AUTOPROTECT_(MBI)_LIMITED - Accounts

The directors present their strategic report of the company and the group for the year ended 31 December 2017.

INTRODUCTION

AutoProtect is a full service MGA and distribution company providing specialised insurance and non-insurance products to the automobile industry throughout the UK, Europe and the Middle East. The company is the youngest of the leading providers in the UK and has gained significant market share through its strategic framework.

STRATEGIC FRAMEWORK

The long-term strategic framework is based on five key perspectives - financial, distribution/customer, innovation, people and regulatory/governance.

The company's strategic objectives are to:

Financial

• Maintain consistent profitable growth across all divisions

• Obtain market leading positions in chosen markets

• Reduce costs through investment in efficient systems and processes

• Obtain a return on equity in line with shareholder expectations

Distribution and Customer

• Foster strong and beneficial relationships with manufacturers, franchised and independent dealer groups and other distribution partners

• Maintain the company's reputation for consistent delivery of high quality products and services

• Create excellent customer satisfaction and retention

Innovation

• Continuously develop value added products for motor dealers and manufacturers designed to address specific customer needs in line with TCF principles

• Provide products through agile and integrated systems

• Respond to changing market and regulatory requirements

People

• Attract, develop and retain talented individuals

• Encourage the management team to adapt and take advantage of opportunities

• Invest in and develop staff in all areas of the business

Regulatory and Governance

• Promote regulatory and governance excellence

These strategic objectives have been embedded within the culture of the company. The company has implemented a Risk and Control Management Framework to assist with the assessment of its performance.

The company provides full MGA functions, from underwriting, product development, pricing, distribution, policy and claims administration. Commission income from these activities is recognised as turnover in the company's financial statements, although it was responsible for administering £60.8m (2016: £55.2m) of gross premium on behalf of insurers.

During the year, the company adopted an alternative accounting policy for revenue recognition and the classification of capitalised software and development costs, which affects the recognition, measurement and presentation of certain amounts recognised in the financial statements. The effect of changes in accounting policies are set out in note 25. The directors consider these changes in accounting policies to be necessary in order to present a true and fair view of the company's results and financial position.

The impact of this is a reduction in opening profit and loss reserve for the year ended 31 December 2017 of £2.4m. In recognition of this reduction in reserves, the holding company AutoProtect Holdings Limited has made a further subordinated loan of £2.7m, increasing the total to £4.5m in total. The terms of the subordinated loans are such that they are treated as “eligible capital” reserves for the purposes of FCA regulatory capital solvency calculations.

The company's board is responsible for overseeing the effectiveness of the company's Risk and Control Management Framework.

The Risk and Control Management Framework addresses:

• Processes - that we use to identify, measure, manage, monitor and report risks.

• Governance - including risk policies and business standards, risk oversight committees and roles and responsibilities.

• Risk appetite - the risks that we select in pursuit of return, the risks that we accept but seek to minimise and the risks we seek to avoid or transfer.

We manage risk through our choice of business strategy, underpinned by our business culture and values. Risk management is embedded across the company and line management in the business is accountable for day to day risk management.

The company's Risk Management function is responsible for ensuring that the risks facing the business are properly identified, evaluated and controlled, and for the maintenance of the Risk Register and the events log, reporting any material changes and additions to the Board and Management Risk Committees.

The principal risks facing the company are set out below.

Credit risk

• Credit risks are those risks which expose the company to loss if another party fails to perform its financial obligations to the company.
      - All new business partners are subject to credit checks which are then subsequently reviewed

on a regular basis.

Liquidity risk

• Liquidity risk is the risk that the company although solvent, either does not have available sufficient financial resources to enable it to meet its obligations as they fall due or can secure such resources only at excessive cost.
      - Short and medium term cash forecasts are prepared regularly to ensure liquidity is managed.
      - Working capital cycles are well understood and incorporated into our business plans.

Market risk

• Market risk includes foreign exchange risk.
      - The company regularly reviews the changing market environment and associated risks.
      - The company ensures that it matches foreign currency assets and liabilities.

Economic, regulatory and fiscal risk

• The directors anticipate that the economic conditions across Europe including the impact of Brexit will continue throughout 2018 and beyond and continue to consider further initiatives and measures to address the associated impact on the demand for the company's products.

• The directors are also cognisant of the changing regulatory environment in respect of the company's core products and on the market as a whole.

Operational risk

• Operational risk means the risk of loss arising from inadequate or failed processes, personnel or systems. The company has identified the major sources of operational risk as fraud, both internal and external, IT security, employee practices, business continuity and process management.

• The company seeks to mitigate these risks by maintaining a rigorous internal review process. As part of the Risk and Control Management Framework the company monitors and controls its operational risk through the use of an integrated risk register and events log both of which are monitored monthly by the Risk Management function.

The company has significant growth opportunities both within its existing divisions and through acquisition which underpin the company's 3 year forward looking plan.

