CPPGroup : 2021 half year report

24 August 2021

CPPGroup Plc

("CPP", "the Group" or "the Company")

HALF YEAR REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2021

Robust performance against a challenging backdrop

CPP Group (AIM: CPP), the multinational provider of personal protection and insurance products and services, is pleased to announce its half year results for the six months ended 30 June 2021.

Highlights

• Group revenue from continuing operations increased by 10% to £66.4 million (H1 2020 restated: £60.3 million)
• EBITDA from continuing operations increased by 37% to £2.6 million (H1 2020 restated: £1.9 million)
• Reported loss before tax from continuing operations of £0.7 million (H1 2020 restated: £0.5 million profit)
• Underlying profit before tax from continuing operations of £0.8 million (H1 2020 restated: £0.6 million)
• Loss after tax from continuing operations of £1.8 million (H1 2020 restated: £1.2 million) which improves to an overall profit for the period of £1.3 million (H1 2020: £0.7 million loss) when including discontinued operations
• Cash balance of £19.6 million as at 30 June 2021 (H1 2020: £18.2 million)
• 5 pence per share interim dividend declared following recommencement of full year dividend announced in FY 2020 results

Strategic progress

• Customer numbers increased to 12.3 million (H1 2020 restated: 10.8 million, FY
  2020 restated: 11.6 million)
• The partner base continues to grow, including the addition of financial wellbeing company ClearScore in the UK
• Further product innovation to meet the changing needs of consumers with the release of a home emergency product range in the UK and EU, and plans to launch a similar line in Turkey
• Integration of Blink into our platform to strengthen the Group's ability to meet the growing demand for parametric insurance solutions
• Established an IT team in our Indian business to build their new customer platform
• Disposal of German card protection legacy business for £2.4 million
• Restructuring of Mexico and closure of Malaysia business units in line with the Group's commitment to maximise value from its assets and focus on the areas with the strongest prospects

Financial and non-financial highlights - continuing operations

1. Restated to reflect Germany as a discontinued operation.
2. EBITDA represents earnings before interest, taxation, depreciation, amortisation and exceptional items.
3. Underlying profit before tax excludes exceptional items of £1.5 million (H1 2020: £0.1 million). The tax effect of the
   exceptional items is £0.1 million (H1 2020: £nil). Further detail of exceptional items is provided in note 5 of the condensed consolidated interim financial statements.
4. Profit/(loss) for the period includes continuing and discontinued operations.

Jason Walsh, CEO of CPP Group, commented:

"The first half of 2021 was a similar story to that of 2020, with a strong first quarter tempered by the negative effects of COVID-19 in the second, particularly in our main market of India. Nonetheless, we have adapted well across our markets and delivered a solid overall performance on the corresponding period last year while making progress in restructuring elements of the Group to further strengthen its position for long-term, sustainable and profitable growth.

"As COVID-19 measures have eased in India, we have seen a progressive recovery in trading in the region with strong progress since the end of June. However, we remain cognisant of the need to monitor the situation closely as we move through the second half.

"Elsewhere in our key markets, we continue to make progress. Our performance in Turkey at a local level was particularly pleasing, driven in large part by our expanded network of partners in the territory. However, the continuing devaluation of the lira has largely negated this performance at a Group level. In the UK and EU we continued to build on strong foundations to develop an innovative, differentiated and integrated business with compelling prospects.

"We remain focused on growing our offering through innovation and strengthening our routes to market while continuing to drive efficiencies across the Group. Whilst uncertainty remains

from COVID-19, the Board believes the Company is trading broadly in line with market expectations for the full year with the outlook being positive for the remainder of the year.

About CPP Group:

CPP Group takes away many of the stresses and strains of daily life for millions of people across the globe. In collaboration with selected partners in each country in which the Group operates, it develops, aggregates, offers and supports a range of personal protection and insurance products, which are sold alongside, or packaged with, the core product offerings of the Group's partners. CPP is listed on AIM, operated by the London Stock Exchange.

For more information on CPP visithttps://international.cppgroup.com/

Chief Executive's Statement

We delivered another half of robust financial and operational progress amid continuing challenges related to the pandemic. To be able to do so is testament to the quality and dedication of our teams. I am grateful to all our colleagues, particularly those in India who have been affected by the devastating second wave of COVID-19 in Q2. Our people have shown exceptional resolve throughout what has been an extremely difficult time and I would like to thank them all for the way they have dealt with a period of unprecedented adversity.

