Committee. The Board monitors
the ongoing process by which critical risks to the
business are identified, evaluated and managed.
The Group’s system of internal control is designed
to manage rather than eliminate risk of failure
to achieve the Group’s objectives and provides
reasonable, not absolute, assurance against
material misstatement 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.
Solvency and capital assessments
CPPL is authorised and regulated by the FCA,
and HIL is authorised by the 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 approval by the individual
Boards of these companies and are reviewed by
the FCA and PRA from time to time.
HIL is subject to the European Commission’s
Solvency II Directive which came 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. The Group does not anticipate any issues
in meeting the requirements of Solvency II.
The Group operates in regulated markets
worldwide, no similar reporting requirements
to the local regulator exist in the Group’s
other markets.
26
CPPGroup Plc Annual Report & Accounts 2015 Principal risks and uncertainties
Key risk
Description
Mitigation
Status
Liquidity risk
Reputational risk
Liquidity risk is the risk that the Group
or any of its subsidiaries cannot meet its
contractual or payment obligations in a
timely manner. Should the business not
successfully generate revenue through
legacy products and the development
of compelling new products, then in the
medium term the Group's liquidity position
may be adversely impacted.
Reputational risk impacts the CPP brand,
reliability and relationship with customers
and shareholders. This may arise from
poor conduct or judgements, regulatory
non-compliance, or from negative financial or
operational events as a result of weaknesses
in systems and controls. Reputational risk
may also arise from the selection of Business
Partners and product offerings which may
have adverse implications for the Group.
Shareholder risk There is a risk that the Group could be
People risk
Technology
and information
security risk
destabilised by events that would significantly
impact the delivery and time/cost of the
overall strategy. The Group has specific
vulnerabilities, for example, as a result of
a highly concentrated shareholder base.
In recent years the Group has lost
(either through redundancy or attrition)
a significant number of people from the
business. This not only represents a risk
in terms of knowledge and experience lost,
but has increased the demands on our
remaining colleagues. There is a risk that
any significant unplanned attrition of key
individuals could adversely impact the
business and its transformation.
The Group has embarked on a significant
and wide ranging transformation
programme that includes replacement
of the core platform IT system. The extent
of this transformation is enabling for our
future sustainability and growth. There are
risks that the nature and complexity of the
programme impacts the business adversely
through operational issues, cost over-runs
or a failure to deliver to quality.
D Increase
Static
C Decrease
Management actively manages the overall
liquidity profile, ensuring that the business
plans are effective and aligned. A number of
dynamic programmes are in place to develop
and deploy new products and offerings, and to
enhance/refresh existing legacy products.
High standards of conduct and a principled
approach to regulatory compliance are
integral to our culture and values. We consider
key reputational risks when initiating
changes in strategy, products or operating
model. In addition, we have frameworks to
address other risks that could affect our
reputation including conduct risk and
product development.
The Board actively engages on a regular
basis with our largest shareholders to
mitigate this risk, discussing business
rationale/strategy and seeking support
of the Board and its business plans.
The Group has identified key skills and role
dependencies and takes steps to recruit and
retain these within the business. The Group
also supports key roles with interim contractors
and consultants where necessary. The Group
continues to be successful in recruiting and
attracting fresh talent and new skill sets
to ensure we continue to be able to deliver
our plans.
The Group has a robust governance
and delivery framework which is applied
throughout transformation. We regularly
assess and review progress and deliverables
to ensure these are being effectively
managed and controlled.
Strategic report Risk management and principal risks
27
Risk management and principal risks
continued
Key risk
Description
Mitigation
Status
International
business risk
Conduct and
regulatory risk
Our business is broadly diversified by
region and operates in multiple regulated
markets worldwide. Whilst this mitigates
our aggregate risk profile it introduces
additional risks in terms of operating
cross-border and in multiple environments
as a result of complexity, local laws, regulations,
business customs and practices. The risk
may be exacerbated as we operate a central
IT platform, business model and product
propositions derived from the UK offerings.
The risks of customer detriment arising
from inappropriate conduct, practice or
behaviour and failing to meet customer
needs, interests or expected outcomes.
The risk of fines, penalties, censure or other
sanctions arising from failure to identify
or meet regulatory requirements. The risk
that new regulation or changes to existing
interpretation has a material effect on the
Group’s operations or cost base.
Third party
Business
Partner risk
We have a number of key supplier
relationships as part of our business
model, particularly in respect of insurance
underwriting, product distribution and
information technology. Third party
Business Partner risk relates to the risk that
partners may seek to end or change existing
relationships or may not be able to meet
their agreed service level terms. There is
a significant risk that without ongoing
engagement with Business Partners our
primary route to market could be constrained.
The Board has sought to mitigate this
risk through further enhancement of its
risk compliance and governance approach.
Our international operations are regularly
reviewed by Internal Audit. We aim to
employ people with local expertise who
ensure the business and operations
conform to local requirements as well as
Group standards. In addition, we seek the
advice of local advisers where appropriate.
We promote a strong compliance culture,
strive to put the interests of the customer
first, and value good relationships with
our regulators. Our compliance function
supports management in identifying and
meeting our regulatory obligations with
relevant training and procedures. Compliance
with relevant regulatory requirements is
monitored in accordance with a risk-based
programme. Our approach to encouraging
appropriate conduct is set out in our conduct
risk framework, and is built on culture and
values, supported by appropriate governance
and reporting. This includes a culture in
which colleagues are encouraged to focus
on good customer outcomes; a focus on
products that meet customer needs; robust
controls, governance, training and risk
management processes. Regulatory
and legal change is monitored by the
compliance, legal and risk teams.
The Group continues to engage with
Business Partners to ensure the smooth
continuation of services while at the same
time developing and monitoring plans for
alternative arrangements and new
distribution opportunities.
Emerging risks
Emerging risks are those with uncertain
impact, probability and time frame that
could impact the Group. These are the
hardest to define. We analyse each risk
and, if needed, develop and apply mitigation
and management plans.
The external emerging risks that are
currently our focus of attention include the
potential UK exit from the European Union,
increasing cyber-crime, and geo-political
events impacting key markets including
those in Turkey.
D Increase
Static
C Decrease
The Strategic report section on pages 6 to 28 of this Annual Report has been reviewed and approved by the Board of Directors
on 6 April 2016.
Stephen Callaghan
Chief Executive Officer
28
CPPGroup Plc Annual Report & Accounts 2015 Board of Directors
Roger Canham
Chairman
Stephen Callaghan
Chief Executive Officer
Michael Corcoran
Chief Financial Officer
Appointment May 2015
Committee memberships A RC N R
Skills and experience
Roger joined the Board as a Non-Executive
Director in May 2015 and was appointed
Chairman in July 2015. He has been
non-executive chairman of Hornby PLC,
the international models and collectibles
group, since February 2013, and chairman
of Phoenix Asset Management Partners
Limited since 2009. He is also a director
of Easternrose Limited; Rutland Homes
Limited, County Property Limited, MAF
Properties (Midlands) Limited and
Asta Court Management Limited.
Appointment July 2015
Committee memberships N
Skills and experience
Stephen has over 25 years’ experience
with an established track record for leading
international business transformations
and significant experience in growing
technology-enabled customer service
businesses. He is non-executive director
of Navtech Radar Limited, a UK-based
manufacturer of commercial radar solutions.
He is also Senior Independent Director of
Ceres Power Holdings plc, the AIM-listed
developer of fuel cell technology. He has recently
stepped down from the Board of Lumata UK
Holdings Limited, loyalty systems and services
providers to the telecommunications industry.
Appointment October 2015
Committee memberships RC
Skills and experience
Michael is a Chartered Accountant with
more than 20 years’ experience in senior
finance roles in regulated financial services
businesses in both the UK and the USA. He
served as the international CFO for Franklin
Templeton Investments, a listed global
investment management business operating
in 35 countries, and is currently a director of
Branath Financial Limited.
Shaun Astley-Stone
Senior Independent Director
Abhai Rajguru
Independent Non-Executive Director
Committees
Committee Chairman
Appointment September 2013
Committee memberships A RC N R
Skills and experience
Shaun worked for the Group as Interim UK
Managing Director from August 2012 until
June 2013, during which time he was
instrumental in building the customer focus
of the UK business and improving regulatory
relationships. He has over 25 years’ experience
of the retail financial services and insurance
sectors, at chair and board member level.
Shaun is currently chairman of Card Protection
Plan Limited, chief executive officer of EMC
Advisory Services Limited, director of PPI
Claimline Limited and a board member of the
Professional Financial Claims Association.
Appointment December 2015
Committee memberships A RC
Skills and experience
A Chartered Management Accountant
and Chartered Director, Abhai has extensive
experience at a senior level in the financial
services sector, including at Leeds Building
Society and the Simplyhealth Group. He
currently serves as an independent member
of the audit committee of Her Majesty’s
Treasury, Chairman of Alexander Rosse, and
director of DBV Finance, Pravara Capital LLP
and Arcadium Capital Partners LLP.
Nomination Committee
N
A
RC Risk & Compliance Committee
Audit Committee
R Remuneration Committee
Corporate governance Board of Directors
29
Corporate governance report
The Board is committed to maintaining high
standards of corporate governance.
Compliance with the UK Corporate Governance Code 2014
The Code defines a smaller company as one that is below the FTSE
350 throughout the year immediately prior to the reporting year.
Insofar as is required of a smaller company as so defined, the Directors
consider that the Company has been in full compliance with the
provisions set out in the Code throughout the year and up to the
date of this report, except as described below:
•
the Chairman did not, on appointment, meet the independence
criteria set out in the Code, being a representative of a significant
shareholder, although the Board considers Roger Canham to be
independent in character and judgement;
• because he is the nominated representative of Phoenix Asset
Management Partners Limited, the appointment of Roger Canham
as Non-Executive Director was made without either an external
search consultant or open advertising. He was subsequently
appointed as Chairman by a unanimous resolution of the Board;
during most of the year under review the Board Chairman was also
Chairman of the Audit Committee. This situation was resolved
on the appointment of Abhai Rajguru on 23 December 2015;
in view of the number of changes and issues faced in recent years,
the Board has not considered a formal Board effectiveness review
to be appropriate. This will be reviewed during 2016 as the Board
looks to return to a position of greater stability; and
the Remuneration Committee is currently made up of two
Non-Executive Directors, only one of whom is judged to
be independent.
•
•
•
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 remains
committed to high standards of corporate governance.
At the date of this report, the Board comprises:
Roger Canham
Non-Executive Chairman
Stephen Callaghan
Chief Executive Officer
Michael Corcoran
Chief Financial Officer
Shaun Astley-Stone
Senior Independent Director
Abhai Rajguru
Independent Non-Executive Director
Risk management and principal risks
pages 26 to 28
The following changes were made during the year and up to the date
of this report:
Roger Canham
• appointed as Non-Executive Director 26 May 2015 and as
Board of Directors
page 29
30
Chairman 3 July 2015
Stephen Callaghan
• appointed 30 July 2015
Michael Corcoran
• appointed 2 October 2015
CPPGroup Plc Annual Report & Accounts 2015IntroductionOn behalf of the Board, I am pleased to present our corporate governance report for the financial year ended 31 December 2015.As an AIM-listed company, the Group is not obliged to comply with the UK Corporate Governance Code 2014 (the Code). However, the Board fully supports the principles of the Code and seeks to comply, insofar as it is practical to do so given the size and nature of the Company. This report sets out the extent to which the Company complied with the provisions of the Code up to the date of this report and highlights where it did not.Roger CanhamChairman
Abhai Rajguru
• appointed 23 December 2015
Ruth Evans
• resigned 10 February 2016
Craig Parsons
• resigned 31 August 2015
Eric Anstee
• appointed as Non-Executive Chairman 13 January 2015
and as Executive Chairman 16 February 2015; resigned
3 July 2015
Brent Escott
• resigned 16 February 2015
Duncan McIntyre
• resigned 13 January 2015
Les Owen
• resigned 13 January 2015
Biographical notes of each of the current Directors are given
on page 29.
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.
Key matters that the Board is specifically responsible for include:
• approval of the Group’s long term ambitions, objectives and
commercial strategy;
• material changes to the Group’s corporate structure,
including any acquisitions or disposals;
• ensuring maintenance of a sound system of internal control
and risk management;
• approval of annual and half-year results and trading updates;
• approval of the dividend policy; and
• material capital investments.
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 33 to 38 and copies of all terms of reference are
available on the Company’s website.
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.
The Board aims 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 Shaun Astley-Stone and Abhai Rajguru
are independent. The Board therefore 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 Chairman holds regular informal meetings with
Non-Executive Directors without the Executive Directors
present.
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 is 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.
Each member of the Board has had access to all information
All Directors have access to the advice and services of the
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.
Company Secretary. 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.
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 is responsible for the leadership of the
Board, ensuring its effectiveness in all aspects of its role
and setting its agenda.
The Chief Executive Officer is 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’s 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.
Performance evaluation
In view of the number of changes and issues faced by the
Board during recent years, the Board has not considered
formal evaluation to be appropriate. This will be reviewed
during the current year as the Board looks to return to a
position of greater stability and once the Board is satisfied
that its composition is appropriate for the developing
strategy of the Group.
Re-election
All Directors are subject to retirement by rotation in
accordance with the Articles of Association. Biographies
for all Directors can be found on page 29.
