Cppgroup Regulatory News (CPP)

CPPGROUP PLC

22 AUGUST 2013

HALF YEAR REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2013

CPPGroup Plc

Half year report for the six months ended 30 June 2013

CPPGroup Plc ("CPP" or the "Group") today publishes its results for the six months ended 30 June 2013.

Overview

· Important milestones achieved from which the Group can move forward

o Secured three-year refinancing totalling approximately £36.0 million

o Disposal of North American business completed for a consideration of £26.1 million

o Cost reduction programme expected to result in approximately £9.0 million annualised benefit

· As expected, challenging trading conditions continue

o Group revenue from continuing operations of £99.7 million (H1 2012 (restated): £136.9 million)

o Underlying operating loss from continuing operations of £3.5 million (H1 2012 (restated): profit £14.0 million)

o Loss for the period from continuing and discontinued operations is £2.6 million (H1 2012: profit £4.4 million)

· Renewal rates have declined from 73.5% at the year end to 71.3%; although stabilised in recent months

· Live policy base reduced to 7.9 million (H1 2012: 10.1 million) impacted by our performance in the UK

· Net funds position of £38.8 million (H1 2012: £8.0 million) - see note 5 to highlights table for analysis of net funds

· Past business review programme through a proposed Scheme of Arrangement formalised with the FCA and certain of the Group's Business Partners

· Outlook: despite the short to medium term challenges that remain, particularly until redress is completed, the Group's developing markets and focused new product development initiatives are expected to provide longer term growth prospects for the Group

Paul Stobart, Chief Executive Officer, commented:

"In the first half of the year, the Group has made good progress. A number of milestones have been achieved against the background of the current operating environment, which continues to affect our trading performance. We have refinanced the Group, disposed of the North American business, restructured our UK business and reduced our costs for the next phase of the Group's development.

We are in the early stages of rebuilding the Group and although challenges and uncertainties remain, particularly in relation to the upcoming past business review programme, we are focused on moving the business forward with a view to realising the potential opportunities that will deliver our future growth."

As announced on 3 May 2013, the Group completed the sale of its North American business to AMT Warranty Corp. ("AmTrust"). As a result, this statement focuses on the performance of the continuing operations of the Group.

1. Restated to reflect the North American operation as discontinued.

2. Underlying operating (loss)/profit and underlying (loss)/profit before tax exclude exceptional items £6.2 million (H1 2012: £11.8 million). Further detail is provided in note 4 to the condensed financial statements.

3. Underlying (loss)/profit after tax exclude exceptional items net of tax £6.2 million (H1 2012: £8.9 million). The tax effect of the exceptional items is £nil (H1 2012: £2.9 million). Further detail is provided in note 4 to the condensed financial statements.

4. (Loss)/profit for the period includes profit after tax from continuing and discontinued operations.

5. Net funds comprises cash and cash equivalents of £62.6 million (H1 2012: £51.2 million) partially offset by bank loans of £23.8 million (H1 2012: £43.2 million). Cash and cash equivalents includes cash held for regulatory purposes of £21.8 million (H1 2012: £22.8 million) and cash restricted by the terms of the VVOPs within the UK's regulated entities of £29.8 million (H1 2012: £nil). Whilst not available to the wider Group, the restricted cash is available to the regulated entity in which it exists including for operational and customer redress purposes.

A conference call for investors and analysts will be held on 22 August 2013 at 8:00 a.m. (BST). For dial in details please contact Tulchan Communications on 020 7353 4200 or via e-mail cpp@tulchangroup.com

Note: Financial Conduct Authority ("FCA") (or, as the context may require, the Financial Services Authority as predecessor entity thereto prior to 1 April 2013)

Enquiries

Investor Relations

CPPGroup Plc

Paul Stobart, Chief Executive Officer

Shaun Parker, Chief Financial Officer

Tel: +44 (0)1904 544702

Helen Spivey, Head of Corporate and Investor Communications

Tel: +44 (0)1904 544387

Media

Tulchan Communications: David Allchurch; Martin Robinson

Tel: +44 (0)20 7353 4200

This half year report is available for download at www.cppgroupplc.com

REGISTERED OFFICE

CPPGroup Plc

Holgate Park

York

YO26 4GA

Registered number: 07151159

NOTES TO EDITORS

CPPGroup Plc ("CPP" or "The Group") is an International Assistance business operating in the UK and overseas with more than 200 Business Partners worldwide. Via its Business Partners, CPP provides Life Assistance products to consumers, which includes annually renewed and packaged products that provide assistance and insurance across a wide range of market sectors designed to make everyday life easier to manage.

