JLT doubles US revenues at H1 - FREE

JLT doubles US revenues at H1 - FREE

JLT’s US specialty expansion figures prominently in its interim results, which were ahead of analysts’ consensus expectations.

Pre-tax profit almost halved, down 46% to £55.2m in the first half of 2016, “reflecting US investment and exceptional costs”, according to JLT.

Underlying profit was ahead of expectations at £89.2m for the first half, but still a -7% drop on the same period of last year, representing a margin down 140 basis points to 15.9%.

The London market broker faces ongoing costs for its US expansion, but doubled its revenues in that segment to £23m.

Speaking to Reactions, Dominic Burke (pictured), JLT’s group chief executive, said: “Since our first guidance in August 2014, we’ve been clear about our huge ambitions in the US. It’s clear now that we will have a successful US business.”

Burke stressed the number of client wins in the US. “We’ve had 200 new client wins, all achieved in the first half of this year,” he said.

These new business wins are “as strong as at any time since I became CEO”, Burke claimed.

Some of these new clients are not reflected in the latest results, suggested Mark Drummond Brady, JLT’s group deputy CEO, waiting on upcoming renewals.

“We’re winning market share; there’s no question about it,” said Burke.

Revenue growth of 5% in the first half produced an overall figure of £619.4m.

“Everything’s going according to plan and everything’s going according to schedule,” said Drummond Brady.

Excluding its US expansion costs, underlying profit was down 2% at £106.4m for the six months to June 30, giving a margin of 19.2%, 330 basis points higher.

Net investment in its JLT USA subsidiary was £17.2m, rising from £12.6m in the same portion of 2015.

Eamonn Flanagan, a Shore Capital insurance equities analyst. said: “ is delivering significant revenue momentum, doubled in the period, with the group now committed to increasing its spend to $100m out to 2018 (previously $80m out to 2017), as a result of the better than initially thought prospects.”

The increased US investment reflects greater confidence, this is also forecast to delay that arm’s profitability from 2018 to 2019.

“As a result, the unit will now move into profit in 2019, as compared to our £5m profit expectation for 2018F,” said Flanagan.

Specialty businesses and JLT Re delivered organic revenue growth of 5% and 3% respectively.

“The results demonstrate the strength of the specialty powerhouse of JLT,” said Burke.

Drummond Brady pointed to the intermediary’s growing global placement abilities because of its US expansion.

By building its “global servicing capability” through its US expansion JLT is getting to coordinate more worldwide placements, he suggested, rather than acting as a local partner previously. “We had a particularly strong showing in Asia Pacific,” he noted.

“Now we have that US platform, we can represent ourselves as a global broker,” said Drummond Brady.

JLT’s UK employee benefits arm was a drag on performance, reducing its organic revenue growth from 4% to 1%.

“The UK Employee Benefits business has seen further revenue pressure from muted demand for project work by pension trustees. The company says it believes revenues have now stabilised,” said an analyst note from Numis to investors.

JLT reported diluted earnings per share of of 15.1p for the first half, with an interim cash dividend of 11.6p, up 4.5%.

“JLT has delivered a solid set of interim 2016 results that were ahead of consensus,” said Barry Cornes, an insurance equities analyst at Panmure Gordon. “The better than anticipated result reflects a £8.7m transactional FX benefit given sterling’s weakness at 30 June.

Burke added: “Economic and industry conditions remain challenging; nevertheless we remain confident about the group’s ability to deliver year-on-year financial progress.”

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