TIDMCPP
RNS Number : 3274D
CPPGroup Plc
19 October 2022
19 October 2022
CPPGroup Plc
("CPP"; "CPP Group"; "the Group"; or "the Company")
Strategy and Change Management Programme
CPP Group (AIM: CPP), a provider of real-time assistance
products and resolution services which reduce disruptions to
everyday life for millions of customers across the world, provided
an undertaking in its Half Year Report, published on the 26
September 2022, that the Board would share with the market the key
outputs from the Group's strategy review. We are today formally
launching the strategy and Change Management Programme and detailed
below are the key outputs from the review along with our plans on
how to take the business forward and improve outcomes for all our
shareholders.
BACKGROUND
Since 2016, funded by the cash generated from the Legacy
Business comprising the back book of European and UK Card
Protection policies, the strategy pursued was principally one of
geographic expansion. In addition, the Group made a number of
acquisitions and investments in the expectation that one or more
would become a platform for growth and generate profitable
returns.
The strategy, as implemented, failed to meet its objectives.
This is best illustrated by two facts: firstly, that for the
financial year 2021, despite continued double digit revenue growth,
the Group's EBITDA from continuing operations was lower in absolute
and percentage terms than that reported in 2017; and secondly, the
substantial reduction in shareholder value (market capitalisation
of the Group) over the same period. Fundamentally the strategy
failed because the business did not appreciate where it operated
within its Industry Value Chain and, as importantly, how and on
what basis it would compete in the markets it was or wanted to
operate in.
Stay Put or Change Course?
CPP operates within the product and claims management segments
of the Insurance Industry Chain, two segments in which CPP's Legacy
Business successfully operated in the past. Save for Blink, which
is the Group's sole global product opportunity, CPP designs at a
local market level products and services which augment the offering
of third-party Distributors (businesses which own the end customer
relationship). CPP does not underwrite or price consumer products
or have direct access to end customers. Consequently, to compete
successfully, we need to provide products and services which
increase the real or perceived value for Distributors. In truth the
Group does not as yet have either the scale, skills or capacity to
compete elsewhere in the chain.
Strategic Purists or Strategic Pragmatists?
With CPP India, CPP Turkey and Globiva we have three successful
businesses, each with unique challenges, issues and opportunities,
and none of which require a strategy which fundamentally changes
the nature of their business. The Legacy Business is in terminal
decline and will soon become unprofitable, whilst Blink is not yet
a fully scalable proposition. The Group could look to acquire
growth, but acquisition multiples in India and for InsurTech
businesses are excessive. So, what to do.........?
STRATEGY
A Simple Strategy We Can Execute: Group
The over-arching strategy is to exit the Legacy Business and to
migrate CPP to an InsurTech business led by Blink and supported by
CPP India and CPP Turkey. InsurTech businesses generally have
attractive economics, they generate high levels of repeat business,
they operate with high margins and are commonly valued more highly
than their traditional insurance counterparts. The strategy, if
executed correctly, will simplify the business and its operations
and, moreover, will set out a clear purpose for the Group, one that
leverages the global nature of Blink's parametric propositions.
-- Where we will compete : The Group will focus on designing
innovative assistance products and services which augment and
create value (customer satisfaction, customer loyalty and new
business) for its growing distribution partner base.
-- Base of competitive advantage : Differentiation, with a focus
on new product development, product innovation, and quality of
service to our current and future business partners.
-- Strategic direction: Market penetration and development for
Blink, CPP India and CPP Turkey.
-- Method of Implementation: Internal development with product
acquisitions which enrich or enhance our proposition. We will, at
the same time, withdraw from our Legacy Business and dispose of
non-core business investments.
-- Constraints: Management bandwidth as we are going through a
period of substantial change. Finding suitable acquisitions at an
appropriate price. Moving from an informal approach to a formal
approach and structure, with a set of processes for continuous
production, innovation, and development.
Whilst this is a relatively simple strategy, simple does not
equate to easy. The strategy will take three years to fully
implement, and, once completed, the Group will still need to
address that on or around December 2024, the contract with our
largest Distributor based in India will be subject to renewal. This
is not of immediate concern but is, at the appropriate time, a
matter to be aware of and attend to.