CHIEF EXECUTIVE OFFICER'S REVIEW

OVERVIEW

The Group has achieved much in the first half of 2013 to support the repositioning of the Group and stabilise the business for the future. We successfully refinanced the Group, disposed of our North American business, implemented a restructuring programme in the UK and put in place initiatives aimed at cost reduction and cash management. In parallel, we have continued the work to reposition the Group as a customer-led business as well as made further on-going improvements to our governance, compliance and risk management capabilities.

A key priority for the Group in the period has been to ensure that we have appropriate borrowing facilities in place. As announced on 31 July 2013, we have agreed new financing arrangements comprising an extended three year facility with our existing lenders and an agreement with certain Business Partners to defer future commission payments for up to four years. The new financing arrangements will support the payment of redress to customers where required and provide working capital for the Group. The redress is estimated at response rates that the Board, on advice, believes to be appropriate; however, there remains material uncertainty as to the total amount payable under the Scheme of Arrangement.

In May 2013, the Group announced its intention to reposition the business model and reduce costs substantially in order to align its cost base with its current circumstances. The resulting restructuring programme is delivering against its objectives and was completed as planned in the UK, incurring an exceptional charge of £3.9 million. The annual net reduction in costs is expected to be approximately £9.0 million. Regrettably, our people have been impacted as a result of cost-reduction initiatives, particularly in the UK, which have inevitably resulted in many long standing and valued colleagues leaving the business.

As part of the restructuring and reflecting the Group's much reduced scale, Shaun Parker, CFO, and I will step down from our respective roles once an appropriate handover period is completed. The Group is at an advanced stage to appoint successors who will lead the Group forward. In addition, as announced in June 2013, Mr Hamish Macgregor Ogston CBE, a Non-Executive Director and founder of the business stepped down from the Board with effect from 28 June 2013.

OPERATIONAL PERFORMANCE

The Group's operating performance for the first half, as expected, continues to reflect the difficult operating environment. Group revenue from continuing operations has declined to £99.7 million (H1 2012 (restated): £136.9 million). This is primarily due to reduced Card Protection and Identity Protection renewal revenue and reduced Mobile Phone Insurance ("MPI") revenue in the UK together with adverse economic and market conditions in some of our operations overseas. This results in an underlying operating loss from continuing operations of £3.5 million (H1 2012 (restated): profit £14.0 million). The loss for the period from continuing and discontinued operations is £2.6 million (H1 2012: profit £4.4 million). Renewal rates have declined from 73.5% at the year end to 71.3% (H1 2012: 75.3%), although have stabilised in recent months. The live policy base has reduced to 7.9 million (H1 2012: 10.1 million) reflecting the decline in retail assistance policies principally due to a reduction in UK Card Protection and Identity Protection policy holders and loss of the RBS MPI contract in the UK when it expired in March 2013.

REFINANCING

On 3 May 2013, the Group completed the sale of the North American business (CPPNA Holdings Inc. and its subsidiaries) to AmTrust for a total cash consideration of £26.1 million ($40 million). The sale allowed the Group to amend and extend its existing bank facility until 30 September 2013, subsequently leading to the refinancing agreed with our existing lenders and certain Business Partners as announced on 31 July 2013. This financing, of approximately £36.0 million, comprises a total amount available under an extended facility with our existing lenders of £13.0 million, which will fall due for repayment on 31 July 2016, together with a total amount of commission due for payment to certain Business Partners between July 2013 and June 2014 of approximately £23.0 million, which will be deferred for repayment on 31 July 2017. As previously communicated on 31 July 2013, the bank facility contains covenants and events of default. There is a significant risk that trading and customer redress uncertainties could impact the Group's ability to comply with the terms of these borrowing facilities.

CUSTOMER REDRESS

The Group and certain of its Business Partners have now formalised a past business review programme with the FCA. The solvent Scheme of Arrangement ("Scheme") is the proposed vehicle through which CPP and certain of its Business Partners can review claims and, where appropriate, pay redress to customers that may have been affected as a result of historical issues in the UK business, in and before 2011. The proposed Scheme requires a vote in favour from customers and approval by the Court before it becomes effective. Initial customer contact letters will be issued towards the end of August and customers will then be invited towards the end of the year to vote on the Scheme and to return their voting forms. If customers vote in favour of the Scheme it then requires approval from the High Court, expected to be in the first quarter of 2014. Only once the Scheme is approved by the Court will the claims review process commence and redress paid as appropriate to those who are entitled.

