In Germany new and renewal income has grown well, which combined
with an increasing customer base, high renewal rates and lower
direct costs has led to a reduced operating loss. Campaigns with
our Business Partners, DZ Bank AG and WGZ Bank in particular, have
produced encouraging results. We are pleased to have signed a new
Business Partner in the period, Card Complete, Austria's largest
credit card issuer, as a pilot venture in the Austrian market
managed through our German operation and we have also launched a
new campaign with Ikano Bank. The current focus remains on scaling
our operations and to launch Business Partner sales channels
alongside further market opportunities supported by stable macro
economic conditions that will enable us to continue to deliver
solid results and move to break-even.
We have performed in line with expectations in Ireland, which
continues to be a difficult economy for our business. Revenue has
decreased modestly in the period, although we continue to work
closely with Meteor in the mobile arena.
In Turkey, despite a decline in revenue and profit, our
operating profit margin has improved as a result of the change in
revenue mix, with renewals forming a higher proportion of revenue.
Our performance in Turkey is in line with expectations and reflects
the impact of Akbank not renewing their contract in August 2011.
This is mitigated by the growth of the renewal book. Expanding our
Business Partner network is the main focus for the business and in
the period we signed new agreements with ING Bank, Sekerbank,
Turkiye Finansbank and CIV.
Southern Europe and Latin America
-- Revenue* 6% lower at GBP20.0 million (H1 2011: GBP22.8
million)
-- Operating profit* 17% lower at GBP4.6 million (H1 2011:
GBP5.9 million),
-- Latin America: strong growth in Mexico and market entry
activities continuing in Brazil
-- Southern Europe improved renewal rates despite on-going
adverse Eurozone macro conditions
-- New Business Partner contracts signed
* excluding the impact of foreign exchange
Southern Europe and Latin America, which represents 12% of Group
half year revenue, has seen mixed results with revenue decreasing
6%, excluding the impact of foreign exchange. Operating profit in
the region is 17% lower than in the first half of 2011, impacted by
the continued difficult economic situation and banking sector
conditions in the Eurozone region, which has affected both Business
Partner and consumer confidence, disposable income levels, and
consequently our trading performance. Nevertheless, we are
encouraged by the growth in Latin America, with Mexico revenue
growing well, albeit from a low base, and market entry activities
continuing in Brazil.
In Southern Europe, comprising our businesses in Spain, Italy,
Portugal and France, we have experienced an overall decline in
revenue and operating profit as a result of lower new volumes and
lower renewal income. Despite a reduced financial performance,
particularly in Spain where adverse economic conditions continue,
renewal rates have improved, which reinforces the value our
customers place on our products. We have entered into a new
Business Partner relationship with 20:20 which is a major
distributor of Yoigo (4th largest telecom operator in Spain).
In Latin America, we have been encouraged by good revenue growth
and reduced start up costs as we move towards break-even in Mexico.
We continue to augment our performance, signing our first wholesale
deal with Banco Inbursa. This provides us with a solid platform to
achieve further sustainable growth in the second half of the year.
Our newer market of Brazil has made progress with product
propositions being discussed with a number of potential Business
Partners.
North America
-- Revenue* up 21% at GBP26.0 million (H1 2011: GBP21.1
million)
-- Operating profit* up 75% at GBP5.2 million (H1 2011: GBP2.9
million)
-- Revenue growth led by new and renewal performance
-- Operating profit growth positively impacted by reduced
customer acquisitions
* excluding the impact of foreign exchange
North America, which represents 16% of Group half year revenue,
has grown revenue strongly, up 21% and increased operating profit
by 75% as a result of new monthly bill volumes and increasing
renewal streams primarily through our existing Business Partner
relationships with Alliance Data, Sovereign Bank and Wells Fargo
Wachovia. The operating profit increase is greater than the rate of
revenue growth as a result of lower acquisition costs due to
product mix and reducing new customer acquisitions in the first
half of 2012. The lower rate of customer acquisition was due to
reduced sales of our Purchaseshield product to Wells Fargo
customers whilst they evaluate their product strategy and will
result in lower growth rates for the rest of 2012.
Retail policy holders are in line with the prior year, while our
wholesale policy holders have grown strongly, primarily due to the
Packaged Account programme at Citizens Bank Financial Group Inc. In
addition, the Packaged Account contract with this Business Partner
has been extended for a period of two years.
