JARDINE LLOYD THOMPSON GROUP Jardine Lloyd Thompson Group plc ('JLT' or 'the Group') announces interim results for the six months ended 30th June 2015.
Financial Highlights Total revenue up 6% to £591.6m
Organic revenue growth of 2%
Reported PBT increased 3% to £101.5m
Underlying PBT decreased by 10% to £96.3m, impacted by cost of US investment
Reported diluted EPS up 11% to 33.6p
Underlying diluted EPS down 10% to 30.2p
Underlying profit margin decreased to 17.3% from 19.7%, impacted by cost of US investment
Increased interim dividend of 11.1p up 4.7%
Operational and Strategic Highlights Organic revenue growth in the period of 2%, lower than recent years as a result of:
o Shift in phasing of revenues and trading profit between the two halves of the year
o Reduction in commission payments within UK Employee Benefits
o Ongoing challenging rating environment
Full year organic revenue growth anticipated to be in line with previous year
Encouraging progress with build-out of US Specialty business
Acquired 5 new businesses and continued to invest in talent - 530 new colleagues joined the
Group in the period
Disposed of stake in Siaci St Honoré for £80.2m
Dominic Burke, Chief Executive, commented:We are pleased with the Group's underlying growth momentum and with the strong progress we are making in building out our US Specialty operations, creating a powerful platform for future growth for the whole Group. As anticipated, however, the cost of the US expansion is weighing against our short-term profitability. A one-off structural shift away from commissions within the UK employee benefits market is having an impact on our UK Employee Benefits margin and the Group's profit for the year.
We remain confident that our full year organic revenue growth will be in line with the previous year. As we look forward, the business is well-positioned to deliver sustainable earnings growth.
Enquiries:Dominic Burke, Chief Executive | Jardine Lloyd Thompson Group plc | 020 7528 4948 |
Mike Reynolds, Finance Director | 020 7528 4375 | |
Paul Dransfield, Corporate Communications | 020 7528 4933 | |
Tom Burns | Brunswick Group LLP | 020 7404 5959 |
Dania Saidam |
A presentation to investors and analysts will take place at 9.00am today at The St Botolph Building,
138 Houndsditch, London, EC3A 7AW. A live webcast of the presentation can be viewed on the
Group's website www.jlt.com.
FULL RELEASE FOLLOWS
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INTERIM STATEMENT
The 2015 interim results are summarised in the tables below:
JLT delivered a good first half, with strong underlying growth momentum, good progress with the build-out of our US Specialty business and continued investment to drive long-term growth.
£m Total Revenue Trading Profit Trading Margin
2015 Growth CRE Organic 2015 CRE 2014 2015 CRE 2014
Risk &
Insurance 447.4 4% 4% 2% 91.1 91.3 94.9 20% 20% 22%
Employee
Benefits 144.2 11% 10% - 22.6 21.2 26.0 16% 15% 20%
Central
Costs - - - - (11.3) (11.4) (10.4) - - -
£m 2015 2014
Underlying trading profit 102.4 110.5Share of associates 5.8 7.2
Net finance costs (11.9) (10.3)
Underlying profit before taxation 96.3 107.4Exceptional items 5.2 (9.0)
Profit before taxation 101.5 98.4Underlying tax expense (26.0) (26.8) Tax on exceptional items 2.3 1.6
Non-controlling interests (3.9) (6.6)
Notes:
CRE: Constant rates of exchange.
Organic growth is based on total revenue excluding the effect of currency, acquisitions, disposals and investment income.
Total revenue comprises fees, commissions and investment income.
Underlying results exclude exceptional items.
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Total revenue increased by 6% to £591.6 million, with organic revenue growth of 2% in the period. Total revenue and underlying trading profit include investment income on fiduciary funds of £1.6 million (2014: £1.6 million).