A SIMPLE STRATEGY WE CAN EXECUTE: BY BUSINESS UNIT
Blink
A differentiated suite of products with a focus on technology
and innovation providing the basis for competitive advantage,
particularly in the Travel Disruption (flight delay and lost
luggage) market over the near to medium term. With regard to
Blink's strategic direction, there are opportunities to introduce
the suite of Travel Disruption products to new geographies
including North and South America, India, and Asia. Product
development, either organic or through small "bolt on"
acquisitions, will focus on identifying innovative digital
solutions for our Distributors and end customers.
The business today is not fully scalable and the ability to
execute the strategy is somewhat constrained as there has, since
acquisition in 2017, been insufficient investment in people,
processes, and structures to facilitate growth. This lack of
investment is being addressed as part of the Change Management
Programme.
We have set out what we believe to be an achievable strategy;
one which, post the Change Management Programme, we can execute at
pace.
CPP India
The business will continue with its successful local market
strategy, which is focused on providing low-cost innovative product
and service solutions to a growing Distributor base. The strategic
direction for CPP India is one of increasing its Distributor
footprint and, where appropriate, developing a broader range of
online and mobile app products and services, particularly within
the Lifestyle and Healthcare markets. Acquisition multiples in
India remain beyond our reach, consequently both market and new
product development will have to be internally led.
The strategy as set is an achievable one, though it is highly
dependent upon the retention and incentivisation of the CPP India
management team and the implementation of the new Indian IT
platform scheduled for 2023 .
From a risk perspective the majority of CPP India's revenues are
currently generated from two long-standing Distributor
relationships, one of which is due for renewal around the end of
2024. Whilst we are confident that these arrangements will be
renewed, our strategy, even if successfully implemented, will not
materially rebalance this "concentration risk" in the foreseeable
future .
CPP Turkey
Similar to CPP India, the business will continue with its
successful local market strategy, which is focused on providing
innovative products and services to a broad and diversified
Distributor base. CPP Turkey has an enviable track record of
developing products which increase both the perceived and real
value of those products offered by its Distributors to the end
consumer.
New product development is a critical part of the strategic
process for CPP Turkey and this will continue, albeit via a more
formalised process which focuses on shared-learning and best
practice.
The strategy is in many respects "more of the same" though,
similar to CPP India, it is highly dependent upon the retention and
incentivisation of the local management team.
From an execution and delivery perspective, the strategy is an
achievable one. The key risk, in terms of outcomes, is continued
economic turbulence in Turkey, which may either reduce demand for
our products or services, or further weaken exchange rates, or
both.
The Centre
Where the business units develop their own strategies (CPP India
and CPP Turkey) and control many of the resources to execute those
plans, the Centre will pressure-test the businesses' targets and
strategies, will actively promote the sharing of best practices,
and will, where appropriate, provide select expertise or shared
services. In general, the business unit heads own their profit and
loss and make appropriate investment trade-offs. The Centre
provides services only where it has better expertise or a lower
cost than the businesses can provide on their own.
Legacy Business
The legacy UK and European Card Protection business has, since
2012, been in decline and will, if not addressed, become both
unprofitable and a significant drain on the Group's resources. Our
intention is through the Change Management Programme to withdraw
from these products and markets.
Withdrawal from the Legacy Business will be a long and complex
process, one with many regulatory and operational
inter-dependencies and is very much dependent upon the goodwill of
both our partners and employees. As we progress, each decision we
make and each action we implement will have due regard to the best
interests and well-being of our partners and employees.
CHANGE MANAGEMENT PROGRAMME ("CMP")
The business has not prepared itself for the inevitable. The
terminal decline of the Legacy Business is an established fact and
one well understood, though never addressed. Consequently, the
Group is now, belatedly, implementing a Change Management Programme
("CMP"), one which should have been implemented several years ago,
to efficiently manage the exit from our Legacy Business. The CMP is
a complex, inter-dependent set of seven projects which will take
until 2026 to conclude.
