AR Cover 2011 final tp_A&R design 3 15/03/2012 21:11 Page 1
JardineLloydThompson Groupplc annual report 2011
6 Crutched Friars
London eC3n 2ph AnnualReport2011 Tel: +44 (0)20 7528 4444 Fax: +44 (0)20 7528 4185 www.jltgroup.com Company registration no: 1679424 distinctive. Choice.
Jardine LLoyd Thompson Group plc Jardine LLoyd Thompson Group plc AR Cover 2011 final tp_A&R design 3 16/03/2012 13:35 Page 2
Contents Principal Offices
Overview Notes to the Financial Statements Head office Brazil Indonesia 1. Alternative income statement 61 JLT do Brasil Corretagem de Seguros PT Jardine Lloyd Thompson Financial Highlights 1 UK 2. Segment information 62 Ltda +6221 2995 2500 Who We Are/Where We Operate 2 Jardine Lloyd Thompson Group plc 3. Operating profit 65 +55 11 3156 3900 What We Do 3 +44 20 7528 4444 Japan 4. Investment income 66 JLT Re Brasil Our Mission and Strategy 4 JLT Risk Solutions Japan Limited 5. Finance income and costs 66 + 55 21 2220 2970 +813 6730 3500 Our Structure 5 Europe 6. Employee information 67 Segmental Breakdown 5 France Canada South Korea 7. Services provided by the JLTRS Energy (France) SA Jardine Lloyd Thompson Canada Inc Jardine Lloyd Thompson Korea Limited Group's auditor and network firms 73 +33 1 44 20 99 99 +1 403 264 8600 +82 2 397 8100 Business Review 8. Income tax expense 73 Ireland Chile Chairman’s Statement 6 9. Earnings per share 74 Macau JLT Insurance Brokers Ireland Limited Orbital-JLT Corredores de Seguros Chief Executive’s Review 8 10. Dividends 74 Jardine Lloyd Thompson Limited +35 31 20 26 000 +56 (2) 232 7776 +853 2875 5743 Key Performance Indicators 12 11. Goodwill 75 JLT Chile Corredores de Reaseguros Group Executive Committee 13 12. Intangible assets 76 Norway Malaysia 13. Property, plant and equipment 77 Tripol AS +56 (2) 338 9290 Review of Operations Jardine Lloyd Thompson Sdn Bhd 14. Investments in associates 78 +47 4000 2111 +60 3 2723 3388 Risk & Insurance 14 Colombia 15. Available-for-sale financial assets 79 Jardine Lloyd Thompson Valencia y Australasia 15 Sweden Philippines 16. Derivative financial instruments 80 Iragorri Corredores de Seguros Asia 15 JLT Risk Solutions AB Jardine Lloyd Thompson Insurance 17. Employee benefit trust 81 +46 8 442 5730 +571 326 6100 Latin America 16 Brokers Inc 18. Trade and other receivables 81 JLT Re Colombia, Corredores +632 706 8500 Canada 16 Switzerland 19. Cash and cash equivalents 82 Colombianos de Reaseguros SA Continental Europe 17 20. Trade and other payables 83 JLT Re Basel Branch +571 211 2911 Singapore +41 61 279 92 92 Insurance Management 17 21. Financial instruments by category 83 Jardine Lloyd Thompson Pte Limited Peru +65 6333 6311 JLT Specialty 18 22. Borrowings 84 Mariategui JLT Corredores de Seguros SA Lloyd & Partners 18 UK JLT Risk Solutions Asia Pte Limited 23. Deferred income taxes 87 +511 610 9900 JLT Reinsurance Brokers 19 24. Provisions for liabilities and charges 88 JLT Specialty Limited +65 6333 6006 +44 20 7528 4000 JLT Corredores de Reaseguros SA Employee Benefits 20 25. Share capital and premium 89 JLT Insurance Management (Singapore) +511 610 9900 Thistle Insurance Services 21 26. Non-controlling interests 89 JLT Reinsurance Brokers Limited Pte Limited Associates 22 27. Other reserves 90 +44 20 7466 1300 USA +65 6333 6006 Finance Director’s Review 23 28. Qualifying employee share ownership trust 91 Lloyd & Partners Limited JLT Re (North America) Inc. JLT Re Asia Risk Management Report 28 29. Cash generated from operations 91 +44 20 7466 6500 +1 212 510 1800 +65 6333 6006 30. Business combinations 91 JLT Benefit Solutions Limited Taiwan 31. Business disposals 96 Africa/Middle East Corporate Governance +44 20 7309 8100 Jardine Lloyd Thompson Limited 32. Retirement benefit obligations 97 South Africa Directors’ Profiles 30 JLT Online +886 2 2395 4611 33. Jardine Matheson Group 102 Jardine Lloyd Thompson (Proprietary) Directors’ Report 32 + 44 2476 851 000 34. Commitments 103 Limited Thailand Remuneration Report 38 +27 11 656 1001 35. Principal subsidiary and associated companies 104 Thistle Insurance Services Limited Jardine Lloyd Thompson Limited Corporate Social Responsibility 45 +44 20 7309 8100 UAE (Dubai) +662 626 2500 JLT Specialty Limited JLT Insurance Management Vietnam Company Accounts +971 4 360 0530 Financial Statements (Guernsey) UK Jardine Lloyd Thompson Limited Independent Auditors’ Report 106 +44 1481 737 120 Independent Auditors’ Report 48 +848 3822 2340 Balance Sheet 107 Asia Consolidated Income Statement 49 Reconciliation of Movements in Shareholders’ Funds 107 Americas Consolidated Statement of Comprehensive Income 50 China Australasia Accounting Policies 108 Barbados JLT Lixin Insurance Brokers Co Limited Consolidated Group Balance Sheet 51 Australia Notes to the Company Accounts 109 JLT Insurance Management (Barbados) +8620 6681 4888 Consolidated Statement of Changes in Equity 52 Jardine Lloyd Thompson Australia Pty Limited Consolidated Statement of Cash Flows 53 Hong Kong Limited Group Five Year Review 111 +1 246 435 9955 Accounting Policies 54 Jardine Lloyd Thompson Limited +612 9290 8000 Advisors & Shareholder Information 112 +852 2864 5333 Bermuda New Zealand Principal JLT Offices 113 JLT Park Limited India Jardine Lloyd Thompson Limited +1 441 292 4364 Jardine Lloyd Thompson India Pvt. Limited +649 379 5376 JLT Insurance Management (Bermuda) +91 22 4068 7500 Limited +1 441 292 4364 For a full list of JLT’s worldwide offices and JLT International Network partners, please visit our website www.jltgroup.com. Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 1
Overview Financial Highlights
£m 2011 2010 % change Overview Total revenue* 818.8 746.3 10% Underlying trading profit** 147.0 129.9 13% Underlying profit before tax** 147.6 130.1 13% Reported profit before tax 134.5 119.4 13%
Pence per share 2011 2010 % change Reported diluted EPS 40.4p 41.7p (3%) Underlying diluted EPS** 45.3p 40.5p 12% Total dividend per share 24.0p 22.5p 7%
“A strong set of results particularly when viewed against the challenging economic conditions and the soft insurance rating environment experienced in the year.”
Dominic Burke Chief Executive
Total revenue* Underlying profit before tax**
£m £m
2011 Growth 2011 Growth Rate of Rate of 09 619.3 09 104.8 10 746.3 +10% 10 130.1 +13% 11 818.8 11 147.6 11 11
Underlying trading profit** Underlying diluted EPS**
£m Pence 2011 Growth 2011 Growth Rate of Rate of 09 103.6 09 33.8p 10 129.9 +13% 10 40.5p +12% 11 147.0 11 45.3p 11 11 * Total revenue comprises fees, commissions and investment income ** Underlying results exclude exceptional and non-recurring items
Jardine Lloyd Thompson Group plc Annual Report 2011 1 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 2
Overview
Who We Are JLT is an international group of Risk Specialists and Employee Benefits Consultants and one of the largest of its type in the world. We offer a distinctive choice to our clients and partners through our combination of independence, scale and specialism. As an independent business, we are able to operate with autonomy and flexibility. We have the scale to provide solutions to the complex demands of the world’s leading companies and to deliver global servicing whilst recognising that the needs of each of our clients is unique. By developing highly specialised services, we provide our clients with a depth of expertise and experience. The value we create is driven through the personal determination of our 6,700 highly motivated and skilled people.
Where We Operate
Australia Hong Kong Philippines JLT has offices in 33 Barbados India Singapore Bermuda Indonesia South Africa territories with some 6,700 Brazil Ireland Sweden employees supported by Canada Japan Switzerland the JLT International Chile Korea Taiwan China Macau Thailand Network enabling us to Colombia Malaysia UAE (Dubai) offer risk management and Finland New Zealand UK employee benefit solutions France Norway USA Guernsey Peru Vietnam in over 135 countries
2 Jardine Lloyd Thompson Group plc Annual Report 2011 Overview
Jardine Lloyd Thompson Group plc Annual Report 2011 3 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 4
Overview Our Mission and Strategy
Our Mission: Client First. Independent. Results Based.
Client First Independent Results Based
We act in our client’s best We advise our clients without We expect to be judged and interests and bring the best of influence or bias and value rewarded on our performance. JLT to all of our clients. innovation and creativity.
Our Strategy There are five elements to our strategy that balance the interests of our clients, our employees, our trading partners and our shareholders. Some examples of our achievements in 2011 are highlighted in grey below against each element.
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4 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 5
Our Structure
Jardine Lloyd Thompson Group Overview
Employee Benefits Risk & Insurance Thistle Insurance Services 17% 78% 5% page 20 page 14 page 21
JLT Specialty 25% Australasia 15% Canada 4% page 18 page 15 page 16
Continental Lloyd & Partners Asia 10% 2% 9% Europe page 18 page 15 page 17
JLT Re 6% Latin America 6% Insurance 1% Management page 19 page 16 page 17
% = Contribution to Group revenue in 2011
Segmental Breakdown
2011 Revenue by division 2011 Turnover by location of client
Risk & Insurance UK 34% £642.4m Americas 25%
UK Employee Benefits Australasia 16% £137.0m Asia 12%
Thistle Insurance Services Europe 10% £39.4m Rest of World 3%
Turnover excludes investment income
Jardine Lloyd Thompson Group plc Annual Report 2011 5 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 6
Business Review Chairman’s Statement
I am pleased to be able to report “ another year of strong growth for JLT with a substantial increase in revenues and profits”
Geoffrey Howe Chairman
I am pleased to be able to report another year of strong growth for I am pleased to report that the directors have resolved to JLT with a substantial increase in revenues and profits. These are a recommend an increased final dividend of 14.8 pence per share for strong set of results particularly when viewed against the challenging the year to 31st December 2011 which will be paid on 1st May 2012 economic conditions, the very competitive insurance rating to shareholders on the register at 10th April 2012. This brings the environment experienced in the year and the lacklustre GDP growth total dividend for the year to 24 pence per share, an overall increase in many of the more mature markets in which we trade. of 7%. The Chief Executive’s Review, the Review of Operations and the Performance Finance Director’s Review cover the performance of the Group in Total revenue increased by 10% to £818.8 million, or 8% at constant more detail. rates of exchange, with organic growth of 7%. Over recent years JLT has invested steadily in the recruitment of talented individuals Offer by JMH Investments Limited who share our culture and values. We have also continued to make During 2011 our major shareholder, Jardine Matheson, determined targeted acquisitions of specialty focused businesses. These that it wanted to increase its shareholding in JLT. The Board targeted investments have helped us achieve and sustain strong welcomed this initiative because of the stability and confidence rates of organic growth relative to our competitors over the last five which we believe flow to JLT as a result of having a strong and years. There was no material net revenue impact from acquisitions in supportive major shareholder in terms of attracting and retaining 2011. clients and staff. Jardine Matheson's influence and contacts Underlying profit before tax was £147.6 million, up 13%, while throughout Asia are also of great assistance to us. reported profit before tax was £134.5 million, also up 13%. The partial offer to purchase 21.73 million shares at 765p per share Net exceptional costs of £13.1 million in the year were mainly was heavily oversubscribed and resulted in the offer b ecoming attributable to our Business Transformation Programme. Our trading unconditional in November 2011. Jardine Matheson now holds profit margin increased 60 basis points to 18% which is encouraging 40.20% of the share capital of JLT. given that we continue to invest for further growth. Reported diluted earnings per share was 40.4 pence (2010: 41.7 Share buy-back pence). This 3% reduction in our reported earnings per share is the We will, as in previous years, be seeking renewal of our standing consequence of the benefit of a non-recurring tax credit of £10.3 share buy-back authority at the forthcoming Annual General million in the prior year. Our underlying diluted earnings per share of Meeting. 45.3 pence has increased by 12%. Corporate developments The Group has continued to follow its strategy to extend and develop its business with the ongoing expansion of our European presence which included the merging of our Italian business with that of Marine & Aviation S.p.A. and the acquisition in February 2012 of a 25% holding in a new joint venture in Spain formed with March- Unipsa. During the year the Group also increased its shareholding in Siaci Saint Honoré from 20% to 26%.
6 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 7
Employees* by division Employees* by geographical location
London Market 1,606 UK 3,180
Americas 1,040 Retail 2,792 Australasia 850 Employee Benefits 1,608 Asia 1,492 Thistle Insurance Services 327 Europe 145
Head Office/Other 389 Rest of World 15 BusinessReview
*As at 31st December 2011
In December our Irish business acquired FBD Insurance Brokers Our people Limited, a well established Agri-food specialty broker. JLT continues to benefit from the great quality and commitment of Our African strategy gained pace with our South African office its people with their continued focus on achieving the best results receiving the necessary regulatory clearances and becoming fully for all our clients. The results in 2011 would not have been achieved operational. We also completed the acquisition of an initial 50.1% of without their dedication and willingness to go the extra mile and I the share capital of Orbital Corredores de Seguros in Chile which would like to thank them all for their contribution to the business. supports our Latin American strategy. The Employee Benefits business is expanding its international focus Outlook and continues to evolve as its marketplace changes with expansion Our emphasis on being a client-first organisation continues to serve in its defined contribution pension and benefits and wealth us well, as demonstrated by our strong growth record. Our strategy, management businesses and a focus on technology solutions. built around growing our areas of specialty, strengthening our international footprint and driving greater efficiency, provides us with Group Board and senior management changes confidence that we will continue to make financial progress in 2012. The Group continues to review and strengthen its Board and senior management team. As reported last year, on 1st March 2011 Mark Drummond Brady was appointed as an Executive Director, having been with JLT since 1987. He is International Chairman of Risk & Insurance and a member of the Group Executive Committee. In January 2011, James Twining joined JLT as Group Strategy Director and a member of the Group Executive Committee. He was formerly with McKinsey & Company and his career has included investment banking. James has subsequently been Geoffrey Howe appointed as International Chairman of Thistle and as the interim Chairman CEO of Thistle, pending the arrival of a new Thistle CEO later this 20th March 2012 year. There were also a number of changes to the senior management team including the appointment of Jonathan Palmer-Brown to the new role of Chairman of International Specialty and the appointment of Adrian Girling as Chairman of JLT Specialty. Adrian has accordingly relinquished his role as CEO of Thistle Insurance Services Limited.
Jardine Lloyd Thompson Group plc Annual Report 2011 7 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 8
Business Review Chief Executive’s Review
Another strong set of results in “ 2011, demonstrating our continued ability to deliver on our strategy against the backdrop of a challenging economic climate.”
Dominic Burke Chief Executive
Key financial highlights We have delivered another strong set of results in 2011, Our Risk & Insurance group delivered an increase in revenues of demonstrating our continued ability to deliver on our strategy against 11%, or 9% at constant rates of exchange. This was driven by our the backdrop of a challenging economic climate. international retail business which delivered organic growth for the year of 10%. This included particularly strong performances from our Overall, the Group achieved a 10% increase in revenues in 2011, operations in Asia and Latin America, with our businesses there representing an 8% increase at constant rates of exchange. growing organically by 29% and 19% respectively. Our organic growth remains strong at just over 7%, with no material net impact from acquisitions in the year. Over the last three years, Asia’s trading profit contribution to the Group has doubled as we continue to raise our market profile and Our clear focus on growing our areas of specialty, strengthening our areas of activity in the region. In Latin America, the profits from our international reach and delivering greater operational efficiency, combined operations has increased fourfold in the last three years. provides us with confidence that we will continue to make financial progress in 2012. Our Australasian operations also had a good year with revenues up 16%, or 6% at constant rates of exchange, driven by some significant new business wins and enhanced client retention, particularly in the first half. Our operations in Australasia now account for 24% of the Group’s trading profit.
Risk & lnsurance Employee Benefits Thistle Insurance Services
Total Revenue Underlying Trading Profit Total Revenue Underlying Trading Profit Total Revenue Underlying Trading Profit £m £m £m £m £m £m
642.4 140.3 137.0 26.0 39.6 39.4 576.6 129.7 130.1 5.8 5.5 21.7
10 11 10 11 10 11 10 11 10 11 10 11
Trading Margin Trading Margin Trading Margin 2010 2011 2010 2011 2010 2011 22% 22% 17% 19% 14% 15%
8 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 9
The London Market remains particularly competitive and the fact that environment, low interest rates, aggressive price-based competition, our three London Market businesses delivered combined organic weak growth in most developed markets and continued macro- growth of 7% is a testament to the value created by the growth economic uncertainty, particularly in the Eurozone. initiatives that we have been investing in for the past three years. Our results illustrate the strength of the underlying business and our Our UK and Ireland Employee Benefits division saw revenues focus on delivering our strategy. It is by continuing to focus on this increase by 5% to £137 million with the trading profit margin strategy that we believe we will drive continued earnings growth. improving by 200 basis points to 19%, reflecting the strength and success of the diversification of this business over recent years and Delivering on our specialty focus the realisation of the full benefits of the HSBC Actuaries and JLT has never sought to be all things to all people. Instead, we focus Consultants acquisition made at the beginning of 2010. on those industries and risk classes where we can truly be distinctive Thistle Insurance Services, our UK based insurance distribution and through our greater knowledge, expertise, experience and depth of underwriting company, delivered flat growth in 2011, reflecting the resource. fact that it is more exposed than most other parts of the Group to Five years ago, our speciality focus was primarily driven through our the impact of the financial crisis on consumer confidence, and as a London Market businesses. Today however, specialty sits at the result has faced a very tough trading environment. That said,
core of our businesses in Australia, Asia, Canada, Latin America and BusinessReview excluding an unprofitable book of business which we exited in late increasingly in Europe. In Employee Benefits too, we are building our 2010, Thistle’s underlying organic revenue growth was 4%. international strategy around our expertise in healthcare. Details of the performance of each individual business area are set Many of these specialty areas are common across our different out in the Review of Operations on pages 14 to 22 . businesses, for example sectors such as natural resources, aviation, financial risks, construction and telecommunications. We are Building on our momentum therefore increasingly able to collaborate and share knowledge Taken as a whole, 2011 marks another positive year for JLT, across these businesses to the benefit of our clients. building on the success and momentum of previous years. This Our reputation today as a specialty player is increasingly powerful in year’s results now mean that in the past five years JLT has delivered the race to secure talent around the world. Over the past few years a 72% increase in revenue, a 96% increase in trading profit and an we have been able to attract a large number of leading industry increase of 90% in underlying EPS. professionals and in the process have been able to grow our market Underpinning this success has been our ability to deliver consistently share in our chosen sectors significantly. strong levels of organic growth as we drive the business forward. Looking forward, we will continue to expand and deepen our This is a performance of which we are understandably proud, specialty focus, by recruiting talented individuals who share our although we are by no means complacent and recognise that there culture and values and making targeted acquisitions of specialty is still much more to be done. focused businesses. We have achieved these year-on-year results in the face of a challenging set of economic and market headwinds, which worsened still further in 2011 in terms of the adverse rating
Total Revenue Underlying Trading Profit Underlying Diluted EPS
£m £m Pence 5 Year Compound 5 Year Compound 5 Year Compound Annual Growth Rate 147.0 Annual Growth Rate 45.3 Annual Growth Rate 818.8 11.4% 14.4% 13.7%
476.4 75.1 23.8
06 11 06 11 06 11
5 year growth rate 5 year growth rate 5 year growth rate 72% 96% 90%
Jardine Lloyd Thompson Group plc Annual Report 2011 9 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 10
Business Review Chief Executive’s Review
Organic Growth
2011 marks another positive 08 6% 09 5% “ year for JLT, building on the 10 7% success and momentum of 11 7% previous years.”
Organic growth is fees and commissions excluding the impact of acquisitions, disposals and currency. Dominic Burke Chief Executive
Increasing our international reach and relevance We have also continued to build out our European Network through the acquisitions of a 25% stake in specialist broker Marine & Aviation JLT now has one of the leading international broker networks in the S.p.A. in Italy and increasing our stake in Siaci Saint Honoré, the world with representation in 135 countries. Today, two thirds of our leading independent broker in France, from 20 to 26%. In February clients are domiciled outside the UK. 2012, we also acquired a 25% stake in the largest independent This global presence is delivering tangible benefits. It gives us specialty broker in Spain, March-Unipsa. This is in line with our exposure to the faster growing economies of the world. It helps European strategy of owning minority stakes in leading national support and drive growth in our London Market businesses. independent players and these sit alongside our 20% shareholding in Finally, it gives us access to and knowledge of the growing number GrECo and our exclusive trading relationship with Ecclesia in of insurance capital centres around the world and our clients are Germany. increasingly benefiting from our ability to access these markets for Looking forward, we intend to continue to grow through targeted the placement of their risks. acquisitions and investments around the world to support our Risk & In 2011, we continued to deliver against this strategy both by Insurance, Employee Benefits and Thistle businesses. broadening our reach for example, our acquisition of Orbital in Chile and the establishment of our new start-up business in South Africa and by strengthening our existing operations for example, the acquisition of TK Benefits in Canada.
JLT now has one of the leading international broker networks in the world with representation in 135 countries.
JLT Representation
10 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 11
Enhancing our efficiency and effectiveness Today JLT is a much more balanced business than it was five years ago, in terms of the mix of businesses and the lines of business and 2011 has seen a continued investment in improving our efficiency diversity of economies through which we generate our income. and effectiveness. In June 2012, we will conclude our successful three year Business Transformation Programme delivering recurring As a result, our earnings are of a higher quality and we are better annual savings of £23 million for a total cost of £27 million. We have equipped to deliver against our strategy. This gives us the confidence been investing those savings back into the business, reflected in the that we can build upon this year's strong results to achieve even hiring of leading industry professionals and product innovation. greater success in 2012. As our operation in Mumbai has grown from 30 people five years ago to over 700 today, it has evolved from processing simple transactions to providing complex actuarial, accounting and legal services and become a knowledge centre for JLT rather than just a processing hub. As our ambitions for Mumbai have grown, we have been able to deliver significant improvements in quality and client service. It has also been the catalyst for far greater internal collaboration, as a ‘One JLT’ mindset has been required to make BusinessReview the initiative a success. Dominic Burke This transition of Mumbai to a more knowledge-based and Chief Executive collaborative operation provides us with the opportunity to grow 20th March 2012 revenues in the future at a faster rate than our costs, as we derive increasing operating leverage from our activities there.
Driving our strategy The overall economic outlook for 2012 remains challenging and although there are currently some signs of the rating environment hardening, with the exception of catastrophe risks there is little consistency at this time in how the market is pricing risk. However, JLT's prospects are more tied to GDP growth than market rates and we still see a generally positive environment given our increasing presence in the faster growing economies and our weighting towards areas of specialty such as mining, construction, aviation and financial services, which continue to experience strong growth in these regions. In 2011, Jardine Matheson increased its shareholding in JLT from 30% to 40% representing a clear statement of its commitment to our strategy, our wider management team and our prospects. Importantly, Jardine Matheson’s increased investment in JLT has provided certainty around our ownership. This has strengthened our competitive advantage as it has reaffirmed to our staff, our clients and the insurance markets of our long-term commitment to them and made us an even more attractive employer.
Jardine Lloyd Thompson Group plc Annual Report 2011 11 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 12
Business Review Key Performance Indicators
Group
Total Revenue Per Employee* Trading Margin** Underlying PBT*** Underlying Diluted Earnings*** £’000 % £m Pence Per Share
147.6 45.3 120.1 124.7 18.0% 130.1 40.5 109.3 16.7% 17.4% 33.8 104.8 0
09 10 11 09 10 11 09 10 11 09 10 11
Revenue per employee has increased across all segments of our business as we grow our specialist capabilities through the continued recruitment of leading industry professionals and targeted acquisitions. The strong organic growth in 2011 is particularly evident in Asia and Latin America as we continue to build our international reach and relevance with a focus on the faster growing economies. Trading margin continued to show improvement, reflecting strong revenue performance combined with improved efficiency and effectiveness achieved through the Group's Business Transformation Programme and our ongoing focus on cost control. The continuing success in delivering our strategic objectives is evidenced by the 13% increase in our underlying PBT and underlying diluted EPS which grew by 12%.