Organic revenue growth during the period was lower than during the same period in recent years as a result of a number of factors. Firstly, the anticipated shift in the phasing of revenues and trading profit between the two halves of the year, which impacted organic revenue growth by approximately 2% in the first half. Secondly, the acceleration of the ending of commission payments in our UK Employee Benefits business which, while only affecting a small part of the Group's business, had a 1% impact
on our overall organic revenue growth. Thirdly, the insurance and reinsurance rating environment which continued to be challenging.
For the full year, JLT remains confident that its organic revenue growth will be in line with that achieved in the previous year, with good performances expected from JLT Specialty, Australasia, the United States and Latin America.
Underlying trading profit decreased by 7% to £102.4 million, a decrease of 9% at constant rates of exchange (CRE), and the underlying trading margin decreased from 19.7% to 17.3%, in line with the Group's expectations.
This reduction in the underlying trading profit and trading margin in part reflects the £12.6 million net cost of the Group's build-out of its US Specialty business. Excluding the net new investment made in the US, the Group's trading profit would have increased by 3% to £114.1 million and its trading margin would have been 19.5% (2014: 19.7%).
The reductions in trading profit and the trading margin also reflect the expectation that trading profits will move towards becoming more evenly distributed across the two halves of the year compared with
2014, when 56% of that year's trading profit was generated in the first half of the year.
This anticipated shift in phasing, which the Group highlighted at the time of its preliminary results in March 2015, is a result of a combination of factors, including the timing of acquisitions; the Group's changing business mix; the impact of investment in the US; and the phasing of a number of significant accounts, particularly in JLT Specialty, JLT Re and JLT Australia.
The Group's reported profit before tax increased 3% to £101.5 million, reflecting both the impact of exceptional costs relating to acquisitions and their integration, and the restructuring costs associated with the merger of JLT Specialty and Lloyd & Partners, which were more than offset by the exceptional gain on the disposal of the Group's shareholding in Siaci St Honoré. Underlying profit before tax reduced by 10% to £96.3 million.
The tax charge was £23.7 million, or £26.0 million on an underlying basis. The underlying effective tax rate for the first half of 2015 was 27%, compared with 25% for the same period in 2014.
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Profit after tax and non-controlling interests increased 11% to £73.9 million. Underlying profit after tax and non-controlling interests decreased by 10% to £66.4 million.
Reported diluted earnings per share increased by 11% to 33.6p, while underlying diluted earnings per share decreased by 10% to 30.2p.
The Board has declared an increased interim dividend of 11.1p per share, up from 10.6p per share, which will be paid on 1st October 2015 to shareholders on the register at 4th September 2015.
OPERATIONAL REVIEWThe Group operates in two principal areas: Risk & Insurance and Employee Benefits.
Risk & Insurance 6 months ended 30th June 2015£m Total Revenue Trading Profit Trading Margin
2015 Growth CRE Organic 2015 CRE 2014 2015 CRE 2014
JLT Specialty 138.8 5% 5% 1% 24.1 24.1 22.3 17% 17% 17%
JLT Re 117.9 5% 1% 1% 40.0 38.1 34.2 34% 34% 30% JLT Australia and
NZ 61.1 (5%) 1% 1% 20.6 22.1 22.6 34% 34% 35%
JLT Asia 40.1 5% (1%) (1%) 8.0 7.3 7.0 20% 19% 18% JLT Latin America 28.4 8% 18% 18% 6.7 7.1 6.8 24% 23% 26%
JLT Insurance
Services 25.0 (8%) (9%) (9%) 1.6 1.6 3.0 6% 6% 11%
JLT Europe, Middle
East and Africa 14.2 18% 24% 24% 1.9 2.0 1.2 13% 14% 10%
JLT Canada 10.5 5% 7% 10% 0.9 0.7 (1.6) 8% 7% (16%) JLT USA 7.5 203% 178% 93% (12.6) (11.6) (0.8) - - (31%)
JLT Insurance
Management 3.9 7% (1%) (1%) (0.1) (0.1) 0.2 (2%) (2%) 6%
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JLT Specialty generated revenues of £138.8 million in the period and organic revenue growth of 1%. Trading profit increased to £24.1 million, an uplift of 8%, with the trading margin unchanged at 17%.