The Board has approved this plan which reflects its strategic objectives and sets robust growth and financial strength targets, including:

• Increased penetration of existing UK new and used car sectors, including major dealerships and manufacturers.

• Extension of partnerships with major affinity brands and affinities in the motor sector.

• Expansion of the product range.

• Further launches for the commercial vehicle sector in EMEA.

• Development of direct and wholesale distribution channels.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2017.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and company, and of the profit or loss of the group for that period. In preparing these financial statements, the directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the group’s and company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the auditor of the company is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the auditor of the company is aware of that information.

We have audited the financial statements of AutoProtect (MBI) Limited (the 'parent company') and its subsidiaries (the 'group') for the year ended 31 December 2017 which comprise the Group Profit And Loss Account, the Group Statement of Comprehensive Income, the Group Balance Sheet, the Company Balance Sheet, the Group Statement of Changes in Equity, the Company Statement of Changes in Equity, the Group Statement of Cash Flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

•     give a true and fair view of the state of the group's and the parent company's affairs as at 31 December 2017 and of its profit for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group's or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of our audit:

• the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report and the Directors' Report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

All amounts relate to continuing activities.

As permitted by s408 Companies Act 2006, the company has not presented its own profit and loss account and related notes. The company’s profit for the year was £2,417,902 (2016 - £1,705,219 loss).

AutoProtect (MBI) Limited (“the company”) is a private limited company domiciled and incorporated in England and Wales. The registered office is Warwick House, Roydon Road, Harlow, Essex, CM19 5DY.

These financial statements have been prepared in accordance with Financial Reporting Standard 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland” and the requirements of Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company and group. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.

The consolidated financial statements incorporate the financial statements of the company and entities that continue to be controlled by the group (its subsidiaries). Control exists where the group has the power to govern the financial and operating policies of the entity via voting rights. On acquisition of a subsidiary, its identifiable assets, liabilities and contingent liabilities are included in the consolidated accounts at their fair value. Any excess of the cost of an acquisition over the fair value of the net assets acquired is recognised as goodwill. The interest of minority shareholders is stated at their share of the fair value of the subsidiary's net assets.

The results of subsidiaries acquired are included in the consolidated profit and loss account from the date control passes up until the Group ceases to control them through a sale of significant change in circumstances.

All intra-group balances, transactions, income and expenses are eliminated on consolidation. The consolidated accounts are prepared using uniform accounting policies.

At the time of approving the financial statements, the directors have a reasonable expectation that the company and group have adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Turnover is recognised at the fair value of the consideration receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes.

Insurance broking income is recognised on a systematic basis over the term of the policy, and commission income is recognised in the period to which it relates.

Revenue from the sale of goods is recognised when the risks and rewards of ownership have passed to the buyer.

Goodwill represents the excess of the cost of acquisition of unincorporated businesses over the fair value of net assets acquired. It is initially recognised as an asset at cost and is subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Goodwill is considered to have a finite useful life and is amortised on a systematic basis over its expected life.

Goodwill for the amount paid in connection with the acquisition of a business in 2004, has been fully amortised over its estimated useful life of five years. Goodwill for the amount paid in connection with the acquisition of a business in 2013, is to be amortised over its estimated useful life of five years.

Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the profit and loss account.

In the parent company financial statements, investments in subsidiaries are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.

At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Cash at bank and in hand are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the group's balance sheet when the group becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

Basic financial liabilities, including creditors and loans from fellow group companies are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.

Equity instruments issued by the group are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Rentals payable under operating leases, including any lease incentives received, are charged to income on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation are included in the profit and loss account for the period.

Their aggregate remuneration comprised:

The UK Corporation tax rate for the current year was reduced from 20% to 19% on 1 April 2017 and further reductions were introduced as part of Finance Act 2016 (substantively enacted on 5 September 2016). These reduce the main rate of tax to 17% from 1 April 2020. The deferred tax has been calculated at 17%.

The actual charge for the year can be reconciled to the expected charge based on the profit or loss and the standard rate of tax as follows:

Details of the company's subsidiaries at 31 December 2017 are as follows:

The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:

The deferred tax asset is not expected to reverse within 12 months and has been calculated at 17% (2016 - 20%).

At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

The directors are considered to be the company and group's key management personnel. Details of their remuneration are disclosed in note 5.

The group has taken advantage of the exemptions available under Financial Reporting Standard 102, not to disclose any transactions or balances with entities that are 100% controlled by the company.

During the year the company was provided services by M R Automotive Limited, a 54% owned subsidiary, amounting to £36,523 (2016 - £54,449). The company also provided operational funding of £10,000 (2016 - £nil) to this subsidiary during the year. At the year end £8,674 was owed to the company from M R Automotive Ltd as a result of these transactions (2016 - £8,518 owed by the company).

During the year the company received operational funding of £2,700,000 (2016 - £1,800,000) from its parent undertaking Autoprotect Holdings Limited. At the year-end, the company owed £3,958,907 (2016 - £1,010,649) to Autoprotect Holdings Limited.

The company has no controlling party.