Corporate governance Corporate governance report
31
Corporate governance report continued
Leadership continued
Directors’ attendance at scheduled Board and Committee meetings in 2015
Roger Canham
Chairman
Stephen Callaghan
Chief Executive Officer
Michael Corcoran
Chief Financial Officer
Shaun Astley-Stone Non-Executive Director
Ruth Evans
Non-Executive Director
Craig Parsons
Chief Financial Officer
Eric Anstee
Executive Chairman
Duncan McIntyre
Chairman
Brent Escott
Les Owen
Chief Executive Officer
Non-Executive Director
Audit
Committee
1 (1)
Risk &
Compliance
Committee
2 (2)
Remuneration
Committee
3 (3)
Nomination
Committee
3 (3)
—
—
4 (4)
—
—
3(3)
—
—
—
—
1 (1)
4 (4)
—
2(2)
2(2)
—
—
—
—
—
5 (5)
5 (5)
—
2(2)
—
—
—
3 (3)
—
3(3)
2 (3)
—
—
—
—
—
Board
6 (6)
4 (4)
2 (2)
8 (9)
7 (9)
6 (6)
3 (4)
1 (1)
1 (1)
1 (1)
The figures in brackets represent the maximum number of meetings for which the individual was a Board or Committee member.
Abhai Rajguru is not included in the above table, as he was appointed a Director on 23 December 2015 and no scheduled meetings
were held between that date and the year end.
Relations with shareholders
The Board is committed to maintaining good relationships
with shareholders and the Chairman is responsible for
ensuring that appropriate channels of communication
are established between the Executive Directors and
shareholders, ensuring that the views of shareholders are
made known to the Board.
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
represented an actual or potential conflict of interest.
The Chairman, Chief Executive Officer and Chief Financial
Officer maintain regular dialogue with the Company’s largest
shareholders, although care is exercised to ensure that any
price-sensitive information is released at the same time to
all shareholders.
All shareholders have the opportunity to convey their
Viability statement
In accordance with provisions C.2.2 of the 2014 Corporate
Governance Code, the Directors have assessed the
prospects of the Company over an initial two year period.
The Board used this review period for the following reasons:
• the Group is in the early stages of developing its new strategy,
views and make enquiries via email or telephone.
which includes the launch of new products globally;
The Group maintains a corporate website
• the Group’s current borrowing arrangements are due for
(www.cppgroupplc.com) which complies with AIM Rule 26
and contains a range of information of interest to institutional
and private investors, including the Group’s annual and half
year reports, trading statements and all regulatory
announcements relating to the Group.
The Annual General Meeting (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.
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 33 and 34, 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 26 to 28.
32
refinancing in February 2018; and
• the Group’s detailed forecasting covers a two year
outlook period.
As the strategy is developed it is expected that the Group’s
assessment of viability will be not less than three years in
future reporting periods.
The Group’s revenue, profit and cash flow forecasts
were subject to robust downside stress testing over the
assessment period, which involved modelling the impact
of a combination of plausible adverse scenarios. This was
focused on the impact of the Group’s key operational
risks crystallising.
In making the assessment the Board acknowledges
that the equity raise and refinancing in February 2015
has provided the Group with a stable financial platform
from which to develop and implement its strategy. However,
the strategy and longer-term viability of the Group is based
on the successful launch of new products globally and
uncertainty in the medium term remains as this work
is ongoing.
Based on the results of the analysis performed, the
Directors have a reasonable expectation that the Group
will be able to continue in operation and meet its liabilities
as they fall due over the two year assessment period.
CPPGroup Plc Annual Report & Accounts 2015 Board Committees
The Audit Committee, the Risk & Compliance Committee, the
Nomination Committee and the Remuneration Committee are
standing Committees of the Board. The Company Secretary acts
as Secretary to all of the Board Committees and the Chairman
of each Committee reports to the Board. 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 and
are available on the Company’s website. All Committees have
access to independent expert advice, if required.
Report of the Risk &
Compliance Committee
Key objectives
The Committee’s key objective is 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.
Report of the Nomination Committee
Key objectives
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
•
Carry out a formal selection process for Executive and
Non-Executive Directors and propose to the Board any
new appointments;
Oversee succession planning for Directors and senior
managers below Board level;
Review the structure, size and composition of the Board
(including the skills, knowledge, experience and
diversity required);
Make recommendations to the Board in respect of the
membership of the Board Committees in consultation
with the Chairmen of those Committees; and
Make recommendations to the Board on the re-
appointment of any Non-Executive Director at the
conclusion of their specified term of office.
•
•
•
•
Key responsibilities
•
Review reports and recommendations regarding the
Group’s overall risk strategy, appetite, policies, capacity
and tolerances and make recommendations to the Board;
Review the appropriateness and effectiveness of the Group’s
management systems and controls and approve any
related disclosures;
Review appropriateness of the governance functions’
policies and procedures;
Review reports from each governance function, including
those on adherence to the Group’s policies and standards
and the maintenance of a risk and compliance culture;
Recommend to the Board the appointment or removal
of the Head of Risk Management; and
Keep under review the adequacy and effectiveness of
the Group’s governance functions and the timeliness
and effectiveness of management actions.
•
•
•
•
•
Membership and meetings
The Committee comprises Shaun Astley-Stone (Chairman),
Roger Canham, Abhai Rajguru and Michael Corcoran.
Other individuals such as the Chief Executive Officer, Group
General Counsel, the Head of Risk Management and the Head
of Compliance may be invited to attend all or part of any
meeting as appropriate. The Committee met four times during
the year.
Main activities of the Committee during the year
Specific matters dealt with during the year include:
• Business continuity and IT Disaster Recovery;
• PCI DSS Compliance;
• Cyber Risk Insurance; and
• Solvency II requirements.
Membership and meetings
Current membership is Roger Canham (Chairman),
Shaun Astley-Stone and Stephen Callaghan. Other
individuals and external advisers attend meetings at
the request of the Committee Chairman. The Committee
met three times during the year.
Main activities of the Committee during the year
The following principal items were dealt with during the year:
• recruitment of Michael Corcoran as Chief Financial
•
Officer; and
recruitment of Abhai Rajguru as Audit Committee Chairman.
External search consultancies, BIE Executive and Russam
GMS Limited, were appointed to assist with the recruitment
of Michael Corcoran and Abhai Rajguru respectively.
Board diversity
The Board considers itself diverse in terms of the background
and experience each individual member brings to the Board,
although it 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.
Corporate governance Corporate governance report
33
Report of the Audit Committee
Key objectives
The Committee’s main remit is to assist the Board in discharging
its duties and responsibilities for financial reporting and internal
financial control including:
•
•
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.
Meetings and membership
As at the date of this report, the Committee comprises Abhai Rajguru
(Chairman), Roger Canham and Shaun Astley-Stone. Others may
attend by invitation of the Committee Chairman. During the year
the external auditor, Chief Executive Officer, Chief Financial Officer,
Head of Internal Audit and Head of Risk Management attended
most meetings to report to the Committee and provide clarification
and explanations where appropriate. The Audit Committee Chairman
also meets on a regular basis with the Head of Internal Audit and
the external auditor without executive management present.
The Board considers that Abhai Rajguru has recent and relevant
financial experience.
Main activities during the year
The Committee fully recognises its role of protecting the interests
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:
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 35.
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 meetings as appropriate and meets at least annually with the
Committee without executive management present. 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, the effectiveness of the audit process, the procedures and
policies for maintaining independence and compliance with the ethical
standards issued by the Auditing Practices Board. The Committee is
satisfied with the performance of the external auditor during the year
and the policies and procedures in place to maintain its objectivity
and independence. Having considered the quality, objectivity and
independence of the audit teams and the quality of their work completed
across the Group, the Audit Committee has recommended that
Deloitte LLP be reappointed at the forthcoming AGM.
34
CPPGroup Plc Annual Report & Accounts 2015IntroductionOn behalf of the Board I am pleased to present my first report since being appointed as Audit Committee Chairman in December 2015. The Audit Committee has clearly defined terms of reference which set out its objectives and responsibilities. During the forthcoming year, these will be reviewed to ensure that the Committee remains effective in fulfilling its duty to provide assurance to the Board as to the integrity of the financial statements and the effectiveness of the Group’s internal controls.Abhai RajguruChairman of the Audit Committee 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 Committee keeps under review the level of non-audit
fees as a proportion of the total fees paid to Deloitte LLP
and is satisfied that any non-audit work that has been carried
out during the year is that which would normally fall to the
Company’s auditor.
The following controls are in place to ensure that
auditor objectivity and independence are safeguarded:
•
a policy on the use of the auditor for non-audit work has
been agreed by the Committee. 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;
the Committee receives and reviews each year an analysis
of all non-audit work awarded to the auditor over the
financial period; and
the Committee receives each year a report from the
external auditor outlining any matters that the auditor
considers bear on its independence and which need to be
disclosed to the Audit Committee.
The Committee has implemented a formal process to
•
•
assess the effectiveness of the external auditor, to be carried
out on an ad hoc basis following the completion of the audit.
It takes the form of a detailed questionnaire 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 are 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 are monitored by the Committee
at regular intervals.
The Committee has assessed the resources the Internal
Audit 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 Chairman from time to time, without
executive management present.
Committee effectiveness
From time to time the Committee carries out a self-assessment
exercise to help it assess its own effectiveness. This exercise,
which was last carried out in 2013, comprises a questionnaire
completed anonymously by various participants and analysed
by the Head of Internal Audit prior to consideration by
the Committee.
Advice to the Board
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.
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 department and the Company Secretary and is
authorised to obtain independent professional advice
if it considers it necessary.
Key financial reporting and accounting issues
The primary areas of judgement considered by the Committee in relation to the 2015 financial statements and how these
were addressed by management are shown below:
Area of judgement
Management action
Going concern
The Committee has received detailed reports on the going concern status of the Company
during the year. The Committee has reviewed and had the opportunity to challenge the reports
including the underlying forecast assumptions. The Committee recognises the Group still faces
some risk in relation to medium term trading and strategy. The Committee believes that the
Company remains a going concern and that it is appropriate that these financial statements are
prepared on a going concern basis.
Regulatory provisions The Group’s regulatory provisions include amounts for residual customer redress programmes.
The Committee received detailed explanations from executive management in relation to
the key assumptions and supporting evidence behind the remaining provisions. Where
appropriate, reports were obtained in order to provide additional reassurance.
Revenue recognition
The Committee reviews the Company’s policy on revenue recognition on an annual basis and
concluded that revenue recognition continues to be dealt with appropriately. This view is
supported by the auditor’s report.
Abhai Rajguru
Chairman of the Audit Committee
6 April 2016
Corporate governance Report of the Audit Committee
35
Directors’ remuneration report
Role and responsibilities of the Remuneration Committee
The Committee is responsible for recommending to the
Board the remuneration of the Chairman, Executive Directors,
Company Secretary and senior 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.
Meetings and membership
Ruth Evans served as Chair of the Committee during the period
under review, resigning on 10 February 2016. At the date of this
report, the Committee comprises Shaun Astley-Stone (Chairman)
and Roger Canham.
Activities during the year
The main activities of the Committee during the year under review
and up to the date of this report were:
•
incentivisation of Executive Directors and the senior
management team, including the implementation of the
CPPGroup Plc Matching Share Plan (MSP) and the CPPGroup Plc
Long Term Incentive Plan 2016 (2016 LTIP);
management retention and reward;
strategy for year end salary reviews; and
agreeing terms for senior appointments and exits.
•
•
•
Advisers to the Remuneration Committee
The Committee appointed and received advice over the year
from independent remuneration consultants, New Bridge Street,
a trading name of Aon Hewitt Limited (an Aon plc company), from
Mercer Limited and from Arnold Wagner Consulting Limited. None
of these companies provided any further services to the Company
during the year.
During the year, Eversheds LLP, the Group’s legal advisers,
provided advice to the Committee in connection with the
implementation of new share schemes, details of which are
given elsewhere in this report.
The Committee also receives advice and support from
the Chief Executive Officer, the Chief Financial Officer, the
Chief People Officer and the Company Secretary.
No other advisers have provided significant services to the
Committee in the year.
Remuneration policy
The Executive remuneration policy is designed to ensure that the
remuneration of Executive Directors and the senior management
team is sufficient to recruit, retain and motivate high quality
individuals, whilst aligning the interests of management as closely
as possible with those of shareholders. The Committee will review
the remuneration policy from time to time and take whatever action
it considers necessary to ensure that remuneration is aligned with
the overall strategic objectives of the Group.
Executive Directors’ remuneration
In the year under review, the Executive Directors’ total remuneration
package comprised:
•
fixed pay, including base salary, pension contributions and an
allowance to spend on a range of benefits available within the
Group’s flexible benefits scheme; and
variable pay, comprising bonus opportunity and participation
in the Group’s share-based long term incentive plans.
Board of Directors
page 29
•
36
CPPGroup Plc Annual Report & Accounts 2015IntroductionOn behalf of the Board, I am pleased to present the Directors’ remuneration report for the year ended 31 December 2015.During the year the Remuneration Committee reviewed the Group’s long term incentive arrangements with a view to improving alignment of management’s interests with those of shareholders. Details of changes made are summarised within this report and included in the detailed disclosure notes to the accounts.The following information on Directors’ remuneration is disclosed mindful of Rule 19 of the AIM Rules and the fact that, as the Company is listed on AIM, it is not required to comply with the UK Listing Rules or those aspects of the Companies Act applicable to quoted companies.Shaun Astley-StoneChairman of the Remuneration Committee Non-Executive Directors
Non-Executive Directors receive written letters of appointment. Non-Executive Director appointments are subject to one
month’s notice.
Copies of Directors’ service contracts and letters of appointment are available for inspection by shareholders at the
Company’s registered office.