Risk & Insurance Employee Benefits Thistle Insurance Services
Total Revenue Underlying PBT*** Total Revenue Underlying PBT*** Total Revenue Underlying PBT*** Per Employee* £m Per Employee* £m Per Employee* £m £’000 £’000 £’000
150.1 143.2 139.2 128.4 119.3 25.7 110.5 21.4 85.7 86.4 5.6 4.8
10 11 10 11 10 11 10 11 10 11 10 11
*Revenue per employee is calculated using the average number of employees for the year. **Trading margin represents trading profit, being total revenue (fees, commissions and investment income) less operating expenses, divided by total revenue. ***Underlying results exclude exceptional and non-recurring items.
12 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 13
Group Executive Committee
Dominic Burke* John Lloyd Group Chief Executive Chairman and CEO, Lloyd & Partners Ltd Dominic joined the Group in 2000 when his John was a founding partner of Lloyd business Burke Ford was acquired by JLT. Thompson in 1981 and served as its After joining he became CEO of JLT's UK retail Chairman from 1993 until its merger with JIB and Employee Benefits business. He was Group in 1997. He was a Director of the JLT appointed Group COO in January 2005 and Group until the creation of Lloyd & Partners in subsequently appointed Group CEO in 2005. December 2005.
Leo Demer Simon Mawson* CEO, Australasia Group Finance Director Leo joined JLT Australia in 1985 and was Simon joined JLT in August 2010. Simon is a appointed Managing Director of the Risk Chartered Accountant and has held senior Services Division in 2000. Leo became financial positions in Jardine Matheson and Managing Director of JLT's Australian and New PT Astra International, prior to which he Zealand businesses in January 2008 and was worked for PwC in the UK and Hong Kong. appointed CEO of JLT Australasia and joined the Group Executive Committee in January
2010. BusinessReview
Mark Drummond Brady* Warren Merritt International Chairman Risk & Insurance CEO, Asia Pacific Mark joined JLT in 1987 and built JLT's Warren joined JLT Australia in 1984 and has Financial Solutions operation. Today Mark spent a number of years working in JLT's plays a key role in developing JLT's Risk & London Market operations. He became CEO Insurance business internationally and leading of JLT Asia in 2008 and joined the Group the continued expansion of the JLT Executive Committee in January 2010. International Network. Mark was appointed a Director of the Group in March 2011.
Adrian Girling Mike Methley Chairman of JLT Specialty Limited. Group COO Adrian has been with JLT for over 30 years, Mike joined JLT in 1994 and was appointed he was CEO of Jardine Lloyd Thompson UK Managing Director of JLT Asia in 2001. Mike Limited, now Thistle Insurance Services was appointed Chief Operating Officer for Limited, for 15 years before being appointed the Group and a member of the Group Chairman of JLT Specialty Limited on 7th Executive Committee in January 2010. February 2012.
Alan Griffin Jonathan Palmer-Brown Chairman, JLT Reinsurance Brokers Chairman of International Specialty Alan joined JLT in 2005 to build the Group's Jonathan joined JLT in 2010 and is capabilities in reinsurance and aviation. Chairman of International Specialty. He is a Alan entered the insurance broking industry former Chairman of the London and in 1969 and has held various senior International Insurance Brokers' Association management positions within both and sits on the London Market Group. reinsurance and aviation insurance.
Martin Hiller James Twining CEO, JLT Specialty Limited Group Strategy Director and International Martin joined JLT in 1988 and was a founding Chairman of Thistle member of the JLT Construction team. He James joined JLT as Group Strategy Director and became Managing Director of the was appointed to the GEC on 1st January 2011. Construction team in 1995. Martin joined the He was appointed Chairman of Thistle Insurance Group Executive Committee in 2006 and was Services Limited in July 2011 and became Interim appointed CEO of JLT Specialty Limited in CEO on 1st January 2012. James previously 2007. worked at McKinsey & Company and his career has included investment banking and e-procurement.
Duncan Howorth Vyvienne Wade* CEO, JLT UK Employee Benefits Group, Group Legal Director, CEO of JLT Latin Int’l Chairman of Employee Benefits America, Chairman of JLT Insurance Duncan joined JLT in 2000 when Abbey Management National Benefit Consultants was acquired Vyvienne joined JLT in 1987 and was by JLT to expand its Employee Benefits appointed as Group Legal Director in 1995. offering. Duncan became Managing Director In 2002 Vyvienne was appointed to the main of JLT Benefit Solutions Ltd in late 2005 and Board. Vyvienne is also a Non-Executive subsequently CEO and a member of the Director of Lloyd & Partners Limited. Group Executive Committee in 2008.
*Executive Director (more details on pages 30-31)
Jardine Lloyd Thompson Group plc Annual Report 2011 13 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 14
Business Review Review of Operations
Risk & Insurance
The Risk & Insurance group comprises our increasingly specialist retail Financial highlights broking operations around the world and our predominantly London Total Revenue Underlying Trading Profit Market based reinsurance broking, specialist risk and wholesale insurance broking businesses. £m £m During the period, macro-economic conditions remained very 642.4 140.3 challenging throughout the more mature markets in which we trade. 576.6 129.7 Trading Margin This was compounded by a very competitive insurance rating environment and intense competition amongst brokers. 22% JLT’s strategy of continuing to increase the specialty focus of all of its 2011 Risk & Insurance businesses delivered revenues of £642.4 million for the year, an increase of 11%, or 9% at constant rates of exchange. 22% The London Market remained particularly competitive but despite this 2010 our businesses that trade in this market delivered combined organic growth of 7%. Our Northern European operations in Ireland and the 11 10 11 10 Nordic region had a strong year and both businesses have recently been strengthened with targeted acquisitions adding to their specialty capabilities. Risk & Insurance provides broking and risk In Southern Europe our operation in Italy had a very challenging year. Action was taken to reposition this business and at the end of the year, management services for clients across an we combined it with specialist broker Marine & Aviation S.p.A. in return extensive range of business sectors. for a 25% stake in the merged business. In Asia, we continue to make significant progress, with revenue growing by 28%, or 29% at constant rates of exchange, as the business Principal lines of business expanded its areas of specialism and benefited from the continued successful expansion into the employee benefits sector. In Latin America, all of our operations performed well, with organic growth Retail increasing revenues by 19%. JLT further expanded its footprint in the region with the acquisition of Orbital, the leading independent broker in Delivering an increasingly specialist retail insurance Chile. broking service to clients in local, national and international markets. Australasia had a good year with revenues up 16%, which was principally due to the benefit of the strengthening of the Australian dollar over the period. Trading in Canada was below our expectations and the Specialty senior leadership team has been strengthened there from the beginning Offering clients in selected industries insurance broking of 2012. and risk management advice through dedicated The trading profit margin for our Risk & Insurance group was 22%, specialist teams with deep client industry expertise. unchanged from that achieved in 2010, despite the investments for growth being made right across our business. On pages 15 to 19 there is a more detailed commentary on the activities Wholesale and performance of each of our businesses in the Risk & Insurance Providing brokers in the US and elsewhere with access group. to insurance capacity in London, Bermuda and Continental Europe through our specialist wholesale broker.
Reinsurance Delivering to clients an analytical approach to reinsurance broking and a wider variety of specialist risk management solutions.
14 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 15
Australasia Asia
Financial highlights Financial highlights
Total Revenue Underlying Trading Profit Total Revenue Underlying Trading Profit £m £m £m £m
125.6 34.9 Trading Margin 81.9 Trading Margin 108.6 29.9 17.3
28% 64.3 13.7 21% 2011 2011 28% 21%
2010 2010 BusinessReview 10 11 10 11 10 11 10 11
Our operations in Australasia have consistently delivered strong results In Asia, we continue to make significant progress. Over the last and in 2011 contributed 24% of the Group’s trading profit. Revenue of three years, Asia’s trading profit contribution to the Group has £125.6 million was up 16%, or 6% at constant rates of exchange, with doubled. Revenue increased by 28%, 29% at constant rates of trading profit up 17% to £34.9 million. The trading margin remained at exchange to £81.9 million in 2011. 28% despite difficult market conditions. This increase was delivered by organic growth of 29% through the The business is structured under five operating divisions: Public retention and penetration of existing business and substantial new Sector, Echelon, Specialty, Enterprise Solutions and Benefit Solutions business wins in capital risks, construction, employee benefits, Australia. energy and major corporate. Our investments in leading industry The Public Sector division, which includes our local, state and federal professionals in late 2010 and at the start of 2011 contributed government authorities business, once again had an excellent year. strongly to the good results. Echelon, which comprises our claims management and risk & advisory Private Client Services which delivers wealth management solutions services business, again showed strong growth and remains a working closely with global private banks, has become the market business with good potential for significant future growth especially leader in the region and continues to grow strongly. within the private sector. Hong Kong, Singapore, Specialty, Korea, Taiwan, China and Specialty encompasses our retail and corporate businesses and has Thailand all saw good growth during the year supported by new been more closely aligned with JLT’s global strengths such as business wins. construction, energy, mining, financial lines and advisory corporate Following the major catastrophic losses resulting from the businesses. earthquake in Japan and the floods in Thailand, trading conditions Enterprise Solutions includes our Thistle business and our regional in these countries tightened with rate increases and cover network operations. This business has had a strong year which has limitations being imposed by the market for these perils. been due in a large part to the successful establishment of the Thistle The restructuring of our business in Japan was successfully underwriting business. completed with a number of senior professionals recruited to Benefit Solutions is largely built around life and health and has again support this operation. China again enjoyed strong 30% growth in shown good growth during 2011. revenue with the region as a whole continuing to enjoy positive economic growth throughout the year.
Principal lines of business Principal lines of business Construction Professional Lines Aviation Employee Benefits Energy & Marine Public Sector Construction Property Healthcare Transport Capital Risks Financial & Professional Risks Property Energy
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Business Review Review of Operations
Latin America Canada
Financial highlights Financial highlights
Total Revenue Underlying Trading Profit Total Revenue Underlying Trading Profit £m £m £m £m
48.8 30.3 30.0 14.9 Trading Margin 4.9 Trading Margin 41.1 11.7 31% 3.9 13% 2011 2011 28% 16% 2010 2010 10 11 10 11 10 11 10 11
JLT's Latin American business continued to progress well during 2011 Our Canadian operations experienced a challenging trading with organic growth of 19% and trading profit of £14.9 million environment in 2011 with market conditions remaining very representing growth of 28% over 2010. Over recent years, JLT’s competitive. operations across Latin America have continued to make year-on-year Expectations that trading would improve in the second half were not financial progress, with their contribution to the Group’s trading profit met and, in early 2012, we strengthened our management team. increasing fourfold over the last three years. JLT Latin America enjoyed notable successes in the region winning Total revenues fell marginally by 1% to £30 million which was a 2% major construction and infrastructure projects working together with decrease over 2010 at constant rates of exchange. The trading colleagues in London. The Group’s specialty areas such as natural margin reduced by 3% to 13%, nevertheless our public sector and resources, construction, telecommunications and aviation coincide with professional practice businesses had a strong year. those industries that are beneficiaries of growth in the region. Our focus The business continues to operate along speciality lines which on employee benefits has also continued and now generates meaningful mirror the Group approach and wherever possible Canada revenues in the region. integrates local opportunities with global JLT initiatives. During the During 2011, we completed the purchase of a majority stake in Orbital year the Thistle underwriting business was launched building on the which is a Chilean retail and reinsurance broker. model of Thistle in the UK. During the year we hired leading industry professionals to join us and The Business Transformation Programme is enabling our operation JLT Latin America now has over 630 employees based in more than 20 in Canada to implement back-office efficiencies and further enhance offices across Brazil, Colombia, Peru and Chile. client service.
Principal lines of business Principal lines of business Energy, Oil & Power Construction Industrial Risk Corporate Employee Benefits Natural Resources & Energy Aviation Sport, Hospitality & Leisure Construction Public Sector Risks Telecommunications Financial & Professional Risks Reinsurance
16 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 17
Continental Europe Insurance Management
Financial highlights Financial highlights
Total Revenue Underlying Trading Profit Total Revenue Underlying Trading Profit £m £m £m £m
21.7 20.9 Trading Margin Trading Margin 4.9 5.0 (3%) 8% 3.5 2011 2011 0.4 16% 0.3 6%
10 (0.6) 2010 2010 BusinessReview 10 11 11 10 11 10 11
Our Northern European operations had a strong year. Ireland JLT Insurance Management helps corporations define and exceeded our expectations and we have added to its specialty maximise the benefit of their captive insurance and alternative risk capabilities with the acquisition of FBD, an agri-food specialist. transfer strategies. It has operations in Bermuda, Singapore, Our Nordic region businesses also performed well. Given the Guernsey, Barbados and also in Malta through a joint venture. increasingly specialist emphasis of Ireland and the Nordic region, we There was a modest improvement in the performance for JLT have moved the management of these businesses into JLT Specialty Insurance Management with revenue increasing 2%, or 4% at from the start of 2012. constant rates of exchange. Continued soft insurance market In Southern Europe the performance of our Italian business was conditions remained challenging. However, new business unsatisfactory and action was taken to reposition and merge that development initiatives implemented in the year, particularly in business with an independent specialty broker, Marine & Aviation emerging markets and new products, began to show positive S.p.A., at the conclusion of the year, in return for a 25% stake in the results in the latter part of the year and this will continue into 2012. combined business. This will provide a strong foundation from which The continued commitment to service quality and efficiency has to build the leading independent broker in Italy. provided opportunities in more mature markets. JLT Insurance In February 2012 we announced the combining of our retail Management continues to be an important adjunct to our retail operations in Spain with March-Unipsa, the largest independent client base as an essential part of risk management. commercial insurance broker in Spain. JLT has taken a 25% stake in the combined business which has strong specialty capabilities in construction, tourism and marine & cargo. Taking minority positions in leading independent brokers in Spain and Italy aligns with our broader European strategy of securing exclusive commercial relationships. This is already the case in France with our 26% shareholding in Siaci Saint Honoré, in Central and Eastern Europe with our 20% interest in GrECo and with JLT’s exclusive trading relationship with Ecclesia in Germany.
Principal lines of business Principal lines of business Specialty Captive Management Corporate Captive Consulting Schemes Protected Cell Vehicles Affinity Transformer Structures
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Business Review Review of Operations
JLT Specialty Lloyd & Partners
Financial highlights Financial highlights
Total Revenue Underlying Trading Profit Total Revenue Underlying Trading Profit £m £m £m £m
205.7 42.6 Trading Margin 70.2 72.3 16.9 16.3 Trading Margin 185.9 38.4 21% 23% 2011 2011 21% 24% 2010 2010 10 11 10 11 10 11 10 11
JLT Specialty continued to deliver a strong performance, with Lloyd & Partners comprises our London and Bermuda specialist revenue increasing by 11%, or 10% at constant rates of exchange, wholesale broking businesses. As a wholesale broker, Lloyd & to £205.7 million while maintaining a strong trading margin of 21%. Partners provides brokers in the US and elsewhere with access to The business delivered organic growth of 9% in challenging market insurance capacity in London, Bermuda and Continental Europe. conditions, its continued investment in people and its specialty focus It experienced another year of strong competition from the US enabling it to win market share. Strong performances were delivered domestic market, especially for property, healthcare and by energy, marine, credit & political, real estate, construction and professional liability risks. Soft market conditions have prevailed in aviation, where more than 35 new airline accounts were won during most classes of business during 2011. Despite the challenging the year. JLT’s specialty teams are increasingly collaborating with market and economic environment a 3% increase in revenue was their colleagues across the world to provide specialist advice on key achieved, 2% at constant rates of exchange. projects and to develop local capability. The London business achieved headline growth of 4% which In 2011 the business continued to make strategic investments in reflects strong levels of income growth from its cargo, specie, people to maintain its specialty focus and to grow its share of key property and casualty teams. Bermuda experienced some decline in industry and geographic markets as it pursues its vision to become revenue as a result of its significant US exposure, but with strong London’s leading specialist insurance broker in its defined sectors. management achieved an improvement in its trading margin. This included the significant expansion of the financial risks team with the recruitment of additional senior market practitioners to add 2011 was a year of consolidation and investment for Lloyd & to the financial institutions and professional indemnity capabilities. Partners with recruitment of further leading industry professionals to enhance a number of existing specialty areas. JLT’s specialist operations in both Ireland and the Nordic region will form part of JLT Specialty from 2012.
Principal lines of business Principal lines of business Aerospace Property Claims Consultancy Healthcare Construction Energy & Marine Credit, Political & Security Risks Professional Lines Energy Cargo, Fine Art & Specie Financial & Professional Risks Casualty Marine Programmes Real Estate
18 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 19
JLT Reinsurance Brokers
Financial highlights
Total Revenue Underlying Trading Profit £m £m
51.9 49.6 11.3 Trading Margin 10.4 22% 2011 21%
2010 BusinessReview 10 11 10 11
Our reinsurance business had a satisfactory year. Overall it achieved organic revenue growth of 3% whilst its trading margin improved from 21% to 22%. 2011 is estimated to be the worst year on record in terms of insured natural catastrophe losses at $105 billion against the previous high of $100 billion in 2005. As losses mounted throughout the year, reinsurance rates in loss-affected areas experienced significant upward adjustments. The current profile of JLT Re’s book of business, with its still relatively small international treaty book, means it did not benefit from the uplift in reinsurance rates in loss affected areas such as Australia, New Zealand and Japan. JLT Re initiatives executed during the year included opening operations in Miami, Basel and Sydney, adding to its treaty reinsurance capabilities in Singapore and entering the life reinsurance sector through its acquisition of a new Swiss-based team, each designed to enhance its distribution channels and facilitate further revenue growth. JLT Advisory completed its first full year of operation having closed its first meaningful corporate sale and generating a number of opportunities for its core reinsurance business.
Principal lines of business All classes of treaty and facultative reinsurance Corporate Finance Advisory
Jardine Lloyd Thompson Group plc Annual Report 2011 19 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 20
Business Review Review of Operations
Employee Benefits Our UK and Ireland Employee Benefits business delivered a 5% Financial highlights increase in revenues and a 20% increase in trading profit in the year, at Total Revenue Underlying Trading Profit a trading margin of 19%. This success reflects the continued diversification of the business and is all the more noteworthy when set £m £m against a difficult macro trading environment and clients reducing discretionary spend.
137.0 26.0 Trading Margin The UK pensions and benefits market continues to evolve. The process 130.1 of closure and de-risking of Defined Benefit Schemes and the growth in 21.7 Defined Contribution Schemes continued into 2011. JLT advised on 19% over 20 scheme buy-ins/outs during the year and working with its 2011 insurer partners were active in many more. Pension Capital Strategies continues to secure appointments to assist 17% sponsors manage their obligations. A significant number of new clients 2010 were secured by its Trustee Solutions business, including Home Retail Group. 10 11 10 11 The Independent Trustee business grew further, winning new mandates and engaging in significant transactions during the year including the ground breaking ‘deficit for equity swap’ in Uniq PLC and its Principal lines of business subsequent £800 million buy-out. The role of an independent trustee is becoming more prevalent as schemes seek experience in negotiating Trustee Solutions funding positions with sponsors and transactions with third parties. Offering a range of services designed to meet the The Employee Benefit Solutions business grew again during the year, requirements of pension scheme trustees including supported by JLT’s BenPal technology solution. Client implementations pensions and actuarial consulting, administration, have now exceeded 90 and new clients included Hitachi Data Systems, governance and communications. Wilmington Group plc and FNZ. The UK Government confirmed its Auto Enrolment legislation in 2011. Employee Benefit Solutions We see this as a major opportunity over the next three years to support Providing advice on the design, implementation and clients as they address compliance. During the year we secured operation of employee benefit programmes, using JLT’s appointments to work with leading retailers Morrisons Supermarkets, own integrated online benefit platform, BenPal. Halfords and Staples amongst other important clients. The Wealth Management business grew during the year, with demand Wealth Management from members for pension advice increasing as employers changed Offering advice and support to scheme members faced schemes and from high earners seeking advice on tax changes to with increasing scheme options, and through its Chartered pensions. Our investment management business continues to grow as it attracts more high net worth investors to our platform. Assets under Financial Practice offering high net worth clients holistic advice or management now exceed £1 billion, up from £600 million at financial advice. the time of the iimia acquisition in early 2010. Investment Solutions As the rate of growth of Defined Contribution pension assets accelerates, we see significant opportunity in the provision of Advising institutional clients on all aspects of investment investment solutions to these schemes and their members harnessing and managing assets for high net worth individuals. both our investment consulting expertise in the Defined Benefit market and our investment management experience in the retail market. Pension Capital Strategies We will commence reporting our international Employee Benefits results Providing strategic consultancy and execution for a range separately from the 2012 interims. These will include revenues and the of de-risking and risk transfer options to sponsors and trading profit line to give a clearer perspective of our international trustees of Defined Benefit schemes. business which we believe offers exciting opportunities particularly in healthcare over the medium term. Independent Trustee Services Providing independent trustee services to Defined Benefit schemes, particularly to those where risk and conflict may arise or complex transactions may be contemplated.
20 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:35 Page 21
Thistle Insurance Services
Financial highlights Thistle distributes ‘non-advised’ insurance products and facilities into niche or 'privileged access' segments of the consumer, small Total Revenue Underlying Trading Profit business and not-for-profit sectors. This sales activity is underpinned £m £m by a set of underwriting facilities where Thistle has been provided with underwriting authority by various insurers. This allows Thistle to share in the underwriting profitability of its business without taking any capital risk. 39.6 39.4 5.8 Trading Margin 5.5 Thistle sells insurance in one of two ways: 15% • Direct - where it sells directly to consumers, small businesses and the not-for-profit sector 2011 • Intermediated - where it sells through third party brokers who 14% have the relationship with the ultimate customers. Thistle businesses seek to sell to and service their clients through BusinessReview 2010 the internet, the telephone and via ‘on the ground’ sales teams. 10 11 10 11 Thistle tends not to act as a traditional broker, although our London Market business still performs this vital role for independent regional brokers in specialist areas or to complement its broader activity. Principal lines of business The relative size of Thistle's insurance premiums by transaction tends to be lower than other parts of JLT and the volumes higher, Direct which therefore requires a robust technology based operating platform and efficient processes in order to transact in a cost Online effective way. This is an area of significant ongoing investment. Distributing and underwriting insurance products to Thistle is more exposed than most parts of the Group to the impact consumers and small companies through the internet of the current crisis on UK consumer confidence, and has faced a or via a contact centre. very tough trading environment, reflected in the flat performance for the year, although excluding an exited book of unprofitable business Affinity Thistle’s underlying organic revenue growth was 4%. Working with affinity groups to distribute and We remain committed to the Thistle strategy and we have already underwrite insurance products to their members. taken the know-how and business model to Australia and Canada and believe Asia and Latin America also provide good potential Public & Social opportunities. Distributing and underwriting insurance to the Public Sector and to Housing Association tenants.
Intermediated This Insurance Distributing and underwriting insurance products to a network of more than 1,600 independent regional brokers. This London Market Providing UK independent regional brokers with access to the London Insurance Market. Expacare Distributing and underwriting expatriate healthcare insurance through independent brokers in the UK and abroad.
Jardine Lloyd Thompson Group plc Annual Report 2011 21 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 22
Business Review Review of Operations
Associates
Financial highlights GrECo, Central and Eastern Europe/CIS Contribution after tax £m JLT has a 20% equity share in the GrECo Group, an independent insurance broker and consultant and market leader in Central and In 2011 the contribution from our Eastern Europe. Headquartered in Austria, it has 52 offices with 660 associates after tax was £5.1 million employees in 15 countries. Its operations outside Austria are branded compared to £3.7 million in 2010, an 5.1 GrECo JLT. increase of 35%. This increase in part GrECo saw continued growth in its Austrian business and GrECo reflects the change in shareholding in Siaci JLT continues to develop its presence throughout Central and 3.7 Saint Honoré, which increased from 20% to Eastern Europe and the CIS. The rebranding of these offices and 26% in July 2011 and the contribution from the exclusive European Trading Partnership have enabled new GrECo for the full year rather than for six business initiatives to be developed, which are already making months as in 2010. good progress. More details of our key associates at 31st 10 11 December 2011 are set out below. JLT Sterling, Mexico
Sterling Re Intermediario de Reaseguro S.A. de C.V, which trades Associate holdings at 31st December 2011 as JLT Sterling, is a joint venture company incorporated in June 2010 in which JLT has a 34% shareholding, the balance of the JLT Interest shares being held by Lorant MS. Siaci Saint Honoré France 26% The business met its financial objectives in 2011, despite extremely challenging trading conditions and the partnership with Lorant MS GrECo Central & Eastern Europe/CIS 20% continues to provide a broad range of opportunities including JLT Sterling Mexico 34% bringing Mexican business into the international market. Marine & Aviation-JLT Italy 25% Marine & Aviation JLT, Italy
At the end of 2011, JLT combined its existing Italian broking Siaci Saint Honoré, France business with Marine & Aviation S.p.A. to form Marine & Aviation- JLT taking a 25% share interest in the newly formed joint venture. Siaci Saint Honoré, our associate company headquartered in Paris, The combined business has expertise in marine, aviation, corporate continues to flourish as a leading provider of insurance broking and clients, high-net worth and affinity. The combined business employee benefits services to major French companies and multi- provides a strong foundation from which to build the leading national corporations. A capital restructuring took place in July independent insurance broker in Italy. which resulted in JLT’s shareholding increasing from 20% to 26%. The value of our collaboration with Siaci Saint Honoré and its impact in bringing business to the London Market has continued to grow in 2011, both for Risk & Insurance and Employee Benefits. Siaci Saint Honoré's international healthcare insurance and claims handling operation, principally based in Calgary, Paris, Dubai and Shanghai, also continues to performed well.
