TIDMCPP
RNS Number : 0984U
CPPGroup Plc
27 March 2019
27 MARCH 2019
CPPGROUP PLC
FULL YEAR REPORT FOR THE YEARED 31 DECEMBER 2018
Further strong international progress
CPPGroup Plc ("CPP" or "the Group"), the partner focused, global
product and services company, today announces its full year results
for the year ended 31 December 2018.
The Group made further strong progress in its international
revenues and customer numbers led by India and Turkey. Further
investment has been made in start-ups and technology that will
underpin future product development. The European business has been
restructured and the UK back book business well managed.
Highlights
-- Group revenue increased by 13% to GBP110.1 million (2017
restated: GBP97.0 million) continuing the strong growth seen in
2017.
-- Revenue from Ongoing Operations increased by 27% to GBP88.0
million (2017 restated: GBP69.4 million).
-- Adjusted underlying operating profit increased by 6% to
GBP5.5 million (2017 restated: GBP5.2 million).
-- Currency depreciation in our growth markets, notably India
and Turkey, adversely impacted reported results. At constant
currency:
o Group revenue increased 18%.
o Revenue from Ongoing Operations increased 35%.
o Revenue in India increased by 54% to GBP65.3 million (2017:
GBP42.5 million).
o Revenue in Turkey increased by 41% to GBP4.5 million (2017:
GBP3.2 million).
o Adjusted underlying operating profit increased by 14%.
-- Underlying operating profit declined to GBP3.0 million (2017 restated: GBP4.3 million).
-- Exceptional costs include GBP3.5 million in relation to
restructuring activities in Europe and the UK. This action has
streamlined operations and is expected to generate annual cost
savings of between GBP4.0 million and GBP4.5 million.
-- Profit before tax reduced to GBP0.3 million (2017 restated: GBP3.8 million).
-- Strategic investments in KYND, Valeos and Globiva to enhance
technology-led product capability and drive efficiencies in our
value chain.
-- Worldwide customer numbers across our 12 countries grew by
50% to 8.2 million (2017: 5.5 million) led by India and Turkey.
Note - all percentage change figures in the remainder of this
report are presented on a constant currency basis, unless otherwise
stated. The constant currency basis retranslates the previous year
measures at the average actual exchange rates used in the current
financial year. This approach is applied as a means of eliminating
the effects of exchange rate movements on the year-on-year reported
results.
Financial highlights
31 December Constant
31 December 2017 currency
GBP millions 2018 Restated(1) Change change
------------------------ ----------- ------------- ------ ---------
Group
Revenue 110.1 97.0 13% 18%
Adjusted underlying
operating profit(2) 5.5 5.2 6% 14%
Investment in business
growth projects(3) (2.5) (0.9) (168)% (169)%
Underlying operating
profit(4) 3.0 4.3 (29)% (23)%
Profit before tax
- Statutory 0.3 3.8 (91)% (90)%
- Underlying(4) 3.5 4.2 (16)% (7)%
(Loss)/earnings per
share (pence)
- Basic (0.04) 0.55 (107)% n/a
- Diluted (0.04) 0.53 (108)% n/a
Net funds 26.0 31.5 (17)% n/a
Segmental revenue
Restricted Operations
- revenue 22.0 27.7 (20)% (20)%
Ongoing Operations
- revenue 88.0 69.4 27% 35%
======================== =========== ============= ====== =========
1. Results for the year ended 31 December 2017 have been
restated to reflect the adoption of IFRS 15. See note 15 to the
condensed financial statements.
2. Adjusted underlying operating profit excludes costs
associated with investments in business growth projects,
exceptional items and Matching Share Plan (MSP) charges.
3. Investment in business growth projects of GBP2.5 million
(2017: GBP0.9 million) comprises start-up costs relating to the UK
GBP0.7 million (2017: GBP0.1 million), Blink GBP1.4 million (2017:
GBP0.8 million), Bangladesh GBP0.2 million (2017: GBPnil) and our
share of losses in KYND GBP0.2 million (2017: GBPnil).
4. Underlying operating profit and underlying profit before tax
exclude exceptional items of GBP3.1 million (2017: GBP0.1 million)
and MSP charges of GBP0.1 million (2017: GBP0.3 million). Further
detail of the exceptional items is provided in note 5 to the
condensed financial statements.
Jason Walsh, Chief Executive Officer, commented:
"2018 has been a year of continued strong progress for the
business. We have stayed true to the core principles of our
strategy and have delivered strong revenue growth and fundamentally
shifted the dynamics of the business. We have the platform to seize
the opportunities that exist with our partners to provide them with
the products and services we excel in.
Our global footprint is expanding gradually and we are
continuing to deepen our partner and product reach in markets where
we see significant growth potential. We are growing strongly in
India and Turkey and are excited about our recent launch into
Bangladesh and the prospects for our Chinese business now the
technical infrastructure is complete.
We are looking to the future with increasing confidence and
expect further strong strategic and operational progress in
2019."
Enquiries
CPPGroup Plc
Jason Walsh, Chief Executive Officer
Oliver Laird, Chief Financial Officer
Tel: +44 (0)113 487 7350
Nominated Adviser and Broker
Investec Bank plc: Sara Hale, James Rudd, Carlton Nelson
Tel: +44 (0)20 7597 5970
About CPP
CPP Group is a partner focused, global product and services
company, specialising in the financial services and insurance
markets. We use our local knowledge from 12 country markets within
Asia, Europe and Central America to provide our business partners
with technology-led product, marketing and distribution expertise
that deliver commercial benefits and bring meaningful solutions to
over 8 million end customers worldwide.
CPP's diverse range of insurance and assistance products can be
designed to suit the bespoke needs of our business partners through
providing their customers with peace of mind by reducing the
stresses of everyday life, ranging from protection of mobile
phones, payment cards and household belongings to keeping travel
plans moving and the monitoring of compromised personal data.
CHAIRMAN'S STATEMENT
2018 was a year of considerable progress in building the new CPP
Group.
Progress to date
The reduction in our legacy UK business in recent years has
created the need for the Group to reinvent itself and build on its
considerable expertise in supplying products and services that give
peace of mind to our customers, and to develop and grow in markets
outside the UK. This reinvention is gathering momentum and in 2018
we saw our customer numbers in India reach nearly 6 million, an
increase of 4.7 million customers (376%) since 2016. To add to our
overseas operations we opened a new business in Bangladesh, where
our B2B2C marketing model launched successfully with its first
business partner. In 2018 we also saw the creation of a new UK
business separate from our UK back book, which for the first time
in six years enables the Group to develop and build a regulated
sales business in the UK.
2018 represented continued progress in the Group's development
as evidenced by the year's revenue growth in new markets and
products which is exceeding the decline in our Restricted
Operations. This performance in our growth markets and the
investments we are making are expected to provide the platform for
continued annual growth in turnover for the years ahead.
We have also been concentrating on shaping our long term cost
base to match the patterns of the digital age. Our EU businesses
now operate as partner facing entities with a single support hub in
Spain. In the UK back book business we have implemented a
significant reduction in costs which will seek to maintain margins
in line with the ongoing decline in its turnover. In India we have
added an investment in a majority stake in Globiva, one of India's
fastest growing business process management (BPM) companies, which
gives us an in-house option for the rationalisation of back office
cost structures. Equally, new product development has become a
system integration activity, accessing and linking available
applications, cutting both time and cost in bringing new concepts
to market.
Culture and Values
We have little fixed capital employed. Our assets lie in our
people and technology. Inevitably behaviours can vary according to
local customs and traditions and we continue to invest in the
development and maintenance of a high integrity Group culture; one
which is open, honest and authentic. Leadership of this belief is
apparent throughout the Board and we have an Executive Director
specifically responsible for owning our values and developing our
culture.
Governance
We continue to ensure we provide both time and opportunity for
the Board to monitor the Group's performance. Board Committees
cover audit and remuneration matters and in addition our Risk and
Compliance Committee monitors the application of Group policies and
standards across the Group overlaying the specific needs of
external compliance where applicable. During the year the Board
made the decision to adopt the Quoted Companies Alliance (QCA)
Corporate Governance Code.
Performance measurement
The change to our reporting structure mentioned in my 2017
report, segmenting our results under the headings of Restricted
Operations, Ongoing Operations and Central Functions, has enabled
us to effectively ring-fence our declining UK back books. We also
monitor performance by separating the costs of business growth
projects charged to the income statement from the results produced
by the day-to-day businesses, enabling greater clarity in
longer-term margin planning.
Foreign currency translation has had a material effect on our
2018 earnings from both India and Turkey where the local currency's
depreciation against the pound sterling were 3% and 32%
respectively. Despite the weak pound we had little benefit in
translating from markets with stronger exchange rates.
Looking ahead
Clearly, India was the star performer last year and we need to
ensure future growth by adding value to the existing partner base
as well as through expanding our partner coverage. China has now
completed its new IT platform to conform with Chinese data
residency requirements. This step, together with the strengthening
of the local team, makes success in this market a key target for
the Group.
During the first quarter of 2019, a new company in Singapore was
incorporated to provide a South East Asia commercial hub which will
provide access to business opportunities in adjacent markets.
The formalisation of our EU hub leaves us ideally placed to
effectively respond to the eventualities of Brexit, which we do not
anticipate having a significant impact on the day-to-day operations
of the Group.
Our people
Once again, on behalf of the Board I would like to thank all
colleagues for your commitment, hard work and loyalty during the
year and look forward to working with you all as we continue to
build and grow our business.
Sir Richard Lapthorne
Chairman
26 March 2019
STRATEGIC REVIEW AND PROGESS IN 2018
We continue to focus on our six strategic pillars to build on
our existing capabilities but with an increased emphasis on
leveraging our InsurTech platform to deliver a product and
distribution focused technology-enabled business. This capability
will drive further product innovation, smarter end-to-end user
experiences and deeper integration with our distribution
partners.
Pillar 1 - Focus on our partner relationships
Key to our success is our commitment to and understanding of our
business partners and their markets. We create, distribute and
manage products for our business partners that deliver commercial
benefits.
In 2018, we extended key business partner contracts in high
growth markets including with Bajaj in India and over ten new
partner contracts were signed across the Group. We also established
supplier content relationships that are being deployed into
multiple markets.
Pillar 2 - Cultural and organisational change
We want to keep our entrepreneurial spark and continue to be a
fresh-thinking organisation. To do this we are creating the right
culture to bring out the best in our people through 'Learn More, Be
More', which is about personal and organisational growth.
In 2018, we formalised the EU Hub freeing up local leaders to
drive business development, and new office space in Turkey, China
and Spain was designed around culture.
Pillar 3 - Investment in growth markets
We continue to invest in and support parts of the business which
present the best opportunities for long-term growth such as India,
Mexico, Turkey and China.
In 2018, we extended our value chain in our Indian business with
the Globiva investment; developed a capability for and launched
Extended Warranty in Mexico and our bespoke IT platform in China
went live.
Pillar 4 - Realignment of traditional markets
We continue to focus on creating sustainable performance in our
European markets through the delivery of value to end customers,
whilst delivering cost efficiencies.
In 2018 we created efficiencies in the operating model and cost
base of our UK and traditional European markets which is expected
to lead to annualised savings in the range of GBP4.0 million to
GBP4.5 million.
Pillar 5 - International expansion
We will continue to expand into new markets using our
established successful businesses as launch pads for expansion.
In 2018, we launched in Bangladesh in a partnership with Eastern
Bank Limited, one of the largest retail banks in the market and
entered the Canadian market through our flight cancellation
insurance with travel insurer Blue Cross.
Pillar 6 - Driving technology and product innovation
We continue to invest in technology to create a single CPP
platform to drive deeper integration with partners, speed to market
and product and service innovation.
In 2018 we took an investment stake in KYND to target a new
market sector for CPP and build digital capabilities.