The remuneration of the Executive and Non-Executive Directors serving during the year was as follows:
Executive Directors
Stephen Callaghan 1
Michael Corcoran 2
Brent Escott 3
Craig Parsons 4
Non-Executive Directors
Roger Canham 5
Shaun Astley-Stone
Ruth Evans 6
Abhai Rajguru 7
Eric Anstee 8
Duncan McIntyre 9
Les Owen 10
Base salary/fees
£’000
Taxable benefits
£’000
Bonus
£’000
Pension
£’000
Total
£’000
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
174
60
209
144
54
75
90
—
177
5
2
—
—
325
180
—
50
55
—
—
184
50
11
16
10
8
—
—
—
—
—
—
—
—
—
80
13
—
—
—
—
—
—
—
528
240
—
—
—
—
—
—
—
—
—
—
—
98
54
—
—
—
—
—
—
—
22
6
8
14
—
—
—
—
—
—
—
—
—
49
18
—
—
—
—
—
—
—
735
322
227
166
54
75
90
—
177
5
2
—
—
552
265
—
50
55
—
—
184
50
1. Stephen Callaghan was appointed as CEO on 30 July 2015.
2. Michael Corcoran was appointed as CFO on 2 October 2015. Taxable benefits includes an additional one-off relocation allowance of £12,500.
3. Brent Escott resigned on 16 February 2015; the above figure includes pay in lieu of notice.
4. Craig Parsons resigned on 31 August 2015.
5. Roger Canham was appointed as a Non-Executive Director on 26 May 2015 and as Chairman on 3 July 2015.
6.
Ruth Evans was appointed as Senior Independent Director during the year and her fees reflect this and other additional responsibilities. She resigned on
10 February 2016.
7. Abhai Rajguru joined the Board on 23 December 2015; no fees were paid to him in 2015. His remuneration for the full year 2016 will be £45,000.
8. Eric Anstee resigned on 3 July 2015. He was paid an additional £66,160 as compensation for loss of office.
9. Duncan McIntyre resigned on 13 January 2015.
10. Les Owen resigned on 13 January 2015.
Bonuses
Executive Director bonus awards are linked to underlying
operating performance and individual performance criteria.
The 2015 award reflects the significant turnaround in the
Group’s performance and the Executive Directors’ contribution
to that turnaround during their involvement with the Group,
which includes time in an advisory capacity.
Share incentives
The Committee believes that long term share awards should
form a key part of the remuneration policy to provide a direct
means of aligning management reward with the interests
of shareholders.
None of the Directors had any awards capable of vesting
for performance in the year.
Current share plans
MSP
During 2015 the Group introduced an MSP under which the
Executive Directors and certain members of the senior
management team were given the opportunity to purchase
shares for consideration of 3 pence per share
(the “Investment Shares”). The price of 3 pence per share
reflects that paid by the external investors at the time of the
share placing in February 2015, further aligning the interests
of shareholders and management. For each Investment
Share purchased options over three “Matching Shares”
were awarded. These options, which have an exercise price
of 1 penny, will vest over a three year period – 25% vesting on
the first anniversary of grant, 25% on the second anniversary
and 50% on the third anniversary. No performance conditions
apply to these options, but participants must retain all of their
Investment Shares for the full three year period, otherwise all
the options will lapse. It is unlikely that further awards will be
made under the MSP.
2016 LTIP
In January 2016 a new long term incentive plan was introduced,
under which options were awarded to the Executive Directors
and certain members of the senior management team.
The options will vest on the third anniversary of the date the
award was granted, subject to the achievement of specified
performance targets. The targets are based on a combination
of share price and underlying operating profit and thus will
align management’s interests with those of shareholders.
Clawback and malus provisions apply to both the above plans.
Corporate governance Directors' remuneration report
37
Directors’ remuneration report continued
Legacy share plans
2010 Long Term Incentive Plan (LTIP)
The only awards outstanding under the LTIP are those made
on 31 December 2013. Vesting of these options is dependent
upon two interdependent performance conditions – the
Company’s total shareholder return (TSR) ranked against
the TSR of a comparator group and the absolute average
share price over a three year period from date of grant.
None of the current Directors holds options in the LTIP.
2010 Restricted Stock Plan (RSP)
The RSP is a non-performance based share plan aimed at
incentivising the second tier 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 SAYE (ShareSAVE Plan)
in September 2010 and made an additional offer in
September 2011. All employees in the UK, including
Executive Directors, were eligible to participate in the
ShareSAVE Plan. 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. None of the current Directors hold
investments under this scheme.
Employee Share Ownership Plans (ESOPs)
The Company has two further legacy share plans
introduced prior to the IPO in 2010 (the 2005 Plan and
the 2008 Plan) wherein options 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 relating
to employment.
Shareholder dilution
In line with the ABI guidelines, the rules of the above
incentive schemes provide that 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 AIM ("Admission").
Newly issued shares are currently used to satisfy the
exercise of all employee and Executive options.
Directors’ shareholdings (audited information)
The Directors who were in post at the end of the year under review held the following beneficial interests in the Company’s
ordinary shares:
Stephen Callaghan1
Michael Corcoran2
Ruth Evans
Ordinary shares
held at 31 December 2015
3,000,000
1,875,000
208,571
Ordinary shares
held at 31 December 2014
—
—
—
Interests in unvested
shares under incentive plans
9,000,000
5,625,000
—
1.
2.
In January 2016 Stephen Callaghan was awarded 8,000,000 options under the 2016 LTIP.
On 24 November 2015 Michael Corcoran purchased a total of 3,245,000 ordinary shares under the MSP. 1,370,000 of those shares were sold
immediately in order to settle the personal tax liability arising thereon, leaving the balance of 1,875,000 ordinary shares. In January 2016
Michael Corcoran was awarded 5,050,000 options under the 2016 LTIP.
There have been no purchases of shares by Directors since 31 December 2015 to the date of this report.
The market price of ordinary shares of the Company as at 31 December 2015 was 12.50 pence and the range during the year
was 3.09 pence to 17.25 pence.
Shaun Astley-Stone
Chairman of the Remuneration Committee
6 April 2016
38
CPPGroup Plc Annual Report & Accounts 2015 Directors’ report
The Directors present their Annual Report and
audited financial statements of the Group for the
year ended 31 December 2015.
Directors
The Directors who served throughout the year, except as noted, are shown in the table below.
Directors
Roger Canham 1
Stephen Callaghan
Michael Corcoran
Shaun Astley-Stone
Abhai Rajguru
Eric Anstee
Duncan McIntyre
Brent Escott
Craig Parsons
Ruth Evans
Les Owen
Chairman
Chief Executive Officer
Chief Financial Officer
Non-Executive Director
Non-Executive Director
Executive Chairman
Chairman
Chief Executive Officer
Chief Financial Officer
Non-Executive Director
Non-Executive Director
(appointed 26 May 2015)
(appointed 30 July 2015)
(appointed 2 October 2015)
(appointed 23 December 2015)
(resigned 3 July 2015)
(resigned 13 January 2015)
(resigned 16 February 2015)
(resigned 31 August 2015)
(resigned 10 February 2016)
(resigned 13 January 2015)
1.
Roger Canham was appointed as a Non-Executive Director on 26 May 2015 and as Chairman on 3 July 2015.
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. Details of those seeking
re-election are contained in the notice of the forthcoming AGM.
Brief biographical details for each Director are set out on page 29. Details of Committee memberships are set out on pages
30 to 38 of the corporate governance section.
Details of Directors’ beneficial interests in and options over the Company’s shares are set out in the Directors' remuneration
report on pages 36 to 38.
Pages 29 to 38 are by reference part of the Directors’ report.
Insurance
The Company has appropriate insurance cover in place in respect of any potential litigation against Directors.
Dividends
The Directors recommend that no final dividend be paid in respect of 2015. No dividends have been paid in either the current
or prior year.
General meetings
The AGM of the Company is to be held on 18 May 2016. 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. As announced on 21 March 2016, a further
general meeting has been requisitioned by Schroders. Shareholders will have received a separate notice and explanatory
circular in relation to this meeting, which will be held on 5 May 2016. The notices of both general meetings specify deadlines
for exercising voting rights and appointing a proxy or proxies to vote in relation to resolutions to be proposed at the meetings.
Corporate governance Directors' remuneration report
39
Principal activitiesThe 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:• Strategic report on pages 6 to 28;• Corporate governance report on pages 30 to 33; • Report of the Audit Committee on pages 34 and 35; and• Directors' remuneration report on pages 36 to 38. Directors’ report continued
Substantial shareholdings
On 31 December 2015, the Company had been notified, in accordance with the Disclosure and Transparency Rules of the FCA,
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 2015 no person had a beneficial interest in 3% or more of the voting share capital except for the following:
Name
Funds managed by Phoenix Asset Management Partners Limited
Milton Magna Limited (a company controlled by Mr Hamish Ogston)
Mr Hamish Ogston
Schroder plc
Ordinary shares
(thousands)
335,327
264,144
96,332
85,378
%
39.3%
31.0%
11.3%
10.0%
Mr Hamish Ogston holds a beneficial interest in 42.3% of the issued shares of the Company. Under the terms of a Relationship
Agreement between Mr Ogston and the Company dated 22 December 2014 and effective from the Company’s admission to AIM,
for so long as Mr Ogston and any person or corporate body connected to him (a "Controlling Shareholder") holds, in aggregate,
30% or more of the ordinary shares or the voting rights attaching to the shares, Mr Ogston shall not and shall procure that each
Controlling Shareholder shall not:
•
vote in favour of, or propose any resolution to amend the Articles which would be contrary to the principle of the independence
of the Company from the shareholder or any of the Controlling Shareholders;
take any action which precludes any member of the Group from carrying on its business independently of Mr Ogston or any
Controlling Shareholder; or
take any action (or omit to take any action) to prejudice the Company’s status as a Company admitted to AIM or its suitability
for admission to AIM or the Company’s compliance with the AIM Rules, other than in the circumstances of a takeover
or merger of the Company.
•
•
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 consolidated financial statements.
The Company’s capital comprises ordinary shares of 1 penny
each, which carry no right to fixed income. Each fully paid
share carries the right to one vote at a general meeting
of the Company.
The Company also has deferred shares which carry no
voting rights, no rights to dividend and only very limited
rights on a return of capital.
Details of the Group’s employee share schemes are set
out in note 30.
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.
Under the terms of the 2016 LTIP, in the event of a sale of
the Company before the end of the performance period, the
whole award will be subject to the share price performance
targets set out in that award, and the award will vest to the
extent to which the offer price falls within the range of share
price performance targets (“Performance Condition
Adjustment”). Stephen Callaghan and Michael Corcoran
have received undertakings that, if and to the extent that
they receive an award under the LTIP for the three year
performance periods commencing 1 January 2017 and
1 January 2018, such awards will include an equivalent
Performance Condition Adjustment.
The Group is in a much improved financial position following
the successful equity raise, restructure of liabilities
and refinancing in February 2015, which returned the
consolidated balance sheet to net assets and significantly
increased the Group’s net funds. The Group’s operating
performance has improved following difficult but necessary
decisions taken in the current and prior year. Residual redress
obligations are now substantially complete. Whilst there
continues to be some uncertainty from medium term
trading and strategic risk, the Group’s forecasts show that
the Group has the necessary resources to trade and operate
within the level of its borrowing facilities. After making
enquiries, the Directors have a reasonable expectation that
the Company and the Group have adequate resources to
continue in operational existence for the foreseeable future.
Accordingly they continue 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:
•
so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
the Director has taken all the steps that he/she ought to
have taken as a Director in order to make him/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 reappoint
Deloitte LLP will be proposed at the AGM.
By order of the Board
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.
Lorraine Beavis
Company Secretary
6 April 2016
40
CPPGroup Plc Annual Report & Accounts 2015 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, including
Financial Reporting Standard 101 ‘Reduced Disclosure
Framework’. 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:
•
•
properly select and apply accounting policies;
present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
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
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:
•
•
•
•
select suitable accounting policies and then apply
them consistently;
make judgements and estimates that are reasonable
and prudent;
state whether the Financial Reporting Standard 101
‘Reduced Disclosure Framework’ has been followed, subject
to any material departures disclosed and explained in the
financial statements; and
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:
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/loss of the Company and the undertakings
included in the consolidation taken as a whole;
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
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.
By order of the Board
Stephen Callaghan
Chief Executive Officer
6 April 2016
Michael Corcoran
Chief Financial Officer
6 April 2016
Corporate governance Statement of Directors’ responsibilities
41
Independent Auditor’s report
to the members of CPPGroup Plc
Opinion on financial statements of CPPGroup Plc
In our opinion:
•
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 2015 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly prepared
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
• the parent company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including FRS 101
“Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
The financial statements comprise the consolidated
income statement, the consolidated statement of
comprehensive income, the consolidated and parent company
balance sheets, the consolidated and parent company
statements of changes in equity, the consolidated
cash flow statement and the related notes 1 to 34. The
financial reporting framework that has been applied in
the preparation of the consolidated 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),
including FRS 101 “Reduced Disclosure Framework”.
We have nothing material to add or draw attention to in
relation to:
• the Directors’ confirmation on page 26 that they have
carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity;
• the disclosures on pages 26 to 28 that describe those risks
and explain how they are being managed or mitigated;
• the Directors’ statement in note 3 to the financial
statements about whether they considered it appropriate
to adopt the going concern basis of accounting in preparing
them and their identification of any material uncertainties
to the Group’s ability to continue to do so over a period of at
least 12 months from the date of approval of the financial
statements; and
• the Directors’ explanation on page 40 as to how they have
assessed the prospects of the Group, over what period
they have done so and why they consider that period to
be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
We agreed with the Directors’ adoption of the going concern
basis of accounting and we did not identify any such material
uncertainties. However, because not all future events or
conditions can be predicted, this statement is not a guarantee
as to the Group’s ability to continue as a going concern.
Going concern and the Directors’ assessment of the
principal risks that would threaten the solvency or
liquidity of the Group
We have reviewed the Directors’ statement regarding the
appropriateness of the going concern basis of accounting
contained within note 3 to the financial statements and the
Directors’ statement on the longer-term viability of the Group
contained within the corporate governance report on page 32.
Independence
We are required to comply with the Financial Reporting
Council’s Ethical Standards for Auditors and we confirm
that we are independent of the Group and we have fulfilled
our other ethical responsibilities in accordance with those
standards. We also confirm we have not provided any of the
prohibited non-audit services referred to in those standards.