The Group will only be responsible for funding redress paid under the Scheme to customers to whom it sold the products directly. Due to the uncertainty of how many customers will respond to the past business review programme through the proposed Scheme, there remains material uncertainty as to the total amount payable under the Scheme, which is currently expected to be determined in the first quarter of 2015. Consequently, the Group will continue to face uncertainty in the short to medium term.

Total costs and provisions made in the Group's financial statements have increased from £51.7 million at 31 December 2012 to £54.0 million. The fine instalment of £2.0 million, due by 1 June 2013 under the settlement agreed with the FCA, has, with FCA agreement, been deferred until April 2014, on the basis that the Scheme of Arrangement goes ahead.

LOOKING AHEAD

Our priorities place great emphasis on reshaping our business model and reducing our costs to reflect the Group's changed circumstances. In parallel, our commitment is to manage redress effectively through the proposed Scheme and continue to work on the initiatives and enhancements agreed with the FCA which has placed restrictions on the Group's regulated entities in the form of the Voluntary Variations of Permissions ("VVOP") agreed with the FCA in November 2012. We will also work towards developing differentiated products and service offerings as we seek to generate future revenue with particular focus on emerging and developing markets. We intend to maintain and strengthen current Business Partner relationships as well as secure new partnerships.

We are in the early stages of rebuilding the Group and there is much work ahead. Our efforts are clearly focused on moving the business forward and realising the potential opportunities which will deliver growth in the future. In the longer term and once customer redress is concluded, the Group will have a stronger position to take advantage of future opportunities. Nonetheless, challenges and uncertainties remain and performance for 2013 is expected to be significantly lower than 2012 reflecting the trends of the first half of the year. The Group, however, is expected to continue to generate operating cash flow during 2013. The Board believes that the changes we have made and the actions we are taking to reshape our business represent the right combination, providing a more stable environment from which we can accomplish our goals.

FINANCIAL AND OPERATING REVIEW

SUMMARY

This review includes analysis of the underlying performance of the Group, which excludes exceptional items. We believe that the underlying figures aid comparison and understanding of the Group's financial performance.

The Group completed the sale of its North American business, CPPNA Holdings Inc. and its subsidiaries to AmTrust on 3 May 2013 for a consideration of £26.1 million ($40 million). Consequently the North American business is presented as a discontinued operation within this review. This review focuses on the performance of the continuing operations of the Group.

On a constant currency basis, Group revenue has declined by 28% for the half year to £99.7 million, principally due to the UK from reduced Card Protection and Identity Protection renewals and the loss of the T-Mobile and RBS MPI contracts in October 2012 and March 2013 respectively.

Our performance in the first half of the year changed from a reported operating profit in 2012 to a reported operating loss of £9.7 million (H1 2012: profit £2.3 million). Underlying operating loss, which excludes exceptional items is £3.5 million (H1 2012: underlying operating profit £14.0 million). This has been impacted by UK factors including lower Card Protection and Identity Protection sales and increased Packaged and wholesale direct costs, partially offset by reduced overheads, which reflects the benefit of measures taken in 2012 to reduce the overhead base.

In calculating underlying operating loss, the Group's results are adjusted to arrive at measures that better reflect its underlying performance. Reported operating loss is adjusted for customer redress and associated costs for the period which are £2.4 million; this additional provision reflects our latest estimate of customer redress and associated costs to the Group. A further adjustment for restructuring costs of £3.9 million relates to redundancy costs that have been incurred as part of the Group's overall review of its cost base, along with costs associated with the closure of the Chesterfield office in the UK. Further detail of the exceptional items is provided in note 4 to the condensed financial statements.

Our performance after tax from continuing operations has moved from a reported profit after tax in 2012 to a reported loss after tax of £15.8 million (H1 2012: profit after tax £0.7 million). Underlying loss after tax, which excludes exceptional items, is £9.6 million. Underlying loss per share is 5.60 pence (H1 2012: underlying earnings per share 5.65 pence); basic loss per share is 9.23 pence (H1 2012: earnings per share 0.44 pence).

In light of current operating performance, the Group will not be declaring an interim dividend for 2013 and is unlikely to declare dividends during 2014.