22 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 23
Business Review Finance Director’s Review
The results for 2011 demonstrate the “ ability of the Group to achieve continued organic growth, with the savings derived from the Business Transformation Programme providing the continued capacity to invest in client facing staff and technology.”
Simon Mawson Finance Director BusinessReview
The results for 2011 demonstrate the ability of the Group to achieve The tax charge for the year was £39.2 million, representing an continued organic growth, with the savings derived from the underlying tax expense of £41.6 million. The 2010 comparative tax Business Transformation Programme providing the continued expense included non-recurring tax credits of £13.2 million, primarily capacity to invest in client facing staff and technology. relating to a reassessment of the Group's tax position, following the resolution of several long outstanding tax matters with various tax Underlying trading profit for the year increased by 13% to £147 authorities which amounted to £10.3 million. The underlying effective million, an increase of 10% at constant rates of exchange (CRE), tax rate for 2011 was 28% (2010: 29%). reflecting: Profit after tax and non-controlling interests was £88.7 million (2010: • revenue growth of 10% to £818.8 million, an increase of 8% at £90.7 million). Diluted earnings per share were 40.4p on a reported CRE. This increase comprised organic growth of 7% and a basis (2010: 41.7p). combined contribution from acquisitions and growth in investment income of 1%. Investment income on fiduciary funds was £6.8 million (2010: £5.6 million); Business Transformation Programme The Group's three-year Business Transformation Programme • an improvement in the underlying trading margin, which remains on schedule to complete in June 2012. The purpose of the increased from 17.4% to 18%, notwithstanding continued Programme is to streamline back-office processes and enhance investment for growth. As a consequence the operating cost delivery of the services we provide to clients. ratio has continued to reduce. By the end of the Programme, this initiative is expected to deliver Reported profit before tax was £134.5 million (2010: £119.4 million) some £23 million of recurring cost savings per annum, in return for which includes net exceptional and non-recurring costs of £13.1 cumulative one-off costs of £27 million. Due to the material size of million, comprising Business Transformation Programme costs of this non-recurring expenditure, the one-off costs to achieve the £8.9 million, costs of £1.9 million associated with the Jardine Programme are included as exceptional. Matheson share purchase, restructuring costs in Italy of £1.7 million and acquisition integration costs of £0.6 million.
H2 2009 2010 2011 H1 2012 £m Actual Actual Actual Forecast Incremental One-off costs (7) (7) (9) (4) Associated benefits 3 8 7 5
Cumulative One-off costs (7) (14) (23) (27) Recurring benefits 3 11 18 23
Jardine Lloyd Thompson Group plc Annual Report 2011 23 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:39 Page 24
Business Review Finance Director’s Review
Performance Summary
Despite challenging trading conditions continuing in all its key markets, JLT once again delivered a strong financial performance in 2011. This is summarised in the table below which includes a comparison using constant rates of exchange (CRE).
£m Total Revenue Trading Margin Underlying Trading Profit** 2011 Growth CRE Organic* 2011 CRE 2010 2011 CRE 2010
RISK & INSURANCE Retail businesses: Australasia 125.6 16% 6% 5% 28% 28% 28% 34.9 31.8 29.9 Asia 81.9 28% 29% 29% 21% 23% 21% 17.3 18.8 13.7 Latin America 48.8 19% 19% 19% 31% 31% 28% 14.9 15.1 11.7 Canada 30.0 (1%) (2%) (2%) 13% 13% 16% 3.9 3.9 4.9 Continental Europe 20.9 (4%) (7%) (17%) (3%) (3%) 16% (0.6) (0.6) 3.5 Insurance Management 5.0 2% 4% 5% 8% 8% 6% 0.4 0.4 0.3 South Africa 0.3 ------(0.7) (0.7) - 312.5 15% 11% 10% 22% 23% 24% 70.1 68.7 64.0 London Market businesses: JLT Specialty 205.7 11% 10% 9% 21% 20% 21% 42.6 40.8 38.4 Lloyd & Partners 72.3 3% 2% 2% 23% 22% 24% 16.3 15.8 16.9 JLT Reinsurance 51.9 5% 4% 3% 22% 21% 21% 11.3 11.0 10.4 329.9 8% 7% 7% 21% 21% 21% 70.2 67.6 65.7
RISK & INSURANCE 642.4 11% 9% 8% 22% 22% 22% 140.3 136.3 129.7 EMPLOYEE BENEFITS 137.0 5% 5% 5% 19% 19% 17% 26.0 26.0 21.7 THISTLE INSURANCE SERVICES 39.4 -- -15% 15% 14% 5.8 5.8 5.5 Central Overheads ------(25.1) (25.1) (27.0) 818.8 10% 8% 7% 18.0% 17.8% 17.4% 147.0 143.0 129.9
Underlying trading profit 147.0 129.9 Associates after tax 5.1 3.7 Underlying net finance costs (4.5) (3.5) Underlying profit before taxation 147.6 130.1 Net exceptional costs (13.1) (10.7) Profit before taxation for the year 134.5 119.4 Underlying tax expense (41.6) (37.7) Non-recurring tax credit and tax on net exceptional items 2.4 13.2 Non-controlling interests (6.6) (4.2) Profit after taxation (after non-controlling interests) 88.7 90.7
Underlying profit after taxation (after non-controlling interests) 99.4 88.2
Diluted earnings per share 40.4p 41.7p
Underlying diluted earnings per share 45.3p 40.5p
*Organic growth is based on total revenue excluding the effect of currency, acquisitions and disposals and investment income. Total revenue comprises fees, commissions and investment income. **Underlying results exclude exceptional and non-recurring items. CRE (Constant rates of exchange).
24 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 25
Operating cost ratio Dividend cover Underlying operating costs Underlying diluted earnings per share divided by fees and commissions divided by total dividend per share
84.2% 1.9x 83.2% 82.7% 1.8x 1.6x
09 10 11 09 10 11 BusinessReview
Dividends Financing and liquidity The board is recommending a final dividend in respect of 2011 of Following the successful refinancing in 2010 the Group has 14.8p per share. Together with the interim dividend of 9.2p per committed long term unsecured debt facilities equivalent to £352 share, this brings the total dividend to 24.0p per share, an increase million with maturities between 2015 and 2022. Gross borrowings of 7%. This represents improved dividend cover of 1.9 times, based as at 31st December, 2011 were £190 million with unutilised on underlying diluted earnings per share, compared to 1.8 times in headroom of approximately £162 million. 2010. This provides JLT with core committed long term funding and flexibility to support the future growth of the business. Balance sheet and cash flow Net debt at 31st December 2011 was £100 million. The increase of Foreign exchange management and currency risk £24 million compared to 2010 was primarily due to our continuing The Group has transactional and translational foreign exchange acquisition programme. exposures. The transactional exposure arises primarily in the London Net pension liabilities increased by £48 million to £121 million. Market businesses, which have a sterling cost base but which have This is mainly due to a reduction in the discount rate used to a significant proportion of US dollar-denominated revenues measure accounting liabilities. Otherwise the key pension scheme (approximately US$265 million in 2011, representing 20% of the assumptions broadly remain on a consistent basis with 2010. Group’s revenue).
USD Revenue Protection
Full Year Projections Forward Rates Actual 2011 2012 2013 2014 2015
Hedging rates achieved as at 28th Feb 2012 $1.52 $1.54 $1.54 $1.56 $1.53 % revenue hedged 100% 86% 85% 70% 20% Market forward rates as at 28th Feb 2012 $1.58 $1.57 $1.57 $1.56 Blended rates after hedging $1.52 $1.54 $1.54 $1.56 $1.55
Value of $265m revenue £174m £172m £172m £170m £171m Approx year-on-year revenue impact £3m (£2m) - (£2m) £1m
Jardine Lloyd Thompson Group plc Annual Report 2011 25 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:16 Page 26
Business Review Finance Director’s Review
The Group continues to operate a prudent hedging programme to capital ratios. All exposures to individual counterparties are subject to reduce the volatility caused by exchange rate movements, by a formal credit limit to control concentrations of credit exposure and entering into forward foreign exchange contracts. limit the impact of default risk. Counterparty limits, ratings, credit default spread rates and capital base, together with utilisation levels, In 2011, the Group achieved an average rate of US$1.52. are reviewed regularly and reported to the Group Board and Audit & The Group’s hedging position as at 28th February 2012 is set out in Risk Committee. the table on page 25 along with an indication of the potential year- on-year revenue impact based on current market rates. The respective credit quality by rating of each class of financial asset is included within the notes to these accounts. As a guide, each one cent movement in the achieved rate (taking into account the hedges in place) currently translates into a change of approximately £1 million in revenue, with a corresponding impact on Capital risk and liquidity trading profit equal to approximately 65% of the revenue change. The Group's objectives when managing capital are to safeguard the Based on current hedging levels, in 2012 it would take a movement ability to continue to provide returns for shareholders and benefits for of 7 cents in the spot rate to create a 1 cent movement in the other stakeholders and to maintain an efficient capital structure to achieved rate. ensure an optimal cost of capital. In order to achieve these objectives, the Group may adjust the amount of dividends paid to The Group has significant investments in overseas operations. shareholders, return capital to shareholders, issue new shares or sell Movements in exchange rates between balance sheet dates will assets to reduce debt. affect the sterling value of the Group’s consolidated balance sheet. The Group does not hedge exposure to currency movements that The Group manages its balance sheet through monthly reviews, affect the translation of the profits of overseas subsidiaries earned in controls and financial reporting. foreign currencies, except to the extent that those profits are The Group continues to maintain adequate, committed, long-term expected to be distributed to the holding company. credit facilities to ensure that it is well positioned to meet seasonal The currency profile of the Group’s borrowings is managed to capital requirements and to support the strategic growth of the mitigate exposure to translation exposures where practical and cost business. There are no restrictions on the use of these facilities in the effective. normal course of business. The insurance broking operations within the Group operate in a Interest rate risk number of jurisdictions where local regulation requires a minimum The Group has both interest bearing assets and interest bearing level of capital to be maintained. The total regulatory capital to be liabilities that give rise to net exposures to changes in interest rates, held by the Group is not considered significant in the context of the primarily in US Dollars and Sterling. Where appropriate, the Group total available capital. uses interest rate swaps to hedge or match these interest rate exposures. The Group’s policy is to continue to manage net interest rate exposures arising from the Group’s cash and borrowings. The total capital of the Group at 31st December 2011 and Each 1% movement in the average achieved rate of return impacts 2010 was as follows: interest income receivable by approximately £7.0 million, based on average invested balances. £m 2011 2010 Total own funds (90.1) (69.3) Counterparty credit risk Borrowings 190.1 145.4 The Group's gross exposure to credit risk at 31st December 2011 is Net debt 100.0 76.1 £787 million, representing own cash, fiduciary funds, investments and deposits, derivative assets and trade receivables. The Group Total equity 298.4 303.4 maintains a counterparty policy based on credit analysis, market data Total capital 398.4 379.5 and published ratings criteria to manage the concentration of funds and exposure to individual counterparties. Deposit limits are assigned to each counterparty appropriate to its credit rating and overall financial profile. The Group manages its own cash and invested fiduciary funds in the form of deposits with investment grade banks, AAA money market funds and other secure short-term money market instruments. All deposit counterparties are subject to review at Board level. The Group’s approval criteria include a requirement that financial institutions maintain a minimum long-term rating of A, with additional reference to credit default swap spreads and capital base and Tier 1
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Acquisitions On 10th October 2011, the Group took a 50.1% holding in Alta SA, the parent company of Orbital Corredores de Seguros a leading insurance broker in Chile for a consideration of £9.73 million. This business contributed revenue of £2.1 million and a net profit of £763,000 for the period since acquisition. On 29th December 2011, the Group acquired FBD Insurance Brokers Limited in Ireland, a specialist in the agri-food sector. This contributed no revenue or net profit to the Group for 2011. On 31st December 2011 the Group disposed of its shareholdings in its Italian operations, Jardine Lloyd Thompson S.p.A. and Jardine Lloyd Thompson S.r.l., when these businesses were merged with Marine & Aviation S.p.A., an independent Italian insurance broker with strong positions in the marine and aviation sectors as well as
other growing specialisms. The Group has a 25% stake in the newly BusinessReview formed joint venture, which did not contribute any revenue or profit to the Group in 2011. On 15th February 2012 the Group agreed to combine its shareholding in its Spanish operation, JLT-Siaci Espana S.L., with that of March-Unipsa Correduria de Seguro, Spain’s largest independent insurance broker with specialty capabilities including construction, marine and cargo and tourism. The Group acquired a 25% stake in the merged business for a total consideration of €16.8 million.
Basis of presentation The Group's 2011 financial statements include a consolidated income statement, balance sheet, statement of comprehensive income, statement of changes in equity and a statement of cash flows. These statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. Statutory accounts of individual Group companies are prepared, as required, in accordance with applicable local accounting standards. The balance sheet of the parent company, Jardine Lloyd Thompson Group plc, which is included in this Annual Report, has been prepared in accordance with generally accepted accounting principles in the UK.
Simon Mawson Finance Director 20th March 2012
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Business Review Risk Management Report
Responsibility and accountability for risk management is shared Corporate governance and oversight across all Group companies, with ultimate responsibility resting with Our risk governance framework acknowledges that responsibility for the Board. Each operating company maintains controls and the management of risk resides with the operational management of procedures appropriate to its own business and regulatory our businesses, and allocates responsibility for the oversight of risk environment while conforming to Group standards and guidelines. management to the local Boards and Audit & Risk Committees. The identification and mitigation of major business risks is the This structure operates across our international operations with responsibility of operational management and the Board. ultimate responsibility and oversight resting with the Group Board As a global company JLT faces a range of risks, each of which has and the Group Audit & Risk Committee. the potential to impact on financial performance or the achievement of strategic business objectives. JLT's Group-wide risk management Principal risks activities are supported and co-ordinated through a centralised The principal risks faced by the Group are summarised in the table Group risk management team. Assurance is gained through opposite. financial, operational, compliance and quality based auditing. Significant failures are reported to the executive directors to ensure Financial risks that remedial action is taken. The principal financial risks are also discussed in more detail in the The responsibility for internal controls within associated undertakings Finance Director’s Review on pages 23 to 27. rests essentially with the senior management of those operations, the role of the Group being to monitor its investments and to exert influence, normally through Board representation. The directors acknowledge that they are responsible for the Group’s risk management and internal control systems and for reviewing their effectiveness. The Board has undertaken a review and is satisfied that appropriate processes and procedures are in place within the Group's businesses. In view of the continued expansion of the Group these need to be continually monitored to ensure that they keep pace with the requirements of the business. Further review and development of the Group's risk management and control framework will be undertaken in 2012.
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Principal Risks Nature of Risk Risk Mitigation
STRATEGIC AND OPERATIONAL RISKS
Strategic Risks Risks to the business model arising from • GEC and Board review of strategic risks changes in external events, our markets • Strategic review and planning process and customer behaviour as well as risks • Global efficiency initiative arising from mergers and acquisitions • Acquisition due diligence and risk assessment processes Loss of Key Staff Risks arising from the inability to retain key • Succession planning processes staff within our core business operations • Effective appraisal and development programmes • Robust contracts of employment
Business Interruption Risk of business interruption arising from a • Dedicated Group business continuity management major external event function • Detailed Group business continuity policy and procedures • Regular independent review and testing of business
continuity plans BusinessReview Loss of IT Environment Risks arising from non-performance of an • Detailed IT policy and procedures in place IT supplier, malicious act, cyber crime and • Strong governance procedures over IT outsourcing and staff not following Group IT policies and service level agreements in place procedures • Monitoring of compliance with a Group IT security policy and service level agreements Information Security Risk of loss of records, breach of • Limits of authority in place. confidentiality or inadequate security • Group Information Security Policy measures • Risk-based monitoring and reviews monitoring performed by Group Information Security Officer and Internal Audit
CONDUCT OF BUSINESS RISKS Errors & Omissions Risks arising from non-compliance with • Common operating procedures and compliance policy operating procedures in place across the • Continuous training in errors & omissions avoidance Group, or alleged negligence in provision of • Central and regional risk and compliance monitoring services/advice • Strong procedural and systems controls including workflow management • Insurance Regulatory Sanctions/Financial Crime Risks arising from non-compliance with or • Regular and ongoing quality and compliance audits misinterpretation of local and international • Common operating procedures and compliance policy regulations and failure to meet regulatory • Continuous staff training programmes standards • Central and regional risk and compliance resource • Regular and ongoing compliance audits • Insurance
FINANCIAL RISKS
Capital Risk and Liquidity Risks arising from an inability to maintain • Monthly reviews of the Group balance sheet an efficient capital structure and ensure an • Management of refinancing and liquidity risk including optimal cost of capital maintenance of adequate, committed credit facilities • Compliance with regulatory minimum capital resources and regular stress testing Foreign Currency Risk of adverse impact on the balance • Prudent management of currency exposures through the sheet or earnings arising from exposure to maintenance of a rolling hedging programme using forward significant foreign currency transactions foreign currency transactions and derivatives where appropriate • Regular review and sensitivity analysis Interest Rate Risk Risk of adverse impact on earnings from • Prudent use of interest rate hedging instruments where net exposure to changes in interest rates appropriate to hedge future interest rate exposures
Counterparty Risk Risk of loss of own cash, fiduciary funds, • Board approved investment and counterparty policy to: investments and deposits, derivative assets - limit the concentration of funds and exposure with any and trade receivables as a result of the one party failure of key counterparties - define cash and investments policy • Active management and monitoring of counterparty limits, financial strength and credit profile of key counterparties • Regular review by Board and Audit & Risk Committee of counterparty limits, ratings, credit default swap spread rates, utilisation and compliance with applicable regulation
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Corporate Governance Directors’ Profiles
1. 5. 9
2. 6. 10.
3. 7.
4. 8.
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1. G M T Howe, Chairman 4. M F G Drummond Brady 8. S J Mawson, Finance Director Non-Executive Mark Drummond Brady has been with the Simon Mawson, a chartered accountant, Geoffrey Howe was appointed a Non- JLT Group since 1987 and has held a was appointed Finance Director of the Group Executive Director in January 2002 and number of senior posts. in August 2010. He is a member of the Group Executive Committee. became Joint Deputy Chairman in November He is currently the Group’s International 2004. Chairman of Risk & Insurance. He was He joined JLT from PT Astra International He was appointed Chairman in April 2006 appointed a Director of Jardine Lloyd Tbk, an Indonesian listed conglomerate, and is a member of the Nominations Thompson Group plc on 1st March 2011 where he was Director responsible for Committee. and is a member of the Group Executive Finance, Risk Management and Information Committee. Technology. Prior to Astra, he worked for He is Chairman of the Nationwide Building PricewaterhouseCoopers in Leeds, London Society and a non-executive director of and Hong Kong and for Jardine Matheson in Close Brothers Plc. He was formerly 5. R J Harvey various financial positions in Hong Kong. Chairman of Railtrack Group plc, a director of Investec plc, group general counsel of Robert Non-Executive Fleming Holdings and managing partner of Richard Harvey was appointed a Non- 9. J G H Paynter Clifford Chance. Executive Director in December 2009. He is a member of the Audit & Risk, Non-Executive Nominations and Remuneration Committees. John Paynter was appointed a Non- 2. D J Burke, Chief Executive Executive Director in October 2008. He enjoyed a long and successful career in He is Chairman of the Remuneration Dominic Burke joined Jardine Lloyd the insurance industry principally with Committee and a member of the Audit & Thompson in 2000, when the Burke Ford Norwich Union where he was Chief Executive Risk and Nominations Committees. Group of companies, of which he was Chief from 1998 to 2000 and subsequently with Executive and co-founder, became part of Aviva plc where he was Group Chief A barrister, John joined Cazenove & Co in JLT. Executive from 2001 to 2007. 1979 and became Head of Corporate Finance in 1995. He became Vice Chairman He was appointed Chief Executive of the UK He was also Chair of the Association of of the JP Morgan Cazenove investment and Ireland Insurance Broking and the British Insurers from 2003 to 2005. He is banking joint venture on its creation in March Group's Employee Benefits businesses in Non-Executive Chairman of PZ Cussons plc 2005 and retired in July 2008 following a 29 2000 and was appointed a Director and and is a fellow of the Institute of Actuaries. Chief Operating Officer of Jardine Lloyd year career in the City during which he Thompson Group plc in January 2005. advised on many landmark transactions and advised some of the UK's largest companies, He was appointed Group Chief Executive in 6. S L Keswick including many in the banking and insurance December 2005. Non-Executive sectors. He was appointed a Non-executive Director Simon Keswick was a non-executive director CorporateGovernance He is a non-executive director of Standard and Deputy Chairman of Newbury of JIB Group plc between 1988 and 1997 Chartered plc, Standard Life plc, Chairman of Racecourse plc in November 2010 and and was appointed a Director of the Standard Life Investments Holdings Limited became Chairman in June 2011. Company in January 2001. He is a member and a senior advisor to Greenhill & Co of the Audit & Risk, Remuneration and International. Nominations Committees. 3. Lord Leach of Fairford, Deputy Chairman His other directorships include Jardine Matheson Holdings Limited and other 10. V Y A C Wade Non-Executive Jardine Matheson Group companies. Vyvienne Wade was appointed a Director in Lord Leach was Chairman of Jardine 2002 and is a member of the Group Insurance Brokers, latterly JIB Group plc, 7. N R MacAndrew Executive Committee. She is Group Legal between 1988 and 1997. He was appointed Director, CEO of JLT Latin America and Deputy Chairman of the Company in Non-Executive Chairman of JLT Insurance Management. February 1997. Nick MacAndrew was appointed a Non- A barrister and member of the Inner Temple, He is Chairman of the Nominations Executive Director in July 2005. Vyvienne joined JLT in 1987 and was made Committee and a member of the He is Chairman of the Audit & Risk Group Legal Director in 1995. Remuneration Committee. Committee and a member of the His other directorships include Jardine Remuneration and Nominations Committees Matheson Holdings, Rothschild Continuation and is Senior Independent Director. AG and other Jardine Matheson Group A chartered accountant, he was previously companies. Finance Director of Schroders plc, Chairman of F&C Asset Management plc and of Save the Children and a Non-Executive Director of Fuller Smith & Turner plc. He is a Non-Executive Director of Wates Group Limited.