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.
Risk
How the scope of our audit responded to the risk
Going concern
As a result of the financial impact of the historical customer
redress scheme, continuing restrictions on new regulated
business sales in the United Kingdom, and the requirement to
trade in line with expectations and maintain compliance with
lending covenants, the going concern status of the Group has
been identified as a significant risk.
As disclosed by Management in the Director’s report on page
40, and notes 25 and 29 to the consolidated financial statements,
the Group has refinanced and restructured and the main
elements of the customer redress scheme were concluded in the
prior year. Whilst there continues to be uncertainty in relation
to trading and residual redress risk, along with medium term
strategic risk, the refinancing has resulted in an improvement
in the Group’s financial position such that there is no longer a
material uncertainty in relation to the Group’s ability to meet its
liabilities as they fall due during the 12 months from the date of
this report. The sustainability of the business beyond this period
will depend on the mitigation of the medium term strategic risk
through the formulation of a viable strategy.
We have 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 with reference to historical information. We also evaluated
historical forecasting accuracy, the sensitivity of the going
concern status to key assumptions such as new product sales,
anticipated cost savings and new business contributions,
current and forecast compliance with the terms of the Group’s
borrowing facilities and the impact of other uncertainties
including the remaining residual redress risk.
42
CPPGroup Plc Annual Report & Accounts 2015 Our assessment of risks of material misstatement continued
Risk
How the scope of our audit responded to the risk
Completeness of provisions for customer redress and
associated costs
The Group holds £1.6 million of customer redress and associated
costs provisions at year end (2014: £6.4 million). The determination
of the value of the provisions 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 or other issues, and the
level of redress payable per customer.
Customer redress and associated costs provisions are
detailed in note 26 to the consolidated financial statements.
Management’s associated critical accounting judgements are
included in note 4.
Revenue recognition
There are significant judgements involved in applying the
Group’s revenue recognition policies across multiple products,
in particular determining the appropriate deferral of revenue
where the Group has future servicing obligations to customers
and also in determining revenue refund provisions for
customers who cancel during the ‘cooling off’ periods on buying
or renewing the Group’s products, calculated on the basis of
historical experience.
Management’s associated accounting policies are detailed
in note 3 to the consolidated financial statements.
We considered the design and implementation of Management’s
controls in relation to the identification and response to
regulatory risks.
We reviewed the key regulatory risks by reference to recent
regulatory authority announcements, correspondence with
local and overseas regulators, and the Group’s complaints logs.
We also met with the Group legal department and relevant
Management across the Group and reviewed relevant Board
minutes to evaluate any identified exposures.
We evaluated the appropriateness of Management’s
assumptions in deriving the provisions for customer redress
and associated costs, including reviewing expected response
rates and average redress per customer against the Group’s
experience to date. We have also performed sensitivity analyses
on these assumptions.
In addition, we have carried out detailed substantive procedures
validating the utilisation of provisions during the year.
We evaluated the design and implementation and tested the
operating effectiveness of controls over revenue recognition,
including the reconciliation of underlying policy collections to
recorded revenue and the calculation of refund provisions.
We also performed tests of key controls in relation to the Group’s
core administration systems supporting the revenue cycle.
We evaluated the appropriateness of revenue recognition
policies applied by reference to the terms and conditions of the
underlying products. We tested cancellation provisions by
reference to post year end experience, and we also carried out
detailed substantive analytical reviews based upon policy
volumes, lapse rates and product prices. This testing was
supported by tests of detail to supporting documentation and
the independent extraction of source policyholder data and
recalculation of relevant management information.
The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee
discussed on page 35.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these 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 £0.9 million
(2014: £1.2 million), which is below 1.2% (2014: 1.2%) of
revenue. We used revenue to determine the 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 £17,000
(2014: £30,000), 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.
An overview of the scope of our audit
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 five locations
(the United Kingdom and Ireland, Spain, Italy, Turkey and
India). Three of these were subject to a full audit, whilst the
remaining two (Turkey and India) were subject to an audit
of specified account balances where the extent of our testing
was based on our assessment of the risks of material
misstatement and of the materiality of the Group’s
operations at those locations. These locations represent the
principal business units and account for 95% (2014: 92%)
of the Group’s net assets, 91% (2014: 91%) of the Group’s
revenue and 98% (2014: 80%) of the Group’s profit before tax.
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 five
locations was executed at levels of materiality applicable
to each individual entity which were lower than Group
materiality and ranged from £0.2 million to £0.4 million
(2014: £0.2 million to £0.7 million).
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. We included a location visit to Italy in our
planning of the audit. In years when we do not visit a significant
component we will include the component audit partner
and team in our team briefing, discuss their risk assessment,
and review documentation of the findings from their work.
Financial statements Independent Auditor’s report
43
Independent Auditor’s report continued
to the members of CPPGroup Plc
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion 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:
• we have not received all the information and explanations
we require for our audit; or
• 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
• 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. We have nothing to report arising from
this matter.
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:
• materially inconsistent with the information in the audited
financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired
in the course of performing our audit; or
• 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.
Other matters
In our opinion the part of the Directors’ remuneration report
to be audited has been properly prepared in accordance with
the provisions of the Companies Act 2006 that would have
applied were the Company a quoted company.
Although not required to do so, the Directors have
voluntarily chosen to make a corporate governance statement
detailing the extent of their compliance with the UK Corporate
Governance Code. We reviewed the part of the corporate
governance statement relating to the Company’s compliance
with certain provisions of the UK Corporate Governance
Code. We have nothing to report arising from our review.
Respective responsibilities of Directors and Auditor
As explained more fully in the Statement of Directors’
responsibilities, 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). 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 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/or those further matters we have expressly agreed to
report to them in our engagement letter 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.
Peter Birch FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Leeds, United Kingdom
6 April 2016
44
CPPGroup Plc Annual Report & Accounts 2015 Consolidated income statement
For the year ended 31 December 2015
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit/(loss)
Analysed as:
Underlying operating profit
Exceptional items
MSP charges
Investment revenues
Finance costs
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year from continuing operations
Discontinued operations
Profit/(loss) for the year from discontinued operations
Profit/(loss) for the year attributable to equity holders of the Company
Basic earnings/(loss) per share
Continuing operations
Discontinued operations
Total
Diluted earnings/(loss) per share
Continuing operations
Discontinued operations
Total
Note
5
5
6
30
10
11
12
15
7
14
14
14
14
2015
£’000
76,771
(32,346)
44,425
(21,443)
22,982
6,863
17,777
(1,658)
282
(1,362)
21,902
(3,374)
18,528
2,309
20,837
2014
restated
(note 3)
£’000
96,528
(49,895)
46,633
(49,848)
(3,215)
2,807
(6,022)
—
432
(2,147)
(4,930)
1,674
(3,256)
(3,493)
(6,749)
Pence
Pence
2.42
0.30
2.72
Pence
2.41
0.30
2.71
(1.90)
(2.04)
(3.94)
Pence
(1.90)
(2.04)
(3.94)
Financial statements Consolidated income statement
45
Consolidated statement of comprehensive income
For the year ended 31 December 2015
Profit/(loss) for the year
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Other comprehensive income for the year net of taxation
2015
£’000
20,837
271
271
2014
£’000
(6,749)
111
111
Total comprehensive income/(expense) for the year attributable to equity holders
of the Company
21,108
(6,638)
46
CPPGroup Plc Annual Report & Accounts 2015 Balance sheets
As at 31 December 2015
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Deferred tax asset
Current assets
Insurance assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Insurance liabilities
Income tax liabilities
Trade and other payables
Borrowings
Provisions
Net current assets
Non-current liabilities
Borrowings
Deferred tax liabilities
Trade and other payables
Provisions
Total liabilities
Net assets/(liabilities)
Equity
Share capital
Share premium account
Merger reserve
Translation reserve
Equalisation reserve
ESOP reserve
Retained earnings/(accumulated losses)
Total equity/(deficit) attributable to equity holders
of the Company
Note
16
17
18
27
19
20
21
22
23
24
25
26
25
27
24
26
29
23
Consolidated
2015
£’000
4,825
3,502
—
652
8,979
317
43
12,106
39,810
52,276
61,255
2014
£’000
808
3,820
—
2,248
6,876
593
93
15,709
40,599
56,994
63,870
(1,189)
(2,483)
(2,019)
(2,231)
Company
2015
£’000
—
—
15,359
165
15,524
—
—
66,385
4,843
71,228
86,752
—
—
(42,629)
(40,631)
(19,495)
—
(2,254)
(48,555)
3,721
(2,191)
(308)
—
(186)
(2,685)
(51,240)
10,015
—
(7,041)
(51,922)
5,072
(32,733)
(126)
(8,991)
(973)
(42,823)
(94,745)
(30,875)
—
—
(19,495)
51,733
—
—
—
—
—
2014
£’000
—
—
15,169
—
15,169
—
—
56,040
—
56,040
71,209
—
—
(17,903)
(1,538)
—
(19,441)
36,599
—
—
—
—
—
(19,495)
67,257
(19,441)
51,768
23,939
45,225
17,126
33,291
23,939
45,225
17,126
33,291
(100,399)
(100,399)
991
6,243
13,093
20,923
720
7,487
11,891
(991)
—
—
—
—
—
—
6,467
(8,374)
5,265
(3,914)
10,015
(30,875)
67,257
51,768
Approved by the Board of Directors and authorised for issue on 6 April 2016 and signed on its behalf by:
Stephen Callaghan
Chief Executive Officer
Michael Corcoran
Chief Financial Officer
Company registration number: 07151159
Financial statements Balance sheets
47
Consolidated statement of changes in equity
For the year ended 31 December 2015
Share
capital
£’000
Share
premium
account
£’000
17,120 33,292
Note
Merger
reserve
£’000
(100,399)
Translation
reserve
£’000
609
Equalisation
reserve
£’000
ESOP
reserve
£’000
8,129 11,688
111
—
At 1 January 2014
Total comprehensive expense
Movement on equalisation
reserve
Current tax charge on
equalisation reserve
movement
Equity settled share-based
payment charge
Deferred tax on share-based
payment charge
Exercise of share options
At 31 December 2014
Total comprehensive income
Movement on equalisation
reserve
Current tax charge on
equalisation reserve
movement
Equity settled share-based
payment charge
Deferred tax on share-based
payment charge
Purchase of ordinary shares
Exercise of share options
Other ordinary share issues
—
—
—
—
—
6
—
—
—
—
—
(1)
—
—
—
—
—
—
17,126 33,291
(100,399)
—
—
—
—
—
—
1
—
—
—
—
—
—
(1)
6,812 11,935
—
—
—
—
—
—
—
—
23
12
30
12
23
12
30
12
29
29
29
(642)
—
—
—
—
—
—
—
(1,244)
—
—
—
—
—
720
271
—
—
—
—
—
—
Retained
earnings/
(accumulated
losses)
£’000
Total
£’000
5,259 (24,302)
(6,749)
(6,638)
642
—
(138)
(138)
—
1
(6)
203
1
(1)
—
—
—
203
—
—
—
—
—
20,837
21,108
1,244
—
(252)
(252)
—
1,466
—
1,466
—
—
—
—
—
(264)
—
—
86
—
(1)
86
(264)
(1)
— 18,747
7,487
11,891
(991)
(30,875)
At 31 December 2015
23,939 45,225
(100,399)
991
6,243 13,093
20,923
10,015
Company statement of changes in equity
For the year ended 31 December 2015
Note
30
29
30
12
29
29
29
Share
capital
£’000
17,120
—
—
6
Share
premium
account
£’000
33,292
—
—
(1)
17,126
33,291
—
—
—
—
1
—
—
—
—
(1)
6,812
23,939
11,935
45,225
ESOP
reserve
£’000
5,062
Accumulated
losses
£’000
(1,419)
Total
£’000
54,055
—
(2,489)
(2,489)
203
—
5,265
—
1,466
—
(264)
—
—
—
(6)
(3,914)
(4,545)
—
86
—
(1)
—
6,467
(8,374)
203
(1)
51,768
(4,545)
1,466
86
(264)
(1)
18,747
67,257
At 1 January 2014
Total comprehensive expense
Equity settled share-based
payment charge
Exercise of share options
At 31 December 2014
Total comprehensive expense
Equity settled share-based
payment charge
Deferred tax on share-based payment
charge
Purchase of ordinary shares
Exercise of share options
Other ordinary share issues
At 31 December 2015
48
CPPGroup Plc Annual Report & Accounts 2015 Consolidated cash flow statement
For the year ended 31 December 2015
Net cash used in 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
Credit associated with disposal of discontinued operation
Investment in joint venture
Net cash used in investing activities
Financing activities
Repayment of bank loans
(Repayment of)/proceeds from the Commission Deferral Agreement
Proceeds from the Second Commission Deferral Agreement
Interest paid
Costs of refinancing the bank facility
Costs of compromising the Commission Deferral Agreement
Issue of ordinary share capital and associated costs
Net cash from financing activities
Net decrease in cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Note
31
15
15
15
22
2015
£’000
(1,360)
282
(194)
(4,435)
—
—
—
(4,347)
(12,000)
(1,304)
1,304
(903)
(220)
(743)
18,980
5,114
(593)
(196)
40,599
39,810
2014
£’000
(32,906)
432
(190)
(406)
275
28
(1,000)
(861)
—
8,831
—
(514)
—
(193)
(499)
7,625
(26,142)
(159)
66,900
40,599
Financial statements Consolidated cash flow statement
49
Notes to the 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 and Company 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.
The Company has taken advantage of the exemption in the Companies Act 2006, Section 408, not to present its own
income statement. The Company reported a loss after tax for the year of £4,545,000 (2014: £2,489,000). There have been
no dividends received from subsidiary undertakings in either the current or prior year.