The reported organic growth of 1% reflects the anticipated movement of certain existing accounts into the second half of the year. Without this movement of business, organic growth of 4% would have been delivered in the period.
This is a good performance in difficult market conditions, where a weak rating environment, combined with other external factors, has created further headwinds in some areas. This has affected the
energy markets in particular, where low oil prices have caused the delay or cancellation of new capital projects and triggered renewed industry consolidation in the oil and gas sector.
Despite this, the business has continued to move forward, demonstrating the strategic logic of combining JLT Specialty with Lloyd & Partners to create a market-leading Specialty-focused
business. The integration of the two businesses is progressing smoothly. The business's performance also underlines the strength and robustness of the Group's wholesale relationships with its independent broker clients.
The integration of Hayward Aviation has gone well and the Group sees strong growth opportunities in the General Aviation segment, both in the UK and around the world, in the years ahead as it combines Hayward Aviation's market-leading skills with the distribution strength of JLT's global retail operations.
Given the current pipeline of new business, the Group anticipates organic growth for the full year to be broadly in line with that of the previous year.
This performance was pleasing when set against the continued steep decline in the reinsurance rating environment experienced in the first half of the year, with rates typically falling by between 10% and
15% across many classes of business. The business also had to contend with further rate reductions
at the time of the 1st June renewals, although the level of the reductions was lower than that seen at the beginning of the year.
JLT Re continues to win many new clients and to be successful in attracting leading talent from
across the industry, particularly in the United States. The business sees clear opportunities to build on its strong positions in its US Regional, Public Sector and Natural Catastrophe practices. JLT Re is strongly positioned to take advantage of its strategic positioning and stable platform. We are also
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expanding our Chinese reinsurance capabilities and we will continue to invest in our London Specialty offering.
These factors, together with the strong new business pipeline, give the Group confidence that this business will demonstrate good positive year-on-year organic revenue growth.
As in prior years, the Group would expect the trading profit and the trading margin to normalise for the full year, but JLT remains confident that the business is on track to deliver a 20% trading margin by
the end of 2016.
1% on a CRE basis from the first half of the previous year, with organic revenue growth of 1%. As anticipated, the level of organic growth in the first half of the year was lowered by the movement of some existing revenues into the second half of the year. Absent this factor, organic revenue growth would have been 4%.
Reported revenue reduced by 5%, when compared with the first half of 2014, as a consequence of the fall in value of the Australian dollar against sterling.
The business has delivered good growth in its Construction, Corporate Risk and Local Government operations, and secured a number of notable new business wins in the period. Investment in building out the team continues, with the business taking advantage of its strong momentum and attractive people proposition to recruit leading industry talent across its core Specialisms.
This business remains well-positioned to grow successfully in the second half and, based on its pipeline of activity, the Group is confident that it will deliver a good level of organic revenue growth for the year as a whole.
Trading profit increased by 15% to £8.0 million and the trading margin increased to 20% from 18%. This improvement reflects the benefits of the Group's Business Transformation Programme.
During the period, the business recruited senior leadership teams in both Singapore and China. It now plans to make significant investments in broadening its geographic presence and Specialty offering in China.
trading margin declining to 24% from 26% from the same period last year. This reflects the previously-
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advised acceleration in the investment in the region in terms of recruitment; expanding affinity operations across Peru, Colombia and Brazil; and growing the Latin American office network. For example, in Brazil, JLT has increased from four offices three years ago to ten offices today.
The Group remains confident in this business's continued growth prospects over both the short and the longer term.
The business continues to progress well. The JLT Specialty USA team is now nearing 150 people, with 12 offices established across the US.