Discontinued operations, which represent the Group's North American business, delivered profit after tax of £13.3 million, which includes £10.4 million profit on the disposal of the business and £2.9 million profit after tax in relation to the trading results of the segment prior to disposal. Further detail is provided in note 8 to the condensed financial statements.

The Group's reported loss for the period is £2.6 million (H1 2012: profit £4.4 million), which reflects the total of continuing and discontinued operations.

Net funds at 30 June 2013 were £38.8 million, an increase of £25.2 million from our position at 31 December 2012, due principally to the disposal of the North American business, the net proceeds of which were used to part repay the existing bank facility.

KEY PERFORMANCE INDICATORS

1. Continuing operations have been restated to reflect the North American operation as discontinued.

2. Underlying operating (loss)/profit as a percentage of revenue.

New assistance income for the half year decreased 35% to £14.0 million. The decline is principally due to reduced Packaged Account and Airport Angel sales in the UK, which reflects lost contracts in the period.

The Group annual renewal rate at 71.3%, calculated on a moving annual total basis, has declined from 73.5% at 31 December 2012. This is the result of the expected decline in Card Protection and Identity Protection renewal rates in the UK due to a combination of changes in the renewal process implemented in late 2012, continued adverse publicity surrounding the Group and general economic factors in the UK. However, notwithstanding the impact of these factors, the UK rate is beginning to stabilise.

The live policy base is 1.2 million lower than reported at 31 December 2012, mostly reflecting the loss of the RBS MPI contract in the UK when it expired in March 2013. Outside of the UK the policy base has declined marginally.

The cost/income ratio has increased from 60% to 74% due largely to the UK as a result of declining Card Protection and Identity Protection renewal revenue and increasing direct costs attached to our wholesale MPI, partly offset by a reducing overhead base following the redundancy programme in 2012.

As expected, the underlying operating margin at the half year has moved from a profit in 2012 to a loss of 3.5% (H1 2012: profit 10.3%). This movement is due to a decline in Card Protection and Identity Protection renewal revenue and reduced wholesale margins in the UK as a result of increased direct costs.

REGIONAL PERFORMANCE

Northern Europe

Operating in the UK, Ireland, Germany and Turkey; Northern Europe, which accounts for 79% of Group half year revenue, continued to be impacted by a challenging operating environment primarily as a result of restricted sales and reduced Card Protection and Identity Protection renewal revenues in the UK and loss of Business Partner contracts. Revenue has decreased 30% on a constant currency basis compared to the same period in 2012 to £79.2 million (H1 2012: £113.6 million) resulting in an underlying operating loss for the half year to £6.3 million (H1 2012: profit £10.4 million).

In the UK, as a consequence of the challenging operating environment revenue for the six months to 30 June 2013 declined 33% due to the impact of reduced Card Protection and Identity Protection renewal revenue and reduced MPI revenue following the loss of the T-Mobile and RBS contracts in October 2012 and March 2013 respectively. This combination has resulted in a much reduced operational scale in the UK and subsequently, a significant restructuring programme has recently been completed.

Within the UK business, we have implemented a new organisation structure in order to reduce our costs in line with our current circumstances. This has also resulted in a reduction in the number of roles in the UK, including senior management. Shaun Astley-Stone, interim UK Managing Director, has now stepped down following completion of a planned handover period. The UK operation has transitioned from our previous framework of four strategic business units to two strategic business units focused on insurance (intermediation and underwriting) and assistance products (including Airport Angel) respectively, each led by a General Manager.

The Santander (UK) contract for the provision of benefits and services relating to Packaged Accounts in the UK will cease from October 2013, as previously indicated. This will result in reduced revenue from the fourth quarter of 2013 and significantly lower revenue and profit for the Packaged Account business in the UK in 2014 and beyond.

Revenue reduced in our Airport Angel business due to the loss of a significant Business Partner in the period. Our focus continues to be to develop the product offering and grow the customer base to support future revenue growth. We were pleased to secure a new contract in the first half of 2013.

Our revenue performance in Ireland, Germany and Turkey has developed in line with our expectations during the period.

Home 3, the Group's joint venture with Mapfre Asistencia has developed at a slower rate than anticipated. In view of the requirement to reposition the business model and review of the Group's core propositions, the Group is currently reviewing the strategic fit of this joint venture.