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
Annual improvements to IFRSs
Subject
2011–2013 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
Annual improvements to IFRSs
Subject
2010–2012 cycle
IAS 1 (amendments)
Disclosure Initiative
IAS 16 and IAS 38 (amendments) Clarification of Acceptable Methods of Depreciation
and Amortisation
Annual improvements to IFRSs
2012–2014 Cycle
IFRS 15
IFRS 9
IFRS 16
Revenue from Contracts with Customers
Financial Instruments
Leases
Period first applies
(year ended)
31 December 2016
31 December 2016
31 December 2016
31 December 2016
31 December 2017
31 December 2018
31 December 2019
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 45 to 82 present the performance of the Group for the year ended
31 December 2015. The financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRSs) 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 Airport
Angel business as discontinued.
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the
Financial Reporting Council. Accordingly, in the year ended 31 December 2015 the Company has changed its accounting
framework from UK GAAP to FRS 101 as issued by the Financial Reporting Council and has, in doing so, applied the
requirements of IFRS 1.6–33 and related appendices. These Company financial statements on pages 47 to 82 were prepared
in accordance with FRS 101 ‘Reduced Disclosure Framework’ as issued by the Financial Reporting Council. There is not a
material impact on the Company financial statements from the change in accounting framework. The Company financial
statements have also been prepared under the historical cost basis.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available in relation to standards
not yet effective, presentation of a cash flow statement, share-based payments and related party transactions.
Going concern
The Board of Directors has, 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 it
continues 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 39.
50
CPPGroup Plc Annual Report & Accounts 2015 3. Significant accounting policies continued
Basis of consolidation
The consolidated financial statements include the results, cash flows, 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.
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.
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.
Share-based payments
Prior to the Company’s shares being transferred to AIM, the Group issued share options to certain of its employees through
the Executive Share Option Plan (ESOP), 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 administrative
expenses in the consolidated income statement.
Subsequent to the transfer to AIM the Group has issued options under the Matching Share Plan (MSP). Costs in relation
to this plan are disclosed within administrative expenses and are not included in underlying operating profit.
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.
The fair value of share options is measured by use of the Black Scholes option pricing model and the 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 unprovided services. The amount deferred is
sufficient to cover future claims handling costs and an appropriate profit margin, and is calculated by reference to historical
experience of claims handling costs and incidence. Provisions for cancellations are made at the time revenue is recorded
and are deducted from revenue.
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 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.
Financial statements Notes to the financial statements
51
Notes to the financial statements continued
3. Significant accounting policies continued
Assistance products continued
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 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.
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.
Discontinued operations
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.
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 to five years.
Internally generated software
Internally generated intangible assets arising from the Group’s software development programmes are recognised from the
point at which the following conditions are met:
• an asset is created that can be identified;
• it is probable that the asset created will generate future economic benefits; and
• 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 to five years.
Contractual arrangements with third parties
The Group’s contractual arrangements can 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.
52
CPPGroup Plc Annual Report & Accounts 2015 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 the relevant projected 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. The 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:
Freehold land is not depreciated.
40 years straight line
4 – 5 years straight line
4 years straight line
Over the shorter of the life of the lease and the useful economic life of the asset
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and bank deposits with a term from inception of three months or less, less
bank overdrafts where there is a right to offset. Bank overdrafts are presented as current liabilities to the extent that there is
no right to offset with cash balances in the same currency.
Leases
Operating lease rentals are charged to the consolidated income statement on a straight line basis over the term of the lease.
Taxation
Taxation on the profit or loss for the year comprises both current and deferred tax as well as adjustments in respect of prior
years. Taxation is charged or credited to the income statement, except when it relates to items charged or credited directly
to equity, in which case the tax is also included within equity. Current tax is the expected tax payable on the taxable income
for the year using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided in full, using the liability method, on all taxable and deductible temporary differences at the
balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which
the deductible temporary differences can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is
realised or liability is settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiary undertakings
except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when they relate to income tax levied by the same taxation authority and the Group/Company
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.
Financial statements Notes to the financial statements
53
Notes to the financial statements continued
3. Significant accounting policies continued
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 or 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 initially recorded at fair value and
subsequently 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.
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.
Provisions
The Group’s provisions are detailed in note 26. The remaining provisions include estimates relating to response rates for
customer redress and the non-utilisation period at a vacated office in the UK.
Any changes to the estimates applied would lead to a change in the provisions required which would be reflected through
the consolidated income statement.
Share-based payments
Determining the fair value of share options granted requires estimation of items including share price volatility and risk-free
rates. Details of the assumptions made are included in note 30.
Different assumptions would alter the share-based payment charge for the current and subsequent periods. Valuations for
equity settled share-based payments are set at grant date.
54
CPPGroup Plc Annual Report & Accounts 2015 4. Critical accounting judgements and key sources of estimation uncertainty continued
Current tax
The calculation of the Group’s total tax charge necessarily involves a degree of estimation and judgement due to the complex
tax regulations in the countries in which the Group operates, where filed tax positions may remain open to challenge by local
tax authorities for several years. Corporation tax is therefore accrued on the Directors’ assessment of specific tax law and
likelihood of settlement.
Any changes to estimates of uncertain tax positions would be reflected through the consolidated income statement.
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:
• UK and Ireland;
• Europe and Latin America (Spain, Italy, Germany, Turkey, Mexico, Portugal, France and Brazil); and
• Asia Pacific (India, Hong Kong, China, Malaysia and Singapore).
Segment revenues and performance have been as follows:
Year ended 31 December 2015
Continuing operations
Revenue – external sales
Cost of sales
Gross profit
Depreciation and amortisation
UK and
Ireland
2015
£’000
Europe and
Latin America
2015
£’000
Asia
Pacific
2015
£’000
Total
2015
£’000
42,979
25,455
8,337
76,771
(14,939)
(12,479)
(4,928)
(32,346)
28,040
12,976
3,409
44,425
(292)
(264)
(30)
(586)
Other administrative expenses excluding exceptional items
and MSP charges
Regional underlying operating profit
Exceptional items (note 6)
(25,759)
1,989
(8,118)
4,594
MSP charges
Operating profit
Investment revenues
Finance costs
Profit before taxation
Taxation
Profit for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations (note 15)
Profit for the year
(3,099)
(36,976)
280
6,863
17,777
(1,658)
22,982
282
(1,362)
21,902
(3,374)
18,528
2,309
20,837
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 £1,704,000,
presented within UK and Ireland in the table above, which has been charged to other regions for statutory purposes.
Financial statements Notes to the financial statements
55
Notes to the financial statements continued
5. Segmental analysis continued
Year ended 31 December 2014 – restated (note 3)
Continuing operations
Revenue – external sales
Cost of sales
Gross profit
Depreciation and amortisation
UK and
Ireland
2014
£’000
Europe and
Latin America
2014
£’000
57,412
32,463
(29,919)
(16,357)
27,493
(1,243)
16,106
(784)
Asia
Pacific
2014
£’000
6,653
(3,619)
3,034
(34)
Total
2014
£’000
96,528
(49,895)
46,633
(2,061)
Other administrative expenses excluding exceptional items
(28,372)
(10,160)
(3,233)
(41,765)
Regional underlying operating (loss)/profit
Exceptional items (note 6)
(2,122)
5,162
(233)
Operating loss
Investment revenues
Finance costs
Loss before taxation
Taxation
Loss for the year from continuing operations
Discontinued operations
Loss for the year from discontinued operations (note 15)
Loss for the year
2,807
(6,022)
(3,215)
432
(2,147)
(4,930)
1,674
(3,256)
(3,493)
(6,749)
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 £1,845,000,
presented within UK and Ireland in the table above, which has been charged to other regions for statutory purposes.
2015
£’000
47,667
8,074
4,065
59,806
797
652
61,255
2014
restated
(note 3)
£’000
49,346
7,012
2,937
59,295
2,327
2,248
63,870
Intangible assets
Property, plant and equipment
2015
£’000
4,415
21
—
4,436
2014
£’000
393
13
—
406
2015
£’000
129
48
17
194
2014
£’000
118
61
11
190
Segment assets
UK and Ireland
Europe and Latin America
Asia Pacific
Total segment assets
Assets relating to discontinued operations
Unallocated assets
Consolidated total assets
Deferred tax is not allocated to segments.
Capital expenditure
Continuing operations
UK and Ireland
Europe and Latin America
Asia Pacific
Additions from continuing operations
56
CPPGroup Plc Annual Report & Accounts 2015 5. Segmental analysis continued
Revenues from major products
Continuing operations
Retail assistance policies
Retail insurance policies
Wholesale policies
Non-policy revenue
Revenue from continuing operations
Discontinued operations
Consolidated total revenue
2015
£’000
68,139
5,384
2,344
904
76,771
13,107
89,878
2014
restated
(note 3)
£’000
82,652
10,229
2,802
845
96,528
12,278
108,806
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; ‘wholesale policies’ are those which
are provided by Business Partners to their customers in relation to an ongoing product or service which is provided for a specified
period of time; and ‘non-policy revenue’ is that which is not in connection with providing an ongoing 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 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 deferred tax) by geographical location is detailed below:
Continuing operations
UK
Spain
Other
Total continuing operations
Discontinued operations
External revenues
Non-current assets
2015
£’000
42,179
11,873
22,719
76,771
13,107
89,878
2014
restated
(note 3)
£’000
56,134
15,215
25,179
96,528
12,278
108,806
2015
£’000
8,062
122
143
8,327
—
8,327
2014
restated
(note 3)
£’000
4,064
176
352
4,592
36
4,628
Information about major customers
There are no customers in either the current or prior year from which the Group earns more than 10% of its revenue.
Financial statements Notes to the financial statements
57
Notes to the financial statements continued
6. Exceptional items
Commission deferral compromise and associated costs
Customer redress and associated costs
Restructuring costs
Exceptional (credit)/charge included in operating profit or loss
Tax on exceptional items
Total exceptional (credit)/charge after tax
Discontinued operations after tax
Note
7
26
7
2015
£’000
(19,388)
900
711
(17,777)
2,344
(15,433)
(38)
(15,471)
2014
restated
(note 3)
£’000
744
3,000
2,278
6,022
(646)
5,376
301
5,677
The gain from the commission deferral compromise and associated costs of £19,388,000 (2014: £744,000 charge) relates
to the settlement in full of the Commission Deferral Agreement for a payment of £1,304,000, net of costs associated with
finalising the agreement to compromise.
The customer redress and associated costs of £900,000 (2014: £3,000,000) relate to the latest estimate with respect
to residual customer redress activity, which has arisen following changes to commission arrangements in the UK.
The restructuring costs of £711,000 (2014: £2,278,000) principally relate to redundancy programmes and associated
costs across the Group. The majority of this cost is located in Spain.
7. Profit/(loss) for the year
Continuing
operations
Discontinued
operations
Total
Note
2015
£’000
2014
restated
(note 3)
£’000
2014
restated
(note 3)
£’000
2015
£’000
2015
£’000
2014
£’000
1,801
2,105
1,816
2,173
15
11
15
—
—
—
—
21
—
23
815
838
14
76
68
2
82
—
—
147
465
391
16
—
900
— (19,388)
(97)
237
(88)
(22)
1,271
2,884
43
3,000
744
994
86
203
60
—
21
1,466
4
1,499
725
1,908 26,905 28,425
1,912 29,096 30,127
—
—
17
8
80
(59)
Profit/(loss) for the year has been arrived at after
charging/(crediting):
Operating lease charges
Net foreign exchange losses/(gains)
Depreciation of property, plant and equipment
Amortisation of intangible assets
Loss on disposal of property, plant and equipment
Customer redress and associated costs
Commission deferral compromise and associated costs
Restructuring costs/(credit)
Impairment of intangible assets and property,
plant and equipment
Share-based payments
Restructuring costs
Other staff costs
17
16
136
450
391
16
26
900
6 (19,388)
6
9
—
1,466
6
30
6
(24)
1,189
2,884
43
3,000
744
757
26
203
702
1,495
26,090
26,517
Total staff costs
Write-down of inventories recognised as an expense
9 28,258 28,215
—
3
Movement on allowance for doubtful trade receivables
21
4
(67)
58
CPPGroup Plc Annual Report & Accounts 2015 7. Profit/(loss) for the year continued
Fees payable to Deloitte LLP and its 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 its 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
Other services
Total non-audit services
2015
£’000
2014
£’000
54
243
297
—
25
—
8
33
330
57
300
357
27
29
4
—
60
417
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 credited
Claims paid
– Gross amount
– Reinsurer’s share
– Decrease in provision for gross claims
– Increase in provision for reinsurance claims
Acquisition costs
– Costs incurred
– Movement in deferred acquisition costs
Other expenses
2015
£’000
7,662
595
8,257
2015
£’000
—
1,014
(3)
(235)
3
779
261
129
390
5,630
6,799
2014
£’000
13,765
884
14,649
2014
£’000
(27)
4,502
(1,147)
(946)
723
3,132
1,991
1,173
3,164
8,536
14,805
The following assumption has a significant impact on insurance revenues:
• Unearned premiums on prepaid insurance policies are recognised as revenue on a straight line basis over the life of the policy.
Changes to the expected life of classes of policies will therefore impact the period in which these items are recognised.
Financial statements Notes to the financial statements
59
Notes to the 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
Total
2015
£’000
22,012
3,374
702
1,466
704
2014
restated
(note 3)
£’000
22,269
3,382
1,495
203
866
2014
restated
(note 3)
£’000
1,711
155
4
—
42
2015
£’000
740
62
23
—
13
2015
£’000
22,752
3,436
725
1,466
717
2014
£’000
23,980
3,537
1,499
203
908
28,258
28,215
838
1,912
29,096
30,127
2014
restated
(note 3)
461
376
38
875
36
911
2015
335
368
31
734
31
765
The Group utilises third party service providers in a number of its overseas operations.
