- Chairman's Statement
- Chief Executive's Report
- Financial and Business Review
- Principal Risks and Uncertainties
Principal Risks and Uncertainties
The tables below summarise the material financial and operational risks to the Group and how the Group seeks to mitigate them in the day-to-day running of the business.
Financial Risks
Risk Area
Potential Impact
Mitigation
Significant worsening in credit markets
Financial institutions may reduce the quantum of lending and tighten their acceptance
criteria for customers seeking to obtain credit. This may reduce Group revenue.
Providers may increase their focus on customer retention and not acquisition. This
may reduce commissions available to price comparison websites.
The Group has invested heavily in its Smart Search technology which matches customers
with providers offering products that are suitable to their particular credit circumstances.
This enables the results and information presented to customers to reflect price
for risk and reflects lenders' appetites to lend to different customer risk categories,
increasing the relevance of the results presented, helping to protect Group revenue.
Significant consolidation of providers
Consolidation of providers may continue in response to the poor credit markets.
This may reduce competition for business with customers having less choice and may
reduce commissions available to price comparison websites.
The Group will continue to improve its search functionality and deliver new relevant
customers to providers at demonstrably lower acquisition costs compared with other
media.
Security of cash balances
The Group holds significant cash balances. A failure of a major financial institution
with whom the Group places significant deposits may result in a material loss to
the Group.
The Group has diversified its cash holdings across a number of institutions. At
the end of 2008, the Group held cash balances with five financial institutions with
a maximum balance of £31.5m with any one institution.
Revenue assurance
Reduction of or a failure to recognise revenue from contracted providers where the
Group is remunerated on a cost per action basis.
The Group will continue to perform independent reviews using third parties to gain
assurance that the Group is being correctly remunerated for the sales it introduces
to contracted providers.
Investment in new areas
Capital invested in new products and services or new geographies fails to make a
return.
Investments in new areas typically leverage existing expertise and experience built
up over many years. Capital requirements are relatively low and investment is managed
in stages such that it is not finally committed until there is good visibility of
a return.
Financial services and other markets regulation and taxation
The business model in financial services or other lines of business may be compromised
by changes to existing regulation or the introduction of new regulation, or changes
to the tax legislation, particularly value added tax.
The Group has a team of regulatory specialists who work with the business to ensure
that it remains compliant with existing regulation and informed of impending regulation.
The Group has embraced regulation to date and shares the vision of the regulators
generally to make the market more transparent to the end customer. The Group continues
to monitor ongoing European Union developments in respect of the review of the provision
of financial intermediary services with regard to value added tax and any relevant
case law in this area as it emerges.