Insurance and assistance technology company CPP Group updated the market on its trading on Tuesday, confirming that it had successfully negotiated its previously-reported contract extension, although it also lowered its earnings expectations for the next two years.
The AIM-traded firm previously said it was in negotiations with its largest business partner, based in India, regarding the early renewal and extension of current commercial arrangements while also conducting a review of the change management programme introduced by previous management.
Both work streams had now positively concluded, the board said, although as it previously warned, there was some expectation that there would be a commercial trade-off between revenue and pricing, which had proven to be the case.
CPP Group said it had, by extending the contract to December 2024, improved certainty over a “significant proportion” of its future revenues, while its business partner secured improved commercial terms.
Due to the upfront nature of the improved terms, there would be a reduction to this year’s EBITDA expectations, although that should be recovered in the 2023 and 2024 financial years, the company explained.
At the same time, CPP Group said it was currently concluding its review of the change management programme, which encompassed the design and build of a new IT platform for its Indian operations, a new IT platform to manage its legacy back book, and its exit from the UK managing general agent business.
It said the review found that the projects overall would take longer, cost more to implement, and secure fewer benefits than originally anticipated.
In particular, the benefits expected from the migration to new IT platforms were unlikely to materialise until the final quarter of 2024, with the result that IT costs would remain at a “significantly higher level” than anticipated for the next two years.
The company said its trading for the three months ended 31 March was in line with prior expectations, with unaudited revenues from continuing operations being around 4% ahead of the prior year.
CPP Group said while it expected to recover the 2022 earnings shortfall brought about by the contract extension, the reduced benefits and additional costs associated with the change management programme resulted in a lowering of expectations for both the 2022 and 2023 financial years.
The board said it now expected EBITDA from continuing operations for 2022 to be in the range of £5.8m to £6.3m, with a similar expectation for the 2023 financial year outturn.
“In the 2021 annual report I said that ‘we are, as we exit from the UK MGA and as the renewal book continues to run-down, in need of a clear and executable strategy for the UK, and this is something that the board and I will address during 2022’,” said chief executive officer Simon Pyper.
“We have made good progress, and I expect that we will later this year update shareholders and other stakeholders on our direction of travel and on our plans to build a business which delivers long term profitable growth and increased value to shareholders.”
At 0911 BST, shares in CPPGroup were down 23.14% at 186p.
Reporting by Josh White at Sharecast.com.