JLT is creating real depth to its US Specialty capabilities, with strong leaders appointed to all of the key Specialty areas, which now also include Construction and Entertainment, further broadening the business's offering beyond its positions in Aviation, Energy, Technology, Cyber, Directors & Officers and Credit, Political & Security.
Our people are investing a significant amount of their time in building the business's platform, brand, sales and marketing capabilities, and developing new client relationships and opportunities. This is creating strong sales momentum and a large and growing pipeline of new business opportunities. This will be supplemented significantly as and when our new colleagues are free of their contractual restrictions to their previous employers.
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Employee Benefits 6 months ended 30th June 2015£m Total Revenue Trading Profit Trading Margin
2015 Growth CRE Organic 2015 CRE 2014 2015 CRE 2014
UK & Ireland 85.0 - - (8%) 7.1 7.1 12.3 8% 8% 14% Asia 40.1 31% 21% 19% 14.0 12.3 11.1 35% 33% 36% Latin America 9.1 (2%) 11% 5% 1.7 2.0 2.6 19% 19% 28%
Australia and NZ 8.4 172% 191% 20% 0.5 0.5 0.3 5% 5% 10%
Europe, Middle
East and Africa 0.9 21% 24% 24% (0.6) (0.6) (0.1) (68%) (68%) (16%) Canada 0.7 (17%) (14%) (14%) (0.1) (0.1) (0.2) (16%) (16%) (22%)
Under the Retail Distribution Review, all commission payments to intermediaries must cease by the end of 2016, creating a one-off structural change in this part of the industry. However, our business has increasingly seen insurers opportunistically choosing to end commission payments in advance of this deadline.
JLT has been moving its clients to a more sustainable fee-based remuneration structure. The business is about halfway through this process, with the balance expected to move across over the next 12 months.
The effect of this structural change has been to reduce first half revenues by £5.3 million, which in turn lowered the Group's overall organic revenue growth in the period by 1%.
While the Group expects to see the UK Employee Benefits business deliver some revenue growth in
2015, the impact of this industry change will be to reduce the business's full year trading margin to around 17% compared with 20% in 2014.
The Group remains confident about the future of the broader Employee Benefits business. We see further opportunities in the large pensions administration sector, where we are one of the leading players. Furthermore, with BenPal now managing one million Defined Contribution pension scheme members, the Group sees this technology supporting the client benefit programmes of the future. In addition, further government policy and legislative change is creating, and will continue to create,
demand from clients for advice and new solutions. Finally, JLT's investment platform, which now has
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£4 billion in assets under management, is well-placed to meet growing client demand for implemented consulting.
For these reasons, JLT would expect that organic revenue growth for its overall UK Employee Benefits business will return to historic levels in 2016, but that the trading margin will remain around the 17% level, reflecting the one-off structural change in the industry.
21% at CRE, with an impressive organic revenue growth of 19%. The acquisition in China of Essential
Healthcare, which extends JLT's offering in health and wellness consulting, was completed in
January.
£m Contribution After Tax
2015 CRE 2014 Growth
Share of associates 5.8 6.4 7.2 (20%)
The contribution from the Group's Associates has reduced by 20% compared with the same period in
2014, mainly as a result of the sale of JLT's stake in Siaci Saint Honoré. The transaction completed on 6th May 2015.
JLT's other European Associates have performed in line with the Group's expectations, which anticipated further headwinds from the general insurance rating environment and the growth and stability challenges facing the Eurozone.
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EXCEPTIONAL ITEMS
The disposal of the Group's share in its French associate, Siaci St Honoré, for £80.2 million generated an exceptional gain of £18.5 million during the period. This is less than indicated in March
2015 due to the weakening of the euro against sterling.
During the period, the Group incurred acquisition and integration costs of £6.8 million. Acquisition and integration costs for the full year are now expected to be £13 million. This includes the final elements of the integration expenditure relating to the reinsurance acquisition; the integration of Ensign Pensions Administration; and costs relating to the integrations of Hayward Aviation, which was acquired at the end of 2014, and Recovre, Alpha and Liberty Asset Management acquired in 2015.