The pandemic and its knock-on effects will continue to affect the pace of our progress in some areas. While we must remain vigilant in continuing to manage the situation, there are signs of a return to a more normal environment and we can now look to the future with cautious optimism.

The Group's strategy is to maximise value from its assets and focus on the areas of the business with the greatest prospects for delivering sustainable and profitable medium to long- term growth. During H1 we have restructured elements of the Group as planned. This included the sale of our German Card Protection legacy business for £2.4 million, providing additional financial flexibility for the Group to deliver its growth strategy. Consequently the German business is presented as a discontinued operation with this review focusing on the performance of the Group's continuing operations.

1. Restated to reflect Germany as a discontinued operation
2. The constant currency basis retranslates the previous year measures at the average actual exchange rates used in the current financial period. This approach is applied as a means of eliminating the effects of exchange rate movements on the period-on-period reported results. The relevant exchange rates and analysis of exchange rate movements are included in note 3 of the condensed consolidated interim financial statements.

Group revenue of £66.4 million (H1 2020 restated: £60.3 million) has grown by 19% on a constant currency basis driven by our Indian market where we were pleased to see Q1 new sales return to pre-pandemic levels. Although new sales in April and May in the region were heavily impacted by the second wave of COVID-19, the effect was not as deep as that experienced in Q2 2020. The speed of recovery from the latest COVID-19 shock in India is not clear, however, we draw confidence from the early signs in Q3 of further improvements in trading.

The renewal books across all our markets, including the growing book in India, continue to perform well providing a reliable source of revenue and cash to the business. The Group's customer numbers have increased to 12.3 million (H1 2020 restated: 10.8 million; 31 December 2020 restated: 11.6 million) with growth in India being well supplemented by customer acquisitions from new partners in Turkey and the UK.

Gross profit has reduced to £15.9 million (H1 2020 restated: £16.6 million) which is reflective

of a falling gross profit margin at 24% (H1 2020 restated: 28%). This reflects growth in our Indian business which has higher costs of acquisition associated with sales than the UK and EU renewal books it is replacing. In addition, whilst gross profit in India is increasing this is at

a lower margin period-on-period as an increasing share of revenue and customer growth comes from lower margin product variants. We expect the Group gross profit margin to continue to reduce in the medium-term.

We are pleased that EBITDA has grown by 88% on a constant currency basis to £2.6 million (H1 2020 restated: £1.9 million) following a 10% reduction in administrative expenses, before depreciation and exceptional items. The reducing cost base demonstrates the benefit of restructuring exercises across the Group to address loss-making operations and cost inefficiencies.

The operating loss of £0.5 million (H1 2020 restated: £0.5 million profit) reflects depreciation

charges of £1.6 million (H1 2020: £1.8 million) and exceptional costs of £1.5 million (H1 2020: £0.4 million credit) associated with restructuring in H1 which focused on the effectiveness of some of the Group's operations and the overall cost base. This led to additional operational efficiencies being realised in Spain, new business development activities halted in Mexico, the closure of Malaysia and a reduction in central Board costs. In addition, Blink, the parametric insurance platform was brought under central management.

The loss before tax of £0.7 million (H1 2020: £0.5 million profit) is principally due to the level of exceptional restructuring activity in H1 which will benefit future periods including H2 2021. This coupled with the fact the Group's trading activities are weighted towards H2, led by the festival season in India, is expected to lead to the Group reversing this position and reporting a pre-tax profit for the full year. On an underlying basis, which excludes exceptional items, the Group has generated a profit before tax of £0.8 million (H1 2020 restated: £0.6 million).

Discontinued operations

This represents our German operation which was sold in May 2021. Germany was a non-core book of Card Protection business that was placed into run-off, which included closure of the company's operation in Hamburg, following a strategic decision to restructure the Group's EU markets in 2018. The disposal has enabled the Group to realise the value of the diminishing run-off book and re-direct resources to supporting its key markets. Discontinued operation profits in the period were £3.1 million (H1 2020 restated: £0.4 million) comprising a profit on disposal of the business of £2.7 million (H1 2020: £nil) and a profit after tax from the trading results of Germany prior to disposal of £0.4 million (H1 2020 restated: £0.4 million). Further detail is provided in note 9 to the condensed consolidated interim financial statements.

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