Details of the remuneration of Directors are included in the Directors’ remuneration report on pages 36 to 38.
10. Investment revenues
Interest on bank deposits
11. Finance costs
Interest on borrowings
Amortisation of capitalised loan
issue costs
Other
Continuing operations
Discontinued operations
Total
2015
£’000
282
2014
£’000
432
2015
£’000
—
2014
£’000
—
2015
£’000
282
2014
£’000
432
Continuing operations
Discontinued operations
Total
2015
£’000
326
1,036
—
1,362
2014
restated
(note 3)
£’000
1,656
640
(149)
2,147
2014
restated
(note 3)
£’000
—
—
149
149
2015
£’000
—
—
161
161
2015
£’000
326
1,036
161
1,523
2014
£’000
1,656
640
—
2,296
60
CPPGroup Plc Annual Report & Accounts 2015
12. Taxation
Continuing operations
Current tax charge:
UK corporation tax
Foreign tax
Adjustments in respect of prior years
Total current tax
Deferred tax charge/(credit):
Origination and reversal of timing differences
Impact of change in UK tax rates
Total deferred tax
Total continuing operations
Discontinued operations
2015
£’000
299
915
410
1,624
1,760
(10)
1,750
3,374
(357)
3,017
2014
restated
(note 3)
£’000
(433)
1,253
(12)
808
(2,482)
—
(2,482)
(1,674)
(24)
(1,698)
UK corporation tax is calculated at 20.25% (2014: 21.50%) 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 (No 2) Act 2015 was
enacted on 18 November 2015. It provides for a reduction in the main rate of UK corporation tax from 20% to 19% effective
from 1 April 2017 and a further reduction to 18% from 1 April 2020. As these rates were substantively enacted prior to
31 December 2015, they have been reflected in the UK deferred tax balance at 31 December 2015.
The charge/(credit) for the year can be reconciled to the profit/(loss) per the consolidated income statement as follows:
Profit/(loss) before tax from continuing operations
Effects of:
Tax at the UK corporation tax rate of 20.25% (2014: 21.50%)
Movement in unprovided deferred tax
Recognition of deferred tax asset previously unprovided
Net income 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
Surplus of share option charge compared to tax allowable amount
Total tax charged/(credited) to income statement
Income tax charged to reserves during the year was as follows:
Current tax charge
Movement on equalisation reserve
Total current tax charge
Deferred tax credit
Timing differences on equity settled share-based charge
Total deferred tax credit
Total tax charged to reserves
13. Dividends
The Directors have not proposed a final dividend for the year ended 31 December 2015.
2015
£’000
21,902
4,435
(1,980)
—
(40)
298
216
410
—
35
2014
restated
(note 3)
£’000
(4,930)
(1,060)
939
(2,318)
(390)
482
648
(12)
20
17
3,374
(1,674)
2015
£’000
252
252
(86)
(86)
166
2014
£’000
138
138
(1)
(1)
137
Financial statements Notes to the financial statements
61
Notes to the financial statements continued
14. Earnings/(loss) per share
Basic and diluted earnings/(loss) per share have been calculated in accordance with IAS 33 ‘Earnings per Share’. Underlying
earnings/(loss) per share have also been presented in order to give a better understanding of the performance of the business.
In accordance with IAS 33, potential ordinary shares are only considered dilutive when their conversion would decrease the
earnings per share from continuing operations attributable to equity holders.
Earnings/(loss)
Earnings/(loss) for the purposes
of basic and diluted earnings/(loss)
per share
Exceptional items (net of tax)
MSP charges (net of tax)
Earnings/(loss) for the purposes
of underlying basic and diluted
earnings/(loss) per share
Number of shares
Continuing operations
Discontinued operations
Total
2015
£’000
18,528
(15,433)
1,318
2014
restated
(note 3)
£’000
(3,256)
5,376
—
2015
£’000
2014
restated
(note 3)
£’000
2015
£’000
2014
£’000
2,309
(3,493)
(38)
—
(10)
—
20,837
(15,471)
1,318
(6,749)
5,366
—
4,413
2,120
2,271
(3,503)
6,684
(1,383)
Weighted average number of ordinary shares for the purposes of basic earnings/(loss) per share
Effect of dilutive potential ordinary shares: share options
2015
Number
(thousands)
766,667
2,748
2014
Number
restated
(note 3)
(thousands)
171,622
6,059
Weighted average number of ordinary shares for the purposes of diluted earnings/(loss)
per share
769,415
177,681
Basic and diluted earnings/(loss)
per share:
Basic
Diluted
Basic and diluted underlying
earnings/(loss) per share:
Basic
Diluted
Continuing operations
Discontinued operations
Total
2014
restated
(note 3)
Pence
(1.90)
(1.90)
1.23
1.19
2015
Pence
2.42
2.41
0.58
0.57
2014
restated
(note 3)
Pence
(2.04)
(2.04)
(2.04)
(1.97)
2015
Pence
0.30
0.30
0.30
0.30
2014
restated
(note 3)
Pence
(3.94)
(3.94)
(0.81)
(0.78)
2015
Pence
2.72
2.71
0.88
0.87
The Group has 171,650,000 deferred shares which have no rights to receive dividends and will only have very limited rights
on a return of capital. The deferred shares have not been admitted to trading on AIM or any other Stock Exchange.
Accordingly, these shares have not been considered in the calculation of earnings/(loss) per share.
On 19 January 2016, the Company awarded options over 26,050,000 ordinary shares through the 2016 LTIP. This award
occurred after the period end and as such is not considered in the current year diluted earnings per share calculation.
62
CPPGroup Plc Annual Report & Accounts 2015 15. Discontinued operations
The Group announced on 27 May 2015 its decision to cease providing airport lounge access services (Airport Angel).
The closure of the business was completed on 31 December 2015.
In accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” this operation has been presented
as a discontinued operation. The comparative figure includes the disposal of Home3 Assistance Limited (Home3) which
completed in March 2014.
The consolidated income statement and summary of cash flows of this business are set out below:
(i) Consolidated income statement
Revenue
Cost of sales
Gross profit
Administrative expenses
Share of loss of joint venture
Operating profit/(loss)
Analysed as:
Underlying operating profit/(loss)
Exceptional items
Finance costs
Profit/(loss) before taxation
Taxation
Profit/(loss) after tax
Profit on disposal
Profit/(loss) for the year
2015
Airport Angel
£’000
13,107
(8,808)
4,299
(2,186)
—
2,113
2,060
53
(161)
1,952
357
2,309
—
2,309
2014 – restated (note 3)
Home3
£’000
—
North America
£’000
—
Airport Angel
£’000
12,278
(10,879)
1,399
(3,982)
—
(2,583)
—
—
—
(1,096)
(1,096)
(2,282)
(1,096)
(301)
(149)
—
—
(2,732)
(1,096)
24
—
(2,708)
(1,096)
—
(2,708)
265
(831)
—
—
—
—
—
—
—
—
—
—
—
46
46
The Group has not made any disposals required to comply with IFRS 5 in the current year.
Proceeds
(Costs)/credit associated with disposal
Profit 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
Credit associated with the disposal of discontinued operation
Investment in joint venture
Net cash outflow
2015
Total
£’000
—
—
—
2014
Home3
£’000
275
North America
£’000
—
(10)
265
46
46
2015
£’000
(432)
21
(161)
—
—
—
(572)
Total
£’000
12,278
(10,879)
1,399
(3,982)
(1,096)
(3,679)
(3,378)
(301)
(149)
(3,828)
24
(3,804)
311
(3,493)
Total
£’000
275
36
311
2014
restated
(note 3)
£’000
(3,703)
34
(148)
275
28
(1,000)
(4,514)
Financial statements Notes to the financial statements
63
Notes to the financial statements continued
Contractual
arrangements
with third
parties
£’000
Business
relationships
£’000
Internally
generated
software
£’000
Externally
acquired
software
£’000
Total
£’000
17,420
1,211
—
—
—
—
—
—
19,478
194
—
—
17,420
1,211
19,672
—
—
(17,420)
(1,211)
—
—
—
—
574
—
—
19,402
57,511
212
(151)
(66)
19,397
3,862
(276)
(83)
406
(151)
(66)
57,700
4,436
(18,907)
(83)
20,246
22,900
43,146
15,153
2,012
—
—
17,165
255
1,211
19,181
18,667
—
—
—
297
—
—
575
(147)
(57)
54,212
2,884
(147)
(57)
1,211
19,478
19,038
56,892
—
(17,420)
(1,211)
—
—
—
255
—
—
—
—
—
—
—
—
—
—
136
(275)
21
(77)
391
(18,906)
21
(77)
19,478
18,843
38,321
194
768
359
4,057
808
4,825
16. Intangible assets
Cost
At 1 January 2014
Additions
Disposals
Exchange adjustments
At 1 January 2015
Additions
Disposals
Exchange adjustments
At 31 December 2015
Accumulated amortisation
At 1 January 2014
Provided during the year
Disposals
Exchange adjustments
At 1 January 2015
Provided during the year
Disposals
Impairment
Exchange adjustments
At 31 December 2015
Carrying amount
At 31 December 2014
At 31 December 2015
64
CPPGroup Plc Annual Report & Accounts 2015 17. Property, plant and equipment
Cost
At 1 January 2014
Additions
Disposals
Exchange adjustments
At 1 January 2015
Additions
Disposals
Exchange adjustments
At 31 December 2015
Accumulated depreciation
At 1 January 2014
Provided during the year
Disposals
Exchange adjustments
Impairment
At 1 January 2015
Provided during the year
Disposals
Exchange adjustments
At 31 December 2015
Carrying amount
At 31 December 2014
At 31 December 2015
Freehold
land and
property
£’000
Leasehold
improvements
£’000
Computer
systems
£’000
Furniture and
equipment
£’000
Total
£’000
7,278
5,636
29,073
6,633
48,620
—
—
—
—
(30)
(61)
187
(261)
(144)
3
(76)
(37)
190
(367)
(242)
7,278
5,545
28,855
6,523
48,201
—
—
—
34
(56)
(77)
148
(315)
(163)
12
(431)
(74)
194
(802)
(314)
7,278
5,446
28,525
6,030
47,279
4,178
87
—
—
—
5,184
130
(22)
(52)
47
28,172
6,025
743
(238)
(125)
16
311
(68)
(30)
23
43,559
1,271
(328)
(207)
86
4,265
5,287
28,568
6,261
44,381
86
—
—
64
(53)
(63)
209
(312)
(156)
106
(422)
(63)
465
(787)
(282)
4,351
5,235
28,309
5,882
43,777
3,013
2,927
258
211
287
216
262
148
3,820
3,502
Included in freehold land and property is freehold land at its cost value of £759,000 (2014: £759,000), which is not depreciated.
18. Investment in subsidiaries
Company
Cost and carrying value
At 1 January
Acquisitions
At 31 December
2015
£’000
2014
£’000
15,169
190
15,359
15,122
47
15,169
The acquisition of £190,000 during the year (2014: £47,000) relates to share-based payment charges in relation to share
options held by overseas employees, which are treated as capital contributions to the employing subsidiaries and are
therefore recognised as investments in subsidiary companies.
Financial statements Notes to the financial statements
65
Notes to the financial statements continued
18. Investment in subsidiaries continued
Investments in Group entities at 31 December 2015 were as follows:
Country of
incorporation/
registration
Class of
shares held
Percentage
of share
capital held
Investments in subsidiary undertakings held directly
CPP Group Limited
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
CPP Travel Services Limited
CPPGroup Services Limited
Detailregion Limited
Green Suite Limited
Homecare Assistance Limited
Homecare (Holdings) Limited
Homecare Insurance 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
CPP Asia Limited
CPP Assistance Services Private Limited
CPP Italia Srl
CPP Malaysia Sdn. Bhd
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
CPP Real Life Services Support SL
Key Line Auxiliar SL
CPP Sigorta Aracilik Hizmetleri Anonim Sirketi
CPP Yardim ve Destek Hizmetleri Anonim Sirketi
England & Wales
England & Wales
Ordinary shares
Ordinary shares
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Brazil
China
France
Germany
Germany
Hong Kong
India
Italy
Malaysia
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
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
Ordinary shares
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%
100%
100%
99.99%
99.99%
The principal activity of all of the subsidiaries is to provide services in connection with the Group’s major product streams.
66
CPPGroup Plc Annual Report & Accounts 2015 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
2015
£’000
213
100
4
317
2015
£’000
229
200
(329)
100
2014
£’000
356
229
8
593
2014
£’000
1,402
424
(1,597)
229
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. 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.
The Group’s insurance receivable balance does not include any debtors which are past due at the balance sheet date
(2014: £56,000).
The average age of overdue but unprovided debts is nil days (2014: 318 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
2015
£’000
2014
£’000
—
—
—
—
2015
£’000
43
—
—
56
56
2014
£’000
93
Financial statements Notes to the financial statements
67
Notes to the financial statements continued
21. Trade and other receivables
Trade receivables
Prepayments and accrued income
Amounts due from Group entities
Other debtors
Consolidated
Company
2015
£’000
5,056
5,447
—
1,603
12,106
2014
£’000
6,458
6,486
—
2,765
15,709
2015
£’000
—
96
66,277
12
66,385
2014
£’000
—
70
54,881
1,089
56,040
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 the relationship it has with its counterparties
and their credit ratings.
Where credit is offered to customers, the average credit period offered is 31 days (2014: 40 days). No interest is charged
on trade receivables at any time. Disclosures regarding credit risk 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 £669,000 (2014: £1,179,000) which
are past due at the reporting date, for which the Group has not provided as there has not been a significant change in credit
quality and the Group believes that the amounts are still recoverable.