The CMP projects are summarised as:
1. Legacy IT Platform and new Indian IT Platform Development
The development of a new customer service platform for CPP
India, which will be delivered in two phases (Phase 1 - non-Card
products; and Phase 2 - Card products). The new platform will
ensure all customer data resides fully in India and that India has
an independently managed customer IT infrastructure (which enables
the decommissioning of the Group's legacy IT platform and improved
efficiency to India's operational model).
2. Cessation of UK & European Legacy Books
A complex multi workstream programme which will accelerate the
natural cessation of the UK & European back books enabling the
decommissioning of the Group's expensive legacy IT platform,
removal of management focus on legacy/run off books and will remove
the drag of the Legacy Business on the Group's valuation.
3. Blink Scalability
Currently a sub-scale business which is at an early stage of
development, Blink requires a programme of activity to ensure that
its operational processes are adequately robust to manage a
substantially larger volume of transactions and to become the
Groups third business of strategic growth alongside CPP India and
CPP Turkey.
Each project is supervised by the Executive Management Committee
and implemented by the Operational Board but, due to size and
complexity, there will be some execution risks, namely:
Key Risks associated with the CMP:
1. People Risk
Work is ongoing in respect of key person dependencies with
supporting plans developed in the event key team members leave the
business before the CMP is concluded. Capacity risk is also
considerable in many areas, with several colleagues or team members
involved in multiple projects. People risk is likely to remain high
for the duration of the CMP.
2. Financial Risk
The complexity and duration of the CMP may lead to cost over
runs particularly if key team members exit ahead of programme
delivery.
3. Complex Interdependencies
There are many interdependencies between the projects, with the
risk of financial and people impacts disrupting multiple projects.
Additionally, the interdependencies have the potential to delay the
decommissioning of the legacy IT platform.
4. Third Party Dependencies
Legacy contracts often involve multiple parties and the
agreements with them cannot be dissolved unilaterally by the Group.
The pace of change is often adversely impacted by third parties not
operating to CPP's timelines.
Financial implications of the CMP:
1. Dual Running Costs
As we build out the IT Platform for CPP India and migrate from
the legacy systems, the Group will have a period of dual running
costs for both platforms. We expect to suffer these dual running
costs until the first quarter of 2025, after which we should be
able to realise material cost savings.
2. Restructure and Retention Costs
Costs associated with the CMP will be substantial, as will the
redundancy and retention packages which we will need to introduce.
We will provide guidance on these costs as we progress.
3. Impact on Group's cash resources
The dual running costs and costs associated with the restructure
are material, however we expect to be able to service these costs
from existing and forecast resources .
4. Dividend
Due to the costs and uncertainties associated with the CMP, as
previously announced in the Half Year Report in September 2022, the
Board has taken the decision to suspend dividend payments until
further notice. If circumstances change the Board will review and
update shareholders when appropriate to do so.
PEOPLE
We are going through a period of substantial change which can
only be implemented by the continued goodwill and hard work of our
colleagues. From a people perspective the next three years will be
the most challenging - my promise to all colleagues is that we will
keep their interests and wellbeing front and centre of every
decision made as we look to build a Group with a more ambitious,
exciting and profitable future.
OUTLOOK
We are confident about the Group's outlook and growth prospects
for the remainder of this financial year. The overall results of
future periods will be increasingly influenced by how well we
execute upon our strategy and how efficiently we implement the
Change Management Programme.
There is much to do but I am confident we have set ourselves an
appropriate course and speed of travel .
Simon Pyper
Chief Executive Officer
Enquiries:
CPPGroup Plc
Simon Pyper, Chief Executive Tel: via Alma PR
Officer
David Bowling, Chief Financial
Officer
Liberum Capital Limited
(Nominated Adviser and Sole Tel: +44 (0)20 3100 2000
Broker)
Richard Lindley
Lauren Kettle
Alma PR
(Financial PR Adviser) Tel: +44 (0)20 3405 0205
Josh Royston
David Ison
Kieran Breheny
About CPP Group:
CPP Group is a technology-driven assistance company that creates
embedded and ancillary real-time assistance products and resolution
services that reduce disruption to everyday life for millions of
people across the world, at the time and place they are needed, CPP
Group is listed on AIM, operated by the London Stock Exchange.
For more information on CPP visit
https://international.cppgroup.com/
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END
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