Southern Europe and Latin America 

Operating in Spain, Italy, Portugal, France, Brazil and Mexico; Southern Europe & Latin America, which accounts for 17% of Group half year revenue, has continued the trends reflective of the challenging operating environment, primarily in the Eurozone. Revenue has decreased 17% on a constant currency basis compared to the same period in 2012 to £17.2 million (H1 2012: £20.0 million). Reflective of the operating environment and as a result of the UK VVOP restrictions which had an impact in Italy, Portugal and Spain, underlying operating profit has consequently declined to £3.8 million (H1 2012: £4.6 million), 20% lower on a constant currency basis. The Group has implemented changes to reduce the impact of these restrictions which has included obtaining local authorisation to sell insurance products. We were pleased to confirm relationships with new Business Partners, including Samsung in Italy providing MPI, and in addition have launched new campaigns in Spain. Our performance in Latin America has realised revenue growth in Mexico and market entry activities continued in Brazil.

Asia Pacific 

Asia Pacific, which represents 3% of Group half year revenue, operates in Hong Kong, Singapore, Malaysia, India and China. Revenue reduced marginally, by 1% on a constant currency basis compared to the same period in 2012 at £3.3 million (H1 2012: £3.3 million). Operating losses reduced on a constant currency basis by 14% to £0.7 million (H1 2012: £0.8 million), although the development of this region continues to be impacted by challenging trading conditions.

North America

Disposal

On 3 May 2013 the Group completed the sale of its North American business for a total cash consideration of £26.1 million ($40 million) to AmTrust, a Delaware corporation and wholly owned subsidiary of AmTrust Financial Services, Inc.

TOTAL CUSTOMER REDRESS AND ASSOCIATED COSTS

1. £2.0 million of which has been paid and £8.5 million is recognised in current and non-current payables

The Group has incurred expenditure on, and provided for, customer redress and associated costs and regulatory penalties. The total cost is currently estimated to be £54.0 million, of which £51.7 million has been recognised in prior periods. £20.7 million of the provision within the balance sheet has already been utilised. The remaining provision at 30 June 2013 is £24.8 million, with £21.0 million estimated as the remaining cost of the customer redress element of the overall provision.

TAXATION

Our effective tax rate at the half year is negative 35.9% (H1 2012: 60.1%) as a result of UK trading losses and overseas trading profits which cannot be offset. In addition to this, the de-recognition of a deferred tax asset in respect of capital allowances in the UK has further increased the charge as the Group does not expect taxable profits to arise within the UK in the immediate future. Similarly, no deferred tax asset has been recognised on surplus taxable losses arising in the period. All taxable profit has been generated in overseas territories.

BALANCE SHEET, FINANCING AND CASH FLOW

At the balance sheet date, the Group has consolidated net assets of £5.9 million, a decrease from the position at the 31 December 2012 due to the losses recognised in the period. Net assets held for sale are £nil (31 December 2012: £12.9 million) reflecting the disposal of the North American business on 3 May 2013. Provisions of £26.5 million (31 December 2012: £29.0 million) are predominantly for customer redress and associated costs. It is anticipated that the provision will be fully utilised within twelve months. Bank loans have reduced to £23.8 million (31 December 2012: £43.4 million), reflecting an £18.5 million repayment in the period funded principally by the disposal of the North American business.

On 31 July 2013, the Group confirmed new financing arrangements totalling approximately £36.0 million. The arrangement comprises £13.0 million being provided by a three year extension of the debt facility to 31 July 2016 and approximately £23.0 million being provided through a twelve month deferral of future commission payments to certain Business Partners, with repayment due on 31 July 2017. The agreements, of which the commission deferral is subordinate to the bank facility, are subject to certain covenants and events of default as announced on 31 July 2013. There is a significant risk that trading and customer redress uncertainties could impact the Group's ability to comply with the terms of these agreements.

As a result of the financing arrangement noted above, the shape of the balance sheet is changing post 30 June 2013. The bank loan of £23.8 million (£25.0 million debt net of £1.2 million debt issue costs) disclosed in current liabilities has now been replaced by a £13.0 million non-current liability representing the three year facility. The commission deferral agreement will result in the incremental build-up of a non-current liability as the commissions are deferred on a monthly basis over a period of twelve months to June 2014. The new financing arrangements will therefore, result in current borrowings being replaced by non-current borrowings, reflecting the medium term stability the arrangement provides.

Net finance costs for the half year have increased by £1.3 million to £1.9 million, reflecting the amortisation of £1.3 million (H1 2012: £0.4 million) debt issue costs in the period and £0.3 million arrangement fee in relation to the two week facility extension in April 2013.