The average age of overdue but unprovided debts is 166 days (2014: 192 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
Amounts written off during the year as uncollectable
Increase/(decrease) in allowance recognised in the income statement
Foreign exchange translation gain
At 31 December
2015
£’000
272
49
348
669
2015
£’000
372
(364)
80
—
88
2014
£’000
320
38
821
1,179
2014
£’000
456
(20)
(59)
(5)
372
68
CPPGroup Plc Annual Report & Accounts 2015 22. Cash and cash equivalents
Consolidated cash and cash equivalents of £39,810,000 (2014: £40,599,000) comprises cash held on demand by the Group
and short term deposits.
Cash and cash equivalents includes the following:
i) £12,126,000 (2014: £21,542,000) cash maintained by the Group’s insurance businesses for solvency purposes; and
ii)
£21,753,000 (2014: £13,380,000) cash held in the UK’s regulated entities CPPL and HIL, which is restricted by the
terms of the VVOP and cannot be distributed to the wider Group without the Regulator’s 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 residual customer redress purposes.
Concentration of credit risk is reduced, as far as practicable, by placing cash on deposit across a number of institutions with
the best available credit ratings. The credit quality of counterparties is as follows:
AA
A
BBB
BB
Rating information not available
2015
£’000
1,679
36,064
548
1,405
114
2014
£’000
1,537
37,069
1,000
978
15
39,810
40,599
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.
Company cash and cash equivalents of £4,843,000 (2014: £nil) comprises cash held on demand by the Company.
23. Insurance liabilities
Claims reported
Claims incurred but not reported
Total claims
Unearned premium
Total insurance liabilities
2015
£’000
93
100
193
996
1,189
2014
£’000
233
195
428
1,591
2,019
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 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.
Provision for unearned premiums
At 1 January
Written in the year
Earned in the year
At 31 December
2015
£’000
1,591
7,662
(8,257)
996
2014
£’000
2,475
13,765
(14,649)
1,591
Unearned premiums are released as revenue on a straight line basis over the life of the relevant policy.
Financial statements Notes to the financial statements
69
Notes to the 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 2014
Notified claims
Incurred but not reported claims
As at 31 December 2015
Gross
£’000
233
195
428
93
100
193
Reinsurance
£’000
—
(8)
(8)
—
(5)
(5)
Net
£’000
233
187
420
93
95
188
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 2014
Cash (paid)/received for claims settled in the year
Increase/(reduction) in liabilities arising from current year claims
As at 1 January 2015
Cash (paid)/received for claims settled in the year
Increase in liabilities arising from current year claims
As at 31 December 2015
Equalisation reserve
At 1 January
Transfer to retained earnings
At 31 December
Gross
£’000
1,374
(4,502)
3,556
428
(1,014)
779
193
Reinsurance
£’000
(731)
1,147
(424)
(8)
3
—
(5)
2015
£’000
7,487
(1,244)
6,243
Net
£’000
643
(3,355)
3,132
420
(1,011)
779
188
2014
£’000
8,129
(642)
7,487
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
Amounts payable to Group entities
Deferred income
Non-current liabilities
Other payables
Total trade and other payables
2014
£’000
1,696
—
—
Consolidated
2015
£’000
2014
£’000
Company
2015
£’000
23,920
2,527
9,962
—
6,220
42,629
—
42,629
28,172
2,322
2,147
2,438
185
—
—
16,872
16,207
7,990
40,631
8,991
49,622
—
19,495
—
19,495
—
17,903
—
17,903
Trade creditors and accruals comprise amounts outstanding for trade purchases and ongoing costs. The average credit period
for trade purchases is 40 days (2014: 38 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.
70
CPPGroup Plc Annual Report & Accounts 2015 25. Borrowings
The carrying value of the Group’s financial liabilities, for short and long term borrowings, is as follows:
Bank overdrafts
Borrowings due within one year
Bank loans due outside of one year
Less: unamortised issue costs
Commission Deferral Agreement
Second 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
Consolidated
2015
£’000
—
—
1,000
(152)
—
1,343
2,191
2014
£’000
—
—
13,000
(969)
20,702
—
32,733
Company
2015
£’000
—
—
—
—
—
—
—
2015
£’000
—
1,343
1,000
2,343
(152)
2,191
2014
£’000
1,538
1,538
—
—
—
—
—
2014
£’000
—
13,000
20,702
33,702
(969)
32,733
The Group’s bank debt is in the form of a £5,000,000 revolving credit facility (RCF). The current RCF became effective on
11 February 2015. 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 28 February 2018.
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 financial covenants of the RCF are based on the interest cover and minimum total cash balance of the
Group. The Group has been in compliance with these covenants since inception of the RCF.
All amounts outstanding in respect of the Second Commission Deferral Agreement fall due for repayment on expiry of the
agreement on 31 January 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 Agreements
Weighted average
2015
%
2.5
3.5
2.9
2014
%
4.5
3.5
3.9
The bank loans weighted average interest rate of 2.5% comprises the interest rate charged on the drawn amount and the interest
rate charged for the commitment on the undrawn element.
At 31 December 2015, the Group has £4,000,000 undrawn committed borrowing facilities (2014: £nil).
Financial statements Notes to the financial statements
71
Notes to the financial statements continued
26. Provisions
At 1 January
(Credited)/charged to the
income statement
Customer redress and associated
costs paid in the year
Utilisation of onerous lease provision
in the year
Transfer to trade and other payables
At 31 December
Customer
redress and
associated
costs
2015
£’000
6,356
Onerous
leases
2015
£’000
1,658
Total
2015
£’000
8,014
Onerous
leases
2014
£’000
—
Customer
redress and
associated
costs
2014
£’000
37,398
Total
2014
£’000
37,398
(97)
900
803
1,658
3,000
4,658
—
(4,821)
(4,821)
(732)
—
829
—
(824)
1,611
(732)
(824)
2,440
—
—
—
(34,042)
(34,042)
—
—
—
—
1,658
6,356
8,014
The customer redress and associated cost provision comprises anticipated compensation payable to customers through
residual customer redress exercises and associated professional fees. The outstanding regulatory fine of £8,500,000 is
included in other payables in note 24.
The onerous lease provision reflects the future lease payments and associated costs in the expected non-utilisation period
at a vacated office in the UK.
Customer redress and associated costs are expected to be settled within one year of the balance sheet date and onerous
lease provisions are expected to be settled within two years of the balance sheet date.
Provisions are expected to be settled in the following periods:
Within one year
Outside of one year
At 31 December
Customer
redress and
associated
costs
2015
£’000
1,611
—
1,611
Onerous
leases
2015
£’000
643
186
829
Customer
redress and
associated
costs
2014
£’000
6,356
—
6,356
Onerous
leases
2014
£’000
685
973
1,658
Total
2015
£’000
2,254
186
2,440
Total
2014
£’000
7,041
973
8,014
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:
Consolidated
At 1 January 2014
Credited/(charged) to income statement
Credited to equity
At 1 January 2015
(Charged)/credited to income statement
Credited to equity
Exchange differences
At 31 December 2015
Accelerated
capital
allowances
£’000
(21)
30
—
9
(233)
—
—
(224)
Tax losses
£’000
—
1,646
—
1,646
(1,646)
—
—
—
Share-based
payments
£’000
5
Other short
term timing
differences
£’000
(369)
(3)
1
3
75
86
—
164
833
—
464
(54)
—
(6)
404
Total
£’000
(385)
2,506
1
2,122
(1,858)
86
(6)
344
72
CPPGroup Plc Annual Report & Accounts 2015 27. Deferred tax continued
Company
At 1 January 2014
At 1 January 2015
Credited to income statement
Credited to equity
At 31 December 2015
Share-based
payments
£’000
—
—
79
86
165
Deferred tax assets and liabilities are stated at tax rates expected to apply on the forecast date of reversal, based on tax laws
substantively enacted at the balance sheet date.
Certain deferred tax assets and liabilities have been offset where the Group or Company 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
Consolidated
Company
2015
£’000
652
(308)
344
2014
£’000
2,248
(126)
2,122
2015
£’000
165
—
165
2014
£’000
—
—
—
At the balance sheet date the Group has unused tax losses of £44,170,000 (2014: £57,000,000) 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 £5,562,000 (2014: £5,727,000) which, if not used, will expire
between one to twelve years (2014: one to nine years). Other losses will be carried forward indefinitely.
There is no deferred tax liability on unremitted foreign earnings as 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.
At the balance sheet date the Company has unused tax losses of £17,202,000 (2014: £13,762,000) 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 company and restrictions on offset of taxable profits and losses between Group companies.
The losses can be carried forward indefinitely.
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
aiming to provide returns for shareholders and benefits for other stakeholders. The Group’s principal debt facility during the
year was a £5.0 million RCF with a term date of 28 February 2018.
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 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, CPPL and HIL, 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
CPPL 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 prior years.
The Group has agreed with the FCA, as part of the VVOP, to additional restrictions on the disposition of assets by CPPL.
Financial statements Notes to the financial statements
73
Notes to the financial statements continued
28. Financial instruments continued
Externally imposed capital requirement continued
Homecare Insurance Limited
HIL is authorised and regulated by the PRA and regulated by the FCA as an insurance underwriter and therefore maintains
its capital resources in accordance with the PRA’s risk-based solvency regime, Individual Capital Assessment Standards.
The new Solvency II regulations came into effect on 1 January 2016.
The current and future capital levels are reviewed each month and reported to the PRA and FCA to ensure ongoing
compliance and to support the quarterly 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 HIL.
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
2015
£’000
46,687
2014
£’000
49,195
Loans and receivables comprise cash and cash equivalents, trade and other receivables, insurance assets and taxes receivable.
There is no significant difference between the fair value and carrying amount of any financial asset.
Financial liabilities
Financial liabilities at amortised cost
2015
£’000
(43,869)
2014
£’000
(86,007)
Financial liabilities at amortised cost comprise borrowings, trade creditors, accruals, taxes payable, insurance claims
and provisions.
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 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 Group Treasurer.
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. There
have been no financial derivatives used in either the current or prior year. The interest cover (being defined as the ratio of
underlying EBITDA to interest paid) at 31 December 2015 was 9x (2014: 5x).
Interest rate sensitivity analysis
The Group is mainly exposed to movements in LIBOR. The following table details the Group’s sensitivity to a 2% increase in
LIBOR rates throughout the year. 2% represents the Directors’ assessment of a reasonably possible change in LIBOR rates.
The sensitivity analysis includes the impact of changes in LIBOR on yearly average cash and bank loans.
Increase in profit before tax
Increase in shareholders’ equity
2015
£’000
756
756
2014
£’000
753
753
74
CPPGroup Plc Annual Report & Accounts 2015 28. Financial instruments continued
Foreign currency risk
The Group has exposure to foreign currency risk where it has investments in overseas operations which have functional
currencies other than Sterling and are affected by foreign exchange movements. The carrying amounts of the Group’s
principal foreign currency denominated assets and liabilities are as follows:
Euro
Liabilities
Assets
2015
£’000
4,805
2014
£’000
5,551
2015
£’000
5,678
2014
£’000
4,841
Foreign currency sensitivity analysis
The following table details the Group’s sensitivity to a 20% decrease in the Euro: Sterling exchange rate. This represents the
Directors’ assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only
foreign currency denominated financial instruments and adjusts their translation at the year end for a change in foreign
currency rates.
Profit before tax
Shareholders’ equity
Euro currency impact
2015
£’000
(26)
(146)
2014
£’000
(112)
118
Eurozone sensitivity analysis
The Group operates in countries with Euro denominated currencies. The possibility of the UK choosing to leave the European
Union and the resulting potential for fluctuations in the Euro to impact the Group’s results represents a risk to the Group.
The Group’s ongoing Eurozone operations are in Germany, Ireland, Italy, Portugal and Spain. A 20% deterioration in the
Sterling:Euro exchange rate throughout the year would have decreased Group profits relating to these Eurozone entities
by £504,000 (2014: £331,000).
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 wholesale activities can result in material balances existing with a small number of counterparties and
therefore increased credit risk exists. The Group continues to maintain some wholesale contracts and considers that it
mitigates this 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 continually 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. On 11 February 2015, the Group raised £20.0 million (£17.9 million net of
expenses) through a placement of ordinary shares, albeit a portion of these funds was used to part-prepay the existing RCF,
reducing the available balance from £13.0 million to £5.0 million. The Group’s residual customer redress obligations are also
substantially complete. As a result, liquidity risk has reduced 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.
Financial statements Notes to the financial statements
75
Notes to the financial statements continued
28. Financial instruments continued
Liquidity and interest risk tables
Liabilities
The following table details the Group’s remaining contractual maturity for its financial liabilities, based on the undiscounted
cash flows of financial liabilities and the earliest date at which the Group can be required to pay. The table includes both
interest and principal cash flows and assumes no changes in future LIBOR rates.
Less than
1 month
£’000
1–3
months
£’000
3 months
to 1 year
£’000
1–5
years
£’000
Over
5 years
£’000
2014
Non-interest bearing liabilities
Fixed rate instruments
Variable rate instruments
2015
Non-interest bearing liabilities
Fixed rate instruments
Variable rate instruments
12,579
12,124
18,842
—
44
—
88
—
395
12,623
12,212
19,237
11,071
9,894
19,996
—
—
—
—
—
—
11,071
9,894
19,996
8,498
22,661
14,348
45,507
292
1,391
1,254
2,937
Total
£’000
52,314
22,661
14,875
89,850
271
—
—
271
284
41,537
—
—
1,391
1,254
284
44,182
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
1–5
years
£’000
Over
5 years
£’000
Total
£’000
2014
Non-interest bearing
assets
Variable interest rate
instruments
2015
Non-interest bearing
assets
Variable interest rate
instruments
n/a
5,097
2,421
1.0%
31,304
36,401
9,294
11,715
n/a
5,300
529
1.0%
20,383
25,683
19,439
19,968
84
—
84
85
—
85
815
1
816
905
1
906
179
—
179
45
—
45
8,596
40,599
49,195
6,864
39,823
46,687
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 HIL, an entity within the Group,
which is authorised and regulated by the PRA and regulated by the FCA. The lines of risk underwritten are restricted by HIL
to those lines where either HIL has substantial experience or lines that 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’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.