Product innovation continues to drive our growth strategy and we
are currently focused on additional new concepts and channels to
market.
Asia Pacific
-- Revenue* up 11% at GBP3.3 million (H1 2011: GBP3.1
million)
-- Operating loss* 34% lower at GBP0.8 million (H1 2011: GBP1.2
million)
-- Operations maturing and country performance improving
* excluding the impact of foreign exchange
Our Asia Pacific business, which represents 2% of Group half
year revenue, has performed well, with an 11% increase in revenue
largely as a result of renewal revenue in India and China. Start up
investment costs have reduced as operations begin to mature and
country performance improves. We are encouraged by the sales
pipeline with existing Business Partners and new prospects.
In China, we have grown revenue from a low base, although start
up losses have increased as a result of higher overheads which were
expected as we continue to develop the business. Despite the loss
of our wholesale contract with China Guangfa Bank in July 2012 we
will seek to take advantage of new opportunities in this
market.
In India, we have grown revenue and significantly reduced our
operating loss through the change in revenue mix and price
increases. Opportunities arising from our sales pipeline, including
a new Business Partner, Bajaj Finance Limited, coupled with our
focus on developing and launching new product propositions are
expected to drive future performance.
In Hong Kong, as expected, local challenges concerning data
protection and privacy have resulted in lower revenue. Operating
loss in this market is 34% lower at GBP0.8 million. The new Data
Privacy Bill was passed on 27 June 2012 which provides clarity and
allows us to move forward, adopting a new operating model to
re-commence sales in this market.
In Malaysia, our revenue has been impacted by the introduction
of Bank Negara Malaysia regulations in January 2012 and operating
profit performance is lower due to increased overhead costs
associated with the investment in strengthening our Business
Development team. To mitigate this impact we are developing new
products that take advantage of debit and credit card opportunities
which meet specific consumer needs.
In Singapore, revenue has declined although we have generated a
small local profit for the period. New regulations on credit card
activation, effective in early July 2012, provide us with future
card activation opportunities as we focus on channel
diversification.
NEW MARKETS
Underlying operating profit includes GBP1.6 million (H1 2011:
GBP2.6 million) of start up losses as we continue to invest in new
markets. For these purposes we consider the following new markets
to be developing: Hong Kong, Home 3, India, Mexico, China and
Brazil.
We continue to make progress with Home 3, our joint venture with
Mapfre Asistencia. Home 3 has continued to develop its relationship
with existing Business Partners. The Group's investment in Home 3
for the half year, representing the Group's share of its losses
after tax, amounts to GBP0.2 million (H1 2011: GBP0.7 million).
TAXATION
Our effective tax rate has increased to 34.6% (H1 2011: 31.0%),
reflecting the lower proportion of Group profit generated and taxed
in the UK, increased profit in North America and the incidence of
losses in overseas start up markets for which no tax deduction is
available.
FINANCING AND CASH FLOWS
Net finance costs for the half year have increased by GBP0.2
million to GBP0.6 million, reflecting the higher average loan
balances held during the period compared to 2011.
The Group has in place an GBP80 million guaranteed Revolving
Credit Facility (RCF) supported by a club of three banks which
expires on 31 March 2013. The drawn balance on this facility at 30
June 2012 is GBP43.5 million, which is disclosed as a current
liability given the expiry date of the facility. We continue to
work towards renewing appropriate lending facilities in advance of
the March 2013 maturity, as well as considering a number of
alternative financing and strategic options.
The Group had net funds of GBP8.0 million at 30 June 2012, down
from GBP11.9 million at 31 December 2011, as a result of voluntary
redundancy payments in the UK and adverse working capital
movements. The Group's insurance businesses maintain cash deposits
for solvency purposes which were GBP22.8 million (H1 2011: GBP14.5
million) at 30 June 2012. Working capital requirement has increased
by GBP10.2 million (H1 2011: GBP15.0 million) during the period,
reflecting growth and timing of receipts from Business Partners
associated with our increasing UK Packaged and wholesale business
and the impact of a larger Mobile Phone Insurance book. Operating
cash inflow for the period of GBP0.5 million has been offset by
continued investment in our IT capabilities and Business Partner
intangibles.
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