The Group had net funds of £38.8 million at 30 June 2013 an increase from £13.6 million at 31 December 2012, as a result of net disposal proceeds from the North American business and favourable working capital movements, partially offset by fees paid in relation to the refinancing arrangements. The Group's insurance business maintains cash deposits for solvency purposes which were £21.8 million (H1 2012: £22.8 million) at 30 June 2013. The working capital requirement has reduced by £14.2 million (H1 2012: increase £10.2 million) during the period reflecting the conclusion of certain Packaged Account and wholesale contracts and settlement of associated balances along with a reduction in the Group's insurance balances.

CONTINGENT LIABILITIES

There remains material uncertainty in some of the Group's operations and the industry in which it operates in the UK. The uncertainties include possible industry-wide action by the FCA with regard to products that the UK business sells together with the thematic review conducted by the FCA into MPI products, which could result in claims or other matters being raised against the Group.

The Directors have considered the above matters and have decided no definitive conclusions can be formed at this stage. Therefore, there is no provision of any related contingent liabilities. Further detail is provided in note 15 to the condensed financial statements.

RELATED PARTY TRANSACTIONS

Related party transactions, comprise transactions with our Home 3 joint venture, an agreement to reimburse certain costs incurred by Mr Hamish Macgregor Ogston CBE, incentive arrangements with certain North America employees in relation to the disposal of the North American business and remuneration of key management personnel. These related party transactions are disclosed in note 17 to the condensed financial statements. There have been no material changes to the related party transactions described in our 2012 Annual Report and Accounts.

RISKS AND UNCERTAINTIES

The Group's risk management framework is designed to identify and assess the likelihood and consequences of risk and to manage the actions necessary to mitigate their impact.

Set out below are the known principal risks and uncertainties which could have a material impact on the Group together with the corresponding mitigating actions that have been taken. Additional risks not currently known, or which are currently regarded as immaterial, could also affect future performance.

Financial risks

Risk:Liquidity/Capital.

Status:High risk; Improving from year end.

Nature of risk and potential impact:

There remains uncertainty as to the total amount payable under the past business review programme through the proposed Scheme. This, together with the on-going regulatory restrictions in respect of regulated sales in the UK, continues to place constraints on the Group's cash flow.

There is a risk that trading and customer redress uncertainties could impact the Group's ability to comply with the terms of the borrowing facilities. Further detail on the risk is provided in the going concern statement.

Mitigation:

The Group has considerably reduced its cost base following the restructure programme announced on 16 May 2013 and has introduced new controls to ensure that all expenditure is necessary and timed appropriately. These measures are to ensure that the Group is able to comply with the terms of the new financing arrangements.

Market risks

Risk:Economic and political.

Status:Medium risk; No change from year end.

Nature of risk and potential impact:

The Group operates in a number of countries including some in the Eurozone. This means that the Group is exposed to economic, political and business risks such as global recession, sudden regulatory change, currency controls and volatility of taxes.

Mitigation:

The Group Executive Committee ("GEC") and Group Operations Committee ("GOC") monitor macro-economic trends, industry specific and internal indicators.

Operating in diversified geographic markets mitigates the risk of over-exposure to any one country.

Risk:Competitive markets.

Status:Medium risk; No change from year end.

Nature of risk and potential impact:

The Group operates in a very competitive market place where customer decisions are typically based on quality, price and service. On-going media speculation may also result in customers seeking alternative suppliers for their insurance and assistance service requirements.

Mitigation:

The GEC closely monitors market activity.

The Group's strategy is to place the customer at the heart of its consideration of any potential developments.

The Group constantly seeks new distribution partners and conducts research and strategy planning towards innovative product development.

Operational risks

Risk:Regulatory.

Status:High risk; Reduced from year end.

Nature of risk and potential impact:

Although the Group has worked closely to address issues identified by the FCA, there can be no certainty the FCA will not seek to pursue further action against parts of the Group.

Improved controls in our UK business have identified further areas for improvement around systems, processes and business rules. It is possible that as our improved governance process and policies are rolled out across our overseas territories, similar weaknesses to those already known in the UK may be identified.

Mitigation:

The management are in constant communication with the FCA with a view to concluding the necessary outstanding actions.

The UK business has worked closely with the FCA on a series of agreed improvement activities and continues to work on an improvement programme that is expected to extend into 2014.