76
CPPGroup Plc Annual Report & Accounts 2015 28. Financial instruments continued
Insurance risk continued
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 contracts are 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 £78,000 decrease in profit before tax and
reduction in shareholders’ equity (2014: £192,000), 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’s 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 are sourced as necessary.
The Group therefore considers its exposure to risk arising from its insurance contracts to be appropriately managed.
29. Share capital
Called-up and allotted:
At 1 January 2015
Issue of shares in connection with:
Capital reorganisation
February placement
June share issue
November share issue
Exercise of share options
At 31 December 2015
Ordinary shares
of 10 pence each
(thousands)
Ordinary shares
of 1 penny each
(thousands)
Deferred shares
of 9 pence each
(thousands)
Ordinary shares
of 10 pence each
£’000
Ordinary shares
of 1 penny each
£’000
Deferred shares
of 9 pence each
£’000
171,650
—
—
17,126
—
—
171,650
(17,126)
(171,650)
—
—
—
—
—
171,650
666,667
8,550
5,883
84
852,834
171,650
—
—
—
—
—
—
—
—
—
1,713
6,667
86
59
1
15,413
—
—
—
—
8,526
15,413
On 20 January 2015, each of the Company’s 10 pence ordinary shares was subdivided and redesignated into one new ordinary
share of 1 penny each and one new deferred share of 9 pence each. Each new ordinary share of 1 penny carries the same rights
as the old 10 pence ordinary share. Deferred shares have no voting rights, no rights to receive dividends and only very limited
rights on a return of capital. The deferred shares have not been listed for trading in any market and are not freely transferable.
On 11 February 2015, the Company transferred the trading of its shares from the main market of the London Stock
Exchange to AIM. On transfer to AIM, as part of a placing, the Company also issued 666,666,667 1 penny ordinary shares for
cash consideration of £20,000,000. Costs of the share issue of £1,686,000 have been charged to the share premium account.
On 25 June 2015, the Company issued 8,550,000 1 penny ordinary shares as part of the Group’s new share incentive
scheme, the MSP. The newly issued shares, which represent Investment Shares in the terms of the plan, were purchased for
total consideration of £257,000. The second investment date for MSP completed on 24 November 2015, resulting in the issue
of a further 5,883,000 1 penny ordinary shares which were purchased for total consideration of £176,000.
The ordinary shares issued in the placing and MSP have increased the share capital of the Company by £6,812,000 and
increased the share premium account by £11,935,000.
On 24 November 2015, the CPPGroup Plc Employee Benefit Trust (EBT) purchased 1,763,000 of the Company’s ordinary
shares for total cash consideration of £264,000. The total amount paid to acquire the shares has been deducted from the
ESOP reserve. As at 31 December 2015, the total number of ordinary shares held by the EBT was 1,763,000 (2014: nil).
During the year, the Company issued 84,347 shares to option holders for total consideration of £1,000. Further details
relating to share options are provided in note 30.
Financial statements Notes to the financial statements
77
Notes to the financial statements continued
29. Share capital continued
Of the 852,833,955 ordinary shares issued at 31 December 2015, 852,333,956 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
Current share plan
The MSP was implemented, subsequent to the transfer of the Company’s shares to AIM in 2015, to more closely align
senior management interests with those of shareholders. MSP charges disclosed within administrative expenses and not
included in underlying operating profit include £1,457,000 (2014: £nil) relating to the share-based payment charges. There
have been 38,010,000 options granted in the current year as part of the MSP; the plan was not in operation in the prior year.
MSP
Outstanding at 1 January
Granted during the year
Forfeited during the year
Outstanding at 31 December
2015
2014
Number of
share options
(thousands)
—
38,010
(1,875)
36,135
Weighted
average
exercise
price
(£)
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
—
0.01
0.01
0.01
—
—
—
—
—
—
—
—
Options granted under the MSP have an exercise price of 1 penny and they vest over a three year period, with 25% vesting on the
first anniversary of the grant date, 25% vesting on the second anniversary and 50% vesting on the third anniversary. Options lapse
if not exercised within ten years of the grant date and will lapse if option holders cease to be employed by the Group or sell any of their
investment shares.
The options outstanding at 31 December 2015 had a weighted average remaining contractual life of two years.
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
MSP
2015
£0.09
£0.01
140.93%
2 years
0.76%
n/a
There have been 38,010,000 share options granted in the current year. The aggregate estimated fair value of the options and
shares granted in the current year under the MSP was £3,208,000.
Legacy share plans
Post-IPO plans
Administrative expenses include a charge of £9,000 (2014: £203,000) arising from the Long Term Incentive Plan (LTIP), the
Restricted Stock Plan (RSP), the Deferred Share Bonus Plan (DSBP) and the ShareSAVE Plan. There were no options granted in
either the current or prior year under any of the Group’s post-IPO plans. Following the Group’s transfer to AIM, no further
awards can be made under these share plans.
78
CPPGroup Plc Annual Report & Accounts 2015 30. Share-based payment continued
Legacy share plans continued
Post-IPO plans continued
Details of share options outstanding during the period under these plans are as follows:
LTIP
Outstanding at 1 January
Lapsed during the year
Forfeited during the year
Outstanding at 31 December
RSP
Outstanding at 1 January
Forfeited during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
DSBP
Outstanding at 1 January
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
2015
2014
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
5,236
(1,468)
(2,968)
800
246
(14)
(78)
154
154
6
(6)
—
—
43
(36)
7
—
—
—
—
—
—
—
—
—
—
—
—
—
1.33
1.31
1.46
7,794
—
(2,558)
5,236
405
(108)
(51)
246
50
16
(10)
6
6
112
(69)
43
—
—
—
—
—
—
—
—
—
—
—
—
—
1.35
1.36
1.33
Financial statements Notes to the financial statements
79
Notes to the financial statements continued
30. Share-based payment continued
Legacy share plans continued
Post-IPO plans continued
Nil-cost options and conditional shares granted under the LTIP normally vest after three years, lapse if not exercised within
ten years of grant and will 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 under the RSP normally vest after three years, lapse if not exercised within
ten years of grant, and will lapse if option holders cease to be employed by the Group. There have been no RSP options granted
in either the current or prior year.
Nil-cost options and conditional shares granted during 2011 under the DSBP normally vest after three years, lapse if not
exercised within ten years of grant and will 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 2015 had a weighted average remaining contractual life of one year (2014: one year)
in the LTIP. Options outstanding in the RSP, DSBP and ShareSAVE Plan had no weighted average remaining contractual life in
either the current or prior year.
Pre-IPO plans
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 share-based
payment charge included in the income statement in the current year (2014: £nil) for these Schemes.
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
Lapsed during the year
Forfeited 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
2015
2014
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
Number of
share options
(thousands)
Weighted
average
exercise
price
(£)
1,536
(240)
(104)
1,192
1,192
309
(148)
161
161
2.00
0.82
2.24
2.22
2.22
1.79
1.79
1.79
1.79
2,063
—
(527)
1,536
1,536
873
(564)
309
309
2.06
—
2.24
2.00
2.00
1.79
1.79
1.79
1.79
There have been no exercises in either the current or prior year.
The options outstanding for the 2005 Scheme and 2008 Scheme at 31 December 2015 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.
80
CPPGroup Plc Annual Report & Accounts 2015 31. Reconciliation of operating cash flows
Profit/(loss) for the year
Adjustment for:
Depreciation and amortisation
Equity settled share-based payment expense
Impairment loss on intangible assets and property, plant and equipment
Loss on disposal of property, plant and equipment
Profit on disposal of discontinued operations
Commission deferral compromise and associated costs
Share of loss of joint venture
Investment revenues
Finance costs
Income tax expense/(credit)
Operating cash flows before movements in working capital
Decrease in inventories
Decrease in receivables
Decrease in insurance assets
Decrease in payables
Decrease in insurance liabilities
Decrease in provisions
Cash used in operations
Income taxes (paid)/repaid
Net cash used in operating activities
2015
£’000
20,837
856
1,466
21
16
—
(19,388)
—
(282)
1,523
3,017
8,066
50
2,234
276
(4,410)
(830)
(5,574)
(188)
(1,172)
(1,360)
2014
£’000
(6,749)
4,155
203
86
43
(311)
744
1,096
(432)
2,296
(1,698)
(567)
56
5,202
2,794
(9,892)
(1,970)
(29,384)
(33,761)
855
(32,906)
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.
The total future minimum lease payments under non-cancellable operating leases are as follows:
Within one year
In the second to fifth years inclusive
After five years
2015
£’000
1,575
2,112
116
3,803
2014
£’000
1,941
2,623
370
4,934
The total of future minimum sublease payments expected to be received under non-cancellable subleases at the end of the
reporting period is £750,000 (2014: £603,000).
Financial statements Notes to the financial statements
81
Notes to the financial statements continued
33. Related party transactions and control
Ultimate controlling party
Following the equity raise in February 2015, Mr Hamish Ogston’s holding in the Company has reduced and currently
represents 42.3%, resulting in the Group no longer having a controlling party. Mr Hamish Ogston’s family investment vehicle,
Milton Magna Limited, is an investment client of the Schroder group of companies, of which Schroder Investment
Management Limited (Schroders) is part. Schroders has a holding of 10.0% in the Company.
Transactions with related parties
As part of the placing of 666,666,667 ordinary shares by the Company on 11 February 2015, Mr Hamish Ogston acquired
264,144,352 ordinary shares through his family investment vehicle Milton Magna Limited for consideration of £7,924,000
and Schroders acquired 61,437,285 ordinary shares for consideration of £1,843,000. Both parties were substantial
shareholders in the Group prior to the placing.
As part of the MSP, key management personnel of the Group purchased investment shares on 25 June 2015 and
24 November 2015 for total consideration of £433,000.
On 23 December 2015, Ruth Evans, a Non-Executive Director of the Group at the time, purchased 208,571 ordinary shares
in the Company for total cash consideration of £25,000.
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 2015 amounted to £1,000,000 (2014: £13,000,000). 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 £4,286,000 (2014: £1,833,000 overdraft in borrowings) which is held in
a bank account subject to this arrangement.
Remuneration of key management personnel
The remuneration of the Directors and senior management team, who are the key management personnel of the Group and
Company, is set out below:
Short term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
2015
£’000
4,098
121
239
1,128
5,586
2014
£’000
2,133
100
—
8
2,241
In 2015, the remuneration of key management personnel includes an expansion of the senior management team, settlements
to former Directors and senior management and provision for bonuses reflective of the turnaround in the Group’s performance.
Required disclosures regarding remuneration of the Directors are included in the Directors’ remuneration report on pages
36 to 38.
34. Events after the balance sheet date
As announced on 21 March 2016, Schroders has filed a notice requisitioning a general meeting of the Company’s shareholders
(the Requisition). The Requisition proposes resolutions to remove the CEO and current Non-Executive Directors from the Board
and to replace them with individuals proposed by Schroders. It is believed that Schroders are working with Mr Hamish Ogston,
one of the Group’s major shareholders and founder of the Company.
The general meeting will be held on 5 May 2016.
82
CPPGroup Plc Annual Report & Accounts 2015 Company offices
Group Head Office:
Europe and Latin America:
Asia Pacific:
CPPGroup Plc
Holgate Park
York
YO26 4GA
United Kingdom
Tel: +44 (0)1904 544500
Fax: +44 (0)1904 544558
www.cppgroupplc.com
www.cppdirect.co.uk
UK and Ireland:
York Contact Centre
Holgate Park
York
YO26 4GA
United Kingdom
Tel: +44 (0)1904 544500
Fax: +44 (0)1904 544558
Corporate Office
Amadeus House
27B Floral Street
London
WC2E 9DP
United Kingdom
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
20864 Agrate Brianza
Monza e Brianza
Italy
Tel: +39 039 657801
Fax: +39 039 6894 293
CPP Portugal
Avenida Joao Crisostomo, 30–6º
1050-127 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 Camerana
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 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
Newbridge Business Centre
B–1/04–05, Ground floor, Boomerang
Chandivali Farm Road, Andheri (East)
Mumbai–400072
Maharashtra
India
Tel: +91 22 6674 6868
Fax: +91 22 6674 6955
CPP Malaysia
Penthouse (Level 27)
Centrepoint South, The Boulevard
Mid Valley City
Lingkaran Syed Putra
59200 Kuala Lumpur
Malaysia
Tel: +60 3 2096 9577
Fax: +60 3 2096 9797
CPP China
Room 6015, 6/F
The 21st Century Building
210 Century Avenue
Lujiazui, Pudong, Shanghai 200120
China
Tel: +86 21 5172 7312
Fax: +86 21 5172 7325
CPP Hong Kong
42/F Central Plaza
18 Harbour Road
Wanchai
Hong Kong
Tel: +852 3653 0000
Fax: +852 3653 0050
Financial statements Company offices
83
Shareholder information
Registered office:
CPPGroup Plc
Holgate Park
York
YO26 4GA
Tel: +44 (0)1904 544500
The Company’s shares are listed on AIM. Company
information and share price details are available on
the corporate website at www.cppgroupplc.com.
Company registration number:
07151159
Nominated adviser and broker:
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London
EC4M 7LT
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 Company Secretary at the registered office.
Auditor:
Deloitte LLP
1 City Square
Leeds
LS1 2AL
Legal advisers:
Eversheds LLP
1 Wood Street
London
EC2V 7WS
Media consultants:
Powerscourt Limited
1 Tudor Street
London
EC4Y 0AH
84
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CPP Group Holgate Park, York YO26 4GA, United Kingdom Tel: +44 (0)1904 544500
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