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Corporate Governance Directors’ Report
The Directors present their report and the audited consolidated Restrictions on voting financial statements of the Group for the year ended 31st December No member, unless the Directors otherwise determine, is entitled to 2011. vote either in person or by proxy at any general meeting in respect of Principal activities and business review any shares held by him if any call or other sum then payable by him in respect of that share remains unpaid. In addition, no member is Jardine Lloyd Thompson Group plc is a holding company entitled to vote if he has been served with a notice after failure to (Company Registration Number:1679424). provide the Company with information concerning interests in those Its principal subsidiary and associated undertakings are engaged in shares required to be provided under the Companies Act. risk management advice, insurance and reinsurance broking, underwriting services and the provision of employee benefit services. Deadlines for exercising voting rights Votes may be exercised in person, by proxy, or in relation to corporate The Business Review, comprising the Chairman’s Statement, Chief members, by corporate representative. The Articles provide a deadline Executive’s Review, Review of Operations, Finance Director’s Review for submission of proxy forms of not less than 48 hours before the and Risk Management Report together with the Overview on pages 1 time appointed for the holding of the meeting or adjourned meeting to 29 report on the Group's development during the year under review and the notice of Annual General Meeting will specify the deadline for and on the outlook for the future. These fulfil the requirements of the exercising voting rights. Business Review and are incorporated in this report by reference. Variation of rights Results and dividends If at any time the capital of the Company is divided into different The financial statements set out the consolidated results of the Group classes of shares then, subject to statute, the Articles specify that for the year ended 31st December 2011, which are shown on pages rights attached to any class of shares may be varied with the written 49 to 104. The profit attributable to shareholders amounted to consent of the holders of at least 75% (nominal value) of the issued £88,746,000 (2010: £90,664,000). shares of that class, or with the sanction of an extraordinary resolution The financial statements for the Company to 31st December 2011, passed at a separate general meeting of the holders of those shares. prepared in accordance with UK GAAP, are set out on pages 107 to At every such separate general meeting the quorum is two persons 110. holding or representing by proxy at least one third in nominal value of the issued shares of the class (calculated excluding any shares held The Directors recommend the payment of a final dividend of 14.8 as treasury shares). pence per share which, together with the interim dividend of 9.2 pence per share paid in October 2011, amounts to a total dividend of A member that is a corporation may appoint an individual to act on its 24.0 pence per share (2010: 22.5 pence per share). behalf at a general meeting or class meetings as a corporate representative. The person so authorised shall be entitled to exercise Shareholders’ rights the same powers on behalf of such corporation as the corporation Dividends and distributions could exercise if it were an individual member of the Company. Shareholders can declare final dividends by passing an ordinary Transfer of shares resolution but the amount of the dividend cannot exceed the amount All transfers of shares may be effected by transfer in writing in any recommended by the Board. usual or common form or in any other form acceptable to the The Board can pay interim dividends whenever the financial position of Directors. The instrument of transfer must be signed by or on behalf of the Company, in the opinion of the Board, justifies such payment. The the transferor and (except in the case of fully-paid shares) by or on Board can withhold payment of all or any part of any dividend or other behalf of the transferee. The transferor shall remain the holder of the monies payable in respect of the Company’s shares from any person shares concerned until the name of the transferee is entered in the with a 0.25 per cent interest (as defined in the Articles) if that person Register of Members of the Company. The Directors may, at any time has been served with a notice after failure to provide the Company after the allotment of any share, but before any person has been with information concerning interest in those shares required to be provided under the Companies Act. In addition, the Directors may deduct from any dividend payable to any member all sums of money Substantial shareholders (if any) presently payable by him to the Company on account of calls At 16th March 2012 (being the latest practicable date prior to the or otherwise in relation to shares of the Company. The Directors may posting of this report), the Company had been notified of the retain any dividends payable on shares on which the Company has a following major interests each representing 3% or more of the lien, and may apply the same in or towards satisfaction of the debts, existing issued ordinary share capital (see table below). Jardine liabilities or engagements in respect of which the lien exists. Matheson Holdings Limited's interest is held through its wholly Voting rights owned subsidiary JMH Investments Limited. Jardine Strategic On a show of hands at a general meeting, every member present in Holdings Limited is interested in the shares of Jardine Matheson person has one vote and on a poll every member who is present in Holdings Limited under Section 823(1)(b) of the Companies Act person or by proxy has one vote for each share held. In the case of 2006. joint holders of a share the vote of the senior who tenders a vote Ordinary % whether in person or by proxy will be accepted to the exclusion of the Shareholder shares Held votes of the other joint holders and, for this purpose, seniority will be determined by the order in which the names stand in the Register of JMH Investments Limited 87,701,454 40.20 Members in respect of the share. Voting rights in relation to Treasury Silchester International Investors LLP 16,260,234 7.45 shares are suspended and the voting rights are not normally exercised Massachusetts Financial Services Company 10,100,298 4.63 in respect of the shares held in the employee benefit trusts. Royal Bank of Canada 8,692,411 3.98
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entered in the Register of Members as the holder, recognise a The rules relating to the appointment and replacement of Directors are renunciation by the allottee in favour of some other person and may set out in the Articles of Association, under which the minimum accord to any allottee of a share a right to effect such renunciation number of Directors must be no less than two and this number may upon and subject to such terms and conditions as the Directors may be increased or reduced by ordinary resolution. think fit to impose. Transfers of shares which are in uncertificated form The Board can appoint any person to be a Director and any person so are effected by means of the CREST system. appointed must stand for re-election at the next Annual General The Directors may refuse to register a transfer of certificated shares Meeting. The Articles of Association require each Director to stand for that are not fully paid provided that the refusal does not prevent re-election at least once every three years. The Company has elected dealings in that class of shares from taking place on an open and to adopt the UK Corporate Governance Code (June 2010) proper basis. The Directors may also refuse to register an allotment or requirement that all Directors should stand for re-election annually. transfer of shares (whether fully-paid or not) in favour of more than four Accordingly, all Directors will retire at the forthcoming Annual General persons jointly. If the directors refuse to register an allotment or Meeting and, being eligible, will offer themselves for re-election. transfer they must within two months after the date on which the letter The service contract for Mr Howe is subject to a six-month notice of allotment or transfer was lodged with the Company send to the period. The service contracts for Lord Leach and Messrs Harvey, allottee or transferee a notice of the refusal. Keswick, MacAndrew and Paynter are subject to a three-month notice The Directors may decline to recognise any instrument of transfer provision. The service contracts for Mr Burke, Mr Drummond Brady, unless the instrument of transfer is in respect of only one class of Mr Mawson and Mrs Wade are subject to a notice period of one year. share and when submitted for registration is accompanied by the Each year the Board conducts a review of its performance as a Board relevant share certificates and such other evidence as the Directors both collectively and as individuals and identifies areas where it can may reasonably require. improve its effectiveness. The Board performance evaluation for 2011 Subject to statutes and applicable CREST rules, the Directors may was undertaken by means of individual questionnaires that were determine that any class of shares may be held in uncertificated form summarised and discussed by the Board or the relevant committee. and that title to such shares may be transferred by means of the The outcome of this process for the Board resulted in recommended CREST system or that shares of any class should cease to be so held changes in three key areas, namely an increase in the focus on risk and transferred. issues, improvement in the Board paper production and distribution A shareholder does not need to obtain the approval of the Company, process and a greater attention to setting and monitoring board or of other shareholders of shares in the Company, for a transfer of objectives for the year. shares to take place. Following review, the Board is satisfied that it continues to operate Relationship with Jardine Matheson Group effectively and constructively, with the necessary balance of expertise, experience, independence and knowledge of the business in order to During the year, the Group continued to have a number of arms- deliver long-term shareholder value.
length trading links with Jardine Matheson Group companies, as set CorporateGovernance The non-executive directors, led by the senior independent director, out in note 33 on page 102. also carried out a performance evaluation of the Chairman during this On 15th September 2011, Jardine Matheson Holdings Limited period. (‘Jardine Matheson’) and the Independent Directors of JLT announced Full details of directors’ remuneration and interests are shown in the that they had reached agreement on the terms of a unanimously Remuneration Report. Directors are not required to hold any shares of recommended partial cash offer pursuant to which Jardine Matheson, the Company by way of qualification. through its direct wholly-owned subsidiary JMH Investments Limited (‘JMHI’), would offer to acquire 21,734,665 JLT shares, representing At the date of this report the Board is comprised of four executive approximately 10% of the issued ordinary share capital of JLT (the directors and six non-executive directors including the Chairman. “Partial Offer”). Board Diversity The Partial Offer was for a cash consideration of 765 pence per JLT JLT supports the recommendation in the Code that Boards should share, which represented a 23.6% premium to the share price on 14th consider the benefits of diversity, including gender, when making September 2011. The full terms and conditions of the Partial Offer and Board appointments. Our aim as regards the composition of the Board the procedures for approval and acceptance of the Partial Offer were is that we should have a balance of skills, experience, independence set out in an offer document from Jardine Matheson dated 23rd and knowledge to enable each Director and the Board as a whole to September 2011. discharge their duties and responsibilities effectively. For us, the issue On 7th November 2011, Jardine Matheson announced that all of the of gender is one aspect of this broader issue of diversity. While we conditions to the Partial Offer had been satisfied or waived and, agree that it is entirely appropriate that we should seek to have a accordingly, the Partial Offer was declared unconditional in all respects diverse membership on our Board, we do not believe that this can at that date. sensibly be addressed by establishing quotas or targets. Continuing to Accordingly, with effect from 7th November 2011, the interest of select the best candidate, irrespective of background, is paramount. Jardine Matheson (and JMHI) in JLT shares increased from 65,966,789 shares to 87,701,454 shares, representing 40.23% of the Directors’ interests and potential conflicts issued capital of JLT at that date. Settlement of the Partial Offer was During the period, no director had any material interest in a contract, effected by Jardine Matheson on 15th November 2011. disclosable pursuant to Section 175 Companies Act 2006, to which the Company or any of its subsidiary undertakings was a party. The Board Following the changes made to the Company’s Articles at the 2008 Appointment and replacement of Directors Annual General Meeting and the subsequent introduction of Section Apart from Mark Drummond Brady, who was appointed a Director on 175 of the Companies Act 2006 on 1st October 2008 which gave 1st March 2011, the Directors shown on pages 30 and 31 served Boards the statutory power to authorise conflicts of interest, formal throughout the year.
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Corporate Governance Directors’ Report
conflict management procedures have been prepared and approved The Board considers that the members of the Committee collectively by the Board. The Board is responsible for reviewing and authorising possess the requisite skills and experience to enable it to discharge its any conflict declarations arising and these are subject to periodic responsibilities in a proper manner. review by the Board. These procedures remained in place for the year The Committee met four times during the year, with representatives and no conflicts of interest have been reported. from the external and internal auditors, and the Group Finance Powers of the Directors and Board procedures Director, Group Legal Director, Group Chief Operating Officer and Subject to the Articles, the Companies Act 2006 and any directions Group Chief Risk Officer normally in attendance at each meeting. given by special resolution, the business of the Company is managed The Chairman and the Group Chief Executive also attend, subject to by the Directors who may exercise all the Company’s powers, availability. including borrowing money, mortgaging or charging any of its In addition, the Committee meets separately with the external and undertaking, property and uncalled capital and issuing debentures and internal auditors. Details of the attendance of each member are set out other securities, whether outright or as collateral security for any debt, in the table below. liability or obligation of the Company or of any third party. The Committee is, inter alia, responsible for: There are established formal procedures for the structure and • Monitoring the integrity of the financial statements of the Group authorities through which the Board discharges its responsibilities for and any formal announcements relating to the Group's financial the direction and management of the Group. performance, and reviewing significant financial reporting The Board meets at least six times a year, to review the performance judgements contained therein; of the Group and to discuss the matters reserved for its decisions, • Reviewing the Group's risk management framework, risk appetite which include, inter alia, the approval of Group strategy and budget and risk strategy to ensure that these are appropriate to the plans, material expenditure authorisations and any other matters that activities of the Group and to make recommendations to the are referred to it. Board. The Board is responsible for identification of the material The Board has established a number of standing committees including risks facing the Group and for determination of risk appetite; an Audit & Risk Committee, a Nominations Committee and a • Reviewing the effectiveness of the Group's system of internal Remuneration Committee. The terms of reference of these committees controls, such review covering financial, operational and are available on the Company's website. compliance controls and risk management and reporting to the Board thereon; Relationship with shareholders • Monitoring and reviewing the effectiveness of the Group's internal The Board endeavours to maintain dialogue with institutional audit function; shareholders and carries out a programme of meetings and • Making recommendations to the Board in relation to the presentations each year following the publication of interim and final appointment of the external auditors and the approval of the results and at other times as appropriate. At the Annual General remuneration and terms of engagement of the external auditors; Meeting the Chairmen of the Audit & Risk, Nominations and • Reviewing and monitoring the external auditors' independence Remuneration Committees will be available to answer questions. and objectivity and the effectiveness of the audit process, taking The Senior Independent Director is available to meet with Institutional into consideration relevant UK professional and regulatory Investors upon request. requirements; and Committees of the Board • Reviewing the policy on the engagement of the external auditors to supply non-audit services, taking into account relevant guidance The Audit & Risk Committee regarding the provision of non-audit services by the external The Committee members are non-executive directors, the majority of auditors. whom are independent. The membership of the Committee during the The Committee is required to report its findings to the Board, year comprised: Nick MacAndrew (Chairman), Richard Harvey, Simon identifying any matters in respect of which it considers that action or Keswick and John Paynter. improvement is needed, and make recommendations as to the steps Mr MacAndrew is a chartered accountant and his profile is set out on to be taken. page 31.
Board attendance The number of Board and Committee meetings attended by Board or appropriate Committee members in the year is shown below. Board Audit & Risk Remuneration Nominations meeting Committee Committee Committee 7 x in period 4 x in period 3 x in period 1 x in period G M T Howe 7- -1 D J Burke 7- - - M F G Drummond Brady (appointed to the board on 1st March 2011) 4- - - R J Harvey 74 3 1 S L Keswick 52 1 1 Lord Leach 5-11 N R MacAndrew 74 3 1 S J Mawson 7- - - J G H Paynter 74 3 1 V Y A C Wade 7- - -
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During 2011 and to the date of this Report the Committee: • Reviewed and monitored management's responsiveness to the • Reviewed the drafting of the interim report, preliminary findings and recommendations of the internal auditors; announcement and the annual report and accounts before their • Reviewed the adequacy of resources of the internal audit function; submission to the Board; and • Reviewed regular reports from the Group Chief Operating Officer, • Met the head of internal audit, without management being including in particular, monitoring the progress of the IT outsource present, to discuss their remit and any issues arising from the contract and the human resources IT development project; internal audits carried out. • Reviewed a summary of the work of the UK Audit & Risk The terms of reference of the Audit & Risk Committee cover all Committees for regulated subsidiaries and matters arising matters indicated by the UK Corporate Governance Code and include therefrom; responsibility for providing advice to the Board on the Group’s interim • Reviewed areas where control weaknesses had been identified by and financial statements; on accounting policies and on the control of internal or external auditors and monitored mitigation/remediation its financial and business risks as well as reviewing the work of the plans of management; internal and external auditors. • Reviewed the regular reports of the external auditors, including A copy of the terms of reference can be obtained from the Company internal control issues; Secretary and is displayed on the Group’s website - • Received and reviewed reports from the business risk and internal http://www.jltgroup.com. audit functions on a regular basis; In addition, the Audit & Risk Committee, through its Chairman, • Approved the external audit plan and fee proposal and considered formally reports to the Board on its activities. auditor independence in relation to non-audit services provided; • Evaluated the performance of the external auditors; Remuneration Committee • Reviewed Group Errors & Omissions provisions; The Committee consists of non-executive directors, a majority of whom are independent. The membership of the Committee during the • Reviewed the Group's risk management functions and structure; year comprised: John Paynter (Chairman); Richard Harvey; Lord • Considered the Group's overall risk management profile and Leach; Simon Keswick and Nick MacAndrew. controls; and In addition to a number of ad hoc meetings, the Remuneration • Reviewed the effectiveness of the Committee. Committee met formally three times during the year. It is responsible, inter alia, for setting the remuneration and terms and conditions of the External auditors executive directors and setting overall remuneration policy for senior The Committee is responsible for overseeing the relationship with the management of the Group. It also approves the allocations under all external auditors. long term incentive plans and share option schemes. CorporateGovernance During the year, the Committee: Assistance was provided to the Committee by the Chairman, Chief • Approved their remuneration for both audit and non-audit Executive and HR Strategy Director, none in relation to their own services, including satisfying itself that the level of audit fee was remuneration, and by Deloitte LLP. appropriate to enable an adequate audit to be conducted; Deloitte LLP were appointed by the Remuneration Committee to act • Approved the terms of engagement, including the engagement as independent advisers to the Committee with effect from 1st letter issued at the start of each audit, and the scope of the audit; January 2011. • Assessed their independence; Nominations Committee • Approved the annual audit plan and ensured that it was consistent with the scope of the audit engagement; The membership of the Committee during the year comprised: Lord Leach (Chairman); Richard Harvey; Geoffrey Howe; Simon Keswick; • Reviewed the findings of the audit, including discussion of any Nick MacAndrew and John Paynter. major issues arising, any accounting and audit judgements and the internal control reports, including responses from management The Committee met once during the year. Its purpose is to make and any proposed remedial action; recommendations to the Board on the appointment of directors of the • Reviewed the effectiveness of the external auditors by way of a Company and to consider succession plans for senior management questionnaire distributed to senior finance staff; and positions in the Company. The terms of reference of the Committee are available on the Company’s website. • Held meetings with the external auditors without management present. The Committee schedules this into its timetable as a Group Executive Committee matter of course and the Chairman of the Committee meets The Group Executive Committee is an advisory group to the Chief privately with the external auditors at other times. Executive who has primary responsibility for the day-to-day Internal audit function management of the Group’s operations. The Committee is required to assist the Board to fulfil its Corporate governance responsibilities relating to the adequacy of the resourcing and plans of During the year the Company has been in compliance with the the Internal Audit department. To fulfil these duties, the Committee: provisions as set out in the June 2010 UK Corporate Governance • Reviewed and assessed the annual internal audit plan; Code (the "Code") except for the following: • Reviewed summaries of reports on the Group from the internal • Lord Leach (Deputy Chairman) and Simon Keswick both served auditors; as non-executive directors and both are directors of Jardine • Reviewed the co-ordination between internal and external Matheson Holdings Limited, which has a 40.20% interest in the auditors; Company. The relationship with Jardine Matheson is maintained
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Corporate Governance Directors’ Report
on an arms-length basis as detailed in note 33 on page 102. At 31st December 2011, the Jardine Lloyd Thompson Employee However neither director can be defined as independent under the Share Trusts (‘the trusts’) held 8,672,854 shares in the Company Code. (3.98%). At 16th March 2011, (being the latest practicable date prior The broad range of experience and expertise and the knowledge to the posting of this report) the trusts held 8,620,675 shares held by Lord Leach and Mr Keswick built from the long standing (3.95%). relationship between Jardine Matheson and JLT continues to be Accountability and audit of particular value; and The Board has overall responsibility for the Group’s systems of internal • During the year the majority of the members of the Audit & Risk control and for reviewing their effectiveness. and Remuneration committees were independent. In addition, Lord Leach served on the Remuneration Committee and Simon The implementation and maintenance of the risk management and Keswick served on both these committees during the year, and internal control systems are the responsibility of the Executive therefore the Group did not comply with the Code in relation to Directors and senior management. The systems are designed to the membership of these committees. manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable assurance, but not The Board believes that the presence of Lord Leach and Mr absolute assurance, against material mis-statement or loss. Keswick on the Board and its committees (subject to re-election under the Articles) continues to be appropriate and in the interests Directors’ responsibilities of shareholders generally and does not detract from their Statement of Directors’ responsibilities independence and judgement on any relevant issue. The Directors are responsible for preparing the Annual Report and Both the Board and the external auditors have safeguards in place to Accounts, the Directors’ Remuneration Report and the financial prevent the compromise of the auditors’ independence and objectivity. statements in accordance with applicable law and regulations. Details of services provided by the Group’s auditors are set out in note 7 on page 73. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the The Audit & Risk Committee also has a policy on the engagement of Group financial statements in accordance with International Financial external auditors and the supply of non-audit services to the Group, Reporting Standards (IFRSs) as adopted by the European Union, and including an annual review of the auditors’ independence. the parent company financial statements in accordance with United The external auditors also report regularly on the actions that they Kingdom Generally Accepted Accounting Practice (United Kingdom have taken to comply with professional and regulatory requirements Accounting Standards and applicable law). Under company law the and current best practice in order to maintain that independence. Directors must not approve the financial statements unless they are The Directors are able to consult the Company’s legal, financial and satisfied that they give a true and fair view of the state of affairs of the other professional advisers on any matter relating to the Company’s Group and the Company and of the profit or loss of the Group for that affairs. period. In preparing these financial statements, the Directors are required to: Any Director may make use of this facility subject to notifying the Chairman or Finance Director. • Select suitable accounting policies and then apply them consistently; If independent advice is sought, this is subject to prior consultation with the Chairman or a Non-Executive Director as appropriate. • Make judgements and accounting estimates that are reasonable All Directors also have access to the advice and services of the and prudent; and Company Secretary. • State whether IFRSs as adopted by the European Union and The Company maintains appropriate directors’ and officers’ liability applicable UK Accounting Standards have been followed, subject insurance in respect of legal actions against its directors. to any material departures disclosed and explained in the group and parent company financial statements respectively. Share capital The Directors are responsible for keeping adequate accounting Movements in the share capital of the Company during the year records that are sufficient to show and explain the Company’s ended 31st December 2011 are set out in note 25 on page 89. transactions and disclose with reasonable accuracy at any time the At 31st December 2011 the issued share capital consisted of financial position of the Company and the Group and enable them to 218,069,377 ordinary shares of 5p each with voting rights and ensure that the financial statements and the Directors’ Remuneration 1,143,131 shares are held as Treasury shares for which voting rights Report comply with the Companies Act 2006 and, as regards the would not be exercised. group financial statements, Article 4 of the IAS Regulation. They are The Company has one class of share capital being ordinary shares of also responsible for safeguarding the assets of the company and the 5p each and all the shares rank pari passu. Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. There are no special control rights in respect of the Company’s shares. So far as the Directors are aware, there is no relevant audit information of which the Company’s auditors are unaware. The Board has power to implement the purchase by the Company of its own shares in accordance with the power granted at the AGM The Directors have taken all the steps that they ought to have taken each year, and will be seeking renewal of that power at the as Directors in order to make themselves aware of any relevant audit forthcoming AGM within the limits set out in the notice of that meeting. information and to establish that the Company’s auditors are aware of that information. All the Company’s share schemes contain provisions relating to a change of control. Outstanding options and awards would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions at that time.
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The Directors are responsible for the maintenance and integrity of the issued within the Group, to: Company’s website. Legislation in the United Kingdom governing the • Carefully manage waste so as to minimise its production where preparation and dissemination of financial statements may differ from possible, or suitably dispose of it through recycling schemes; legislation in other jurisdictions. • Control and, where possible, restrict polluting emissions; Each of the Directors, whose names and functions are listed on pages • Ensure appropriate regulatory compliance; 30 and 31 confirm that, to the best of their knowledge: • Design and operate facilities taking into account the efficient use of • The Group financial statements, which have been prepared in energy and materials; and accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the • Encourage the adoption of these guidelines by contractors acting Group; and on behalf of the Company. This is discussed in more detail in the Corporate Social Responsibility statement on pages 45 and 46. • The Directors’ Report, including by reference the Overview; Chairman’s Statement; Chief Executive’s Review; Review of Suppliers Operations; Finance Director’s Review and Risk Management Report contained on pages 1 to 29, includes a fair review of the The Group agrees payment terms with suppliers when it enters into development and performance of the business and the position of contracts for the purchase of goods or services and seeks to abide by the Group, together with a description of the principal risks and those terms when it is satisfied that the supplier has provided the uncertainties that it faces. goods or services in accordance with the agreed terms and conditions. At 31st December 2011 the Company did not have any direct external Risk management supplier creditors. The Group’s approach to Risk Management is discussed in the The Group does not have a standard or code that deals specifically Finance Director’s Review and the Risk Management Report on pages with the payment of suppliers. 23 to 29. The Group takes a holistic approach to risk management and the Donations control environment. Responsibility and accountability are shared During the period the Group made charitable donations totalling across all Group companies, with ultimate responsibility resting with £407,890 (2010: £332,563). the Board. No political donations were made by the Group. Each operating company maintains controls and procedures appropriate to its own business and regulatory environment while Annual General Meeting conforming to Group standards and guidelines. The notice convening the Annual General Meeting to be held on 26th The identification and mitigation of major business risks is the April 2012 at 12 noon at 6 Crutched Friars, London EC3N 2PH is responsibility of operational management and the Board.
contained in the circular accompanying this report. CorporateGovernance Going concern The special business includes the following items: The renewal, within prescribed limits, of: The Directors consider that the Group and the Company have adequate resources to continue in operational existence in the i) the authority of the directors to allot securities of the Company foreseeable future. Consequently, the financial statements have been within ABI guidelines; prepared on a going-concern basis. ii) the disapplication of statutory pre-emption rights; Employment policies iii) the authority of the Company to purchase its own shares by way of market purchases; and It is the policy of the Group to provide an environment in which individual talents can excel. Employee commitment is encouraged with iv) a waiver of the requirement arising under Rule 9 of the City Code wide share ownership and participation in share option schemes. on Takeovers and Mergers, that Jardine Matheson Holdings Limited, together with parties deemed to be acting in concert with Employees are kept informed of the performance of the Group and all it, be required to make a general offer for the Company by reason matters affecting them as employees by means of regular briefings of the change in its percentage holding in the capital of the and consultation and, where possible, using the JLT intranet both in Company arising from any such purchase under (iii) above. the UK and overseas. The Directors will only consider making purchases of the Company’s The Group is an equal opportunities employer and encourages shares if they believe that it would be in the best interests of diversity across its workforce. shareholders and would result in an improvement in earnings per Applications for employment by disabled persons will always be fully share. considered, having regard to their particular aptitudes and abilities. Should employees become disabled, every effort will be made to Auditors ensure that their employment with the Group continues and, in the It is proposed that PricewaterhouseCoopers LLP, having indicated event that they are unable to continue to work, that their financial their willingness to continue in office, be reappointed auditors of the interests are safeguarded. It is the intention of the Group that Company. A resolution proposing their reappointment will be put to opportunities for training, career development and promotion of the Annual General Meeting. disabled persons should, as far as possible, be identical with those for other employees. By order of the Board David Hickman Environmental policy Company Secretary 20th March 2012 JLT remains committed to minimising any adverse impact its businesses has on the environment. To this end, guidelines have been
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Corporate Governance Remuneration Report
I am pleased to introduce our Directors’ We keep our policy under review to ensure it remains appropriate in the face of evolving best practice, regulatory developments Remuneration Report for the year ending and market data. In this regard, I wanted to highlight two key December 2011. This report sets out our areas: policy on executive remuneration as well as • We are proposing to freeze executive director salaries (and incentive award levels) for 2012. We believe that the current providing details on the pay of our salaries are in line with market data for UK public companies executive directors during the year. of a similar size and complexity. • With effect from 2013, we are introducing malus provisions The key principles of our executive remuneration policy remain for our deferred bonus arrangements. These provisions will unchanged. We believe in a simple and consistent framework allow the Committee to reduce unvested awards in certain with a significant portion linked to both annual performance and circumstances. the creation of sustainable value for our shareholders over the I would like to thank my colleagues on the Committee for their long term. hard work and valuable input during the year. The remuneration packages for our executives must be sufficient to attract and retain the calibre of management which we need The Committee appreciates dialogue with, and feedback from, to operate successfully in our markets, whilst always being shareholders and hopes to receive your support at the AGM on minded that we do not want to pay more than is necessary to 26th April 2012. achieve this. The Committee believes that this policy has served the business well over the last few years and has helped to deliver strong earnings and share price performance in what have been very difficult markets. John Paynter Chairman, Remuneration Committee
Remuneration Committee Deloitte is a member of the Remuneration Consultants Group and as such voluntarily operates under the Code of Conduct in relation to This Remuneration Report has been prepared by the Remuneration executive remuneration consulting in the UK. Committee in line with the UK Corporate Governance Code 2010, Listing Rules of the Financial Services Authority and the relevant Geoffrey Howe, Dominic Burke and Robert Potter (Group HR schedules of the Companies Act 2006 and the Directors’ Strategy Director) attended as ex-officio members of the Committee Remuneration Report Regulations in Schedule 8 to the Large and but did not participate in any discussions regarding or affecting their Medium-sized Companies and Groups (Accounts and Reports) own remuneration. Regulations 2008. Remuneration Policy The Remuneration Committee comprises five non-executive directors Executive Directors who served throughout the year: John Paynter (Chairman), Lord Leach, Simon Keswick, Nick MacAndrew and Richard Harvey. The Group firmly believes in a philosophy of payment for performance. Where pay is increased, this reflects continuing strong The principal purpose of the Committee is to determine the financial performance of the Group and the contribution individual Company's policy on the remuneration of the Chairman, executive employees make to that performance. Although remuneration for a directors and other members of the Group Executive Committee and number of our senior executives (at and below main board level) has to approve specific remuneration packages for each of them. increased in 2011 over 2010, this reflects the excellent progress the The terms of reference of the Committee are available on the Group’s Group has made in 2011, despite significant competitive challenge website. and many unfavourable macro-economic headwinds. In 2011, Group The Committee is directly accountable to shareholders and the underlying diluted earnings per share increased by 12% and total Chairman of the Committee attends the Annual General Meeting to shareholder return over the year measured 13%. This performance answer shareholders’ questions regarding remuneration. has continued the success of recent years: over the three years to 31st December 2011, underlying diluted earnings per share increased In addition to several ad hoc meetings throughout the year, the by 49% and total shareholder return increased by 77%. Committee met formally three times in 2011 and the attendance of The Remuneration Committee has noted the decision by Jardine the Committee members at those formal meetings is shown in the Matheson to increase its holding during 2011 by some 10% and table on page 34. believes this is strong testimony both to the achievements of recent Deloitte LLP acted as independent advisers to the Committee during years and the Group’s compelling business strategy. the year, providing information and assistance. Deloitte LLP was In setting remuneration, the Committee is also mindful of the fact that appointed by the Committee. They also provide services to the Group it operates in a highly competitive sector, and its policy on the in respect of corporate tax advice and in relation to the winding up of remuneration of executive directors is to ensure that the Group is able dormant companies within the Group.