At the same time the Board recognises the need to continue to improve its oversight of activities in the territories outside the UK and has already taken steps to ensure that it has improved management information. During the second half of 2013, a new self-certification programme will be introduced to demonstrate compliance with a set of Group wide operational standards.

Risk: Key Supplier Contracts.

Status:Medium risk; Reduced from year end.

Nature of risk and potential impact:

The Group places considerable reliance on external suppliers for the fulfilment of services. Due to the nature of the operations there are occasions where the Group has an exposure to, and is at risk from the failure of a single supplier.

Mitigation:

The Group has taken the opportunity to improve its controls and where possible consider ways to mitigate the risks posed by exposure to a single supplier. This has included identifying and contracting with alternative suppliers.

Risk:Business Partner Retention/Attraction.

Status:High risk; No change from year end.

Nature of risk and potential impact:

The reputational damage arising from the publicity of the regulatory actions in the UK and in addition, the sales restrictions as a result of the VVOP in the UK and its impact on EEA jurisdictions may result in increased difficulty to retain commercial relationships or create new partnerships. This may have a detrimental impact on anticipated future revenue.

Mitigation:

With three year refinancing secured, the Board and senior management team are working on a new strategy for the UK that includes the development of new innovative products, new market sectors and diversified channels to market.

Risk:Data Security.

Status:Medium risk; No change from year end.

Nature of risk and potential impact:

The nature of the Group's business means that either the Group or its key Business Partners retain a considerable amount of sensitive data on behalf of its customers. Any breach of data security may result in a significant adverse impact on customers and damage to the reputation of the Group.

Mitigation:

The Group has a programme of work to support the implementation of solutions which meet PCI DSS standards.

Risk:People & Resources.

Status:High risk; Increased from year end.

Nature of risk and potential impact:

In order to reduce costs and align resources to the restructured business model, the Group has implemented a redundancy programme in the first half of 2013. This, together with attrition due to uncertainty around the future of the Group, has placed increased workload on those people who remain. In addition, changes to the Board and senior management may result in a period of uncertainty and further loss of business knowledge.

Mitigation:

The Directors have in place a monitoring system to understand the impact on the Group and its employees to ensure that the Group continues to improve its customer centricity and improved operational efficiency.

GOING CONCERN

In reaching their view on the preparation of the Group's financial statements on a going concern basis, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

The Group has made progress since the release of the Annual Report and Accounts in April 2013. The Group has agreed new financing arrangements for a total of approximately £36 million, with £13 million being provided by a three year extension of the debt facility to 31 July 2016 and approximately £23 million being provided through a twelve month deferral of commission payments to certain Business Partners, with repayment due on 31 July 2017. The disposal of the North American business has been completed with the net disposal proceeds being used to repay part of the debt facility. Additionally measures taken by the Group to address its cost base, such as redundancy programmes in the UK in 2012 and 2013, closure of the Chesterfield site in the UK in May 2013, a streamlining of the Group's organisational structure and other cost saving initiatives, such as reductions in capital expenditure, have had and will continue to have a beneficial impact on the Group's overhead base.

Nevertheless, in spite of this progress a level of uncertainty remains. The Directors have considered the risks and uncertainties facing the Group, which include trading, customer redress and liquidity, together with actions taken by the Directors to address them. In this assessment the Directors have, amongst other things, taken the following into consideration:

Operational and trading matters

· The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive Officer's review. The trading results, particularly in the UK have been and will continue to be adversely affected by the agreement of the Group's subsidiaries Card Protection Plan Ltd ("CPPL") and Homecare Insurance Limited ("HIL") with the FCA to the VVOPs in November 2012. Amongst other requirements, the VVOPs do not permit CPPL or HIL to make new sales of regulated retail products. CPPL and HIL make up the majority of the Group's sales in the UK and in certain EEA countries specifically Italy, Ireland and Portugal. In addition, the CPPL past business review exercise agreed with the FCA, together with the associated publicity, will have an adverse impact on the Group's ability to generate new business and renew business with existing customers.

· As noted above, the Group has taken a number of actions to align its operations with the reduced size of its business, particularly in the UK. There is a risk that following implementation of these initiatives, operational resources may be impacted adversely in the short term, preventing the business from continuing to operate effectively.

Regulatory issues and customer redress uncertainties

· The potential impact of customer redress on the continued resources which may be required by the business, including a number of assumptions around the customer response rates within a past business review exercise. There is a risk that the response rates may reach a level which cannot be funded under the revised funding arrangements. Although the Scheme has been formalised, it is not certain that the Scheme will proceed.