The Group incurred £6.7 million of restructuring costs during the period arising from the merger of JLT Specialty and Lloyd & Partners. The Group expects to incur a total of approximately £9 million of exceptional costs in respect of this restructuring for the full year.
Total exceptional costs are anticipated to be £24 million for 2015, which will be largely offset by the exceptional gain of £18.5 million from the sale of the Group's stake in Siaci St Honoré.
During the period, the Group's underlying operating cost ratio increased by 240 basis points to 82.7%
of total revenues. This was mainly driven by a 220 basis point increase as a result of the investment in the US Specialty business.
The Group has continued to recruit, with staff numbers rising by 530 during the period, with more than half coming from acquisitions. This expansion is reflected in the increase in staff costs as a
percentage of revenue - an increase of 280 basis points compared with the first half of 2014.
The Group remains focused on cost discipline. At the time of the 2014 preliminary results in March
2015, the Group stated that it expected the investment in the US Specialty business to negatively impact the full year 2015 trading margin by approximately 200 basis points.
Net debt of £457 million compares with £436 million at 30th June 2014, an increase of £21 million. In broad terms, this increase represents the cash flows resulting from the Group's acquisitions over the last 12 months - in particular, Hayward Aviation and Recovre - together with the re-translation of
$500 million of private placement loan notes, the impact of which is hedged on the balance sheet, largely offset by the £80.2 million proceeds from the disposal of the Group's investment in Siaci St Honoré.
The impact of the acquisition spend and the disposal proceeds can be seen in the increase in the
Group's goodwill and the reduction in associates.
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In February 2015, JLT completed the renewal of its core revolving credit facility with a new 5-year unsecured committed facility of £450 million. The Group now has medium and long-term debt facilities equivalent to approximately £890 million. The proceeds of the sale of the Group's stake in Siaci St Honoré has been used to repay borrowings drawn under the Group's revolving credit facility, further increasing the available headroom, which is now in excess of £300 million.
The net debt to EBITDA ratio at the end of June 2015 was just under 2:1, which remains comfortably within JLT's debt facilities covenants.
The Group will continue to invest in the business in line with its strategy and JLT remains of the view that future cash flows, together with EBITDA growth, will mean that the Group's net debt to EBITDA ratio will reduce over time.
The Group's major currency transaction exposure arises in those businesses that earn US dollar- denominated revenue, but which have a sterling cost base. The Group continues to operate a US dollar hedging programme to smooth the volatility caused by exchange rate movements.
As at 30th June 2015, some 70% of these anticipated dollar revenues for 2015 earned in the UK (approximately US$360 million) are hedged at an average rate of US$1.55. For 2016, some 50% of expected dollar revenues are hedged at an average rate of US$1.56 and some 20% are hedged for
2017 at an average rate of US$1.54.
As a guide, each one cent movement in the achieved rate currently translates to a change of approximately £1.5 million in revenue and a corresponding impact on trading profit equal to approximately 65% of the revenue change. Based on current hedging levels in 2015, it would take a movement of around 3 cents in the spot rate to generate a 1 cent movement in the achieved rate.
In addition to the transactional foreign exchange exposure, which is managed through the Group's hedging programmes, JLT is also exposed to translational foreign exchange movements in overseas earnings which are not hedged. Given the relative size and profitability of the Group's Australian business, the most material such exposure is to the Australian dollar which continues to be weak versus sterling.
As announced on 27th May 2015, Charlie Rozes will join JLT on 1st September 2015 and will be appointed Group Finance Director, succeeding Mike Reynolds. Charlie will join the JLT Board as an Executive Director and will also be a member of the Group Executive Committee.
Mike Reynolds, who was appointed Global CEO of JLT Re in August 2014, will step down from the Board on 1st September, but will remain a member of the Group Executive Committee. Ed Hochberg has been appointed as CEO of JLT Re in North America.
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