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to recruit, retain and motivate individuals of sufficient expertise and Basic salary commitment to further the success of the Group. The Committee’s policy on base salary is to provide a fixed The Group's remuneration for executive directors comprises three component of remuneration which is competitive in the markets in elements: a basic salary, an annual bonus (with an element of which we operate and which appropriately reflects the experience deferral) and participation in the Group's LTIP scheme. These are and capabilities of the individual in the role. described in more detail below. The Committee believes that these After having considered the market positioning of executive director components of remuneration are transparent, uncomplicated in their salaries against this policy, and having regard to practice in the wider operation and strike the right balance between rewarding good Group, the Committee determined that salaries from 1 January 2012 performance in any one year and encouraging the necessary focus would remain unchanged from 2011. The base salaries are set out in on long term stewardship and performance. the following table. In setting levels of remuneration (including basic salary levels), the 2012 Salary 2011 Salary Committee considers appropriate remuneration data relevant to UK D J Burke £650,000 £650,000 public companies of a similar size and complexity. S J Mawson £385,000 £385,000 It recognises, however, that there are no directly comparable V Y A C Wade £385,000 £385,000 companies in the UK and that its principal international competitors M F G Drummond Brady £330,000 £330,000 are often businesses which are part of much larger groups. In 2011, the Chief Executive’s base salary was increased from In setting remuneration for 2011, the Committee had proper regard £600,000 to £650,000, having been increased from £525,000 in to the pay and employment conditions of other employees within the 2010. These increases followed a comprehensive review of the Chief Group. Executive’s remuneration package in Q1 2010, after which the A substantial proportion of directors’ potential remuneration is linked Remuneration Committee unanimously concluded that a meaningful to the Group's performance, with Group profit before tax determining “step up” in that base salary was appropriate. This reflected a a significant proportion of the annual bonus and the Group’s EPS number of factors, including (a) his achievements since being performance determining the vesting of long-term incentive awards. appointed to this office in 2005, in particular his energetic leadership The following chart illustrates the balance between base salary, of the business and the contribution he had made to the Group's annual bonus and long term incentive for the CEO and the other significant strategic and financial progress; (b) his central role in the Executive Directors. This chart represents salary, target bonus and Group’s continued delivery of significant increases in shareholder the face value of the LTIP awarded in the current year. value in what could reasonably be considered very difficult markets and (c) the importance of his salary being competitive against companies of a similar size and complexity. CorporateGovernance
Chief Executive However, in concluding as part of its 2010 review that an increase was required, the Committee also determined that any such increase should be phased over a period of two years, but with no contractual Other Executive commitment to effect any increase in 2011 and any second tranche Directors only being allocated in the light of continuing outstanding
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% performance and demonstration of the qualities outlined above. In 2011, the Committee, having regard to the financial results for Base salary Annual bonus Long-term incentive 2010 and the demonstrable momentum in the business, concluded that continuing strong performance had been achieved and the The Company’s policy in relation to share incentive schemes is to further increase referred to above was approved. provide the necessary mechanisms for its employees and executive It is worth noting that in a period when many companies have had to directors to participate in the long term success of the Group through settle for navigating through a crises, our business has, in the past schemes which can be operated both in the UK and in overseas five years, broadly doubled in size, with shareholder return in the top jurisdictions where local legislation permits. The operation of these decile (measured against the FTSE 250). schemes is seen by the Board as an essential tool in aligning the interests of key staff with those of the shareholders. These are The Committee believes that this phased increase was a more summarised on pages 40 and 41. prudent and appropriate approach than applying the increase in one year only. As explained above, there will be no increase to the Chief The Committee has also considered the structure of directors' Executive’s salary for 2012. remuneration packages from a risk perspective. It is satisfied that the packages, which include a market-competitive base salary, an annual Performance related remuneration bonus (with an element of deferral) and substantial long-term Annual bonus incentives, do not encourage inappropriate risk taking. The Company’s policy on bonus payments is to ensure that they are Directors’ Remuneration appropriately linked to challenging Group, business unit and individual performance targets, and enable the Company to deliver The various elements of the remuneration package of executive remuneration packages which are competitive in the market, directors are described below and, for emoluments in 2011 and particularly in the insurance industry, and allow it to retain and 2010, set out in the table on page 41. incentivise key executives. The Chief Executive has a target bonus of
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Performance graph Total shareholder return from 2006 to 2011 The Company is required to include a performance (source: Datastream) 250 graph to measure its performance against corporate indices. In the opinion of the directors, the FTSE 100, 250 and All Share Indices are the most appropriate 200 indices against which the TSR of JLT should be measured, as there is no directly comparable quoted peer group for the Company in the UK. 150 The graph plots the comparison of the TSR of JLT since 31st December 2006 against the TSR of the FTSE 100, 250 and All Share Indices (rebased to JLT’s actual TSR 100 value at that date). TSR refers to share price growth and % Return Shareholder assumes dividend is reinvested over the relevant period.
Over the past five years, JLT was ranked 23 out of the 50 remaining 201 FTSE 350 companies which were still listed at 31st December 2011 with a total shareholder return (TSR) of 104 %. This compared to a TSR of 8 % 0 for the FTSE 100, 4 % for the FTSE 250 and 6 % for the 31-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 31-Dec-10 31-Dec-11 All Share Indices (source: Datastream).
150% of salary and other executive directors have a target bonus of The Rules of the Scheme provide that this limit may only be 100% of salary. In exceptional circumstances, the Committee can exceeded in exceptional circumstances. award a maximum annual bonus of 200% of salary. The current policy is to make awards to the Chief Executive of 200% For 2011, the elements of the bonus were specific to each director, of base salary and to other executive directors of 150% of base comprising a mixture of the achievement of the Group budget for the salary. Awards at these levels will be made during 2012. financial year, individual objectives and (where appropriate) the Awards are in the form of rights to acquire shares in the Company for profitability of individual business units. The setting of individual a zero amount. Subject to the satisfaction of a performance objectives, and the assessment of individual performances, were condition, awards are exercisable between the third and tenth carefully scrutinised by the Committee. anniversary of grant. They are neither pensionable nor transferable. The bonus payments made to directors for the year, as detailed on Participants are normally entitled to receive the value of accumulated page 41, reflect the extent to which both financial and individual dividend equivalent income on vested share awards at the time of objectives were achieved. vesting. Any bonus awarded in excess of 100% of salary is deferred into The Rules of the LTIP provide the Committee with discretion in the Company shares for three years. If the director ceases employment event of a participant leaving the Group before the vesting of an before vesting, the deferred shares will be forfeited other than in award. On a change of control of JLT, awards may vest before the 'good leaver' circumstances. Bonus payments are not pensionable. original vesting date. Since the amount payable to the Chief Executive exceeds 100% of The Company continues to operate its share schemes in line with all base salary, the excess (ie 50% of salary) will be delivered in the form applicable ABI guidelines on dilution. of deferred shares. At 16th March 2012, being the latest practicable Performance condition date prior to the posting of the report, the formal award of shares The Committee believes that EPS remains the most appropriate had not been made. performance condition; it is used by the Company as a key indicator For 2012, the Committee intends to operate the annual bonus on the for measuring underlying financial performance. The calculation of same terms as in 2011. EPS (verified by the Company’s auditors) is basic EPS, excluding For the 2013 performance year the Committee intends to operate the exceptional items and impairment charges, and measured on actual annual bonus on the same terms; however, awards of deferred achieved exchange rates. shares will be subject to malus provisions which will allow the The performance target for LTIP awards granted in 2009, 2010 and Committee to reduce unvested awards in certain circumstances. 2011 is RPI + 5% per annum (16.67% vests) to 10% per annum Long-term incentives (100% vests). LTIP awards to be made in 2012 will be subject to the same performance target, which the Committee believes remains All awards to executive directors are made under the 2004 Long- appropriately challenging in the current environment. Term Incentive Plan (LTIP). Under this plan, a director can receive annually an award of shares worth up to 200% of base salary, as Based upon the EPS performance of the Group for the three year determined at the Committee’s discretion. period 2009 to 2011, the Committee has determined that the awards made in 2009 should vest in full on 5th August 2012.
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Details of awards granted to executive directors during 2011 under Other benefits the 2004 LTIP and in respect of former years, together with Other benefits include life assurance, company cars which may be participation under other employee share schemes, are set used for private purposes, or a cash alternative in lieu thereof, private out on page 43. medical and permanent health cover for the executive directors and Executive directors are also eligible to participate in all employee their families and accumulated dividend equivalent income on share share schemes on the same terms as other employees. awards when they vest. Other share schemes Pensions policy Apart from the LTIP, the Group operates various share option and Details of the pension arrangements for the executive directors are incentive schemes for employees based in the UK and certain described on page 44. overseas jurisdictions. With effect from 1st December 2006 the defined benefit section of The Sharesave schemes have a three or five year vesting period and the UK Pension Scheme was closed to future accruals for all the price of options is subject to a maximum discount of 20% to the members, who were invited to join the defined contribution section of market value at the date of award. the Pension Scheme. The schemes operate in the UK and certain overseas jurisdictions For members who elected to join the defined contribution section of and are open to all employees (including executive directors) in those the Pension Scheme, their contributions are matched by a Company jurisdictions. contribution equivalent to 2.5 times the amount paid by the member subject to a maximum of 5% to 15% of basic salary (dependent on In the UK the Group operates Share Incentive Plans (open to all age). Such contributions to the defined contribution section of the employees including executive directors) under the rules established Scheme are limited to earnings of £120,000 per annum being the by the Finance Act 2000. JLT Cap for the 2011 financial year. The Performance Share Plan, introduced in 2004, is generally used Since the closure of the Defined Benefit Pension Scheme in 2006, as a mechanism for the delivery of deferred bonus payments and affected employees, including some executive directors, receive a incentive awards for senior executives within the Group (excluding salary supplement, which is calculated as a fixed percentage of salary executive directors). The awards consist of options to purchase and determined at the time the scheme was closed based on each shares in the Company, normally for a nil consideration, and are individual's circumstances, taking into account the age and salary of exercisable up to ten years from date of grant subject to their vesting the individual. periods and performance conditions (which may vary in respect of particular awards). CorporateGovernance Remuneration* The table below analyses the salary, benefits, bonus and other elements of remuneration for the directors who held office during the year ended 31st December 2011. Additional Other Other salary Performance benefits benefits Salary (pensions) related cash non-cash Pension Total Total and fees note 2 bonus note 1 note 3 allowance 2011 2010 Director Notes £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 G M T Howe 241 ---1-242 216 D J Burke 6 638 79 945 233 62 13 1,970 1,788 M F G Drummond Brady 4 272 20 272 61 8 11 644 - R J Harvey 53 -----53 45 S L Keswick 53 -----53 45 Lord Leach 54 --6--60 56 S J Mawson 7 385 - 350 15 4 21 775 356 N R MacAndrew 76 -----76 65 J G H Paynter 67 -----67 57 V Y A C Wade 385 25 369 108 8 10 905 871 2,224 124 1,936 423 83 55 4,845 3,499 *This table has been audited by PricewaterhouseCoopers LLP
Notes 4. Mr Drummond Brady was appointed a director on 1st March 2011 and the 1. Other benefits cash include car allowance and accumulated dividend remuneration shown above is for the period 1st March to 31st December equivalent income on share awards when they vest. 2011. 2. On 1st December 2006 the salaries for the UK based Executive directors 5. The 2010 comparative excludes Messrs Carpenter, Nabarro and Rush who were increased to reflect the changes made in the UK pension scheme retired in 2010. explained on page 44. This is shown in the above table as additional salary to 6. The bonus figure for Mr Burke includes a cash element of £650,000 and a base salary. From that date the directors have received an age related deferred element of £295,000 which will be delivered in 3 years time. pension allowance to harmonise with the pension benefits offered to the 7. The pension allowance for Mr Mawson includes an adjustment of £6,250 in members of the Defined Contribution Scheme. respect of 2010. 3. Other benefits non-cash include life assurance cover, car benefit, medical insurance and permanent health insurance.
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Corporate Governance Remuneration Report
From 1st April 2011, the fee payable to the non- Directors’ contracts executive Chairman was increased from Contract date Contractual termination £215,000 pa to £250,000 pa. (last renewed) Notice period payments G M T Howe 11 01 2006 6 months N/A From 1st April 2011, the fees payable to non- DJ Burke 14 12 2001 12 months Not exceeding 1 year salary and benefits executive directors were increased as follows: M F G Drummond Brady 01 04 2005 12 months Not exceeding 1 year salary and benefits Their basic fee was increased from £45,000 pa R J Harvey 17 12 2009 3 months N/A to £55,000 pa. S L Keswick 10 01 2010 3 months N/A Lord Leach 06 02 2012 3 months N/A The supplementary fee paid to the Chairman of N R MacAndrew 01 07 2011 3 months N/A Audit & Risk Committee was increased from S J Mawson 01 07 2010 12 months Not exceeding 1 year salary and benefits £15,000 pa to £20,000 pa; the supplementary J G H Paynter 01 10 2011 3 months N/A fee paid to the Chairman of Remuneration V Y A C Wade 28 06 2011 12 months Not exceeding 1 year salary and benefits Committee was increased from £12,000 pa to £15,000 pa; the Senior Independent Director’s fee was unchanged (£5,000). From 1st April The salary supplement paid to the executive directors, where 2011, the Deputy Chairman waived the additional fee of £5,000 pa relevant, is shown as "additional salary" within the remuneration table which had previously been paid. (on page 41) and is ignored for the purposes of calculating any bonus payment or LTIP award. External Non-Executive Directorships held by Executive Directors Mr Burke is Non-Executive Chairman of Newbury Racecourse PLC, Employees who applied for Enhanced Protection under the Finance following his appointment to that Board in November 2010. Act 2004 or whose basic salary exceeds the JLT Cap are permitted to take their employing company’s contribution as a cash pension He retains the fee of £15,000 paid by Newbury Racecourse in allowance to be paid through payroll less employer’s NIC. respect of 2011. Non-Executive Directors No other executive directors hold outside posts. Non-executive directors only receive fees; they do not participate in Service contracts and notice periods any bonus or share incentive schemes, enjoy any pension benefits It is the Company’s policy that executive directors should have nor, save for a company car provided to Lord Leach and a club contracts with an indefinite term which can be terminated by the subscription for Geoffrey Howe, receive any other benefits. Company or the director by giving notice not exceeding one year. The fees of the non-executive directors are reviewed by the Board Non-executive directors are appointed for a three year term, which is excluding the non-executive directors. The fees of the non-executive renewable, with three months notice on either side, no contractual Chairman are reviewed by the Remuneration Committee. termination payments being due and subject to retirement pursuant The fees of all the non-executive directors, including the Chairman, to the Articles of Association at the Annual General Meeting. were carefully reviewed in 2011. The fees had previously been The contract for the Chairman is subject to a six month notice reviewed in 2009. These reviews took account of all relevant provision on either side. comparative data. Share interests The interests of the directors in the Company’s various share option Shares* schemes and long-term incentive plans are as detailed in the tables 1st Jan 2011 on page 43. (or later 31st Dec 2011 appointment) The interests of the directors at 1st January 2011 (or upon later total holding total holding appointment) and at 31st December 2011 in the ordinary shares of Jardine Lloyd Thompson Group plc (excluding options and LTIP) are D J Burke 260,223 249,364 set out in the table opposite. M F G Drummond Brady 49,954 65,517 R J Harvey 8,569 10,000 Between 1st January 2012 and 16th March 2012 (being the latest G M T Howe 25,709 30,000 practicable date prior to the posting of this report) the trustees of the S L Keswick 1,927 2,249 Jardine Lloyd Thompson Group plc All Employee Share Plan have Lord Leach 19,282 22,500 acquired 59 shares on behalf of D J Burke. N R MacAndrew 4,284 5,000 On 1st March 2012, Mr Drummond Brady exercised a vested LTIP S J Mawson --Award made in 2008 of over 73,800 JLT shares. He sold 38,453 J G H Paynter 13,500 10,000 shares at a price of 691.67p and retained the balance of 35,347 V Y A C Wade 63,416 71,647 shares. *This table has been audited by PricewaterhouseCoopers LLP With the exception of the directors' interests disclosed in this Report, The middle market price of ordinary shares at 31st December, 2011 no director had any additional interest in the share capital of the was 689.5p and the range during the period 1st January to 31st Company during the year. December 2011 was 576.0p to 764.5p.
42 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:17 Page 43
At 16th March 2012 (being the latest practicable date prior to the In summary, the guidelines are for executive directors to retain 50% posting of this report), no further changes of directors' interest have of shares acquired on the vesting of share awards after the payment been notified since the end of the year. of income tax and national insurance, until such time as the value of shares held is equivalent in value to annual base salary. Executive Share Ownership Guidelines director shareholdings will be reviewed by the Remuneration The JLT Share Ownership Guidelines maintain the objective of Committee annually to reflect movements in share price and changes executive directors building up long term share interests equivalent to in base salary. 100% of base salary.
Option schemes (excluding LTIP)* Number Number granted vested Exercised Date from At 1st during during during the At 31st Exercise which Expiry Jan 2011 2011 2011 year Dec 2011 price exercisable date Note D J Burke 64,400 - 64,400 64,400 - Nil 25 03 11 24 04 11 b) 83,300 ---83,300 Nil 27 03 12 26 04 12 b) 48,600 ---48,600 Nil 23 03 13 22 04 13 b) - 44,200 --44,200 Nil 23 03 14 22 04 14 b) 1,671 ---1,671 £4.452 01 07 13 31 12 13 a) M F G Drummond Brady 7,400 ---7,400 Nil 27 03 12 26 04 12 b) 1,671 ---1,671 £4.452 01 07 13 31 12 13 a) V Y A C Wade 9,700 ---9,700 Nil 27 03 12 26 04 12 b) *This table has been audited by PricewaterhouseCoopers LLP a) Options held under the Jardine Lloyd Thompson Group Sharesave Option Plan 2008. This is an all employee Inland Revenue approved scheme to which performance criteria are not attached. b) Awards made under the Deferred Bonus Share Plan. This is an unapproved scheme and all awards are deferred bonus arrangements to which no performance criteria attach.
Long Term Incentive Plan* CorporateGovernance Awards to directors made under the LTIP 2004 are set out in the table below. The performance conditions relating to these awards are set out in the notes following the table. Market Market Number value on Number value on Exercised/ granted date of vested date of [lapsed] Date from At 1st Date of during grant during vesting during At 31st Exercise which Expiry Jan 2011 grant 2011 pence 2011 pence the year Dec 2011 price exercisable date D J Burke 276,700 15 05 08 - 379.50 276,700 701.00 276,700 - Nil 15 05 11 14 05 18 241,500 05 08 09 - 434.83 -- -241,500 Nil 05 08 12 04 08 19 222,300 23 03 10 - 539.83 -- -222,300 Nil 23 03 13 22 03 20 - 23 03 11 191,700 678.00 -- -191,700 Nil 23 03 14 22 03 21 M F G Drummond Brady 73,800 15 05 08 - 379.50 73,800 701.00 - 73,800 Nil 15 05 11 14 05 18 64,400 05 08 09 - 434.83 -- -64,400 Nil 05 08 12 04 08 19 53,700 23 03 10 - 539.83 -- -53,700 Nil 23 03 13 22 03 20 - 23 03 11 73,000 678.00 -- -73,000 Nil 23 03 14 22 03 21 S J Mawson - 23 03 11 85,200 678.00 -- -85,200 Nil 23 03 14 22 03 21 V Y A C Wade 144,300 15 05 08 - 379.50 144,300 701.00 144,300 - Nil 15 05 11 14 05 18 125,900 05 08 09 - 434.83 -- -125,900 Nil 05 08 12 04 08 19 107,000 23 03 10 - 539.83 -- -107,000 Nil 23 03 13 22 03 20 - 23 03 11 85,200 678.00 -- -85,200 Nil 23 03 14 22 03 21 *This table has been audited by PricewaterhouseCoopers LLP
Note 1 For awards made in 2009, 2010 and 2011 the performance condition was revised Performance conditions for awards made in 2008 required EPS growth of between upwards and requires EPS growth of RPI plus 5% pa for 16.67% vesting to RPI RPI plus 3% pa for 15% vesting to RPI plus 9% pa for full vesting measured over plus 10% pa for full vesting. EPS growth will be calculated on an actual basis. the three years from a base EPS of the financial year immediately preceding grant. Please refer to the notes on page 40. The performance conditions for the LTIP awards in 2008 and 2009 were met in full.
Jardine Lloyd Thompson Group plc Annual Report 2011 43 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:17 Page 44
Corporate Governance Remuneration Report
Gains made on share options and LTIP* The table below shows the gains made by individual directors from the exercise of share options during 2011. The gains are calculated as at the exercise date, although some of the shares were retained in certain cases. Market value (on date Number of Date of Option of exercise) Gain options exercise cost £ ££ D J Burke 64,400 25 Mar 2011 Nil 6.7925 437,437** 276,700 16 May 2011 Nil 7.01 1,939,667 V Y A C Wade 144,300 16 May 2011 Nil 7.01 1,011,543 *This table has been audited by PricewaterhouseCoopers LLP **In respect of vested deferred bonus awards made in 2008
Participation in Jardine Lloyd Thompson Pension Scheme
Pension pa Increase/(decrease) in increase/ Pension pa Transfer value Transfer Transfer transfer value (decrease) increase of increase value of value of Contributions less directors’ Pension pa due to excluding (net of inflation) accrued accrued payable by contributions Employer’s Employee Age at Pension accrued at inflation inflation after director’s pension as pension as director payable Retirement Spouse DC DC Note 31/12/11 scheme 31/12/11 (£) during 2011 (£) during 2011 (£) contributions (£) 31/12/11 (£) 31/12/10 (£) during 2011 (£) during 2011 (£) age fraction contribution contribution D J Burke 53 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
M F G 0.67/ Drummond Brady b) g) 54 JLT 95,709 2,905 Nil Nil 3,338,379 2,470,938 Nil 867,441 60 0.50 Nil Nil
S J Mawson 52 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
V Y A C Wade b) 50 JLT 116,032 3,520 Nil Nil 2,629,621 2,034,517 Nil 595,104 60 0.50 Nil Nil *This table has been audited by PricewaterhouseCoopers LLP Note: e) Accrued pension a) Employer's DC - means direct contribution payments to either a JLT DC The accrued pension entitlement is the amount that the director would receive scheme or personal pension plan from retirement age if they left service on that date. b) Pension Scheme The increase in the accrued entitlement is the difference between the accrued In the pensions table "JLT" indicates that the director accrued benefits up to benefit at the year end and that at the previous year end. 30th November 2006 on the scale provided by the main section of the Jardine f) Transfer values Lloyd Thompson Pension Scheme (formerly the Jardine Insurance Brokers Transfer values have been calculated on the basis of actuarial advice and Pension Scheme). approved by the Scheme Trustees. The transfer value of the accrued c) Pension increases entitlement represents the ‘cash equivalent’ of the directors’ pension benefits JLT pensions accrued before 6th April 1997, are guaranteed to increase in which would be offered by the Trustees of Jardine Lloyd Thompson Pension payment as follows: Scheme to another pension scheme as consideration for the other scheme taking on the liability for providing the directors’ pension benefits at retirement. • Pension in excess of the Guaranteed Minimum Pension: 3% per annum compound; The transfer value itself does not represent an actual sum payable to the individual director as part of pay and, therefore, cannot be added meaningfully • Guaranteed Minimum Pension accrued after 6th April 1988: in line with the to annual remuneration. Retail Prices Index subject to a maximum of 3% per annum compound. The increase in the transfer value less directors’ contributions is the increase in JLT pensions accrued after 6th April 1997 are guaranteed to increase in the transfer value of the accrued benefits during the year after deducting the payment in line with the Retail Prices Index subject to a maximum of 5% director’s personal contributions to the scheme. per annum compound. The company contribution to the DC scheme is 12.5% (age 50-59) and 15% Discretionary benefits (age 60 and over) of pensionable earnings up to the current Scheme Earnings There are no discretionary benefits taken into account when calculating transfer Cap of £120,000 p.a. values. Where an employee opts for the cash alternative, the contribution is reduced to d) Retirement rights reflect the Company’s additional National Insurance liability. The directors have no guaranteed right to early retirement. g) The spouse fraction of 0.67 is applicable to pension accrued pre-2004. For pension accrued post-2004 the spouse fraction is 0.50. Pensions in payment for rights accrued to 1st April 2004 are guaranteed to increase by 5% p.a. (subject to HMRC limits).