· The Directors have identified and disclosed contingent liabilities which are detailed in note 15 of the condensed financial statements. These contingencies relate to uncertainty in some of the Group's operations and the industry in which it operates in the UK. These include possible industry-wide action by the FCA with regard to products that the UK business sells together with a thematic review conducted by the FCA into Mobile Phone Insurance products which could result in other claims or matters being raised against the Group. However, at present the FCA has not expressed any final view and as a result the Directors have determined that no definitive conclusions can be formed at this stage.

Uncertainties relating to liquidity

· As noted above, the Group has agreed to a financing arrangement for approximately £36 million, comprising a £13 million extension to the bank debt facility and approximately £23 million debt via future Business Partner commission deferral. The extended debt facility is subject to a number of financial covenants, which include a covenant relating to a maximum level of response rates in a past business review exercise. The Business Partner commission deferral agreement, although subordinate, provides substantially the same security as that granted under the bank debt facility. There is a risk that response rates in a past business review exercise or continued business performance result in the Group being unable to satisfy the covenants, which could lead to the lending banks or Business Partners seeking repayment of the facility or exercising their right to security over assets.

· The financial position of the Group, its cash flows and liquidity position are described in the Financial and Operating Review. The Group's liquidity has been impacted by the requirement to fund redress and the CPPL and HIL VVOPs which restrict the disposition of their assets, which has resulted in significant cash balances being held and maintained in these entities.

Given the possible impact of trading and customer redress uncertainties, and the effect this could have on compliance with the terms of the borrowing facilities, there is material uncertainty that casts significant doubt as to the Group's ability to continue as a going concern, and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.

However, having considered the above uncertainties and all the available information, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and accordingly the Directors have continued to adopt the going concern basis in preparing the condensed financial statements.

On behalf of the Board

Paul Stobart Shaun Parker

Chief Executive Officer Chief Financial Officer

21 August 2013

CONDENSED FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONSOLIDATED BALANCE SHEET

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

1 General information

The information for the year ended 31 December 2012 does not constitute statutory accounts as defined under Section 434 of the Companies Act 2006. A copy of the statutory financial accounts for that year has been delivered to the Registrar of Companies. The Auditor, Deloitte LLP, reported on these financial statements; their report was unqualified, but contained an emphasis of matter paragraph referring to material uncertainties relating to the Group's ability to continue as a going concern in the light of operational and trading uncertainties; regulatory issues and customer redress uncertainties; and uncertainties relating to liquidity and funding; as well as material uncertainties in relation to the quantification of the provision in relation to customer redress and possible future contingent expenditures. The report of the auditors on these financial statements did not contain statements under s498 (2) or (3) of the Companies Act 2006.

2 Accounting policies

Basis of preparation

This unaudited condensed consolidated interim financial information for the six months ended 30 June 2013 has been prepared in accordance with the Disclosure and Transparency Rules ("DTR") of the Financial Conduct Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union.

This condensed consolidated financial information should be read in conjunction with the Annual Report and Financial Statements ("the Financial Statements") for the year ended 31 December 2012, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The condensed consolidated interim financial information was approved for release on 21 August 2013.

In preparing the condensed consolidated interim financial information the comparative amounts for the six months ended 30 June 2012 have been restated to reflect the North American operation as discontinued.

In the current financial year, the Group has adopted the amendments to IAS 1 "Presentation of Items of Other Comprehensive Income", IAS 19 (revised 2011) "Employee Benefits" and IFRS 13 "Fair Value Measurement". The adoption of these standards has not had any material impact on the Group. Otherwise, the same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

The amendments to IAS 1 require items of other comprehensive income to be grouped by those items that will be reclassified subsequently to profit or loss and those that will never be reclassified, together with their associated income tax. The amendments have been applied retrospectively, and hence the presentation of items of comprehensive income has been restated to reflect the change. The effect of these changes is evident from the condensed consolidated statement of comprehensive income.

Going concern

The Directors have considered the Group's business activities and financial resources, together with the principal risks, uncertainties and other factors likely to affect its future development, performance and position. Having taken account of these factors the Directors have, at the time of approving the condensed financial statements, a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the condensed financial statements. Further details of the Directors' assessment are set out in the Financial and Operating Review.

3 Segmental analysis

Segment revenues and performance for the current and comparative periods have been as follows: