Financial Highlights (before exceptional items and goodwill amortisation):
· turnover up 12% to £194.2 million (2001: £173.3 million)
· trading profit up 32% to £39.5 million (2001: £29.9 million)
· profit before tax up 20% to £50.9 million (2001: £42.3 million)
· diluted earnings per share up 19% to 17.0p (2001: 14.3p *)
· interim dividend up 14% to 7.5p (net) per share, payable on 14th October 2002
* restated for effects of FRS 19
Operational Highlights
· Risk & Insurance Group increased its revenue by 16%, as JLT continues to win significant new business
· Employee Benefits Group made an encouraging start to the year with several long-term contracts recently secured.
Steve McGill, Chief Executive of Jardine Lloyd Thompson Group, commented:
"I am delighted to announce that Jardine Lloyd Thompson Group has built on the strong progress made throughout 2001 in the first six months of this year, once again achieving double digit growth in both revenue and profits.
Our Risk & Insurance Group produced an outstanding performance with JLT continuing to win significant new business. The insurance market remains extremely challenging and JLT is clearly benefiting from a flight to quality as clients turn to those firms that have the resources, depth and capability to deliver the most innovative insurance and reinsurance solutions.
In our Employee Benefits business, steady growth was achieved together with some significant new business wins, the full effects of which will impact our 2003 results. The rapidly evolving pensions environment should continue to produce exciting opportunities for JLT going forward."
CHAIRMAN'S STATEMENT
Report to Shareholders
Results and Dividend
JLT's strategy of building our business in those areas where we are confident we are or can become the market leader continues to yield success and, following a year of very good growth in 2001, JLT has continued to see strong organic growth in the first half of the current year. For the six months to 30th June 2002, brokerage and fees have grown by 12% to £194.2 million, trading profit has grown by 32% to £39.5 million and profit before tax, exceptional items and goodwill amortisation by 20% to £50.9 million.
The Board has declared an interim dividend of 7.5p per share which will be paid on 14th October 2002 to shareholders on the register on 20th September 2002. This represents a 14% increase over last year's equivalent dividend and maintains JLT's track record of increasing the dividend at each reporting period since Lloyd Thompson went public in 1987.
The high levels of activity and new business opportunities seen in 2001 have continued for both Risk & Insurance and Employee Benefits for the period under review and the outlook continues to be very encouraging for the Group as a whole.
Operational Review
The 12% increase in Group turnover reflects sustained new business development and organic growth across the Group and, within Risk & Insurance, the continuing effects of hard market conditions.
The Group made a trading profit - turnover less expenses and excluding exceptional items and goodwill amortisation - of £39.5 million, representing an increase of 32 % over the equivalent period last year.
Risk & Insurance Group
The Risk & Insurance Group, which comprises JLT's worldwide insurance and reinsurance broking and local government activities, performed very strongly in the first half. Turnover for continuing operations grew by 16% to £156.2 million with a trading profit margin of 27%, increased from 25% in the comparable period of 2001.
The Group's success was due to JLT continuing to win new business, the effects of the hard market and continued control of costs. In addition to winning significant amounts of new business, the Risk & Insurance Group has an excellent client retention rate and we are very proud of the strong relationships we build with our clients.
In the current environment of greater risk and uncertainty, and against the background of a hard insurance market, clients are increasingly turning to quality intermediaries with strong relationships with underwriters, who can provide innovative solutions. With our niche expertise, global reach and reputation for quality and innovation, JLT is ideally placed to benefit from this flight to quality.
Within the Risk & Insurance Group, Risk Solutions again produced an outstanding result with turnover up 19% to £95.7 million. Excellent performances came from our Accident & Health, Cargo, Casualty, Construction, Energy, Financial & Professional Risk and Marine Reinsurance business units.
Agnew Higgins Pickering, the London based natural resource specialist, once again achieved record results as did our Bermuda operations, whilst our North American reinsurance businesses have seen good growth.
Our other Risk & Insurance operations in the UK, Asia, Brazil and Canada all produced good results, with an outstanding performance from Australasia, reflecting both the growth of its local government and corporate portfolio and the impact of rate increases.
We believe that the hard market will now continue beyond 2003. This, combined with a reduction in capacity, creates challenges for clients who continue to be faced with the prospect of purchasing less coverage, accepting lower limits and retaining a greater portion of their own risk in the form of higher retentions. In response, many clients are turning to the most innovative brokers to mitigate the effects of the hard market by restructuring insurance programmes to minimise cost increases and JLT has seen many new business opportunities as a result.
Employee Benefits Group
The Employee Benefits Group, which comprises JLT's pension administration, outsourcing, employee benefits, consultancy and US group marketing activities, made an encouraging start to the year. JLT has one of the UK's largest outsourced pensions administration businesses and this remains a growth area, particularly in the light of the current trend towards switching corporate pension schemes from defined benefit schemes to defined contribution schemes, which require more administration. Revenue in the six month period grew by 6% to £38.0 million.
In the UK, Corporate Healthcare and Pension Consulting have performed strongly. Administration Services had a very successful first half, winning a number of significant new contracts, the revenues for which will show through in the fourth quarter of the year and into 2003 and beyond.
Current trading has been encouraging and on 23rd July 2002, JLT announced its appointment by Prudential UK to provide a range of administration services to a portfolio of defined benefit pension scheme clients. The contract covers approximately 100,000 scheme members of blue-chip clients and includes the provision of services to the Prudential staff scheme, covering over 40,000 members.
The trading profit margin for the continuing operations of the Employee Benefits Group was 10%. In the UK, the FSA required the bulk of pensions mis-selling review work to be completed by 30th June. We committed considerable resources to meeting this deadline during the first six months of 2002 but nevertheless still achieved some good business successes. We expect the momentum to build for the second half of the year and into 2003 with stronger revenue growth and further improvements to the trading margin as the effects of the new contracts flow through.
Our Employee Benefit operations in the United States achieved revenue growth of 5% against a weaker economic background.
Exceptional Items
The exceptional credit of £3.9 million arises from the disposal of the Group's interests in Professional Affinity Group Services and other non-core activities.
Foreign Exchange and Interest Rate Exposures
The Group continues to be prudent in managing both foreign exchange and interest rate exposures. As at 30th June 2002 some 96% of 2002 US dollar revenue expected to arise in the UK has been hedged at an average rate of $1.47, while for 2003 70% has been hedged at $1.44.
For the six months to 30th June 2002 interest earnings fell by 17% due to the impact of lower interest rates offset in part by interest rate hedging and an increased level of funds invested. Significant interest rate hedges have been put in place to mitigate the impact of falling interest rates. For 2002 the Group has covered 60% of its estimated US dollar interest earnings at an average rate of 4.5% and 63% of estimated sterling interest earnings at 5.4%. For 2003 the comparable figures for US dollars are 53% at 4.2% and for sterling 40% at 5.2%.
Prospects
Trading conditions for the Group as a whole remain favourable and both the Risk & Insurance Group and Employee Benefits Group have made a good start to the second half of the year.
In the Risk & Insurance Group, we are confident that JLT will continue to win significant new business, as clients increasingly seek out the most innovative solutions to manage risk in this difficult market environment.
The new contracts won by the Employee Benefits Group in the first half and in the first few weeks of the current period are highly encouraging and we remain positive about the good growth prospects we see for this part of our business.
JLT's core strength remains its talented and highly respected workforce and the Group has a track record of delivering excellent financial performance, irrespective of market conditions. We are confident about JLT's trading prospects and that it will continue to deliver growth in 2002 and beyond.
Ken Carter
Chairman
30th July 2002