CHIEF EXECUTIVE'S STATEMENT
2018 has been a year of continued good progress for the
business. A year in which staying true to the core principles of
our strategy has delivered strong revenue growth and fundamentally
shifted the dynamics of the business. We have the platform to seize
the opportunities that exist with our partners to provide them with
the products and services we excel in.
It has been a busy year
Much has been achieved throughout the year, with many
significant milestones being realised. We have again grown revenue
and customer numbers, by 18% and 50% respectively, reflecting the
continuing expansion of our dynamic businesses in India and Turkey.
The renewal books in our traditional European markets have been
well managed and continue to contribute to the growing revenue
picture.
Distribution expertise
What differentiates CPP is our ability to develop and maintain
long-term deep relationships with our distribution partners, using
technology to enable delivery of end-to-end product and service
solutions for their customers. Creating engaging user experiences
and providing compelling, relevant products and services for the
customers of our partners are what inspire us. It is this clarity
of purpose that is driving our focus on continued development of
our technological capabilities, creating a strong pipeline of
digital services and products and placing the understanding of our
partners and their end customer needs at the heart of everything we
do, using it to further enhance our product delivery and customer
experiences.
Strategic investments
Our strategy of targeted investments that either enhance our
product capability or create increased efficiencies in our value
chain continued during 2018. We have taken a majority stake in an
Indian BPM company, Globiva, at a total cost of GBP2 million.
Globiva will support the customer contact requirements of our
growing Indian business as well as focusing on BPM support for
third parties. In addition we paid GBP1.2 million for a minority
interest of 20% in KYND, which has developed cyber risk management
technology for businesses, and completed the acquisition of Valeos
(2013) Limited (Valeos), a key cover provider which provides a
customer base and product that our new UK team has enhanced with
innovative digital solutions.
Cost control
The Group has an unrelenting emphasis on operational efficiency
and cost control, and reinvesting the benefits from this into
developing our growth markets, business partnerships and technology
solutions. During 2018 we have undertaken extensive restructuring
activities across our traditional European markets of Spain,
Germany, Italy, Portugal and the UK. This action realigns the cost
base and has enabled us to create significant operational
efficiencies and plan for the impact of Brexit through the
formalisation of an EU operating hub in Madrid.
Our numbers show the progress we are making
We have repositioned the way we look at and report our business
performance during the year. The new basis better reflects the way
in which we allocate resources and manage our business. The
previous regional basis has been replaced by three new segments:
Restricted Operations; Ongoing Operations; and Central
Functions.
Group revenue has increased by 18% compared to 2017, with
revenue in our Ongoing Operations increasing by 35%. This growth
has been led by excellent performance in India and Turkey where
revenue has increased by 54% and 41% respectively. Our Indian
performance reflects the continued growth of our Phone Insurance
and Extended Warranty products with our key partner, Bajaj Finance
Limited (Bajaj) along with growth in our Card Protection customer
base. The partnership with Bajaj is a strong, valued relationship
that we expect to continue to develop and grow in the future. In
Turkey we have continued to develop strong relationships across a
number of partners and channels; a diversified model that is
serving us particularly well through the current economic
uncertainty in this market. Reflecting this progress in our
developing markets, customer numbers have also increased
significantly by 50% during the year to 8.2 million. We have added
5.4 million new customers this year and have maintained strong
renewal rates of 71.9% (2017: 74.8%). The renewal rate has reduced
year-on-year which is expected as our fast growing renewal books in
India and Turkey begin to outgrow the declining legacy books in our
traditional European markets.
Group revenue has increased to GBP110.1 million (2017 restated:
GBP97.0 million) where growth in our Indian market has more than
compensated for the decline in revenue from the renewal books in
our traditional European markets. As expected, the Group's reported
profit performance has been impacted by three factors: firstly,
exceptional restructuring costs in our European markets, which are
not expected to recur; secondly, our investment into our business
growth projects for the future; and thirdly, the effect of the
ongoing rebalancing of our business whereby lower margin sales
overseas are progressively replacing higher margin business in our
declining back books in Europe. Our adjusted underlying operating
profit, excluding exceptional items and investment costs, rose by
14%, from GBP5.2 million to GBP5.5 million, with an operating
margin of 5% (2017 restated: 5%). However, after net exceptional
costs of GBP3.1 million and investment costs of GBP2.5 million, we
are reporting a reduced profit before tax of GBP0.3 million (2017
restated: GBP3.8 million).
We are expanding our reach
A key component of our strategy is to continue to expand our
global reach by identifying markets where there will be large scale
growth opportunities for our products and services. In addition we
will focus on deepening our partner and product reach in existing
markets where we see significant growth potential.
We have launched and have our first customers in Bangladesh.
Card Protection is a new product to this market and we expect
volumes to continue to grow in 2019, along with the launch of Phone
Insurance where we believe there is a significant opportunity. In
the UK we have developed a dynamic suite of technology-led key
cover and cyber products and have signed our first new partner
contract. Conversion of our strong sales pipeline in the UK and
deploying these UK products into our other markets will be a key
focus for 2019 and beyond.
We have launched, through Blink, a travel disruption service
with a partner in Canada and are in advanced discussions with other
parties that have global exposure. This service is an example of
the borderless propositions that we are seeking to develop,
delivered through an innovative API driven systems platform.
Further afield in Mexico we have launched the Extended Warranty
product developed and pioneered in India, with Coppel, a top
retailer in the country. In addition, in Q1 2019 we have created a
South East Asian hub, based in Singapore, which will act as a
regional management base to access adjacent markets and build upon
our existing presence in Malaysia. This operational hub will be
fully established in 2019.
Our people make the difference
Our people are crucial to our prosperity. Our colleagues bring
an expertise in the markets that we operate in, along with a deep
understanding of the needs of our partners and the end customer. It
is this expertise and understanding that develops the deep
relationships on which our success is based. Our decentralised
operating model, which is now embedded, empowers our colleagues to
demonstrate strong and progressive leadership to the benefit of the
partners and customers that they represent.
How does the future look?
We will continue to follow our strategy, which is already
showing positive results, and will continue to transform the
business placing it in the strongest place possible to harness the
extensive global opportunities that exist. Our relentless drive to
continually improve performance in our Ongoing Operations will see
our operational infrastructure develop further, all with the clear
strategic purpose of creating strong long-lasting partner
relationships and customer engagement.
Our strategy supports our growth ambitions and in 2019 we expect
further good revenue growth again led by India, but with additional
support from some of our other key markets. As part of this
strategy, we will continue to invest in business growth
opportunities for the medium term and this will continue to impact
our reported profitability as it has in 2018. However,
notwithstanding some degree of continuing global economic
uncertainty, which inevitably affects partner and consumer
confidence, we expect further progress in our performance when the
effects of these investments are excluded. The Group has considered
the potential impact of Brexit and due to its decentralised
operating model does not expect it to have a significant impact on
operations or performance
The path we are following is the right one. We are pleased with
the progress we are making and the valued partnerships that we are
forming.
Jason Walsh
Chief Executive Officer
26 March 2019
FINANCIAL AND OPERATIONAL REVIEW
Overview
The Group has grown its revenue and customer numbers in the
year. This performance reflects the value that customers are
placing on the compelling and innovative products and services that
we provide. It is the strength of our partnerships and propositions
and the way that we deliver them that will ensure sustainable
success for the business.
We have grown revenue by 18% to GBP110.1 million, which has been
underpinned by continued growth in our Indian business. We have
grown customer numbers in this market by 95% in the year, the
majority of which has come from our valued partnership with Bajaj.
Turkey has also contributed strongly growing revenue and customer
numbers by 41% and 47% respectively. This performance is even more
impressive in light of the current economic uncertainty in the
market.
Underlying operating profit has reduced in the year to GBP3.0
million (2017 restated: GBP4.3 million). However, the Group is
focusing on the long-term sustainability of the business and is
investing in business growth projects that are loss making at
present, but will deliver revenue and profit in the future.
Excluding the impact of these investments for growth the Group's
adjusted underlying operating profit would be 14% higher than 2017
at GBP5.5 million (2017 restated: GBP5.2 million) and the adjusted
underlying operating profit margin would be 5% (2017 restated: 5%).
The Group has increased its investment in growth projects by GBP1.6
million in 2018 reflecting the focus on long-term growth and
sustainability.
We have made a number of significant investments during 2018. We
have committed to investing GBP2.0 million for a 61% stake in the
Indian BPM Globiva. At 31 December 2018, we have a controlling
holding of 51% following investment of GBP1.4 million. The final
tranche of GBP0.6 million will be paid in April 2019; this will
increase our interest to 61%. We have invested GBP1.2 million for a
20% stake in the innovative, technology-led cyber business, KYND.
This business will enhance our product set as well as providing
wider market opportunities. Finally, we acquired Valeos for GBP0.1
million, which provides a customer base and product capability to
our relaunched UK business.
To enable continued investment and market expansion, cost
control remains a key priority. Whilst parts of our business are
showing great progression, our traditional European markets of
Spain, Germany, Italy, Portugal and the UK have struggled to add
new business at a level that outstrips the decline in their
historic renewal books. As a result it was appropriate to right
size the cost base in these markets during the year. This
restructuring activity has led to significant exceptional costs of
GBP3.5 million in 2018; however, it is anticipated that this
decisive action will lead to annualised cost savings in the range
GBP4.0 million to GBP4.5 million.
The profile of our business continues to shift. Revenue and
customer growth is being led by our developing markets, whilst the
historic European renewal books continue to naturally decline.
Whilst this dynamic is driving revenue growth, it is naturally
pressuring our gross profit margins as our Indian market in
particular has higher costs associated with sales than the European
back books that it is replacing. We therefore expect gross profit
margins to settle at a lower level in the medium term. We expect
investment in the value chain and digital capability to improve
margin in the longer-term.
IFRS 15
The new revenue standard, IFRS 15 was adopted by the Group at
the beginning of 2018. The principles of the standard have led to a
significant change in revenue timing in our Indian business, with
an increase in revenue recognised on inception of a policy. The
Group has applied the fully retrospective method on adoption,
resulting in 2017 comparative information being restated to provide
a comparable year-on-year picture of the progress we are making.
Further detail of our IFRS 15 transition is provided in note 15 of
the condensed financial statements.
2017
2018 Restated(1)
Revenue (GBP millions) 110.1 97.0
------ ------------
Gross profit (GBP millions) 41.1 42.2
============================================= ====== ============
Administrative expenses(2) (GBP millions) (37.8) (37.9)
============================================= ====== ============
Losses in joint ventures (GBP millions) (0.2) -
------ ------------
Underlying operating profit (GBP millions) 3.0 4.3
============================================= ====== ============
Exceptional items (GBP millions) (3.1) (0.1)
============================================= ====== ============
MSP charges (GBP millions) (0.1) (0.3)
------ ------------
Reported operating (loss)/profit (GBP
millions) (0.2) 3.9
============================================= ====== ============
Net finance income/(costs) (GBP millions) 0.5 (0.1)
------ ------------
Reported profit before tax (GBP millions) 0.3 3.8
------ ------------
Basic (loss)/earnings per share (pence) (0.04) 0.55
------ ------------
Net assets (GBP millions) 16.3 15.5
------ ------------
Net funds (GBP millions) 26.0 31.5
------ ------------
1. Restated to reflect the adoption of IFRS 15.
2. Excluding exceptional items and MSP charges.
Segmental performance
We have repositioned the way we manage and report our business
during 2018. The previous regional basis has been replaced by three
new segments: Restricted Operations; Ongoing Operations; and
Central Functions.
1) Restricted Operations - we are not seeking any new business
opportunities in the historic back books of our legacy regulated
entities in the UK; Card Protection Plan Limited (CPPL) and its
overseas branches; and Homecare Insurance Limited (HIL). The
priority in these operations is maintaining strong renewal rates
through good governance and excellent customer service delivered in
a cost effective way.
2) Ongoing Operations - this segment represents those markets
and initiatives where we continue to invest and drive new business
opportunities.