Pensions In respect of service after 1st December 2006, the Scheme provides benefits on a defined contribution basis. During the year executive directors were provided with pension benefits from either personal pension allowances or membership of The table of Remuneration on page 41 sets out for each director the the Group’s principal pension scheme, the Jardine Lloyd Thompson adjustments made to salaries to reflect the changes made to the Pension Scheme. In respect of service prior to 1st December 2006, Pension Scheme effective 1st December 2006. this Scheme provided benefits on a final salary basis (except for The details for each director serving during the year are set out in the individuals with pension allowances). From 1st December 2006 the above table. defined benefit section of the Scheme closed to future accrual with For and on behalf of the Board members’ benefits based on their final pensionable salary at that John Paynter time. Chairman Remuneration Committee 20th March 2012
44 Jardine Lloyd Thompson Group plc Annual Report 2011 Annual Report 11 front end final tp_A&R design 3 16/03/2012 17:17 Page 45
Corporate Governance Corporate Social Responsibility
Corporate Social Responsibility (CSR) remains important to Jardine Charity and the Community Lloyd Thompson. We operate our business in line with industry best In 2011, JLT Group donated £407,890 to charity. Jardine Lloyd practice striving to ensure that our operations have a positive impact Thompson encourages employees to engage in charitable activities on the environment whilst maintaining a strong competitive edge. and provides support in three ways:
The Workplace Matching employee fundraising JLT's goal is to create a stimulating, innovative and dynamic working JLT will match pound for pound any amount raised by our UK environment where talented individuals are rewarded and recognised employees in fundraising activities they undertake for charity up to a for their contribution to the success of the business, both maximum of £2,500. In 2011, £113,000 was spent matching professionally and personally. employee charity activities. This is seen as a key aspect of the charity and community strategy. JLT provides a Give-As-You-Earn scheme Despite the challenging economic climate, our growth has created a which enables UK employees to make regular charitable donations in strong demand for talent, which we develop from within our a tax-efficient manner. organisation as well as through recruitment. JLT attracts people who thrive on a non-bureaucratic, entrepreneurial environment that respects and rewards individual contribution and every employee is Charity through action encouraged and expected to apply their own expertise and creativity All UK employees are able to take advantage of a ‘Charity Day’, this to drive the business forward. gives them one day every year when they can spend company time helping a charity or working in the local community. A highlight of In 2011, JLT undertook several significant activities to understand 2011 was the support that JLT’s Mumbai office has given to the local and improve our workplace. Engagement surveys were conducted in Udaan School for underprivileged children, where employees provide many regions and the results are being used to plan 2012 transportation to and from the school for the children as well as employment-related activities. These help us understand the unique spending time teaching and coaching. qualities that make JLT successful and provide clear outlines of what aspects of our culture we must protect as we grow. Donations and special request Also in 2011, JLT broadened its benefit offering to provide greater Finally, the Group Charities Committee considers a wide range of eligibility and more flexibility to employees in the UK, with an request from local, national and international charities for donations or emphasis particularly on health, wellbeing and lifestyle benefits that support for specific projects. In the UK a further £54,000 was encourage employees to be pro-active in their health management. donated to specific charity activities. We are committed to health and safety and have an international network of health and safety representatives in each location. CorporateGovernance Environmental Policy We are seeking in 2012 to create better opportunities for global JLT remains committed to minimising any adverse impact its movement of our employees. This encourages a global perspective in businesses have on the environment. our business, supports the retention of top talent and helps develop skills and expertise in new areas of our business. The Group's environmental policy, which is set out on page 46 is regularly reviewed to ensure that the Group's objectives and targets We are committed to maintaining this culture both for the benefit of are achieved. employees and our long-term success.
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Corporate Governance Corporate Social Responsibility
Environmental Policy
To encourage employee participation we have deliberately avoided producing a lengthy policy document and have instead agreed the ten key commitments set out below. In addition to these Group commitments, local business management is responsible for enforcing standards in line with legal responsibilities and obligations and managing risks associated with environmental matters.
1. Reduce the amount of paper we use by setting JLT's principal stationery supplier in the UK is a carbon our printers to default double-sided printing, neutral company and has a sound ethical and where possible environmental policy. After three years of substantially reducing paper JLT's mechanical and electrical principal contractor is consumption across our UK operations, consumption registered as ISO 14001 with regard to Environmental in 2011 remained at a similar level to 2010. How Benchmarking Standards. consumption can be reduced further is now being investigated. 7. Purchase, where practicable more products locally to reduce the environmental impact 2. Positively encourage employees to think twice related to transportation. before printing emails This requirement is incorporated into our purchasing Promoting this by adding a short reminder to the end process. of emails. 8. Encourage employees to recycle rubbish 3. Print all future marketing materials and Across the UK, recycling has increased by 13% in publications on recycled paper wherever possible 2011 compared to 2010. This process continues to be All the Group's standard copier paper across the UK supported by the confidential waste and national comes from recycled sources and from forests recycling scheme. managed by the Forest Stewardship Council. 9. Identify and measure our greenhouse gas 4. Encourage the use of teleconferencing as the emissions and manage a targeting and preferred alternative to business travel where monitoring scheme practicable An energy manager has been appointed to prepare This area has received additional investment and will environmental performance reports of all the UK continue to focus on the most up-to-date technology buildings where we have control of energy as it delivers financial savings and reduces our carbon consumption. footprint. E-learning is also widely promoted and JLT is registered with The Carbon Reduction encouraged. Commitment scheme in the UK and continues to seek to reduce its carbon footprint. Our Carbon Footprint for 5. Limit our energy consumption Energy consumption has shown a reduction of 6% per In 2011 there was a small increase in energy employee in 2011 compared to 2010. consumption per person in the UK. The efficiency of JLT's electrical infrastructure is being upgraded where 10.Seek to raise awareness, encourage and enable practicable to reduce the energy consumption within our staff to make an effective contribution to our offices. environmental improvement In the UK this includes a separate staff environmental 6. Develop environmentally sound procurement intranet site which is being further developed to practices incorporating environmental criteria for demonstrate our progress against each of these ten supplier selection key commitments. All our UK suppliers are vetted through an approved contractor selection system. Part of the vetting criteria is their ability to demonstrate the application of an environmental management system.
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Financial Statements Contents
Financial Statements Company Accounts Independent Auditors’ Report 48 Independent Auditors’ Report 106 Consolidated Income Statement 49 Balance Sheet 107 Consolidated Statement of Comprehensive Income 50 Reconciliation of Movements in Shareholders’ Funds 107 Consolidated Group Balance Sheet 51 Accounting Policies 108 Consolidated Statement of Changes in Equity 52 Notes to the Company Accounts 109 Consolidated Statement of Cash Flows 53 Accounting Policies 54 Group Five Year Review 111 Advisors & Shareholder Information 112 Notes to the Financial Statements Principal JLT Offices 113 1. Alternative income statement 61 2. Segment information 62 3. Operating profit 65 4. Investment income 66 5. Finance income and costs 66 6. Employee information 67 7. Services provided by the Group's auditor and network firms 73 8. Income tax expense 73 9. Earnings per share 74 10. Dividends 74 11. Goodwill 75 12. Intangible assets 76 13. Property, plant and equipment 77 14. Investments in associates 78 15. Available-for-sale financial assets 79 16. Derivative financial instruments 80 17. Employee benefit trust 81 18. Trade and other receivables 81 19. Cash and cash equivalents 82 20. Trade and other payables 83 21. Financial instruments by category 83 22. Borrowings 84 23. Deferred income taxes 87 24. Provisions for liabilities and charges 88 25. Share capital and premium 89 26. Non-controlling interests 89 27. Other reserves 90 28. Qualifying employee share ownership trust 91 29. Cash generated from operations 91 30. Business combinations 91 FinancialStatements 31. Business disposals 96 32. Retirement benefit obligations 97 33. Jardine Matheson Group 102 34. Commitments 103 35. Principal subsidiary and associated companies 104
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Financial Statements Independent Auditors’ Report to the members of Jardine Lloyd Thompson Group plc
We have audited the Group financial statements of Jardine Lloyd Opinion on other matters prescribed by the Thompson Group plc for the year ended 31 December 2011 Companies Act 2006 which comprise the Consolidated Income Statement, the In our opinion: Consolidated Statement of Comprehensive Income, the Consolidated Group Balance Sheet, the Consolidated Statement • the information given in the Directors’ Report for the financial of Changes in Equity, the Consolidated Statement of Cash Flows, year for which the Group financial statements are prepared is the Accounting Policies and the related notes. The financial consistent with the Group financial statements; reporting framework that has been applied in their preparation is Matters on which we are required to report by exception applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you Respective responsibilities of directors and auditors if, in our opinion: As explained more fully in the Directors’ Responsibilities Statement • certain disclosures of directors’ remuneration specified by law set out on pages 36 and 37, the directors are responsible for the are not made; or preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to • we have not received all the information and explanations we audit and express an opinion on the Group financial statements in require for our audit. accordance with applicable law and International Standards on Under the Listing Rules we are required to review: Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. • the directors’ statement, set out on page 37, in relation to This report, including the opinions, has been prepared for and only going concern; for the company’s members as a body in accordance with • the part of the Corporate Governance Statement relating to Chapter 3 of Part 16 of the Companies Act 2006 and for no other the company’s compliance with the nine provisions of the UK purpose. We do not, in giving these opinions, accept or assume Corporate Governance Code specified for our review; and responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save • certain elements of the report to shareholders by the Board on where expressly agreed by our prior consent in writing. directors’ remuneration.
Scope of the audit of the financial statements Other matters An audit involves obtaining evidence about the amounts and We have reported separately on the parent company financial disclosures in the financial statements sufficient to give reasonable statements of Jardine Lloyd Thompson Group plc for the year assurance that the financial statements are free from material ended 31 December 2011 and on the information in the Directors’ misstatement, whether caused by fraud or error. This includes an Remuneration Report that is described as having been audited. assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied Andrew Kail (Senior Statutory Auditor) and adequately disclosed; the reasonableness of significant for and on behalf of accounting estimates made by the directors; and the overall PricewaterhouseCoopers LLP presentation of the financial statements. In addition, we read all Chartered Accountants and Statutory Auditors the financial and non-financial information in the Annual Report to London identify material inconsistencies with the audited financial 20 March 2012 statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Notes:
Opinion on financial statements • The maintenance and integrity of the Jardine Lloyd Thompson Group plc website is the responsibility of the directors; the In our opinion the Group financial statements: work carried out by the auditors does not involve • give a true and fair view of the state of the Group’s affairs as consideration of these matters and, accordingly, the auditors at 31 December 2011 and of its profit and cash flows for the accept no responsibility for any changes that may have year then ended; occurred to the financial statements since they were initially • have been properly prepared in accordance with IFRSs as presented on the website. adopted by the European Union; and • Legislation in the United Kingdom governing the preparation • have been prepared in accordance with the requirements of and dissemination of financial statements may differ from the Companies Act 2006 and Article 4 of the lAS Regulation. legislation in other jurisdictions.
48 Jardine Lloyd Thompson Group plc Annual Report 2011 AR Accounts 2011 final tp_A&R design 3 16/03/2012 17:19 Page 49
Financial Statements Consolidated Income Statement for the year ended 31st December 2011
2011 2010 Notes £’000 £’000 Fees and commissions 2 812,004 740,679 Investment income 4 6,760 5,601 Salaries and associated expenses 6 (489,700) (441,797) Premises (42,394) (40,125) Other operating costs (133,319) (128,801) Depreciation, amortisation and impairment charges 3 (19,410) (17,365) Operating profit 2,3 133,941 118,192
Analysed as: Operating profit before exceptional items 147,034 129,859 Business Transformation Programme 3 (8,936) (7,282) Partial offer costs 3 (1,918) - Other non-recurring items 3 (2,239) (4,385) Operating profit 2,3 133,941 118,192
Finance costs 5 (7,377) (6,427) Finance income 5 2,816 3,832 Finance costs - net 5 (4,561) (2,595) Share of results of associates after tax and non-controlling interests 14 5,099 3,772 Profit before taxation 2 134,479 119,369 Income tax expense 8 (39,210) (24,554) Profit for the year 95,269 94,815
Profit attributable to: Owners of the parent 88,746 90,664 Non-controlling interests 26 6,523 4,151 95,269 94,815
Earnings per shares attributable to the equity holders of the Company 9 during the year (expressed in pence per share) Basic earnings per share 40.7p 41.8p Diluted earnings per share 40.4p 41.7p
The notes on pages 61 to 104 form an integral part of these consolidated financial statements. The loss for the parent company for the year was £26,488,000 (2010: loss £16,161,000). FinancialStatements
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Financial Statements Consolidated Statement of Comprehensive Income for the year ended 31st December 2011
2011 2010 £’000 £’000 Profit for the year 95,269 94,815
Other comprehensive income: Actuarial (losses)/gains recognised in post retirement benefit schemes (54,605) 12,960 Taxation thereon 11,116 (3,816) (43,489) 9,144 Fair value losses net of tax: - available-for-sale (52) (114) - cash flow and fair value hedges (2,724) (10,661) Currency translation differences (7,896) 8,191
Other comprehensive income net of tax (54,161) 6,560 Total comprehensive income for the year 41,108 101,375
Attributable to: Owners of the parent 34,585 97,224 Non-controlling interests 6,523 4,151 41,108 101,375
The notes on pages 61 to 104 form an integral part of these consolidated financial statements.
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Financial Statements Consolidated Group Balance Sheet at 31st December 2011
2011 2010 Notes £’000 £’000 NET OPERATING ASSETS Non-current assets Goodwill 11 259,910 243,783 Intangible assets 12 51,470 38,281 Property, plant and equipment 13 25,628 28,860 Investments in associates 14 72,385 60,794 Available-for-sale financial assets 15,21 2,535 1,908 Derivative financial instruments 16,21 8,945 3,770 Employee benefit trusts 17 491 510 Deferred tax assets 23 54,520 41,130 475,884 419,036 Current assets Trade and other receivables 18,21 288,711 271,435 Derivative financial instruments 16,21 2,986 4,510 Available-for-sale financial assets 15,21 158 38,260 Cash and cash equivalents 19,21 573,616 524,865 865,471 839,070 Current liabilities Borrowings 21,22 (1,842) (2,725) Trade and other payables 20,21 (689,781) (687,270) Derivative financial instruments 16,21 (5,759) (4,282) Current tax liabilities (7,053) (10,538) Provisions for liabilities and charges 24 (9,001) (13,099) (713,436) (717,914) Net current assets 152,035 121,156 Non-current liabilities Borrowings 21,22 (188,340) (142,660) Derivative financial instruments 16,21 (7,814) (8,244) Deferred tax liabilities 23 (8,080) (8,100) Retirement benefit obligations 32 (120,999) (72,835) Provisions for liabilities and charges 24 (4,252) (4,935) (329,485) (236,774) 298,434 303,418 TOTAL EQUITY Capital and reserves attributable to the Company's equity holders Ordinary shares 25 10,960 10,890 Share premium 25,27 99,670 93,577 Fair value and hedging reserves 27 (5,661) (2,885) Exchange reserves 27 30,131 38,027 FinancialStatements Retained earnings 151,007 155,368 Shareholders’ equity 286,107 294,977 Non-controlling interests 26 12,327 8,441 298,434 303,418
The notes on pages 61 to 104 form an integral part of these consolidated financial statements. Approved by the Board on 20th March 2012 and signed on its behalf by:
Simon Mawson Finance Director
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Financial Statements Consolidated Statement of Changes in Equity for the year ended 31st December 2011
Non- Ordinary Other Retained Shareholders' controlling Total shares reserves earnings equity interests equity £’000 £’000 £’000 £’000 £’000 £’000 Balance at 1st January 2011 10,890 128,719 155,368 294,977 8,441 303,418 Profit for the year --88,746 88,746 6,523 95,269 Other comprehensive income Actuarial losses recognised in post retirement benefit schemes --(43,489) (43,489) - (43,489) Fair value losses net of tax: - available-for-sale - (52) - (52) - (52) - cash flow and fair value hedges - (2,724) - (2,724) - (2,724) Currency translation differences - (7,896) - (7,896) (106) (8,002) Total other comprehensive income - (10,672) (43,489) (54,161) (106) (54,267) Total comprehensive income for the year - (10,672) 45,257 34,585 6,417 41,002 Dividends paid --(50,000) (50,000) (3,635) (53,635) Amounts in respect of share based payments: - reversal of amortisation in respect of share based payments --16,848 16,848 - 16,848 - shares acquired by the Employee Benefit Trust --(14,799) (14,799) - (14,799) Acquisitions ---- (257) (257) Disposals ---- 1,361 1,361 Change in non-controlling interests --(1,667) (1,667) - (1,667) Issue of share capital 70 6,093 - 6,163 - 6,163 Balance at 31st December 2011 10,960 124,140 151,007 286,107 12,327 298,434
Non- Ordinary Other Retained Shareholders' controlling Total shares reserves earnings equity interests equity £’000 £’000 £’000 £’000 £’000 £’000 Balance at 1st January 2010 10,776 122,366 99,532 232,674 6,760 239,434 Profit for the year --90,664 90,664 4,151 94,815 Other comprehensive income Actuarial gains recognised in post retirement benefit schemes --9,144 9,144 - 9,144 Fair value losses net of tax: - available-for-sale - (114) - (114) - (114) - cash flow hedges - (10,661) - (10,661) - (10,661) Currency translation differences - 8,191 - 8,191 642 8,833 Total other comprehensive income - (2,584) 9,144 6,560 642 7,202 Total comprehensive income for the year - (2,584) 99,808 97,224 4,793 102,017 Dividends paid --(46,280) (46,280) (2,191) (48,471) Amounts in respect of share based payments: - reversal of amortisation in respect of share based payments --17,297 17,297 - 17,297 - shares acquired by the Employee Benefit Trust --(13,708) (13,708) - (13,708) Acquisitions ----(1,405) (1,405) Disposals ----484 484 Change in non-controlling interests --(1,281) (1,281) - (1,281) Issue of share capital 114 8,937 - 9,051 - 9,051 Balance at 31st December 2010 10,890 128,719 155,368 294,977 8,441 303,418
The notes on pages 61 to 104 form an integral part of these consolidated financial statements.
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Financial Statements Consolidated Statement of Cash Flows for the year ended 31st December 2011
2011 2010 Notes £’000 £’000 Cash flows from operating activities Cash generated from operations 29 142,570 96,507 Interest paid (6,968) (3,844) Interest received 8,158 9,719 Taxation paid (42,024) (25,656) (Decrease)/increase in net insurance broking creditors (10,818) 34,506 90,918 111,232 Dividend received from associates 14 876 - Net cash generated from operating activities 91,794 111,232
Cash flows from investing activities Purchase of property, plant and equipment (8,980) (9,205) Purchase of intangible fixed assets (27,298) (23,834) Proceeds from sale of property, plant and equipment 1,125 880 Proceeds from sale of intangible fixed assets 345 343 Acquisition of businesses, net of cash acquired 30 (14,815) (12,866) Acquisition of associate undertakings (4,540) (15,592) Proceeds from disposal of business, net of cash disposed 31 (2,278) 1,783 Proceeds from disposal of associate undertakings 513 - Purchase of available-for-sale other investments - (214) Proceeds from disposal of available-for-sale other investments 9 96 Net cash used in investing activities (55,919) (58,609)
Cash flows from financing activities Dividends paid to company's shareholders (49,855) (45,824) Net cash flows from investments and deposits 37,967 42,911 Purchase of investments by Employee Benefit Trust (14,799) (13,708) Proceeds from issuance of ordinary shares 25 6,163 9,051 Net increase in borrowings 40,639 43,464 Dividends paid to non-controlling interests 26 (3,635) (2,191) Net cash generated from financing activities 16,480 33,703 Net increase in cash and cash equivalents 52,355 86,326 Cash and cash equivalents at beginning of year 524,865 437,218 Exchange (losses)/gains on cash and cash equivalents (3,604) 1,321 Cash and cash equivalents at end of year 19 573,616 524,865
The notes on pages 61 to 104 form an integral part of these consolidated financial statements. FinancialStatements
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Financial Statements Accounting Policies
Basis of Preparation If a business combination is achieved in stages, the fair value of the The consolidated financial statements of the Group have been acquirer’s previously held equity interest in the acquiree is remeasured prepared in accordance with International Financial Reporting to fair value at the acquisition date through profit or loss. Standards as adopted by the European Union (IFRSs as adopted by Any contingent consideration to be transferred by the Group is the EU), IFRIC interpretations and the Companies Act 2006 applicable recognised at fair value at the acquisition date. Subsequent changes to Companies reporting under IFRSs. The consolidated financial to the fair value of the contingent consideration that is deemed to be statements have been prepared on a going concern basis, under the an asset or liability is recognised in accordance with IAS 39 either in historical cost convention, as modified by the revaluation of available- profit or loss or as a change to other comprehensive income. for-sale investments and derivative financial instruments. Contingent consideration that is classified as equity is not remeasured, Standards, amendments and interpretations and its subsequent settlement is accounted for within equity. effective in 2011 Goodwill is initially measured as the excess of the aggregate of the There are no IFRSs or IFRIC interpretations that were effective for the consideration transferred and the fair value of non-controlling interests first time for the financial year beginning on or after 1st January 2011 over the net identifiable assets acquired and liabilities assumed. If this that had a material impact on the Group. consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. Basis of consolidation The consolidated financial statements comprise the accounts of the Inter-company transactions, balances and unrealised gains on Company and its subsidiary undertakings. The profits and losses of transactions between Group companies are eliminated. Unrealised subsidiary undertakings are consolidated as from the effective date of losses are also eliminated. Accounting policies of subsidiaries have acquisition or to the effective date of disposal. been changed where necessary to ensure consistency with the policies adopted by the Group. Subsidiaries Subsidiaries are entities over which the Group has the power to Transactions with non-controlling interests govern the financial and operating policies so as to obtain economic Transactions with non-controlling interests that do not result in loss of benefits and generally accompany a shareholding of more than one control are accounted for as equity transactions – that is, as half of the voting rights. The existence and effect of potential voting transactions with the owners in their capacity as owners. The rights that are currently exercisable or convertible are considered difference between fair value of any consideration paid and the when assessing whether the Group controls another entity. relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non- The Group also recognises control where it does not have more than controlling interests are also recorded in equity. 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may Disposal of subsidiaries arise in circumstances where the size of the Group’s voting rights When the Group ceases to have control any retained interest in the relative to the size and dispersion of holdings of other shareholders entity is re-measured to its fair value at the date when control is lost, give the Group the power to govern the financial and operating with the change in carrying amount recognised in profit or loss. policies. The fair value is the initial carrying amount for the purposes of Subsidiaries are fully consolidated from the date on which control is subsequently accounting for the retained interest as an associate, joint transferred to the Group. They are de-consolidated from the date that venture or financial asset. In addition, any amounts previously control ceases. recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related The Group uses the acquisition method of accounting to account for assets or liabilities. This may mean that amounts previously business combinations. The consideration transferred for the recognised in other comprehensive income are reclassified to profit or acquisition of a subsidiary is the fair values of the assets transferred, loss. the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or Associates liability resulting from a contingent consideration arrangement. Associates are entities over which the group has significant influence Identifiable assets acquired and liabilities and contingent liabilities but not control, generally accompanying a shareholding of between assumed in a business combination are measured initially at their fair 20% and 50% of the voting rights. Investments in associates are values at the acquisition date. On an acquisition-by-acquisition basis, accounted for using the equity method of accounting. Under the the Group recognises any non-controlling interest in the acquiree equity method, the investment is initially recognised at cost, and the either at fair value or at the non-controlling interest’s proportionate carrying amount is increased or decreased to recognise the investor’s share of the acquiree’s net assets. share of the profit or loss of the investee after the date of acquisition. Acquisition-related costs are expensed as incurred. The Group’s investment in associates includes goodwill identified on acquisition.
