CPPGroup Plc Replacement Half Yearly Report -2-

Our results across Southern Europe and Latin America have been mixed, most notably in Spain where the prevailing difficult economic situation has continued to affect our trading performance. In Mexico, we have increased revenue markedly, albeit from a low base and our newer market of Brazil continues to develop with further investment as expected. Revenue in Portugal, France and Italy has declined on a relatively small scale.

We are pleased to confirm new relationships with Business Partners, demonstrating the attractiveness of our offering. New Business Partner relationships include ING Bank and SekerBank in Turkey. We expect the likely decision by Everything Everywhere is not to renew our contract with T-Mobile, which will result in significantly lower revenue in 2012 and beyond, albeit profit and cash flows will not be impacted in the short to medium term. This is because the reduction in customer acquisition costs and anticipated improvement in claims ratio due to the aging of the book will compensate for reduced revenue. Overall, the pipeline of new opportunities will support our performance moving into 2013.

We effected cost saving measures in the period to mitigate some of the adverse profit impact from lower revenue and changes in mix. This principally involved a voluntary redundancy programme in our UK business. We are aligning our cost base with our internal plans and continue to take advantage of opportunities that will produce further operational efficiencies.

As previously announced in July, after Stephen Kennedy's departure from the Group, we took the opportunity to review the organisational structure and decided that the Chief Operating Officer role is no longer appropriate for the Group at this time. Following a process to appoint a replacement UK Managing Director we are pleased to confirm that Shaun Astley-Stone has joined the Group to assume this role on an interim basis (subject to regulatory approval). He brings with him a wealth of experience in insurance and regulatory matters gained during his tenure at a number of regulated companies.

Operations have generated cash of GBP3.7 million (H1 2011: GBP16.6 million) in the period resulting in a positive net funds position of GBP8.0 million (2011: GBP7.2 million net debt). We continue to work towards limiting the risks associated with financing and we are in discussions with our lending banks about our on-going debt facilities which mature in March 2013. We are also considering a number of alternative financing and strategic options. The Group will not be declaring an interim dividend in 2012, and is unlikely to declare any dividends during 2013, although our longer term dividend policy remains unchanged.

Regulation

We have continued to work closely and constructively with the FSA in the period. Our discussions have been purposeful and focused as we make every effort to move towards a final resolution with the regulator, as well as final details regarding the form, structure, details and timing of customer redress on which agreement was reached in February. Resolution of these matters will enable us to progress and provide a greater degree of certainty for the business and our stakeholders. Pending such resolution, the investigation has created uncertainty around the Identity Protection and Card Protection products sold in the UK which is continuing to have a material impact on the Group's ability to sell its full range of products in the UK. Achieving an agreement effected to the satisfaction of all stakeholders remains our first and foremost priority. The customer redress and associated costs provision of GBP17 million in our 2011 accounts has increased by GBP7.5 million in the first half of the year as a result of our on-going discussions with the FSA and subsequent re-assessment of the proposals and scope of actions necessary.

We also reached agreement with the FSA in February to make changes to the renewal process for Card Protection and Identity Protection. The implementation of additional changes to those already undertaken during the early part of 2012 are now expected to be put in place in the third quarter of 2012.

Part of our constructive dialogue with the FSA include changes to our governance, risk management and compliance frameworks and to our systems, controls and processes.

Execution of strategy

The key objectives shaping our evolving strategic roadmap that will drive future success for the Group are:

   1.      People 

Strengthen our organisational culture, with the end-customer and Business Partners at the heart of what we do, responsibly, efficiently and in a disciplined manner.

   2.      Customers 

To provide a superior experience that will set us apart from our competitors which will encourage our customers to renew their policies, to buy more products from us, and to recommend us to others.

   3.      Products 

Develop and scale new assistance products building on our expertise and penetrating new sectors, supported by integrated sales and service channels that are easy to use, across voice and digital channels for our customers.

   4.      Markets 

Stabilise and refocus our UK business, returning to sustainable growth supported by product and service innovation, and improved customer experience. At the same time, focus on and accelerate the growth and scale of our emerging and developing markets.

Our five key priorities

In March, when we announced our preliminary results for 2011, I outlined our five key priorities for the Group, which we have made good progress against. The determination and professionalism of our people to implement important projects that will add value, reduce risk and achieve these priorities are evident. Our latest UK customer scores in particular remain consistently high, scoring 72% for satisfaction with service; 70% for satisfaction with product and with 75% of our customers likely to renew. We are also delighted that the achievements of our insurance claims team have been recognised as a finalist in both the Insurance Fraud Awards and European Call Centre & Customer Service Awards, which take place in October.

1. FSA agreement effected to the satisfaction of all stakeholders

We have worked closely and constructively in the period with the FSA in relation to its investigation, having reached an agreement in respect of customer redress during February 2012. Much work is being done with regulator oversight to ensure that the actions necessary are undertaken.

2. Shift culture and operating model through greater customer focus aligned to strengthened management discipline and enhanced governance

Our approach to improve our internal processes, compliance, governance and customer experience consistently to establish a true customer-focused culture is well advanced. Under the leadership of a new senior management team we are implementing independent recommendations from leading law firms and consultants which are expected to be substantially complete by the year end and have launched a number of 'change' initiatives. The key objectives of these changes are to enhance and strengthen the framework for educating and managing compliance and conduct risks and assuring compliance with regulatory requirements and alignment of reward and remuneration.

3. Develop product and service propositions that will drive future success

Another key strand in our priorities is to develop product and service propositions that meet customers' needs based on powerful consumer insights that will drive our future success, especially in the online and mobile markets and have developed a number of consumer products which include card, identity and mobile propositions.

4. Ensure investments in emerging markets take full advantage of significant growth opportunities

Our financial investment in emerging markets has decreased year-on-year as India and Mexico move towards break-even. China and Brazil are continuing to develop. Our focus is to deliver new income and renewals growth while building our network of Business Partners.

5. Retain and recruit the talent we need, at all levels, to deliver our future success

Importantly, the continued development of our people remains a priority. One of our areas of focus has been to conduct an extensive review of composition and resource to clearly understand the required structure for the business as we move forward and as a result, we have made changes accordingly.

Whilst not identified specifically as a key priority for the Group in our March announcement, management focus is also being given to ensuring that we have appropriate lending facilities in place in advance of the March 2013 maturity of our current debt facilities, as well as giving consideration to a number of alternative financing and strategic options.

Outlook

The Group has clear challenges and improvements to accomplish and the short term outlook for CPP will continue to be determined by the on-going activity in relation to the Group's agreement with the FSA in the UK. Despite that the Board remains confident that the actions we are taking to reshape our business coupled with the pipeline of opportunities with both current and new Business Partners will ultimately allow the Group to perform profitably, move forward with renewed focus as a more customer centric business and make the most of the considerable longer term prospects for the business.