3) Central Functions - includes those costs that are necessary
to provide central expertise for an AIM listed Group operating in a
variety of regulated markets. Central Functions are stated after
the recharge of central costs that are appropriate to transfer to
both Restricted and Ongoing Operations for statutory purposes.
Constant
2018 2017 Restated(1) currency
REVENUE GBP'm GBP'm Change change
Restricted Operations 22.0 27.7 (20)% (20)%
========================= ------ ---------------- ------ ---------
Ongoing Operations
========================= ====== ================ ====== =========
India 65.3 45.6 43% 54%
========================= ====== ================ ====== =========
Spain 10.5 11.3 (7)% (8)%
========================= ====== ================ ====== =========
Turkey 4.5 4.3 6% 41%
========================= ====== ================ ====== =========
Germany 3.6 4.2 (14)% (15)%
========================= ====== ================ ====== =========
Rest of World(2) 4.0 3.9 2% 3%
========================= ------ ---------------- ------ ---------
Total Ongoing Operations 88.0 69.4 27% 35%
========================= ------ ---------------- ------ ---------
Group revenue 110.1 97.0 13% 18%
========================= ====== ================ ====== =========
1. Restated for the impact of IFRS 15.
2. Rest of World comprises China, Italy, Portugal, Malaysia, Mexico, UK, Blink and Bangladesh.
Restricted Operations (20% of Group Revenue):
As expected, revenue has decreased by 20% to GBP22.0 million
(2017: GBP27.7 million) reflecting the natural decline in the
historic renewal books of CPPL and HIL. The focus with these
renewal books is to provide excellent customer service in an
efficient and cost effective way. The renewal books in the UK and
Italy continue to perform well and as a demonstration of the
ongoing value that customers place in our products and service we
were pleased with continuing strong renewal rates of 83% (2017:
82%). In addition, to focus our efforts in this segment we opted to
close the small remaining book in Hong Kong during 2018.
Underlying operating profit has increased by 3% to GBP10.1
million (2017: GBP9.7 million) reflecting the profit impact of the
revenue decline being offset by operational efficiencies, a review
of contractual provisions and more notably a significantly lower
allocation of central costs as it becomes a smaller proportion of
Group revenue.
Ongoing Operations (80% of Group Revenue):
Revenue has increased by 35% to GBP88.0 million (2017 restated:
GBP69.4 million) as a result of significant growth in revenue from
Phone Insurance and Extended Warranty in India through our partner
Bajaj. We extended this relationship during the year for a further
three years into late 2021. Our Card portfolio continues to grow
through strengthening of existing and the introduction of new
business partner relationships.
We continue to see strong development opportunities within the
Indian market and are investing in capabilities accordingly.
Digitalisation to enhance customer take-up and retention are key
priorities. The investment in Globiva will play a key part in our
ongoing margin improvement strategy in India.
Despite challenging economic conditions, the Turkish business
has demonstrated strong growth with a 47% increase in customers. An
exemplar of the CPP approach, the Turkish business demonstrates a
multiple business partner, product and channel model built on
strong trusted relationships. During 2018 we expanded take-up of
Owl and will continue to develop the available suite of products.
Whilst financial sector conditions will challenge growth rates in
2019, efficiencies through call centre investment are expected to
support performance.
A strategically important market to the Group, investment in the
infrastructure and leadership team of our China business has sought
to meet the unique challenges of operating in this marketplace. We
expect to leverage our investment to build on client relationships
in 2019.
Revenue growth in these territories has been partly offset by a
reduction in revenue from the declining renewal books of Spain and
Germany. We have implemented the EU hub model centred in Madrid to
drive efficiency across the region, reduce the cost base and allow
greater focus on invigorating commercial development. Restructuring
activities materially completed during the final quarter of 2018
resulted in a reduced operation in Italy focused on commercial
development, a reduced back office headcount in Spain and the
transfer of all German customer service to Madrid. New revenue
generation within the EU hub is not yet at a level to offset the
reduction in their renewal books.
2017 Constant
2018 Restated(1) currency
UNDERLYING OPERATING PROFIT/(LOSS) GBP'm GBP'm Change change
Restricted Operations 10.1 9.7 3% 3%
----------------------------------- ------ ------------ ------ ---------
Ongoing Operations:
=================================== ====== ============ ====== =========
India 2.7 1.1 138% 183%
=================================== ====== ============ ====== =========
Spain 1.4 1.8 (24)% (25)%
=================================== ====== ============ ====== =========
Turkey 0.6 0.6 (4)% 62%
=================================== ====== ============ ====== =========
Germany (0.6) 0.3 (273)% (257)%
=================================== ====== ============ ====== =========
Rest of world (4.4) (2.2) (96)% (97)%
----------------------------------- ------ ------------ ------ ---------
Total Ongoing Operations (0.3) 1.7 (120)% (125)%
----------------------------------- ------ ------------ ------ ---------
Central Functions (6.5) (7.1) 9% 9%
----------------------------------- ------ ------------ ------ ---------
Segmental underlying operating
profit 3.2 4.3 (25)% (18)%
=================================== ====== ============ ====== =========
Share of loss in joint
venture (0.2) - n/a n/a
----------------------------------- ------ ------------ ------ ---------
Group underlying operating
profit 3.0 4.3 (29)% (23)%
----------------------------------- ------ ------------ ------ ---------
1. Restated for the impact of IFRS 15.
Underlying operating performance in Ongoing Operations has
decreased by 125% to a loss of GBP0.3 million (2017 restated:
GBP1.7 million profit). The reduction results from increased costs
associated with new sales as we continue to grow revenue,
investment in business growth projects and a higher allocation of
central costs as certain markets become a larger proportion of
Group revenue. Whilst new business opportunities are targeted in
this market, renewal book decline has led to a reduction in
operating profit performance in Spain and Germany. India profit
growth has been partly reduced by additional central cost
allocation. The underlying operating profit margin has reduced to
3% (2017 restated: 4%) as a result of these factors and the effect
of sales costs on margin on our growing Phone Insurance and
Extended Warranty portfolios in India.
The investments in business growth projects are included in Rest
of World and total GBP2.3 million (2017: GBP0.9 million) which
comprises Blink, the UK and Bangladesh. We were pleased to be able
to announce the first tangible steps of re-entry into the UK market
with generation of initial revenue through the acquisition of
Valeos, a key cover provider in the UK. In addition we are pleased
with the signing of a first business partner contract for provision
of cyber security products. Good progress is being made in
developing a product suite that resonates with prospective business
partners across a range of industries.
Central Functions:
Our central cost base has reduced by 9% to GBP6.5 million (2017:
GBP7.1 million) reflecting the anticipated cost benefits following
our organisational restructure in 2017. Central cost control
remains a key priority.
Adjusted underlying operating profit
2017 adjusted
2018 adjusted underlying
Investments underlying operating 2017 adjusted
in business operating 2018 adjusted profit(1) margin
2018 growth projects(1) profit margin Restated(2) Restated(2)
Constant
currency
GBP'm GBP'm GBP'm % GBP'm % Change change
Restricted
Operations 10.1 - 10.1 46% 9.7 35% 3% 3%
=========== ======= ================== ============= ============= ============= ============= ====== ========
Ongoing
Operations (0.3) 2.3 2.0 2% 2.6 4% (25)% (14)%
=========== ======= ================== ============= ============= ============= ============= ====== ========
Central
Functions (6.5) - (6.5) (100)% (7.1) (100)% 9% 9%
----------- ------- ------------------ ------------- ------------- ------------- ------------- ------ --------
Segmental
underlying
operating
profit 3.2 2.3 5.5 5% 5.2 5% 6% 14%
=========== ======= ================== ============= ============= ============= ============= ====== ========
Share of
loss
in joint
venture (0.2) 0.2 - n/a - n/a n/a n/a
----------- ------- ------------------ ------------- ------------- ------------- ------------- ------ --------
Group
underlying
operating
profit 3.0 2.5 5.5 5% 5.2 5% 6% 14%
----------- ------- ------------------ ------------- ------------- ------------- ------------- ------ --------
1. Investment in business growth projects in Ongoing Operations
are the UK GBP0.7 million (2017: GBP0.1 million), Blink GBP1.4
million (2017: GBP0.8 million) and Bangladesh GBP0.2 million (2017:
GBPnil). These projects are disclosed within Rest of World.
2. Restated for the impact of IFRS 15.
Adjusted underlying operating performance excludes investments
for growth which reflect start-up costs in projects that will
contribute to growth in the future. Costs associated with these
projects are excluded for pre-defined periods in line with
investment plans. The Group's adjusted underlying operating profit
is GBP5.5 million (2017 restated: GBP5.2 million) and when
excluding these costs Ongoing Operations shows a profit of GBP2.0
million (2017 restated: GBP2.6 million).
Other income statement items
We have undertaken a significant restructuring programme around
our legacy European markets which has led to the recognition of
substantial exceptional costs in the year. Exceptional costs are
GBP3.1 million (2017: GBP0.1 million) comprising GBP3.5 million
restructuring costs partly offset by an exceptional credit of
GBP0.3 million relating to customer redress in the UK.
Share-based payment charges relating to the MSP were GBP0.1
million (2017: GBP0.3 million). This share option scheme was a
three year plan which concluded in 2018; as a result there will be
no further charges relating to the MSP.
Net interest and finance income of GBP0.5 million (2017: GBP0.1
million costs) reflects that the Group has not drawn against its
borrowing facility during the year and has strong cash balances in
markets such as India where investment returns are relatively
high.
As a result, the Group's profit before tax was GBP0.3 million
(2017 restated: GBP3.8 million) and our loss after tax was GBP0.4
million (2017 restated: GBP4.7 million profit).
Impact of exchange rates
The Group is increasingly impacted by exchange rate movements as
our mix of business becomes less UK based and more derived from our
overseas operations, in particular India. Revenue in the year has
improved by 18% on a constant currency basis compared to 13% at
actual exchange rates. Underlying operating profit has declined by
23% on a constant currency basis compared to 29% at actual exchange
rates. With the exception of exchange rate fluctuations the Group
does not expect the basis of its operations to be materially
impacted by Brexit.
Tax
In 2018 there was a tax charge of GBP0.7 million (2017 restated:
GBP0.9 million credit). The charge includes GBP0.9 million (2017
restated: GBP0.5 million) in India, reflecting an increase in
Indian taxable profits and a transition to the mainstream income
tax rate (including surcharges) of 29%. Charges also arise on
profits in Turkey, Spain and Italy. The corporate income tax rates
in these overseas countries are higher than the UK corporate income
tax rate of 19%. The 2017 tax credit included prior year UK credits
and release of certain tax contingencies.
Profits from UK entities are fully covered by group relief from
losses arising in other UK entities, brought forward tax losses and
double tax relief.
In the year, the Group has recognised a deferred tax asset on
losses in Germany reflecting the increased certainty in future
profitability following our restructuring activity. No notable
deferred tax assets have been recognised on other losses arising
around the Group in 2018.
The Group's effective tax rate is expected to be significantly
higher than the UK statutory tax rate in future years as we
continue to invest in new and developing markets, which will not in
the short term indicate sufficient certainty of future
profitability to recognise deferred tax assets. The Group's policy
is to recognise deferred tax assets when profit forecasts indicate
tax losses can be utilised in the short term.
Due to the factors outlined, the effective tax rate for the year
is not considered to be a representative measure.
Dividend
The Directors are not recommending the payment of a dividend.
The Board remains of the view that it is not appropriate to pay a
dividend at this time.
Cash flow and net funds
The Group's cash balances have decreased in the year by GBP5.5
million (2017: GBP3.2 million increase) reflecting the capital
investments the Group has made in Globiva and KYND which create
efficiencies in our value chain or provide product capability. In
addition, the Group has increased its expenditure on technology to
improve both core platforms and product delivery. The cash inflow
in the prior year benefitted from the proceeds of the sale of the
York head office.