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If the ownership interest in an associate is reduced but significant Group companies influence is retained, only a proportionate share of the amounts The results and financial position of all the Group entities (none of previously recognised in other comprehensive income is reclassified to which has the currency of a hyperinflationary economy) that have a profit or loss where appropriate. functional currency different from the presentation currency are The Group’s share of post-acquisition profit or loss is recognised in translated into the presentation currency as follows: the income statement, and its share of post acquisition movements in i) assets and liabilities for each balance sheet presented are other comprehensive income is recognised in other comprehensive translated at the closing rate at the date of that balance sheet; income with a corresponding adjustment to the carrying amount of ii) income and expenses for each income statement are translated at the investment. When the Group’s share of losses in an associate average exchange rates (unless this average is not a reasonable equals or exceeds its interest in the associate, including any other approximation of the cumulative effect of the rates prevailing on unsecured receivables, the Group does not recognise further losses, the transaction dates, in which case income and expenses are unless it has incurred legal or constructive obligations or made translated at the dates of the transactions); and payments on behalf of the associate. iii) all resulting exchange differences are recognised in other Unrealised gains on transactions between the Group and its comprehensive income. associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the On consolidation exchange differences arising from the translation of transaction provides evidence of an impairment of the asset net investment in foreign entities, and of borrowings and other transferred. Accounting policies of associates have been modified currency instruments designated as hedges of such investments, are where necessary to ensure consistency with the policies adopted by taken to other comprehensive income. When a foreign operation is the Group. sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Segment reporting Goodwill and fair value adjustments arising on the acquisition of a Operating segments are reported in a manner consistent with the foreign entity are treated as assets and liabilities of the foreign entity internal reporting provided to the chief operating decision-maker. and translated at the closing rate. A geographical segment is engaged in providing services within a particular economic environment that are subject to risks and returns Goodwill arising on consolidation that are different from those of segments operating in other economic Goodwill represents the excess of the cost of an acquisition over the environments. fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on Foreign currencies acquisitions of subsidiaries is shown separately on the Balance Sheet. Goodwill on acquisitions of associates is included in investments in Functional and presentation currency associates. Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic Goodwill arising on acquisitions completed prior to 1st January 1998 environment in which the entity operates (‘the functional currency’). was written off directly to reserves. Following the adoption of IFRS this goodwill remains written off to reserves and no adjustment would be The consolidated financial statements are presented in Sterling, which made on subsequent disposal. For acquisitions completed on or after is the Parent Company’s functional and presentation currency. 1st January 1998 and before 1st January 2004, goodwill is stated on Transactions and balances the Balance Sheet at its previously amortised net book value. Foreign currency transactions are translated into the functional For acquisitions completed on or after 1st January 2004, goodwill is currency using the exchange rates prevailing at the dates of the tested annually for impairment and carried at cost less accumulated transactions. Foreign exchange gains and losses resulting from the impairment losses. Gains and losses on the disposal of an entity settlement of such transactions and from the translation at year-end include the carrying amount of goodwill relating to the entity sold. exchange rates of monetary assets and liabilities denominated in Goodwill is allocated to cash generating units for the purpose of foreign currencies are recognised in the income statement, except impairment testing. Cash generating units represent the lowest level of when deferred in equity as qualifying cash flow hedges and qualifying geographical and business segment combinations that the Group FinancialStatements net investment hedges. Translation differences on non-monetary uses for internal reporting purposes. items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for- sale financial assets, are included in the fair value reserve in equity.
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Financial Statements Accounting Policies
Intangible assets Property, plant and equipment Computer software Assets are stated at their net book value (historical cost less accumulated depreciation). Depreciation is calculated to write off the Acquired computer software licenses are capitalised on the basis of cost of such assets over their estimated useful lives. the costs incurred to acquire them and bring them to use. These costs are amortised over their estimated useful lives. Costs associated The principal rates of depreciation are as follows: with developing or maintaining computer software programmes are • Freehold land and buildings - between 0% and 2% per annum. recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software • Leasehold improvements - between 10% and 20% per annum or products controlled by the Group, and that will generate economic over the life of the lease. benefits exceeding costs beyond one year, are recognised as • Furniture and office equipment - between 10% and 20% per intangible assets. Direct costs include the software development annum. employee costs and an appropriate portion of relevant overheads. • Computer hardware - between 20% and 100% per annum. Computer software development costs recognised as assets are amortised over their estimated useful lives. • Motor vehicles - between 25% and 33 1/3% per annum.
Capitalised employment contract payments Financial assets The Group makes payments to certain key employees in recognition The Group classifies its financial assets as loans and receivables and of them signing a long-term employment contact, usually three to five available-for-sale investments. The classification depends upon the years. These payments are capitalised as intangible assets since legal purpose for which the financial assets were acquired. Management rights protect the expected benefits that the Group will derive from the determines the classification of its financial assets at initial recognition. contracts. Loans and receivables The asset recognised is then amortised over the duration of the Loans and receivables are non-derivative financial assets with fixed or underlying contract. determinable payments that are not quoted in an active market. They Other are included in current assets, except for maturities greater than 12 For acquisitions completed after 1st January 2004 the business months after the balance sheet date. acquired is reviewed to identify assets that meet the definition of an The Group's loans and receivables comprise trade and other intangible asset per IAS 38. Examples of such assets include receivables and cash and cash equivalents in the balance sheet. customer contracts and expectations of business renewal. These assets are valued on the basis of the present value of future cash Available-for-sale financial assets flows and are amortised to the income statement over the life of the Available-for-sale financial assets are categorised according to their contract or their estimated economic life. The current maximum nature into one of two categories: estimated economic life is ten years. 1) Investments and deposits, which consist mainly of Fixed Deposits, Impairment of assets Bonds and Commercial Paper - these investments are held at fair value and are classified between current and non-current assets Assets that have an indefinite useful life are not subject to amortisation according to maturity date. and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes 2) Other investments, which include securities and other investments in circumstances indicate that the carrying amount may not be held for strategic purposes - these investments are held fair at recoverable. An impairment loss is recognised for the amount by value unless a fair value cannot be accurately determined in which which the asset’s carrying amount exceeds its recoverable amount. case they are held at cost less any provision for impairment. The recoverable amount is the higher of an asset’s fair value less Interest on deposits and interest-bearing investments is credited as it costs to sell and value in use. For the purposes of assessing is earned. impairment, assets are grouped at the lowest levels for which there Regular purchases and sales of financial assets are recognised on the are separately identifiable cash flows (cash-generating units). trade date - the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost. The fair values of quoted investments are determined based upon current bid price. Changes in the value of securities classified as available-for-sale are recognised in equity.
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Employee benefit trust Deferred income tax The Group operates a deferred compensation scheme by way of a The charge for taxation is based on the result for the year at current discretionary, employee benefit trust. Investments held by this rates of tax and takes into account deferred tax. scheme, which are principally represented by Unit Trusts, are Deferred income tax is provided in full, using the liability method, on classified as fixed assets on the balance sheets and charged to the temporary differences arising between the tax bases of assets and Group profit and loss account over the vesting periods of the award. liabilities and their carrying amounts in the consolidated financial Insurance broking debtors and creditors statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a Insurance brokers act as agents in placing the insurable risks of their business combination that at the time of the transaction affects neither clients with insurers and, as such, are not liable as principals for accounting nor taxable profit or loss, it is not recognised. Deferred amounts arising from such transactions. In recognition of this income tax is determined using tax rates (and laws) that have been relationship, debtors from insurance broking transactions are not enacted or substantively enacted by the balance sheet date and are included as an asset of the Group. Other than the receivable for fees expected to apply when the related deferred income tax asset is and commissions earned on a transaction, no recognition of the realised or the deferred income tax liability is settled. insurance transaction occurs until the Group receives cash in respect of premiums or claims, at which time a corresponding liability is Deferred income tax is charged or credited to equity in respect of any established in favour of the insurer or the client. items, which is itself either charged or credited directly to equity. Any subsequent recognition of the deferred gain or loss in the In certain circumstances, the Group advances premiums, refunds or consolidated income statement is accompanied by the corresponding claims to insurance underwriters or clients prior to collection. These deferred income tax. advances are reflected in the consolidated balance sheet as part of trade receivables. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the Trade receivables temporary differences can be utilised. Trade receivables are recognised initially at fair value and Deferred income tax is provided on temporary differences arising on subsequently at amortised cost, less provision for impairment. investments in subsidiaries and associates, except where the Group A provision for impairment of trade receivables is established when controls the timing of the reversal of the temporary difference and it is there is objective evidence that the Group will not be able to collect all probable that the temporary difference will not reverse in the amounts due according to the original terms of the receivables. foreseeable future. Significant financial difficulties of the debtor, dispute, default or delinquency in payments are considered indicators that the receivable Employee benefits is impaired. Pension costs The carrying amount of the asset is reduced through the use of an The Group operates a number of defined benefit pension schemes, allowance account, and the amount of the loss is recognised in the and a number of employees are members of defined contribution income statement. pension schemes. When a trade receivable is uncollectible, it is written off against the A defined benefit plan is a pension plan that defines an amount of allowance account for trade receivables. pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and Cash and cash equivalents compensation. Cash and cash equivalents includes cash in hand, deposits held at Full actuarial valuations of the Group’s main defined benefit schemes call with banks, other short-term highly liquid investments with original are carried out at least every three years. maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. A qualified actuary updates these valuations to 31st December each year. For the purposes of these annual updates, scheme assets are Trade payables included at market value and scheme liabilities are measured on an
Trade payables are initially recognised at fair value and subsequently actuarial basis using the projected unit method; these liabilities are FinancialStatements measured at amortised cost. discounted at the current rate of return of an AA corporate bond of equivalent currency and term. The defined benefit surplus or deficit is Borrowings included on the Group’s balance sheet. Surpluses are included only to Borrowings are classified as current liabilities unless the Group has an the extent that they are recoverable through reduced contributions in unconditional right to defer settlement of the liability for at least 12 the future or through refunds from the schemes. The current service months after the balance sheet date. Borrowings are recognised cost and any past service costs are included in the income statement initially at fair value, net of transaction costs incurred. They are within salaries and associated expenses and the expected return on subsequently stated at amortised cost using the effective interest rate the schemes’ assets, net of the impact of the unwinding of the method. discount on scheme liabilities, is included within finance costs. Actuarial gains and losses, including differences between the expected and actual return on scheme assets, are recognised through the Statement of Recognised Income and Expense.
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Financial Statements Accounting Policies
A defined contribution plan is a pension plan under which the Group Exceptional items pays fixed contributions into a separate entity. Exceptional items are separately identified to provide greater The Group has no legal or constructive obligations to pay further understanding of the Group’s underlying performance. Items classified contributions if the fund does not hold sufficient assets to pay all as exceptional items include: gains or losses arising from the sale of employees the benefits relating to employee service in the current and businesses and investments; closure costs for businesses; prior periods. restructuring costs; post acquisition integration costs; and other credits and charges of non-recurring nature that require inclusion in The costs of the Group’s defined contribution pension schemes are order to provide additional insight into the underlying business charged to the income statement in the period in which they fall due. performance. Share-based compensation Items of a non-recurring and material nature are charged or credited The Group operates a number of equity-settled, share-based to operating profit and are classified to the appropriate income compensation plans. The fair value of the employee services received statement headings. in exchange for the grant of the options is recognised as an expense. To assist in the analysis and understanding of the underlying trading The total amount to be expensed over the vesting period is position of the Group these items are summarised within the determined by reference to the fair value of the options granted, Operating Profit, note 3 on page 65, under the heading of excluding the impact of any non-market vesting conditions (for “exceptional items”. example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options Leases that are expected to become exercisable. At each balance sheet date, Assets held under leasing agreements, which transfer substantially all the entity revises its estimates of the number of options that are the risks and rewards of ownership to the Group are included in expected to become exercisable. It recognises the impact of the property, plant and equipment. The capital elements of the related revision of original estimates, if any, in the income statement, and a lease obligations are included in liabilities. The interest elements of the corresponding adjustment to equity over the remaining vesting period. lease obligations are charged to the income statement over the period of the lease term. The proceeds received net of any directly attributable transaction costs are credited to share capital (at nominal value) and share The property, plant and equipment acquired under finance leases is premium (excess over nominal value) when the options are exercised. depreciated over the shorter of the useful life of the asset and the lease term. Provisions for liabilities and charges Leases in which a significant portion of the risks and rewards of A provision is recognised where there is a present obligation, whether ownership are retained by the lessor are classified as operating leases. legal or constructive, as a result of a past event for which it is Payments made under operating leases (net of any incentives received probable that a transfer of economic benefits will be required to settle from the lessor) are charged to the income statement on a straight- the obligation and a reasonable estimate can be made of the amount line basis over the period of the lease. of the obligation. Where appropriate the Group discounts provisions to their present value. The unwinding of the provision discounting is Derivative financial instruments included as an “interest charge” within finance costs in the income The Group only enters into derivative financial instruments in order to statement. hedge underlying commercial exposures. Fees and commissions Derivative financial instruments are initially recognised at fair value on Fees and commissions are derived from three principal sources: the date a derivative contract is entered into and are subsequently re- measured at their fair value. The method of recognising the resulting Insurance broking gain or loss is dependent on the nature of the item being hedged. Income relating to insurance broking is brought into account at the The Group designates derivatives as either a hedge of the fair value of later of policy inception date or when the policy placement has been a recognised asset or liability (fair value hedge), or a hedge of a completed and confirmed. Where there is an expectation of future forecasted transaction or of the foreign currency risk on a firm servicing requirements an element of income relating to the policy is commitment (cash flow hedge), or a hedge of a net investment in a deferred to cover the associated contractual obligation. foreign entity (net investment hedges). Employee benefits Changes in the fair value of derivatives that are designated and qualify Income relating to employee benefit services includes fees and as fair value hedges and that are highly effective, are recorded in the commissions. Fees are charged on a time-cost or fixed-fee basis and consolidated income statement, along with any changes in the fair are recognised in line with the performance of the underlying service. value of the hedged asset or liability that is attributable to the hedged Commission is recognised upon confirmation of the underlying policy risk. or product. Changes in the fair value of derivatives that are designated and qualify Other services as cash flow hedges and that are highly effective, are recognised in equity. Where the forecasted transaction or firm commitment results in Fees and other income receivable are recognised in the period which the recognition of a non-financial asset or of a non-financial liability, the they relate and when they can be measured with reasonable certainty. gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Otherwise, amounts deferred in equity are transferred to the
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consolidated income statement and classified as income or expense The recoverable amount of an asset or a cash-generating unit is in the same periods during which the hedged firm commitment or determined based on value-in use calculations prepared on the forecasted transaction affects the consolidated income statement. basis of management’s assumptions and estimates. This The gain or loss relating to the ineffective portion is recognised determination requires significant judgment. In making this immediately in the income statement. judgment, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its When a hedging instrument expires or is sold, or when a hedge no cost; and the financial health of and near-term business outlook longer meets the criteria for hedge accounting, any cumulative gain or for the investment, including factors such as industry and sector loss existing in equity at that time remains in the hedging reserves performance, changes in regional economies and operational and and is recognised when the committed or forecasted transaction financing cash flow. ultimately is recognised in the consolidated income statement. When a committed or forecasted transaction is no longer expected to c) Income taxes occur, the cumulative gain or loss that was reported in equity is The Group is subject to income taxes in numerous jurisdictions. immediately recognised in the consolidated income statement. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and Fair value estimation calculations for which the ultimate tax determination is uncertain The fair value of financial instruments traded in active markets (such during the ordinary course of business. Where the final tax as available-for-sale) is based upon quoted market prices at the outcome of these matters is different from the amounts that were balance sheet date. The quoted market price used for financial assets initially recorded, such differences will impact the income tax and held by the Group is the current bid price. deferred tax provisions in the period in which such determination is made. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair values d) Pension obligations of financial liabilities is estimated by discounting the future contractual The present value of the pension obligations depends on a cash flows at the current market interest rate that is available to the number of factors that are determined on an actuarial basis using Group for similar financial instruments. a number of assumptions. The assumptions used in determining the net cost (income) for Dividend distribution pensions include the expected long-term rate of return on the Dividends proposed or declared after the balance sheet date are not relevant plans’ assets and the discount rate. recognised as a liability at the balance sheet date. Final dividends are recognised as a charge to equity once approved and interim Any changes in these assumptions will impact the carrying dividends are charged once paid. amount of pension obligations. The expected return on plan assets assumption is determined on Financial and capital risk management a uniform basis, taking into consideration long-term historical The Group’s exposure to financial risks and its financial and capital returns, asset allocation and future estimates of long-term management policies are detailed in the Finance Director’s Review investment returns. The Group determines the appropriate and the Risk Management Report on pages 23 to 29. discount rate at the end of each year.
Critical accounting estimates and judgments This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be Estimates and judgments used in preparing the financial statements required to settle the pension obligations. are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed In determining the appropriate discount rate, the Group considers to be reasonable. The resulting accounting estimates will, by the interest rates of high-quality corporate bonds that are definition, seldom equal the related actual results. denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the The estimates and assumptions that have a significant effect on the related pension liability. Other key assumptions for pension carrying amounts of assets and liabilities are discussed below. obligations are based in part on current market conditions.
a) Property, plant and equipment e) Errors and omissions liability FinancialStatements Assets are carried at historical cost less depreciation calculated to During the ordinary course of business the Group can be subject write off the cost of such assets over their estimated useful lives. to claims for errors and omissions made in connection with its Management determines the estimated useful lives and related broking activities. depreciation charges at acquisition. The estimated useful life is A balance sheet provision is established in respect of such claims reviewed annually and the depreciation charge is revised where when it is probable that the liability has been incurred and the useful lives are subsequently found to be different to those amount of the liability can be reasonably estimated. previously estimated. The Group analyses its litigation exposures based on available b) Impairment of assets information, including external legal consultation where The Group tests annually whether goodwill and other assets that appropriate, to assess its potential liability. have indefinite useful lives suffered any impairment. Other assets The outcome of the currently pending and future proceedings are reviewed for impairment whenever events or changes in cannot be predicted with certainty. Thus, an adverse decision in a circumstances indicate that the carrying amount of the asset current or future lawsuit could result in additional costs that are exceeds its recoverable amount.
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Financial Statements Accounting Policies
not covered, either wholly or partially, under insurance policies and IFRS 10 Consolidated financial statements’ builds on existing are in excess of the presently established provisions. It is possible principles by identifying the concept of control as the determining therefore that the financial position, results of operations or cash factor in whether an entity should be included within the consolidated flows of the Group could be materially affected by the financial statements of the parent company. The standard provides unfavourable outcome of litigation. additional guidance to assist in the determination of control where this is difficult to assess. The Group intends to adopt IFRS 10 no later Future developments than the accounting period beginning on or after 1st January 2013, The following standards and amendments to existing standards have subject to endorsement by the EU. been published and are mandatory for the Group’s accounting IFRS 12 ‘Disclosures of interests in other entities’ includes the periods beginning on or after 1st January 2012 or later periods, but disclosure requirements for all forms of interests in other entities, the Group has not adopted them early: including joint arrangements, associates, special purpose vehicles and IAS 19 ‘Employee Benefits’ was amended in June 2011. other off balance sheet vehicles. The Group intends to adopt IFRS 12 The amendments will be as follows: to eliminate the corridor approach no later than the accounting period beginning on or after 1st January and recognise all actuarial gains and losses in other comprehensive 2013, subject to endorsement by the EU. income as they occur; to immediately recognise all past service costs; IFRS 13 ‘Fair value measurement’ aims to improve consistency and and to replace interest cost and expected return on plan assets with a reduce complexity by providing a precise definition of fair value and a net interest amount that is calculated by applying the discount rate to single source of fair value measurement and disclosure requirements the net defined benefit liability (asset). The Group intends to adopt for use across IFRSs. The requirements, which are largely aligned IAS19 (revised) no later than the accounting period beginning on or between IFRSs and US GAAP, do not extend the use of fair value after 1st January 2013. The Group is yet to assess the full impact of accounting but provide guidance on how it should be applied where the amendment on future results. its use is already required or permitted by other standards within IFRS 9 ‘Financial instruments’ addresses the classification, IFRSs or US GAAP. The Group intends to adopt IFRS 13 no later than measurement and recognition of financial assets and financial the accounting period beginning on or after 1st January 2012, subject liabilities. IFRS 9 was issued in November 2009 and October 2010. to endorsement by the EU. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Group intends to adopt IFRS 9 no later than the accounting period beginning on or after 1st January 2015, subject to endorsement by the EU.
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
1. Alternative income statement The format of the consolidated income statement on page 49 conforms to the requirements of IFRS. The alternative income statement set out below, which is provided by way of additional information, has been prepared on a basis that conforms more closely to the approach adopted by the Group in assessing its performance.
Year ended 31st December 2011 Underlying Exceptional profit items Total £’000 £’000 £’000 Fees and commissions 812,004 - 812,004 Investment income 6,760 - 6,760 Salaries and associated expenses (482,641) (7,059) (489,700) Premises (41,740) (654) (42,394) Other operating costs (127,939) (5,380) (133,319) Depreciation, amortisation and impairment (19,410) - (19,410) Trading profit 147,034 (13,093) 133,941 Finance costs - net (4,561) - (4,561) Share of results of associates after tax and non-controlling interests 5,099 - 5,099 Profit before taxation 147,572 (13,093) 134,479
Year ended 31st December 2010 Underlying Exceptional profit items Total £’000 £’000 £’000 Fees and commissions 740,679 - 740,679 Investment income 5,601 - 5,601 Salaries and associated expenses (435,028) (6,769) (441,797) Premises (39,661) (464) (40,125) Other operating costs (124,367) (4,434) (128,801) Depreciation, amortisation and impairment (17,365) - (17,365) Trading profit 129,859 (11,667) 118,192 Finance costs - net (3,531) 936 (2,595) Share of results of associates after tax and non-controlling interests 3,772 - 3,772 Profit before taxation 130,100 (10,731) 119,369 FinancialStatements
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
2. Segment information Management has determined the operating segments based on the analysis used to make strategic decisions. Business segment analysis The Group is organised on a worldwide basis into five main segments: London Market, Retail, Employee Benefits, Thistle Insurance Services and Head Office & Other operations. These segments are consistent with the internal reporting structure of the Group. The London Market segment comprises JLT’s specialist, wholesale and reinsurance broking activities. The Retail segment comprises the Group international insurance broking and risk services activities. The Employee Benefits segment consists of pension administration, outsourcing and employee benefits consultancy. The Thistle Insurance Services segment provides solutions to Affinities, SME and retail markets via its own business units as well as third party brokers, mainly through open-market placements, delegated authorities and Managed General Underwriting (MGU) arrangements. The Head Office & Other segment consists mainly of holding companies, central administration functions, the Group's captive insurance companies and the Group's principal investments in associates. Segment results Management assesses the performance of the operating segments based upon a measure of underlying trading profit. Segment results include the net income or expense derived from the trading activities of the segment together with the investment income earned on fiduciary funds. Interest income on the Group’s own funds and finance costs are excluded since the trading activities of the Group's primary segments are not of a financial nature. Income tax expense and the change in respect of non-controlling interests is excluded from the segmental allocation. Segment assets include: - non current assets excluding investments in associates and deferred tax assets, - trade and other receivables, - fiduciary funds. Interest bearing assets (e.g. cash and cash equivalents and investments & deposits) relating to the Group's own funds are excluded from segmental assets. Segment liabilities include: - trade and other payables, - provisions for liabilities and charges. Interest bearing liabilities (e.g. borrowings) and income and deferred tax liabilities are excluded from segmental liabilities. Items excluded from segmental allocation are referred to as “unallocated". Investments in associates On 31st December 2011, the Group acquired 25 per cent of the Marine & Aviation Group which operates mainly in Italy. Following a restructuring in July 2011, the Group increased its stake in the holding company of Siaci Saint Honoré, which operates principally in France, from 20 to 26 per cent. In 2010, the Group acquired 20 per cent of the Austrian company GrECo which operates mainly in Austria and Eastern Europe. The investment and the Group’s share of Siaci Saint Honoré’s, GrECo’s and Marine & Aviation’s net profits are included in the Head Office & other segment, together with the investment and results of the Group’s other associates, Sterling Re Intermediaro de Reaseguro SA de CV, JLT Insurance Malta and ICAP-JLT. Capital expenditure comprises additions to property, plant and equipment and intangible assets. Comparatives for 2010 have been restated to reflect the transfer of businesses between the Employee Benefits and Thistle Insurance Services segments.
