JLT's cost-cutting measures have paid dividends
Lost in the mire of sub-par financial performances by insurers and brokers was the effort of global heavyweight, JLT, which succeeded in growing revenues, profits and margin in 2007.
In marked contrast to his subdued remarks in August following the release of the company's half-year results, chief executive Dominic Burke said that over the past year the broker had "climbed out the trenches" and, despite "suicidal" pricing antics being adopted by some of its competitors, was "charging forward."
These are familiar soundbites, but in this case they are shared by analysts, including Numis who were bullish about the broker’s results after its underlying pre-tax profits of £83m exceeded their estimates by £2m.
Numis said that in difficult conditions, JLT’s revenue growth of three per cent to £473m “emphasised its competitive strength.”
Indeed, though the broker’s London market revenues actually fell a fraction to £193.5m, it improved its margin by two points to 14 per cent.
Numis added that JLT’s performance highlighted the benefits of restructuring and investment in target markets. Though amost every broker is committed to the second, some would do well to consider the first.
Burke said that over the past two years, the broker had carried out a reduction in London head count and office space by six and ten per cent, respectively. The move, he said, had delivered £10m in savings since 2006, with a further £5m predicted for this year.
In a sector where margins are under severe pressure, there are enormous sums. In fact, as a result, JLT has revised its target margins from 15 per cent by 2008 to 20 per cent by 2011.
Numis conlcuded that good times could be ahead for the broker, observing a "more positive tone than recent periods, which suggests greater management confidence in the group’s earnings outlook. We think there may be scope to upgrade our forecasts for higher revenue."
"The headwinds the market is facing are as severe as they were a year ago," Burke added, commenting on the excess of capital that continues to flood the market. "But as an organisation, JLT is now fit for purpose. We are focused on external growth."
He said that the company would be making a number of bolt-on acquisitions this year, some of which could be announced before the proposed changes to the capital gains tax laws next month. Having made seven acquisitions in 2007, Burke said a similar figure could be expected in 2008, underpinned by a reported war chest of £250m.
"We expect to announce some deals," he concluded. "There's a number we are looking at. One or two may be made before the changes to the capital gains laws next month, but that date is not driving the deals.
"In fact, we don't need them."