The net funds position has decreased to GBP26.0 million (2017:
GBP31.5 million), which reflects the cash outflow in the year. The
Group is currently not utilising its available debt facility. The
net funds position includes GBP1.3 million required to be held in
the UK for regulatory purposes and therefore the Group's available
cash balance is GBP24.7 million. Whilst the Group has a strong
available cash position our borrowing facility includes a cash
covenant and increasingly cash is being generated through our
Indian operation which is not currently available for Group use in
its entirety due to historic trading losses. In the future, our
Indian funds will become available for repatriation however a
return of cash is likely to incur significant taxation costs. The
cash located in the UK and generated through the historic back
books is necessary to support Group IT and central support
functions, key strategic markets that are currently loss-making and
business growth projects.
Balance sheet and financing
The Group's net assets have increased to GBP16.3 million (2017
restated: GBP15.5 million). The Group's non-current assets have
increased by GBP4.2 million to GBP8.7 million reflecting the
Group's investment in its IT capability, goodwill associated with
the investments in Globiva and Valeos, and our joint venture
investment in KYND.
Our borrowing arrangements are a GBP5.0 million revolving credit
facility (RCF) which is available until February 2021. The RCF has
been extended in the period on improved commercial terms with the
margin decreasing to 2.5% and certain other conditions being
reduced or removed. The Group is not currently drawn against the
RCF.
Oliver Laird
Chief Financial Officer
26 March 2019
RISKS AND UNCERTAINTIES
The Group's risk framework enables risks to be identified,
measured, managed, monitored and reported consistently and
objectively. The focus of our risk management framework is to
ensure the Group is managed in a sustainable and controlled way,
making risk-based decisions within our tolerance.
Risk library
The risk library supports the risk framework and allows risks to
be discussed consistently. It allows the aggregation of risk at a
country and Group level and provides a complete view of
exposures.
The library consists of a hierarchy of risk levels, with each
level representing further granularity. Level 1 represents the
highest level of risk reporting in the Group. The Group has five
level 1 risks: financial, business, reputational, operational and
conduct. Level 1 risks are further subdivided to allow allocation
of ownership throughout the countries and the International Support
Centre.
Risk & Control Self-assessment
Central to the risk framework is the ability to identify and
measure risks and controls and put in place appropriate actions to
manage them. To achieve this a quarterly process has been embedded,
where each country will consider its exposure and associated
controls against the risk library; this is known as a Risk &
Control Self-Assessment. The outputs are discussed at various
committees including the Group Risk & Compliance Committee.
Risk environment
During the year we have continued to improve the Risk Management
Framework and embed new processes which ensure risk and controls
are discussed and managed throughout the organisation. As a
business we recognise the importance of having an open and honest
risk culture which encourages debate and discussion on the issues
and risks affecting the business.
The Group's principal risks and uncertainties are:
Financial
-- Funding and liquidity
Business
-- Strategic execution
Reputational
-- Business reputation
-- Third parties and business partners
Operational
-- Technology and infrastructure
-- Data governance
-- Business resilience
-- People
Conduct
-- Regulatory compliance, customer lifecycle and product
Emerging
-- Emerging risks
Consolidated income statement
For the year ended 31 December 2018
2017
2018 Restated*
Note GBP'000 GBP'000
Revenue 4 110,070 97,048
================================ ===== ========= ===========
Cost of sales (68,993) (54,820)
-------------------------------- ----- --------- -----------
Gross profit 41,077 42,228
================================ ===== ========= ===========
Administrative expenses (41,031) (38,290)
================================ ===== ========= ===========
Share of loss of joint venture 10 (199) -
-------------------------------- ----- --------- -----------
Operating (loss)/profit (153) 3,938
-------------------------------- ----- --------- -----------
Analysed as:
Underlying operating profit 4 3,045 4,299
Exceptional items 5 (3,137) (67)
MSP charges 12 (61) (294)
-------------------------------- ----- --------- -----------
Investment revenues 531 191
================================ ===== ========= ===========
Finance costs (51) (313)
-------------------------------- ----- --------- -----------
Profit before taxation 327 3,816
================================ ===== ========= ===========
Taxation (712) 906
-------------------------------- ----- --------- -----------
(Loss)/profit for the year (385) 4,722
-------------------------------- ----- --------- -----------
Attributable to:
--------------------------- ------ ------
Equity holders of Company (380) 4,722
============================ ====== ======
Non-controlling interest (5) -
--------------------------- ------ ------
(385) 4,722
--------------------------- ------ ------
(Loss)/earnings per share Pence Pence
--------------------------- ------- ------
Basic 6 (0.04) 0.55
--------------------------- ------- ------
Diluted 6 (0.04) 0.53
--------------------------- ------- ------
* Results for the year ended 31 December 2017 have been restated
to reflect the adoption of IFRS 15. See note 15.
Consolidated statement of comprehensive income
For the year ended 31 December 2018
2017
2018 Restated*
GBP'000 GBP'000
---------------------------------------------------------------- -------- -------------
(Loss)/profit for the year (385) 4,722
================================================================= ======== ===========
Items that may be reclassified subsequently to profit or loss:
================================================================ ======== ===========
Exchange differences on translation of foreign operations (286) (165)
================================================================= ======== ===========
Other comprehensive expense for the year net of taxation (286) (165)
----------------------------------------------------------------- -------- -----------
Total comprehensive (expense)/income for the year (671) 4,557
----------------------------------------------------------------- -------- -----------
Attributable to:
Equity holders of the Company (666) 4,557
Non-controlling interests (5) -
---------------------------------------------------------------- -------- -----------
(671) 4,557
---------------------------------------------------------------- -------- -----------
* Results for the year ended 31 December 2017 have been restated
to reflect the adoption of IFRS 15. See note 15.
Consolidated balance sheet
As at 31 December 2018
2017
2018 Restated*
Note GBP'000 GBP'000
------------------------------ ---- --------- ----------
Non-current assets
============================== ==== ========= ==========
Goodwill 7 1,492 776
============================== ==== ========= ==========
Other intangible assets 8 2,788 882
============================== ==== ========= ==========
Property, plant and equipment 9 1,717 1,281
============================== ==== ========= ==========
Investment in joint venture 10 1,034 -
============================== ==== ========= ==========
Deferred tax asset 1,225 1,286
============================== ==== ========= ==========
Contract assets 479 349
------------------------------ ---- --------- ----------
8,735 4,574
------------------------------ ---- --------- ----------
Current assets
============================== ==== ========= ==========
Insurance assets 24 30
============================== ==== ========= ==========
Inventories 159 65
============================== ==== ========= ==========
Contract assets 4,553 2,927
============================== ==== ========= ==========
Trade and other receivables 13,704 10,306
============================== ==== ========= ==========
Cash and cash equivalents 25,955 31,465
------------------------------ ---- --------- ----------
44,395 44,793
------------------------------ ---- --------- ----------
Total assets 53,130 49,367
------------------------------ ---- --------- ----------
Current liabilities
============================== ==== ========= ==========
Insurance liabilities (617) (706)
============================== ==== ========= ==========
Income tax liabilities (536) (854)
============================== ==== ========= ==========
Trade and other payables (22,906) (22,426)
============================== ==== ========= ==========
Borrowings - 6
============================== ==== ========= ==========
Provisions (571) (490)
============================== ==== ========= ==========
Contract liabilities (10,934) (8,806)
------------------------------ ---- --------- ----------
(35,564) (33,276)
============================== ==== ========= ==========
Net current assets 8,831 11,517
------------------------------ ---- --------- ----------
Non-current liabilities
============================== ==== ========= ==========
Borrowings 90 -
============================== ==== ========= ==========
Deferred tax liabilities (90) -
============================== ==== ========= ==========
Provisions (291) -
============================== ==== ========= ==========
Contract liabilities (1,009) (593)
------------------------------ ---- --------- ----------
(1,300) (593)
------------------------------ ---- --------- ----------
Total liabilities (36,864) (33,869)
------------------------------ ---- --------- ----------
Net assets 16,266 15,498
------------------------------ ---- --------- ----------
Equity
============================== ==== ========= ==========
Share capital 11 24,021 23,978
============================== ==== ========= ==========
Share premium account 45,225 45,225
============================== ==== ========= ==========
Merger reserve (100,399) (100,399)
============================== ==== ========= ==========
Translation reserve 478 764
============================== ==== ========= ==========
ESOP reserve 15,884 15,114
============================== ==== ========= ==========
Retained earnings 30,323 30,816
------------------------------ ---- --------- ----------
Equity attributable to equity
holders of the Company 15,532 15,498
------------------------------ ---- --------- ----------
Non-controlling interest 734 -
------------------------------ ---- --------- ----------
Total equity 16,266 15,498
------------------------------ ---- --------- ----------
* Balances as at 31 December 2017 have been restated to reflect
the adoption of IFRS 15. See note 15.
Consolidated statement of changes in equity
For the year ended 31 December 2018
Share
Share premium Merger Translation ESOP Retained Non-controlling Total
capital account reserve reserve reserve earnings Total interest equity
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ---- ------- ------- --------- ----------- ------- --------- ------- --------------- -------
At 1 January
2017 23,975 45,225 (100,399) 929 14,516 25,902 10,148 - 10,148
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Change in
accounting
policy -
adoption of
IFRS 15 - - - - - 365 365 - 365
---------------- ---- ------- ------- --------- ----------- ------- --------- ------- --------------- -------
At 1 January
2017
(Restated*) 23,975 45,225 (100,399) 929 14,516 26,267 10,513 - 10,513
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Profit for the
year - - - - - 4,722 4,722 - 4,722
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Other
comprehensive
expense for the
year - - - (165) - - (165) - (165)
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Equity settled
share-based
payment charge 12 - - - - 271 - 271 - 271
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Deferred tax on
share-based
payment charge - - - - - 113 113 - 113
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Movement in EBT
shares - - - - 327 - 327 - 327
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Exercise of
share options 3 - - - - (286) (283) - (283)
---------------- ---- ------- ------- --------- ----------- ------- --------- ------- --------------- -------
At 31 December
2017 23,978 45,225 (100,399) 764 15,114 30,816 15,498 - 15,498
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Loss for the
year - - - - - (380) (380) (5) (385)
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Other
comprehensive
expense for the
year - - - (286) - - (286) - (286)
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Equity settled
share-based
payment charge 12 - - - - 770 - 770 - 770
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Deferred tax on
share-based
payment charge - - - - - (113) (113) - (113)
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Exercise of
share options 11 43 - - - - - 43 - 43
================ ==== ======= ======= ========= =========== ======= ========= ======= =============== =======
Non-controlling
interest on
acquisition of
a subsidiary 13 - - - - - - - 739 739
---------------- ---- ------- ------- --------- ----------- ------- --------- ------- --------------- -------
At 31 December
2018 24,021 45,225 (100,399) 478 15,884 30,323 15,532 734 16,266
---------------- ---- ------- ------- --------- ----------- ------- --------- ------- --------------- -------
* Opening retained earnings and profit for the year ended 31
December 2017 has been restated to reflect the adoption of IFRS 15.
See note 15.
Consolidated cash flow statement
For the year ended 31 December 2018
2018 2017
Note GBP'000 GBP'000
--------------------------------------- ---- ------- -------
Net cash (used in)/from operating
activities 14 (833) 1,178
======================================= ==== ======= =======
Investing activities
======================================= ==== ======= =======
Interest received 531 191
======================================= ==== ======= =======
Proceeds from sale of property - 5,325
======================================= ==== ======= =======
Purchases of property, plant and
equipment (792) (847)
======================================= ==== ======= =======
Purchases of intangible assets (1,931) (315)
======================================= ==== ======= =======
Acquisition of subsidiaries, net
of cash acquired 13 (704) (862)
======================================= ==== ======= =======
Investment in joint venture 10 (1,224) -
--------------------------------------- ---- ------- -------
Net cash (used in)/from investing
activities (4,120) 3,492
--------------------------------------- ---- ------- -------
Financing activities
======================================= ==== ======= =======
Repayment of the Second Commission
Deferral Agreement - (1,304)
======================================= ==== ======= =======
Costs of refinancing the bank facility (126) -
======================================= ==== ======= =======
Interest paid (51) (304)
======================================= ==== ======= =======
Issue of ordinary share capital
and associated costs 11 43 44
--------------------------------------- ---- ------- -------
Net cash used in financing activities (134) (1,564)
--------------------------------------- ---- ------- -------
Net (decrease)/increase in cash
and cash equivalents (5,087) 3,106
======================================= ==== ======= =======
Effect of foreign exchange rate
changes (423) 109
======================================= ==== ======= =======
Cash and cash equivalents at 1 January 31,465 28,250
--------------------------------------- ---- ------- -------
Cash and cash equivalents at 31
December 25,955 31,465
--------------------------------------- ---- ------- -------
Notes to condensed financial statements
1. General information
While the financial information included in this annual results
announcement has been computed in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards as adopted for use by the European Union ('IFRS') and
with those parts of the Companies Act 2006 applicable to companies
reporting under IFRS, this announcement does not itself contain
sufficient information to comply with IFRS. The Company will
publish full financial statements that comply with IFRS in April
2019.
The financial information set out above does not constitute the
Company's statutory financial statements for the years ended 31
December 2018 or 31 December 2017, but is derived from the 2018
financial statements. Statutory financial statements for 2017 for
the Company prepared under IFRS have been delivered to the
Registrar of Companies and those for 2018 for the Company will be
delivered following the Company's Annual General Meeting. The
Auditor, Deloitte LLP, has reported on these financial statements;
their report was unqualified, did not draw attention to any matters
by way of emphasis and did not contain statements under s498 (2) or
(3) of the Companies Act 2006. These 2018 financial statements were
approved by the Board of Directors on 26 March 2019.
2. Accounting policies
The same accounting policies, presentation and methods of
computation are followed in the condensed financial statements as
were applied in the Group's audited financial statements for the
year ended 31 December 2017. The following Standards and
Interpretations have become effective and have been adopted in
these condensed financial statements. No Standards or
Interpretations have been adopted early in these condensed
financial statements.
Standard/Interpretation Subject
------------------------ --------------------------------------------------------
IFRS 9 Financial instruments
IFRS 15 Revenue from contracts with customers
IFRS 2 (amendments) Share-based payment transactions
IFRIC 22 Foreign currency transactions and advance consideration
------------------------ --------------------------------------------------------
Following the adoption of IFRS 15 the Group has changed its
accounting policies and made certain retrospective adjustments to
comparative information, which are disclosed in note 15. All other
new or amended standards and interpretations applied for the first
time in the period commencing 1 January 2018 have not impacted the
amounts recognised in prior periods and are not expected to
significantly affect the current or future periods.
The Group has revised its segmental reporting from 1 January
2018. In accordance with IFRS 8 the operating segments have been
changed to reflect the way in which the Group is now managed and
how resources are allocated. The Group's operating segments are
identified as 'Restricted Operations'; 'Ongoing Operations'; and
'Central Functions'. These segments replace the three region basis
that was previously in place. The comparative segmental information
has been represented to reflect the change. Further detail is
included in note 4.
IFRS 16 Leases
The Group has assessed the estimated impact that initial
application of IFRS 16 Leases will have on the consolidated
financial statements. IFRS 16 introduces a single, on-balance sheet
lease accounting model for lessees. A lessee recognises a
right-of-use asset representing its right to use the underlying
asset and a lease liability representing its obligation to make
lease payments. There are recognition exemptions for short-term
leases and leases of low-value items. Lessor accounting remains
similar to the current standard - i.e. lessors continue to classify
leases as finance or operating leases.
Leases in which the Group is a lessee
The Group will recognise new assets and liabilities for its
operating leases of offices, vehicles and office equipment. The
nature of expenses related to those leases will change because the
Group will recognise a depreciation charge for right-of-use assets
and interest expense on lease liabilities.
Based on the information currently available, the Group
estimates that it will recognise additional lease liabilities of
approximately GBP5.0 million and additional right-of-use assets of
approximately GBP4.2 million as at 1 January 2019. The Group does
not expect the adoption of IFRS 16 to impact its ability to comply
with the financial covenants in its borrowing facility.
Leases in which the Group is a lessor
The Group will reassess the classification of sub-leases in
which the Group is a lessor. Based on the information currently
available, the Group expects that it will reclassify two sub-leases
as finance leases, resulting in recognition of finance lease
receivables of approximately GBP0.3 million as at 1 January
2019.
Transition
The Group plans to apply IFRS 16 initially on 1 January 2019,
using the modified retrospective approach. Therefore, the
cumulative effect of adopting IFRS 16 will be recognised as an
adjustment to the opening balance of retained earnings at 1 January
2019, with no restatement of comparative information.
The Group plans to apply the practical expedient to grandfather
the definition of a lease on transition. This means that it will
apply IFRS 16 to all contracts entered into before 1 January 2019
and identified as leases in accordance with IAS 17 and IFRIC 4.
3. Critical accounting judgements and key sources of estimation
uncertainty
Critical judgements
Revenue recognition
The Group recognises revenue either immediately on inception of
a policy or over the duration of a policy where there are ongoing
obligations to fulfil to a customer. Certain of the Group's
contractual structures for product features require judgement in
determining whether the Group carries an obligation to the customer
over the term of the policy or if the exposure to that obligation
has been transferred to a third party on inception. This judgement
determines when the Group has completed the performance obligation
to the customer and can recognise revenue.
Classification of exceptional items
Exceptional items are those items that are required to be
separately disclosed by virtue of their size or incidence or have
been separately disclosed on the income statement in order to
improve a reader's understanding of the financial statements.
Consideration of what should be included as exceptional requires
judgement to be applied. Exceptional items are considered to be
ones which are material and outside of the normal operating
practice of the Group.
Assumptions and estimation uncertainties
Contractual matters
The Group has made certain commercial and contractual decisions
that are not yet agreed with all affected parties. The Group is
satisfied with its position from both a legal and regulatory
perspective. Appropriate financial provisions are in place in
respect of these matters and are included in trade and other
payables. The Group has taken advantage of the reduced disclosures
available within IAS 37 as it does not consider it appropriate to
disclose the detail of contractual matters as it may prejudice any
future discussions.
The appropriate level of financial provision may vary and impact
the consolidated income statement depending on the outcome of any
future discussions with those parties affected. A credit of GBP0.8
million has been recognised in the consolidated income statement in
the current year.
Deferred tax asset
The Group has recognised a deferred tax asset of GBP1,225,000
(2017 restated: GBP1,286,000). 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.
Due to uncertainty associated with such tax items it is feasible
that at a future date, on conclusion of possible taxable profit
outcomes, the final utilisation may vary significantly. The value
recognised as a deferred tax asset is a judgement within a range of
reasonable future forecast sensitivities of up to GBP2,700,000 to a
reduction in the assets entirely. Deferred tax assets are currently
recognised under the assumption of forecast profits on a short-term
assessment basis.
4. 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. With effect from 1
January 2018 the Group's operating segments have been revised
to:
-- Restricted Operations: historic renewal books of our UK
regulated entities; CPPL, including its overseas branches; and
HIL;
-- Ongoing Operations: India, China, Turkey, Spain, Germany,
Portugal, Italy, Mexico, Malaysia, the UK, Bangladesh and Blink. We
continue to invest and drive new business opportunities in these
markets; and
-- Central Functions: central cost base required to provide
expertise and operate a listed Group. Central Functions is stated
after the recharge of certain central costs that are appropriate to
transfer to both Restricted Operations and Ongoing Operations for
statutory purposes.
This approach replaces the three regional segments that were
previously in place. The comparative period segmental information
has been represented to reflect this change and provide
comparability.
Segment revenue and performance for the current and comparative
periods are presented below:
Restricted Operations Ongoing Operations Central Functions Total
2018 2018 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Year ended 31 December 2018
========================================== ====================== =================== ================== =========
Revenue - external sales 22,037 88,033 - 110,070
========================================== ====================== =================== ================== =========
Cost of sales (1,565) (67,428) - (68,993)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Gross profit 20,472 20,605 - 41,077
========================================== ====================== =================== ================== =========
Depreciation and amortisation (26) (343) (497) (866)
========================================== ====================== =================== ================== =========
Other administrative expenses excluding
exceptional items and MSP charges (10,375) (20,592) (6,000) (36,967)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Segmental underlying operating
profit/(loss) 10,071 (330) (6,497) 3,244
========================================== ====================== =================== ================== =========
Share of loss of joint ventures (199)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Underlying operating profit 3,045
========================================== ====================== =================== ================== =========
Exceptional items (note 5) (3,137)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
MSP charges (61)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Operating loss (153)
========================================== ====================== =================== ================== =========
Investment revenues 531
========================================== ====================== =================== ================== =========
Finance costs (51)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Profit before taxation 327
========================================== ====================== =================== ================== =========
Taxation (712)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Loss for the year (385)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Restricted Operations Ongoing Operations Central Functions Total
2017 2017 2017 2017
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Year ended 31 December 2017 Restated*
========================================== ====================== =================== ================== =========
Revenue - external sales 27,658 69,390 - 97,048
========================================== ====================== =================== ================== =========
Cost of sales (3,719) (51,101) - (54,820)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Gross profit 23,939 18,289 - 42,228
========================================== ====================== =================== ================== =========
Depreciation and amortisation (131) (139) (920) (1,190)
========================================== ====================== =================== ================== =========
Other administrative expenses excluding
exceptional items and MSP charges (14,061) (16,464) (6,214) (36,739)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Segmental underlying operating
profit/(loss) 9,747 1,686 (7,134) 4,299
========================================== ====================== =================== ================== =========
Exceptional items (note 5) (67)
========================================== ====================== =================== ================== =========
MSP charges (294)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Operating profit 3,938
========================================== ====================== =================== ================== =========
Investment revenues 191
========================================== ====================== =================== ================== =========
Finance costs (313)
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Profit before taxation 3,816
========================================== ====================== =================== ================== =========
Taxation 906
------------------------------------------ ---------------------- ------------------- ------------------ ---------
Profit for the year 4,722
------------------------------------------ ---------------------- ------------------- ------------------ ---------
* Balances restated for the impact of IFRS 15. See note 15.
Segment assets
2017
2018 Restated*
GBP'000 GBP'000
--------------------------- --------- ------------
Restricted Operations 17,114 22,758
=========================== ========= ============
Ongoing Operations 30,637 21,598
=========================== ========= ============
Central Functions 1,628 2,949
--------------------------- --------- ------------
Total segment assets 49,379 47,305
=========================== ========= ============
Unallocated assets 3,751 2,062
--------------------------- --------- ------------
Consolidated total assets 53,130 49,367
--------------------------- --------- ------------
* Balances restated for the impact of IFRS 15. See note 15.
Goodwill, deferred tax and investment in joint venture are not
allocated to segments.
Capital expenditure
Intangible assets Property, plant and equipment
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- --------- -------------- ---------------
Restricted Operations 20 82 61 31
======================= ========= ========= ============== ===============
Ongoing Operations 1,387 233 728 271
======================= ========= ========= ============== ===============
Central Functions 878 86 277 545
----------------------- --------- --------- -------------- ---------------
Total 2,285 401 1,066 847
----------------------- --------- --------- -------------- ---------------
Revenues from major products
2017
2018 Restated*
GBP'000 GBP'000
---------------------------- --------- -----------
Retail assistance policies 105,006 93,274
============================ ========= ===========
Retail insurance policies 336 944
============================ ========= ===========
Wholesale policies 4,162 2,350
============================ ========= ===========
Non-policy revenue 566 480
---------------------------- --------- -----------
Consolidated total revenue 110,070 97,048
---------------------------- --------- -----------
* Balance restated for the impact of IFRS 15. See note 15.
Major product streams are disclosed on the basis monitored by
senior management. 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. The Group derives its revenue from
contracts with customers for the transfer of goods and services
which is consistent with the revenue information that is disclosed
for each reportable segment under IFRS 8.
Timing of revenue recognition
The Group derives revenue from the transfer of goods and
services over time and at a point in time as follows:
2017
2018 Restated*
GBP'000 GBP'000
-------------------- --------- -----------
At a point in time 89,116 79,304
==================== ========= ===========
Over time 20,954 17,744
-------------------- --------- -----------
Total 110,070 97,048
-------------------- --------- -----------
* Balances restated for the impact of IFRS 15. See note 15.
Geographical information
The Group operates across a wide number of territories, of which
India, the UK and Spain are considered individually material.
Revenue from external customers and non-current assets (excluding
investments in joint ventures and deferred tax) by geographical
location are detailed below:
External revenues Non-current assets
2017 2017
2018 Restated* 2018 Restated*
GBP'000 GBP'000 GBP'000 GBP'000
------- --------- ----------- -------- -----------
India 65,326 45,645 2,115 431
======= ========= =========== ======== ===========
UK 18,051 21,977 2,468 2,140
======= ========= =========== ======== ===========
Spain 10,514 11,294 281 151
======= ========= =========== ======== ===========
Other 16,179 18,132 1,612 566
------- --------- ----------- -------- -----------
110,070 97,048 6,476 3,288
------- --------- ----------- -------- -----------
* Balances restated for the impact of IFRS 15. See note 15.
Information about major customers
Revenue from the customers of one business partner in the
Group's Ongoing Operations segment represented approximately
GBP48,158,000 (2017 restated: GBP31,994,000) of the Group's total
revenue.
5. Exceptional items
2018 2017
Note GBP'000 GBP'000
------------------------------------------------- ------ --------- ---------
Restructuring costs 3,477 -
================================================= ====== ========= =========
Customer redress and associated costs (340) (307)
========================================================= ========= =========
Aborted IT platform costs - 880
========================================================= ========= =========
Reversal of freehold property impairment - (506)
--------------------------------------------------------- --------- ---------
Exceptional charge included in operating profit 3,137 67
========================================================= ========= =========
Tax on exceptional items (848) (110)
--------------------------------------------------------- --------- ---------
Total exceptional charge/(credit) after tax 2,289 (43)
--------------------------------------------------------- --------- ---------
Restructuring costs of GBP3,477,000 (2017: GBPnil) mainly relate
to redundancy costs and accounting charges associated with onerous
leases at offices that will be vacated in the UK and Germany. The
restructuring costs are located in Germany, Spain, Italy and the
UK. The cash flows associated with these costs are reflected
through cash used in operations.
Customer redress and associated costs are a credit of GBP340,000
(2017: GBP307,000 credit) and relates to the reversal of certain
redress payments made in prior years. The credit is considered
exceptional as it is a reversal of exceptional charges recognised
in prior years.
6. (Loss)/earnings per share
Basic and diluted (loss)/earnings per share have been calculated
in accordance with IAS 33 Earnings per Share. Underlying earnings
per share have also been presented in order to give a better
understanding of the performance of the business. In accordance
with IAS 33, potential ordinary shares are only considered dilutive
when their conversion would decrease the earnings per share or
increase the loss per share attributable to equity holders. The
diluted loss per share is therefore equal to the basic loss per
share in the current year.
(Loss)/earnings
2017
2018 Restated*
GBP'000 GBP'000
--------------------------------------------------------------------------------- --------- ----------
(Loss)/earnings for the purposes of basic and diluted (loss)/earnings per share (380) 4,722
================================================================================= ========= ==========
Exceptional items (net of tax) 2,289 (43)
================================================================================= ========= ==========
MSP charges (net of tax) 55 209
--------------------------------------------------------------------------------- --------- ----------
Earnings for the purposes of underlying basic and diluted earnings per share 1,964 4,888
--------------------------------------------------------------------------------- --------- ----------
Number of shares
Number Number
(thousands) (thousands)
---------------------------------------------------------------------------------------- ------------- -------------
Weighted average number of ordinary shares for the purposes of basic and diluted
(loss)/earnings
per share and basic underlying earnings per share 858,474 856,502
======================================================================================== ============= =============
Effect of dilutive potential ordinary shares: share options 28,308 27,188
---------------------------------------------------------------------------------------- ------------- -------------
Weighted average number of ordinary shares for the purposes of diluted underlying
earnings
per share 886,782 883,690
---------------------------------------------------------------------------------------- ------------- -------------
2017
2018 Restated*
Pence Pence
------------------------------------------------- ------- -----------
Basic and diluted (loss)/earnings per share
================================================= ======= ===========
Basic (0.04) 0.55
================================================= ======= ===========
Diluted (0.04) 0.53
------------------------------------------------- ------- -----------
Basic and diluted underlying earnings per share
================================================= ======= ===========
Basic 0.23 0.57
================================================= ======= ===========
Diluted 0.22 0.55
------------------------------------------------- ------- -----------
* Earnings per share for the year ended 31 December 2017 are
restated for the impact of IFRS 15. See note 15.
The Group has 171,650,000 deferred shares which have no rights
to receive dividends and only 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 (loss)/earnings per
share.
7. Goodwill
2018 2017
GBP'000 GBP'000
------------------------------------------- --------- ---------
Cost and carrying value
=========================================== ========= =========
At 1 January 776 -
=========================================== ========= =========
Recognised on acquisition of subsidiaries 716 776
------------------------------------------- --------- ---------
At 31 December 1,492 776
------------------------------------------- --------- ---------
Goodwill acquired in a business combination is allocated, at
acquisition, to the cash generating units (CGUs) that are expected
to benefit from that business combination. The carrying amount of
goodwill has been allocated as follows:
2018 2017
GBP'000 GBP'000
---------------- --------- ---------
Blink 776 776
================ ========= =========
Valeos 104 -
================ ========= =========
Globiva 612 -
---------------- --------- ---------
At 31 December 1,492 776
---------------- --------- ---------
Further detail is provided in note 13 in relation to the Valeos
and Globiva goodwill recognised in the year.
The Group tests goodwill annually for impairment or more
frequently if there is indication goodwill may be impaired.
8. Other intangible assets
Business partner Internally generated Externally acquired
relationships software software Total
GBP'000 GBP'000 GBP'000 GBP'000
========================== ========================= ========================= ========================== ========
Cost:
-------------------------- ------------------------- ------------------------- -------------------------- --------
At 1 January 2017 - 20,188 19,904 40,092
-------------------------- ------------------------- ------------------------- -------------------------- --------
Additions - 82 319 401
-------------------------- ------------------------- ------------------------- -------------------------- --------
Disposals - (19,478) (18,010) (37,488)
-------------------------- ------------------------- ------------------------- -------------------------- --------
Exchange adjustments - (2) 8 6
========================== ========================= ========================= ========================== ========
At 1 January 2018 - 790 2,221 3,011
-------------------------- ------------------------- ------------------------- -------------------------- --------
Additions - 793 1,138 1,931
-------------------------- ------------------------- ------------------------- -------------------------- --------
Acquisition of
subsidiaries 304 5 45 354
-------------------------- ------------------------- ------------------------- -------------------------- --------
Disposals - (3) (59) (62)
-------------------------- ------------------------- ------------------------- -------------------------- --------
Exchange adjustments - 15 - 15
-------------------------- ------------------------- ------------------------- -------------------------- --------
At 31 December 2018 304 1,600 3,345 5,249
========================== ========================= ========================= ========================== ========
Accumulated amortisation:
-------------------------- ------------------------- ------------------------- -------------------------- --------
At 1 January 2017 - 19,478 18,478 37,956
-------------------------- ------------------------- ------------------------- -------------------------- --------
Provided during the year - 89 243 332
-------------------------- ------------------------- ------------------------- -------------------------- --------
Disposals - (19,478) (18,010) (37,488)
-------------------------- ------------------------- ------------------------- -------------------------- --------
Impairment - 259 1,061 1,320
-------------------------- ------------------------- ------------------------- -------------------------- --------
Exchange adjustments - - 9 9
========================== ========================= ========================= ========================== ========
At 1 January 2018 - 348 1,781 2,129
-------------------------- ------------------------- ------------------------- -------------------------- --------
Provided during the year - 159 253 412
-------------------------- ------------------------- ------------------------- -------------------------- --------
Disposals - (2) (49) (51)
-------------------------- ------------------------- ------------------------- -------------------------- --------
Exchange adjustments - - (29) (29)
-------------------------- ------------------------- ------------------------- -------------------------- --------
At 31 December 2018 - 505 1,956 2,461
========================== ========================= ========================= ========================== ========
Carrying amount:
-------------------------- ------------------------- ------------------------- -------------------------- --------
At 31 December 2017 - 442 440 882
========================== ========================= ========================= ========================== ========
At 31 December 2018 304 1,095 1,389 2,788
========================== ========================= ========================= ========================== ========
9. Property, plant and equipment
Freehold land and Leasehold Furniture and
property improvements Computer systems equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
===================== ===================== ===================== ================ ===================== ========
Cost:
--------------------- --------------------- --------------------- ---------------- --------------------- --------
At 1 January 2017 7,278 5,622 28,062 6,073 47,035
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Additions - 325 351 171 847
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Disposals (7,278) (4,714) (25,340) (5,116) (42,448)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Exchange
adjustments - 18 48 (7) 59
===================== ===================== ===================== ================ ===================== ========
At 1 January 2018 - 1,251 3,121 1,121 5,493
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Additions - 285 355 152 792
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Acquisition of
subsidiaries - - 239 35 274
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Disposals - (609) (221) (335) (1,165)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Exchange
adjustments - (8) (33) (35) (76)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
At 31 December 2018 - 919 3,461 938 5,318
===================== ===================== ===================== ================ ===================== ========
Accumulated
amortisation:
--------------------- --------------------- --------------------- ---------------- --------------------- --------
At 1 January 2017 2,904 5,354 27,558 5,903 41,719
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Provided during the
year 49 106 220 43 418
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Disposals (2,333) (4,714) (25,340) (5,116) (37,503)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Impairment reversal (620) 114 - - (506)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Exchange
adjustments - 19 51 14 84
===================== ===================== ===================== ================ ===================== ========
At 1 January 2018 - 879 2,489 844 4,212
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Provided during the
year - 93 271 90 454
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Disposals - (570) (199) (321) (1,090)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Impairment - - 59 12 71
--------------------- --------------------- --------------------- ---------------- --------------------- --------
Exchange
adjustments - (17) (15) (14) (46)
--------------------- --------------------- --------------------- ---------------- --------------------- --------
At 31 December 2018 - 385 2,605 611 3,601
===================== ===================== ===================== ================ ===================== ========
Carrying amount:
--------------------- --------------------- --------------------- ---------------- --------------------- --------
At 31 December 2017 - 372 632 277 1,281
===================== ===================== ===================== ================ ===================== ========
At 31 December 2018 - 534 856 327 1,717
===================== ===================== ===================== ================ ===================== ========
Impairment loss of GBP71,000 has been recognised in our
Restricted Operations segment and has been included as an
exceptional restructuring cost within the consolidated income
statement. The impairment reflects assets that have no further
value in use to the business following restructuring activity.
10. Investment in joint venture
Movement in the Group's share in joint ventures is as
follows:
2018
GBP'000
-------------------------------------------------------------- ---------
Carrying amount at 1 January -
============================================================== =========
Acquisition of share capital 1,200
============================================================== =========
Costs associated with acquisition 24
============================================================== =========
Share of losses since acquisition (199)
============================================================== =========
Fair value adjustment for Globiva shares on step acquisition 9
-------------------------------------------------------------- ---------
Carrying amount at 31 December 1,034
-------------------------------------------------------------- ---------
In 2018, the Group purchased 20% of the issued share capital of
KYND for a total consideration of GBP1,200,000. The acquisition
comprised two tranches: GBP420,000 in March 2018 and GBP780,000 in
September 2018. The arrangement has been recognised as an
investment in a joint venture due to voting rights within the
shareholders' agreement, incorporation documents and the
composition of the Board of Directors. KYND provides cyber security
consultancy services and is incorporated in England and Wales.
The joint venture arrangement is being accounted for under the
equity method. On acquisition the carrying value of the investment
recognised was GBP480,000, increasing to GBP1,200,000 following the
second tranche payment. Costs associated with acquisition of
GBP24,000 have been capitalised to the value of the investment.
In the period since acquisition KYND has incurred losses of
GBP950,000. The Group's 20% share of these losses is GBP190,000 and
has been recognised in the consolidated income statement. The
carrying value of the investment has been adjusted for these losses
resulting in a carrying amount of GBP1,034,000 at 31 December 2018.
The losses are not deemed an indicator of impairment as KYND is in
start-up phase.
In 2018, the Group held a 34.51% share of Globiva share capital
for a period of three months as part of a step acquisition. During
this period, Globiva incurred losses of GBP26,000. The Group's
34.51% share of these losses is GBP9,000 and has been recognised in
the consolidated income statement. On acquisition of an additional
16.81% share capital, Globiva became a fully consolidated
subsidiary. At the point of acquisition, the existing shareholding
in the Globiva joint venture was adjusted by GBP9,000 to its fair
value within the calculation of goodwill; as a result the
acquisition and disposal values of this transaction have not been
included in the joint venture disclosure. See note 13 for further
information on the Globiva step acquisition.
11. Share capital
Ordinary shares Deferred shares Ordinary shares Deferred shares
of 1 penny each of 9 pence each Total of 1 penny each of 9 pence each Total
(thousands) (thousands) (thousands) GBP'000 GBP'000 GBP'000
----------------- ---------------- ---------------- ------------- ---------------- ----------------- ---------
Called up and
allotted
================= ================ ================ ============= ================ ================= =========
At 1 January
2018 856,820 171,650 1,028,470 8,565 15,413 23,978
================= ================ ================ ============= ================ ================= =========
Issue of shares
in connection
with:
================= ================ ================ ============= ================ ================= =========
Exercise of
share options 4,285 - 4,285 43 - 43
----------------- ---------------- ---------------- ------------- ---------------- ----------------- ---------
At 31 December
2015 861,105 171,650 1,032,755 8,608 15,413 24,021
----------------- ---------------- ---------------- ------------- ---------------- ----------------- ---------
During the year, the Company issued 4,285,000 shares to option
holders for total consideration of GBP42,742. Further details
relating to share options are provided in note 12.
12. Share-based payment
Current share plans
Share-based payment charges comprise 2016 LTIP charges of
GBP710,000 (2017: GBP4,000) and MSP charges of GBP90,000 (2017:
GBP277,000). These costs are disclosed within administrative
expenses, although the MSP share-based payment charge forms part of
the MSP charges which is not included in underlying operating
profit. MSP charges in the income statement are different to the
share-based payment charge due to the recognition of employer's
national insurance relating to future option exercises. There have
been 16,071,000 options granted in the current year as part of the
2016 LTIP (2017: 16,197,000 options granted). There have been no
MSP options granted in either the current or prior year.
2018 2017
Number of share Weighted average Number of share Weighted average
options exercise price options exercise price
(thousands) (GBP) (thousands) (GBP)
----------------------- ---------------------- --------------------- ---------------------- ----------------------
2016 LTIP
======================= ====================== ===================== ====================== ======================
Outstanding at 1
January 22,551 - 15,081 -
======================= ====================== ===================== ====================== ======================
Granted during the
year 16,071 - 16,197 -
======================= ====================== ===================== ====================== ======================
Forfeited during the
year (641) - (8,727) -
----------------------- ---------------------- --------------------- ---------------------- ----------------------
Outstanding at 31
December 37,981 - 22,551 -
----------------------- ---------------------- --------------------- ---------------------- ----------------------
MSP
======================= ====================== ===================== ====================== ======================
Outstanding at 1
January 10,669 0.01 17,665 0.01
======================= ====================== ===================== ====================== ======================
Forfeited during the
year (52) 0.01 (2,611) 0.01
======================= ====================== ===================== ====================== ======================
Exercised during the
year (4,274) 0.01 (4,385) 0.01
----------------------- ---------------------- --------------------- ---------------------- ----------------------
Outstanding at 31
December 6,343 0.01 10,669 0.01
----------------------- ---------------------- --------------------- ---------------------- ----------------------
Exercisable at 31
December 6,343 0.01 2,431 0.01
----------------------- ---------------------- --------------------- ---------------------- ----------------------
Nil-cost options and conditional shares granted under the 2016
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 2016 LTIP options and shares are
also subject to achievement of certain performance criteria
including Group financial targets and either a share price or
non-financial events measure over the vesting period.
All outstanding options granted under the MSP have vested and
have an exercise price of 1 penny. 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. There have been no options
granted in the current year (2017: nil) and options exercised in
the current year total 4,274,000 (2017: 4,385,000).
The options outstanding at 31 December 2018 had a weighted
average remaining contractual life of two years (2017: two years)
in the 2016 LTIP and no years (2017: no years) in the MSP.
The principal assumptions underlying the valuation of the
options granted during the year at the date of grant are as
follows:
LTIP 2016
April 2018
--------------------------------- ------------
Weighted average share price GBP0.11
================================= ============
Weighted average exercise price -
================================= ============
Expected volatility 150%
================================= ============
Expected life 3 years
================================= ============
Risk-free rate 0.67%
================================= ============
Dividend yield 0%
--------------------------------- ------------
There have been 16,071,000 share options granted in the current
year. The aggregate estimated fair value of the options and shares
granted in the current year under the 2016 LTIP was
GBP1,808,000.
During the year, the financial performance conditions relating
to the April 2017 and November 2017 awards within the LTIP 2016
scheme were modified. The Group underlying operating profit targets
were replaced by EBITDA targets for Ongoing Operations. The
non-financial events measure has remained unchanged. The vesting
period for these options is unchanged at 20 April 2020. The
modification resulted in an incremental increase in the fair value
of each option of GBP0.095, which increases the aggregate estimated
value of the options by GBP310,000.
13. Acquisition of subsidiaries
During 2018, the Group has acquired a 100% interest in Valeos
and a 51.32% interest in Globiva. The net assets acquired and their
provisional fair values were:
Valeos Globiva
------------------------ ----------------------
Book value Fair value Book value Fair value
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------------------- ----------- ----------- ---------- ----------
Net identifiable (liabilities)/assets acquired (15) (15) 1,267 1,483
=================================================== =========== =========== ========== ==========
Goodwill (note 7) 104 612
=================================================== =========== =========== ========== ==========
Cash consideration paid 89 1,356
=================================================== =========== ----------- ========== ----------
Fair value of non-controlling interest in Globiva - 739
=================================================== =========== ----------- ========== ----------
Cash consideration paid 89 1,356
=================================================== =========== =========== ========== ==========
Acquisition costs 11 61
=================================================== =========== =========== ========== ==========
Debt repaid by the Company on acquisition 135 -
=================================================== =========== =========== ========== ==========
Cash acquired on acquisition (97) (851)
--------------------------------------------------- ----------- ----------- ---------- ----------
Total cash outflow 138 566
--------------------------------------------------- ----------- ----------- ---------- ----------
Valeos
On 8 June 2018, the Group completed the 100% acquisition of the
issued share capital of Valeos for total consideration of
GBP89,000. The goodwill addition of GBP104,000 represents the
difference between the acquisition cost and the fair value of net
identifiable liabilities acquired of GBP15,000. Goodwill reflects
the discounted future cash flows of Valeos' product offering which
includes expected synergies from product enhancement, expanded
distribution channels and available operational efficiencies.
Valeos provides key cover products and is incorporated in England
and Wales.
Acquisition costs of GBP11,000 have been recognised as an
administrative expense through the consolidated income
statement.
Included within the Group's consolidated income statement is
revenue of GBP72,000 and a loss before tax of GBP23,000 relating to
Valeos since the acquisition date. Valeos is recognised in the
Ongoing Operations segment. If the acquisition had occurred on 1
January 2018, consolidated revenue and loss for the year ended 31
December 2018 would have included revenue of GBP88,000 and a loss
of GBP41,000.
Globiva
On 7 September 2018, the Group agreed to take a majority holding
in Globiva, a company incorporated in India. The Group has agreed
to acquire 61% of the share capital of Globiva for a total cash
consideration of approximately GBP2,000,000 (Indian rupee
184,000,000). The acquisition will be completed in three tranches
and has been accounted for as a step acquisition during the year.
There are no contingent conditions attached to the future
payments.
On 7 September 2018, the Group paid the first tranche of
GBP658,000 (Indian rupee 62,000,000) to acquire 34.51% of the
issued share capital. At that time the acquired share capital
resulted in a joint arrangement, accounted for as a joint venture
within the Group.
On 30 November 2018 the Group paid the second tranche of
GBP698,000 (Indian rupee 62,000,000) to increase its holding to
51.32% of the issued share capital, resulting in the Group holding
a controlling majority share per IFRS 11. Globiva has been fully
consolidated within the Group from that point as a subsidiary. The
investment in joint venture was revalued to fair value at that time
and the share of joint venture losses between 7 September 2018 and
30 November 2018 of GBP9,000 were included as an adjustment to
pre-acquisition reserves recognised on consolidation.
The non-controlling interest was recognised on 30 November 2018
and is 48.68%. The Group has elected to account for the
non-controlling interest using the proportionate share of the
acquired entity's net identifiable assets. This resulted in a
non-controlling interest of GBP739,000 (Indian rupee 65,348,000).
The non-controlling interest share of losses since acquisition is
GBP5,000.
The shareholder agreement provides certain protective rights to
the founder shareholders; these conditions do not alter the Group's
control of Globiva.
As part of the acquisition, an intangible asset of GBP304,000
has been identified, which represents the existing business partner
relationships acquired as part of the business combination and the
associated potential future profits. The asset is to be amortised
on a straight line based on the timing of projected cash flows of
the contracts over their estimated useful lives.
The goodwill addition of GBP612,000 represents the difference
between the total acquisition cost including minority interest at
30 November 2018 and the fair value of net identifiable assets
acquired of GBP1,483,000 (Indian rupee 134,240,000) which includes
the intangible asset of GBP304,000. Goodwill reflects the
discounted future cash flows of Globiva's operations including
future operational efficiencies and through profitable external
revenue streams.
The final tranche of approximately GBP650,000 (Indian rupee
60,000,000) will be paid in April 2019. The Group's total
shareholding in Globiva after the final payment will be 61.0%. The
Group will reassess the goodwill arising on acquisition following
payment of the third and final tranche.
Included within the Group's consolidated income statement is
revenue of GBP157,000 and a loss before tax of GBP11,000 relating
to Globiva since the Group took a controlling holding. Globiva is
recognised in the Ongoing Operations segment. If the acquisition
had occurred on 1 January 2018, consolidated revenue and loss for
the year ended 31 December 2018 would have included revenue of
GBP742,000 and a loss of GBP160,000.
14. Reconciliation of operating cash flows
2017
2018 Restated*
GBP'000 GBP'000
---------------------------------------------------------- --------- -----------
(Loss)/profit for the year (385) 4,722
========================================================== ========= ===========
Adjustments for
========================================================== ========= ===========
Depreciation and amortisation 866 750
========================================================== ========= ===========
Share-based payment expense 800 270
========================================================== ========= ===========
Impairment loss on intangible assets - 1,320
========================================================== ========= ===========
Impairment loss on property, plant and equipment 71 -
========================================================== ========= ===========
Reversal of freehold property impairment - (506)
========================================================== ========= ===========
Loss on disposal of intangible assets 11 -
========================================================== ========= ===========
Loss on disposal of property, plant and equipment 75 -
========================================================== ========= ===========
Share of losses in joint ventures 199 -
========================================================== ========= ===========
Investment revenues (531) (191)
========================================================== ========= ===========
Finance costs 51 313
========================================================== ========= ===========
Income tax charge/(credit) 712 (906)
---------------------------------------------------------- --------- -----------
Operating cash flows before movements in working capital 1,869 5,772
========================================================== ========= ===========
Increase in inventories (82) (25)
========================================================== ========= ===========
Increase in contract assets (1,756) (1,405)
========================================================== ========= ===========
Increase in receivables (2,691) (857)
========================================================== ========= ===========
Decrease in insurance assets 6 32
========================================================== ========= ===========
Increase/(decrease) in payables 1 (3,415)
========================================================== ========= ===========
Increase in contract liabilities 2,407 2,651
========================================================== ========= ===========
Decrease in insurance liabilities (89) (157)
========================================================== ========= ===========
Increase/(decrease) in provisions 372 (653)
---------------------------------------------------------- --------- -----------
Cash from operations 37 1,943
========================================================== ========= ===========
Income taxes paid (870) (765)
---------------------------------------------------------- --------- -----------
Net cash (used in)/from operating activities (833) 1,178
---------------------------------------------------------- --------- -----------
* Certain figures for the year ended 31 December 2017 have been
restated to reflect the adoption of IFRS 15. Net cash from
operating activities for this period is unchanged from the original
presentation.
Reconciliation of net funds
Foreign exchange and other
At 1 January 2018 Cash flow non-cash movement At 31 December 2018
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------------ ---------- ------------------------------ --------------------
Net cash per cash flow
statement 31,465 (5,087) (423) 25,955
================================ ================== ========== ============================== ====================
Liabilities from financing:
================================ ================== ========== ============================== ====================
Borrowings due within one year
================================ ================== ========== ============================== ====================
Unamortised issue costs 6 - (6) -
================================ ================== ========== ============================== ====================
Borrowings due outside of one
year
================================ ================== ========== ============================== ====================
Unamortised issue costs - 126 (36) 90
-------------------------------- ------------------ ---------- ------------------------------ --------------------
Total movement in liabilities
from financing 6 126 (42) 90
-------------------------------- ------------------ ---------- ------------------------------ --------------------
Total net funds 31,471 (4,961) (465) 26,045
-------------------------------- ------------------ ---------- ------------------------------ --------------------
15. Change in accounting policy
The Group adopted IFRS 15 Revenue from contracts with customers
effective from 1 January 2018 which led to updates in the revenue
recognition accounting policy and adjustments to the amounts
recognised in the financial statements. In accordance with the
transition provisions in IFRS 15, the Group has adopted the new
rules retrospectively and has restated comparatives for the 2017
financial year, with the cumulative impact on retained earnings
recognised in the opening balance sheet as at the earliest
comparative period (1 January 2017).
The Group's revenue recognition approach is based on the
benefits included within each product. The Group has a diverse
range of products, where our products are similar in nature,
individual market dynamics may require different contractual
structures or product benefits. These differences across markets
results in different approaches to the proportion of revenue to be
recognised on inception or over the life of the policy. Our Indian
market is where IFRS 15 has had the greatest impact. In previous
reporting periods, consideration received from the sale of policies
was recognised on inception to the level of introduction/renewal
fee within the product terms and conditions, inclusive of an
appropriate margin. The residual consideration was then recognised
on a straight line basis over the life of the policy. Under IFRS
15, revenue has been allocated across each product's performance
obligations using an expected cost plus a margin approach.
Additionally IFRS 15 has led to bundled services and goods, to be
separated and contract prices allocated to the separate elements.
The greatest impact has been on our Extended Warranty and Phone
Insurance products which include a wide range of benefits in
addition to the core insurance offering. The impact of this has led
to significant changes in timing of revenue recognition with many
performance obligations being complete on inception of a policy. In
our other markets, the previous proportion of revenue recognised on
inception and over the life of the policy remains appropriate under
the revised principles of IFRS 15.
As a result, the levels of contract liabilities have decreased
as a higher level of revenue is recognised on inception. This is
due to a number of performance obligations being considered
satisfied on inception and now receiving a higher allocation of
revenue. The impact is a reduction in contract liabilities of
GBP11,282,000 at 31 December 2017 and GBP5,968,000 at 1 January
2017. As a number of policies are up to three years in duration, an
element of contract liabilities are now reclassified into
non-current liabilities. This amount is GBP593,000 at 31 December
2017.
In India the insurance cover in its products is provided through
a group insurance policy. CPP pays the insurance premium and acts
as a facilitator between the insurer and the customer. These
insurance costs were previously recognised on a straight line basis
over the life of the policy; however, under IFRS 15 the performance
obligation in this respect is considered complete on inception and
therefore the cost is recognised in full immediately. As a result,
any previously deferred insurance costs have been expensed in the
period they were incurred. Therefore adjustments to reduce
insurance assets by GBP7,393,000 at 31 December 2017 and
GBP2,728,000 at 1 January 2017 have been recognised.
The approach to commission costs under IFRS 15 is consistent
with the previous treatment. Commission costs are recognised in
line with the pattern of recognition of the associated revenue.
However, with IFRS 15 leading to an increase in revenue recognition
on inception this has resulted in an increase in commission cost
recognised immediately. The adjustment to deferred commission is
therefore GBP3,141,000 at 31 December 2017 and GBP2,875,000 at 1
January 2017. Additionally, an amount of commission costs deferred
is deemed to be realised in a period greater than one year in line
with the contract liabilities associated with our policies that are
up to three years in duration. Therefore an amount of commission
costs deferred has been reclassified into non-current assets as
contract assets. This amount is GBP349,000 at 31 December 2017.
As the adoption of IFRS 15 had a significant impact in our
overseas operations, a foreign exchange loss has been recognised
through our translation reserve on the consolidated balance sheet
and the exchange difference in the consolidated statement of
comprehensive income for GBP7,000 at 31 December 2017.
The following tables show the adjustments recognised for each
individual line item. Line items that were not affected by the
changes have not been included. As a result, the sub-totals and
totals disclosed cannot be recalculated from the numbers
provided.
Impact on retained earnings at 1 January 2017:
2017
GBP'000
------------------------------------------------------------------------------- ---------
Retained earnings - before IFRS 15 restatement 25,902
=============================================================================== =========
IFRS 15 adjustments:
=============================================================================== =========
Reversal of contract liabilities where obligations are completed on inception 5,968
=============================================================================== =========
Reversal of insurance asset (2,728)
=============================================================================== =========
Reversal of commission asset (2,875)
------------------------------------------------------------------------------- ---------
Retained earnings - restated for adoption of IFRS 15 26,267
------------------------------------------------------------------------------- ---------
2017
2017 IFRS 15 adjustment Restated
GBP'000 GBP'000 GBP'000
------------------------------------------------------------ --------- ------------------- ----------
Consolidated balance sheet (extract)
============================================================ ========= =================== ==========
Non-current assets
============================================================ ========= =================== ==========
Deferred tax asset 1,554 (268) 1,286
============================================================ ========= =================== ==========
Contract assets - 349 349
============================================================ ========= =================== ==========
Total non-current assets 4,493 81 4,574
============================================================ ========= =================== ==========
Current assets
============================================================ ========= =================== ==========
Contract assets - 2,927 2,927
============================================================ ========= =================== ==========
Trade and other receivables 24,116 (13,810) 10,306
============================================================ ========= =================== ==========
Total current assets 55,676 (10,883) 44,793
============================================================ ========= =================== ==========
Total assets 60,169 (10,802) 49,367
============================================================ ========= =================== ==========
Current liabilities
============================================================ ========= =================== ==========
Trade and other payables (22,427) 1 (22,426)
============================================================ ========= =================== ==========
Contract liabilities (20,681) 11,875 (8,806)
============================================================ ========= =================== ==========
Current liabilities (45,152) 11,876 (33,276)
============================================================ ========= =================== ==========
Net current assets 10,524 993 11,517
============================================================ ========= =================== ==========
Non-current liabilities
============================================================ ========= =================== ==========
Contract liabilities - (593) (593)
============================================================ ========= =================== ==========
Non-current liabilities - (593) (593)
============================================================ ========= =================== ==========
Total liabilities (45,152) 11,283 (33,869)
============================================================ ========= =================== ==========
Net assets 15,017 481 15,498
============================================================ ========= =================== ==========
Translation reserve 771 (7) 764
============================================================ ========= =================== ==========
Retained earnings 30,328 488 30,816
------------------------------------------------------------ --------- ------------------- ----------
Total equity attributable to equity holders of the Company 15,017 481 15,498
------------------------------------------------------------ --------- ------------------- ----------
2017
2017 IFRS 15 adjustment Restated
GBP'000 GBP'000 GBP'000
--------------------------------------------------------------------- --------- ------------------- ----------
Consolidated income statement (extract)
===================================================================== ========= =================== ==========
Revenue 91,435 5,613 97,048
===================================================================== ========= =================== ==========
Cost of sales (49,598) (5,222) (54,820)
===================================================================== ========= =================== ==========
Gross profit 41,837 391 42,228
===================================================================== ========= =================== ==========
Operating profit 3,547 391 3,938
===================================================================== ========= =================== ==========
Profit before tax 3,425 391 3,816
===================================================================== ========= =================== ==========
Taxation 1,174 (268) 906
--------------------------------------------------------------------- --------- ------------------- ----------
Profit for the period attributable to equity holders of the Company 4,599 123 4,722
--------------------------------------------------------------------- --------- ------------------- ----------
Pence Pence Pence
===================================================================== ========= =================== ==========
Earnings per share:
===================================================================== ========= =================== ==========
Basic 0.54 0.01 0.55
===================================================================== ========= =================== ==========
Diluted 0.52 0.01 0.53
--------------------------------------------------------------------- --------- ------------------- ----------
2017
2017 IFRS 15 adjustment Restated
GBP'000 GBP'000 GBP'000
--------------------------------------------------------------------- --------- ------------------- ----------
Consolidated statement of comprehensive income
===================================================================== ========= =================== ==========
Items that may be reclassified subsequently to profit or loss
===================================================================== ========= =================== ==========
Exchange differences on translation of foreign operations (158) (7) (165)
===================================================================== ========= =================== ==========
Other comprehensive expense for the year net of taxation (158) (7) (165)
--------------------------------------------------------------------- --------- ------------------- ----------
Profit for the period attributable to equity holders of the Company 4,441 116 4,557
--------------------------------------------------------------------- --------- ------------------- ----------
16. Related party transactions
Transactions with related parties
ORConsulting Limited (ORCL) is an organisation used by the Group
for consulting services in relation to leadership coaching.
Organisation Resource Limited (ORL), a company owned by Mark
Hamlin, who is a Non-Executive Director of the Group, retains
intellectual property in ORCL for which it is paid a license fee.
The fee paid to ORCL by the Group in 2017 was GBP90,000 plus VAT
(2017: GBP28,000) and was payable under 30 day credit terms.
Mark Hamlin was appointed Chairman of Globiva on 24 August 2018.
The fees for this role are paid to his consultancy company, ORL.
The fee paid to ORL by the Group in 2018 was GBP28,000 (2017:
GBPnil) and was payable under 25 day credit terms.
Remuneration of key management personnel
The remuneration of the Directors and senior management team,
who are the key management personnel of the Group, is set out
below:
2018 2017
GBP'000 GBP'000
------------------------------ --------- ---------
Short-term employee benefits 2,248 2,421
============================== ========= =========
Post-employment benefits 82 93
============================== ========= =========
Termination benefits - 253
============================== ========= =========
Share-based payments 512 252
------------------------------ --------- ---------
2,842 3,019
------------------------------ --------- ---------
Cautionary statement
This announcement has been prepared solely to provide additional
information to shareholders as a body to meet the relevant
requirements of the UK Listing Authority. The announcement should
not be relied on by any other party or for any other purpose.
The announcement contains certain forward-looking statements.
These statements are made by the Directors in good faith based on
the information available to them up to the time of approval of the
announcement but such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
Subject to the requirements of the UK Listing Authority, CPP
undertakes no obligation to update these forward-looking statements
and it will not publicly release any revisions it may make to these
forward-looking statements that may result from events or
circumstances arising after the date of this announcement.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FQLLLKXFZBBB
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