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2. Segment information continued
Risk & Insurance Thistle London Retail Employee Insurance Head Office Market Benefits Services & Other Unallocated Total Year ended 31st December 2011 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Fees and commissions 327,839 307,932 136,935 39,268 30 - 812,004 Investment income 2,089 4,574 - 97 --6,760 Total revenue 329,928 312,506 136,935 39,365 30 - 818,764 Underlying trading profit 70,214 70,061 26,007 5,773 (25,021) - 147,034 Operating profit 66,962 65,938 23,451 5,268 (27,678) - 133,941 Finance costs - net -----(4,561) (4,561) Share of results of associates after tax and non-controlling interests ----5,099 - 5,099 Profit before taxation 66,962 65,938 23,451 5,268 (22,579) (4,561) 134,479 Income tax expense -----(39,210) (39,210) Non-controlling interests -----(6,523) (6,523) Net profit 66,962 65,938 23,451 5,268 (22,579) (50,294) 88,746
Segment assets 546,541 377,506 95,525 90,262 11,843 - 1,121,677 Investments in associates ----72,385 - 72,385 Unallocated assets -----147,293 147,293 Total assets 546,541 377,506 95,525 90,262 84,228 147,293 1,341,355 Segment liabilities (404,222) (207,688) (24,460) (28,413) (169,911) - (834,694) Unallocated liabilities - ----(208,227) (208,227) Total liabilities (404,222) (207,688) (24,460) (28,413) (169,911) (208,227) (1,042,921) Other segment items Capital expenditure 11,087 8,698 2,612 2,520 11,361 - 36,278 Depreciation, amortisation and impairment (7,527) (7,300) (3,129) (1,099) (8,265) - (27,320)
Risk & Insurance Thistle London Retail Employee Insurance Head Office Market Benefits Services & Other Unallocated Total Year ended 31st December 2010 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Fees and commissions 304,163 267,000 130,116 39,397 3-740,679 Investment income 1,562 3,872 - 165 2-5,601 Total revenue 305,725 270,872 130,116 39,562 5-746,280 Underlying trading profit 65,704 63,964 21,759 5,469 (27,037) - 129,859 Operating profit 62,170 61,470 15,290 4,683 (25,421) - 118,192 Finance costs - net -----(2,595) (2,595) Share of results of associates after tax and non-controlling interests ----3,772 - 3,772 Profit before taxation 62,170 61,470 15,290 4,683 (21,649) (2,595) 119,369 Income tax expense -----(24,554) (24,554) FinancialStatements Non-controlling interests -----(4,151) (4,151) Net profit 62,170 61,470 15,290 4,683 (21,649) (31,300) 90,664
Segment assets 578,753 308,606 98,258 76,834 24,340 - 1,086,791 Investments in associates ----60,794 - 60,794 Unallocated assets -----110,521 110,521 Total assets 578,753 308,606 98,258 76,834 85,134 110,521 1,258,106 Segment liabilities (415,736) (190,422) (36,524) (24,663) (120,617) - (787,962) Unallocated liabilities - ----(166,726) (166,726) Total liabilities (415,736) (190,422) (36,524) (24,663) (120,617) (166,726) (954,688) Other segment items Capital expenditure 7,837 6,214 1,291 2,093 15,604 - 33,039 Depreciation, amortisation and impairment (4,220) (5,779) (3,511) (1,120) (7,062) - (21,692)
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
2. Segment information continued Geographical segment analysis Although the Group’s four business segments are managed on a worldwide basis, they operate in five principal geographical areas of the world. The United Kingdom is the home country of the parent company Jardine Lloyd Thompson Group plc. The London Market segment operates in the United Kingdom, its home country. In the Americas, the London Market segment operates in Bermuda, Cayman Islands and the United States. In Europe, it operates in France, Spain, Switzerland and Russia. In Asia it operates in Singapore. The Retail segment operates in the Americas in Bermuda, Brazil, Canada, Colombia, Mexico, Peru and Chile. In Europe, it operates in the Republic of Ireland, Italy, Spain, Poland, Sweden, Finland, Norway and Guernsey. The Australasian segment includes operations in Australia and New Zealand. The Asian segment includes operations in Singapore, Hong Kong, Taiwan, Indonesia, Japan, Thailand, Korea, Philippines, Malaysia, China and Vietnam. In Africa, it operates in South Africa. The Employee benefits segment operates in the United Kingdom, its home country and the Republic of Ireland. The Thistle Insurance Services segment operates in the United Kingdom, its home country. The Head Office & Other activities segment is mainly based in the United Kingdom with minor operations in the United States, Europe, Asia. The Group’s captive operations are included in the United Kingdom segment. Fees and commissions are disclosed both by (1) the country in which the office is located and (2) the country in which the customer is located. Segment non current assets, segment assets and segment liabilities are allocated based on the country in which they are located or occur.
Fees and Fees and Segment commissions commissions non-current Segment Segment (1) (2) assets assets liabilities Year ended 31st December 2011 £'000 £'000 £'000 £'000 £'000 UK 476,420 278,444 209,856 731,277 (581,580) Americas 107,457 197,838 68,426 154,310 (88,526) Australasia 121,702 133,052 28,172 111,765 (77,515) Asia 83,201 99,296 15,452 79,444 (59,882) Europe 22,899 79,924 14,708 43,247 (26,873) Rest of World 325 23,450 885 1,634 (318) 812,004 812,004 337,499 1,121,677 (834,694)
Investments in associates 72,385 - Unallocated assets/(liabilities) 147,293 (208,227) Total assets/(liabilities) 1,341,355 (1,042,921)
Fees and Fees and Segment commissions commissions non-current Segment Segment (1) (2) assets assets liabilities Year ended 31st December 2010 £'000 £'000 £'000 £'000 £'000 UK 442,323 272,186 197,539 726,035 (562,647) Americas 103,571 185,878 62,104 142,907 (81,113) Australasia 105,340 116,343 28,978 107,471 (74,381) Asia 65,694 78,661 14,678 66,215 (44,961) Europe 23,751 69,989 8,135 44,163 (24,860) Rest of World - 17,622 --- 740,679 740,679 311,434 1,086,791 (787,962)
Investments in associates 60,794 - Unallocated assets/(liabilities) 110,521 (166,726) Total assets/(liabilities) 1,258,106 (954,688)
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3. Operating profit The following items have been (credited)/charged in arriving at operating profit: 2011 2010 £’000 £’000 Foreign exchange (gains)/losses: - fees and commissions (6,829) 57 - other operating costs (441) 892 (7,270) 949 Amortisation of intangible assets: - software costs 7,610 6,829 - other intangible assets 609 530 Depreciation on property, plant and equipment: - owned assets 10,969 9,742 - leased assets under finance leases 222 264 Total depreciation, amortisation and impairment charges 19,410 17,365 Amortisation of intangible assets: - employment contract payments (included in salaries and associated expenses) 7,910 4,327 Gains on disposal of property, plant and equipment (147) (26) Operating lease rentals payable: - minimum lease payments - land and buildings 23,811 21,901 - furniture, equipment and motor vehicles 386 861 - computer equipment and software 19 63 - sub-leases receipts - land and buildings (1,769) (1,837) Available-for-sale financial assets: - fair value (gains)/losses (92) 128 - gain on sale (10) - Exceptional items: Acquisition integration costs of which: - included in salaries and associated expenses - 3,769 - included in premises costs - 311 - included in other operating costs 568 1,487 568 5,567 Business Transformation Programme: - included in salaries and associated expenses 7,059 3,000 - included in premises costs 654 153 - included in other operating costs 1,223 4,129 8,936 7,282
Partial offer costs 1,918 - Net loss on Italy restructuring 1,671 - Loss on Mexico restructuring - 618 FinancialStatements Profit on sale of JLT Poland and JLT Malta - (184) Gain on deferred consideration - (1,616) Total exceptional items included within operating profit 13,093 11,667 Interest receivable from HMRC - included within Finance income - (936) Total exceptional items 13,093 10,731
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
4. Investment income
2011 2010 £'000 £'000 Interest receivable - fiduciary funds 6,760 5,601
Prior year investment income 5,601 6,425 Effect of: - average cash balance variance 993 205 - interest yield variance (225) (1,567) - foreign exchange variance 391 538 6,760 5,601
The Group’s investment income arises from its holdings of cash and investments relating to fiduciary funds. Equivalent average cash and investment balances during the year amounted to £712 million (2010: £563 million) denominated principally in US dollars (51%), Sterling (18%) and Australian dollars (14%). The average return for 2011 was 1.00% (2010: 1.00%). Based upon average invested balances each 1% movement in the average achieved rate of return would impact anticipated interest income by some £7.0 million.
5. Finance income and costs 2011 2010 £'000 £'000 Interest receivable - own funds 1,174 2,896 Investment income from fixed asset investments 2 - Interest receivable from HMRC - 936 Interest expense: - bank and other borrowings (6,974) (4,423) - finance leases (53) (85) - interest in respect of liability discounting (350) (629)
Pension financing: - expected return on post employment scheme assets 30,893 28,740 - interest on post employment scheme liabilities (29,345) (29,902) Net pension financing income/(expenses) 1,548 (1,162)
Fair value gains/(losses) on financial instruments - forward contracts: fair value hedges 92 (128) Finance costs - net (4,561) (2,595) Finance costs (7,377) (6,427) Finance income 2,816 3,832 Finance costs - net (4,561) (2,595)
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6. Employee information 2011 2010 £’000 £’000 a) Salaries and associated expenses Wages and salaries 379,141 340,198 Social security costs 38,338 36,257 Pension costs 26,239 24,397 Equity settled share-based payments: - incentive schemes (RSS, ESOS) 13,758 11,998 - sharesave schemes (SAYE) 840 581 14,598 12,579 Other staff costs 31,384 28,366 489,700 441,797
2011 2010 b) Analysis of employees Average number of persons employed by the Group during the year: Geographical segment: - UK 3,140 3,140 - Americas 989 908 - Australasia 853 846 - Asia 1,379 1,111 - Europe 199 207 - Rest of the world 6 - 6,566 6,212 Business segment: - London Market 1,528 1,458 - Retail 2,753 2,569 - Employee Benefits 1,585 1,519 - Thistle Insurance Services 330 358 - Head Office & Other 370 308 6,566 6,212
2011 2010 £'000 £'000 c) Key management compensation Salaries and short-term benefits 11,679 12,611 Post employment benefits 190 218 Other long-term benefits 437 605 Share-based payments 6,776 5,743
19,082 19,177 FinancialStatements
The Group's equity-settled share-based payments comprise the Restricted Share Scheme (RSS), Executive Share Option Scheme (ESOS) and the Sharesave Scheme (SAYE). ‘Restricted Share Scheme’ for the purposes of this note includes awards made under the JLT Restricted Share Scheme, JLT Performance Share Plan 2004 and the JLT Long Term Incentive Plan 2004.
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
6. Employee information continued
IFRS 2 applies to grants made after 7th November 2002, the issue date of the original exposure draft. Since that date the Company has made grants under a number of share-based payment arrangements, which are described below:
Summary of grants made Options Option Number of Performance Assumed granted price (p) employees criteria lapse rate % Restricted Share Scheme/Performance Share Plan 2003 28 March 2,597,897 - 132 Note 1,2 - 2003 8 September 584,469 - 28 Note 1,2 - 2004 24 September 3,091,124 - 178 Note 1 - 2005 6 April 1,860,148 - 150 Note 1 - 2005 6 September 463,840 - 19 Note 1 - 2006 18 April 465,506 - 40 Note 1 - 2006 27 September 64,979 - 2 Note 1 - 2006 29 September 155,671 - 4 Note 1 - 2006 24 November 887,600 - 8 Note 1 - 2007 13 April 909,900 - 9 Note 1 - 2007 16 April 936,582 - 97 Note 1 - 2007 22 August 10,782 - 1 Note 1 - 2008 25 March 64,400 - 1 Note 1 - 2008 21 April 1,646,456 - 105 Note 1 - 2008 15 May 1,235,930 - 11 Note 1 - 2008 6 August 89,369 - 6 Note 1 - 2009 25 March 1,923,603 - 151 Note 1 - 2009 27 March 157,100 - 10 Note 1 - 2009 5 August 1,169,000 - 13 Note 1 - 2009 9 September 46,221 - 3 Note 1 - 2010 23 March 2,623,974 - 223 Note 1 - 2010 4 August 252,700 - 1 Note 1 - 2010 6 September 65,831 - 7 Note 1 - 2010 21 December 166,436 - 2 Note 1 - 2011 23 March 2,286,208 - 241 Note 1 - 2011 15 August 51,622 -5Note 1 - 2011 19 December 129,240 -1Note 1 - Sub-total 23,936,588
Executive Share Option Scheme 2003 28 March 70,000 568.50 6 Note 3 35.70 2003 8 September 661,000 578.00 166 Note 3 25.64 2004 8 September 971,500 422.00 169 Note 3 15.03 2005 6 April 3,915,500 387.85 304 Note 3 24.71 2005 6 September 645,990 400.25 66 Note 3 14.63 2006 29 September 1,931,800 382.50 284 Note 3 13.68 Sub-total 8,195,790
Sharesave Scheme 2003 30 September - 5 Year 1,280,712 456.50 655 No 59.63 2006 9 October - 3 Year 1,226,820 313.00 1,202 No 20.00 2006 9 October - 5 Year 717,782 313.00 343 No 20.00 2010 12 May - 3 Year 1,391,949 445.20 1,288 No 20.00 2010 12 May - 5 Year 597,888 445.20 342 No 20.00 Sub-total 5,215,151 Total 37,347,529
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6. Employee information continued Note 1: Options granted under the Long Term Incentive Plan (LTIP) are subject to a variety of performance conditions. LTIPs awarded in 2006 to executives of operating subsidiaries have performance conditions relating to the growth in trading profit before tax over a three year period from the date of the award. In general terms the annual average growth must exceed the regional RPI by a margin of at least 2%. For LTIPs awarded in 2006 to Executive Directors of the Group, the performance conditions require growth in the Company's earnings per share (EPS) over the single three year period from 2006 to 2008 as follows: Growth of EPS in excess of the RPI over 3 years Proportion of awards vesting RPI + less than 2% per annum 0% RPI + 2% per annum 25% Between RPI + 2% and 5% per annum Pro rata between 25% and 100% RPI + 5% per annum (or more) 100%
For LTIPs awarded in 2007 to Executive Directors of the Group and persons discharging managerial responsibility (PDMR's), the performance conditions require growth in the Company's EPS over the single three year period from 2007 to 2009 as follows: Growth of EPS in excess of the RPI over 3 years Proportion of awards vesting RPI + less than 3% per annum 0% RPI + 3% per annum 15% Between RPI + 3% and 9% per annum Pro rata between 15% and 100% RPI + 9% per annum (or more) 100%
For LTIPs awarded in 2008 to Executive Directors of the Group and PDMR's, the performance conditions require growth in the Company's EPS over the single three year period from 2008 to 2010 as follows: Growth of EPS in excess of the RPI over 3 years Proportion of awards vesting RPI + less than 3% per annum 0% RPI + 3% per annum 15% Between RPI + 3% and 9% per annum Pro rata between 15% and 100% RPI + 9% per annum (or more) 100%
For LTIPs awarded in 2009, 2010 and 2011 to Executive Directors of the Group and PDMR's, the performance conditions require growth in the Company's EPS over the single three year period from 2009 to 2011, 2010 to 2012 and 2011 to 2013 respectively as follows: Growth of EPS in excess of the RPI over 3 years Proportion of awards vesting RPI + less than 5% per annum 0% RPI + 5% per annum 16.67% Between RPI + 5% and 10% per annum Pro rata between 16.67% and 100% RPI + 10% per annum (or more) 100% FinancialStatements
Note 2: Certain other awards have been granted with specific performance targets defined for the individual executives. In general these require targets for revenue and profit growth to be met over the vesting period. Note 3: These options may only be exercised if there has been growth in the earnings per share in excess of RPI for the three consecutive financial accounting periods preceding the date of exercise.
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
6. Employee information continued Fair value of awards Under IFRS 2 the fair value of awards granted since 7th November 2002, calculated using a Black-Scholes model, is shown on the following table:
Black-Scholes model assumptions Exercise Share price on Dividend Risk free Fair value of price Performance grant date Volatility yield Maturity interest rate one award p period p% %years %p Restricted Share Scheme/ Performance Share Plan 2003 28 March - 2003 - 09 568.50 23.99 - 3 - 6 4.21 568.50 2003 8 September - 2003 - 12 578.00 23.99 - 3 - 9 4.21 578.00 2004 24 September - 2004 - 13 423.00 21.49 - 3 - 9 4.88 423.00 2005 6 April - 2005 - 10 387.85 24.24 - 3 - 5 4.59 387.85 2005 6 September - 2005 - 10 400.25 24.45 - 2 - 5 4.88 400.25 2006 18 April - 2006 - 13 344.63 25.54 - 3 - 8 4.55 344.63 2006 27 September - 2006 - 09 378.00 27.02 - 3 4.72 378.00 2006 29 September - 2006 - 11 390.00 27.13 - 4 - 5 4.72 390.00 2006 24 November - 2006 - 09 398.50 27.01 - 3 4.82 398.50 2007 13 April - 2007 - 10 458.50 27.69 - 3 5.29 458.50 2007 16 April - 2007 - 13 453.50 27.69 - 2 - 6 5.29 453.50 2007 22 August - 2007 - 10 397.50 28.97 - 3 5.21 397.50 2008 25 March - 2008 - 11 363.75 31.46 - 3 4.14 363.75 2008 21 April - 2008 - 13 359.75 31.56 - 3 - 6 4.45 359.75 2008 15 May - 2008 - 11 364.75 31.60 - 3 4.72 364.75 2008 6 August - 2008 - 11 443.00 32.04 -34.73 443.00 2009 25 March - 2009 - 14 427.00 35.28 - 2 - 5 2.42 427.00 2009 27 March - 2009 - 12 440.00 35.32 -32.47 440.00 2009 5 August - 2009 - 12 439.80 33.68 -33.00 439.80 2009 9 September - 2009 - 14 481.90 33.43 - 3 - 5 2.75 481.90 2010 23 March - 2010 - 15 555.50 32.67 - 1 - 5 2.83 555.50 2010 4 August - 2010 - 13 593.50 31.61 - 3 2.17 593.50 2010 6 September - 2010 - 13 574.00 30.64 - 3 1.84 574.00 2010 21 December - 2010 - 14 608.00 28.79 - 3 - 4 2.29 608.00 2011 23 March - 2011 - 16 678.00 26.22 - 2 - 5 2.64 678.00 2011 15 August - 2011 - 16 614.00 25.14 - 3 - 5 1.46 614.50 2011 19 December - 2011 - 15 646.50 23.79 - 1 - 4 0.92 646.50 Executive Share Option Scheme 2003 28 March 568.50 2003 - 06 568.50 23.99 3.50 5 4.21 106.86 2003 8 September 578.00 2003 - 06 578.00 23.99 3.50 5 4.21 108.65 2004 8 September 422.00 2004 - 07 422.00 21.49 4.80 5 4.88 62.79 2005 6 April 387.85 2005 - 08 387.85 24.24 5.25 5 4.59 59.32 2005 6 September 400.25 2005 - 08 400.25 24.45 5.13 5 4.09 60.10 2006 29 September 382.50 2006 - 09 390.00 27.13 5.26 5 4.82 67.06 Sharesave Scheme 2003 30 September - 5 year 456.50 2003 - 08 570.72 23.99 3.50 5 4.33 154.64 2006 9 October - 3 year 313.00 2006 - 09 391.25 31.24 5.26 3 4.82 100.34 2006 9 October - 5 year 313.00 2006 - 11 391.25 27.13 5.26 5 4.72 94.73 2010 12 May - 3 year 445.20 2010 - 13 585.50 32.83 3.59 3 1.81 165.60 2010 12 May - 5 year 445.20 2010 - 15 585.50 32.36 3.59 5 2.71 179.91
The option holders who have awards under the Restricted Share Scheme also receive discretionary payments equating to the dividends payable on their shares (subject to meeting the performance criteria). Under the Black-Scholes model if the dividend yield is assumed to be zero then the fair value will equal the share price at date of grant. The volatility has been calculated based on the historical share price of the Company, using either a three or five year term. All options granted under the share option schemes are conditional upon the employees remaining in the Group's employment during the vesting period of the option, the actual period varies according to the scheme in which the employee participates. In calculating the cost of options granted, a factor is included to take account of anticipated lapse rates.
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6. Employee information continued
Movement in number of options Options Options Weighted Options Remaining outstanding Granted/ outstanding average exercisable contractual at 1st Jan 11 adjustments Lapsed Exercised at 31st Dec 11 exercise (sale) at 31st Dec 11 life number number number number number price (p) number years Restricted Share Scheme/ Performance Share Plan 2003 28 March 49,117 --(28,144) 20,973 679.61 20,973 1.24 2003 8 September 32,450 -- -32,450 - 32,450 1.69 2004 24 September 86,144 --(57,826) 28,318 677.29 28,318 2.73 2005 6 April 318,005 --(179,189) 138,816 680.58 128,439 3.27 2005 6 September 17,492 -- -17,492 --3.68 2006 18 April 83,800 --(39,043) 44,757 677.09 33,543 4.30 2006 29 September 37,466 --(37,466) - 701.67 -- 2007 13 April 14,984 -- -14,984 - 14,984 5.28 2007 16 April 190,322 --(83,186) 107,136 653.42 66,689 5.29 2008 25 March 64,400 - - (64,400) - 681.50 -- 2008 21 April 1,411,187 --(862,477) 548,710 681.27 289,208 6.31 2008 15 May 1,235,930 - - (1,039,600) 196,330 694.54 196,330 6.38 2008 6 August 89,369 - - (12,198) 77,171 616.00 77,171 6.60 2009 25 March 1,782,702 - (188,463) (119,140) 1,475,099 682.95 12,939 7.24 2009 27 March 157,100 - - - 157,100 --7.24 2009 5 August 1,169,000 - (31,184) (15,016) 1,122,800 690.00 292,400 7.60 2009 9 September 41,829 - - - 41,829 --7.70 2010 23 March 2,419,415 - (79,732) (138,784) 2,200,899 697.10 6,596 8.23 2010 4 August 252,700 - - - 252,700 --8.60 2010 6 September 65,831 - (4,372) - 61,459 --8.69 2010 21 December 166,436 - - - 166,436 --8.98 2011 23 March - 2,286,208 (7,047) - 2,279,161 --9.23 2011 15 August - 51,622 --51,622 --9.63 2011 19 December - 129,240 --129,240 --9.97 Sub-total 9,685,679 2,467,070 (310,798) (2,676,469) 9,165,482 686.29 1,200,040 5.42 Executive Share Option Scheme 2003 28 March 5,000 - - (5,000) - 668.00 -- 2003 8 September 358,000 - (6,000) (163,227) 188,773 683.21 188,773 1.69 2004 8 September 230,500 - - (41,849) 188,651 698.70 188,651 2.69 2005 6 April 729,537 - - (230,261) 499,276 688.32 499,276 3.27 2005 6 September 170,990 - - (26,000) 144,990 701.92 144,990 3.68 2006 29 September 534,021 - (27,157) (101,426) 405,438 696.92 405,438 4.75 Sub-total 2,028,048 - (33,157) (567,763) 1,427,128 689.77 1,427,128 3.45 Sharesave Scheme FinancialStatements 2006 9 October - 5 Year 480,779 - (9,409) (396,038) 75,332 678.59 73,240 0.27 2010 12 May - 3 Year 1,341,815 - (129,017) (10,263) 1,202,535 669.47 8,617 2.00 2010 12 May - 5 Year 582,954 - (66,858) (1,594) 514,502 712.37 6,525 4.00 Sub-total 2,405,548 - (205,284) (407,895) 1,792,369 678.49 88,382 2.50 Total 14,119,275 2,467,070 (549,239) (3,652,127) 12,384,979 685.96 2,715,550 4.77
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
6. Employee information continued Movement in number of options Options Options Weighted Options outstanding Granted/ outstanding average exercisable Remaining at 1st Jan 10 adjustments Lapsed Exercised at 31st Dec 10 exercise (sale) at 31st Dec 10 contractual number number number number number price (p) number life years Restricted Share Scheme/Performance Share Plan 2003 28 March 136,092 - - (86,975) 49,117 535.55 42,081 2.24 2003 8 September 54,950 - - (22,500) 32,450 533.33 32,450 2.69 2004 24 September 355,415 - (396) (268,875) 86,144 530.78 76,263 3.73 2005 6 April 605,945 - - (287,940) 318,005 513.10 203,207 4.27 2005 6 September 27,492 - - (10,000) 17,492 556.23 17,492 4.68 2006 18 April 216,979 - (4,000) (129,179) 83,800 529.97 67,086 5.30 2006 29 September 139,181 - (85,224) (16,491) 37,466 554.75 - 5.75 2006 24 November 91,700 - - (91,700) - 569.40 -- 2007 13 April 909,900 - - (894,916) 14,984 555.91 14,984 6.28 2007 16 April 696,498 - (21,950) (484,226) 190,322 555.78 149,875 6.29 2007 22 August 10,782 - - (10,782) - 554.75 -- 2008 25 March 64,400 - - - 64,400 --7.24 2008 21 April 1,557,662 - (108,124) (38,351) 1,411,187 585.86 18,465 7.31 2008 15 May 1,235,930 - - - 1,235,930 - 288,600 7.38 2008 6 August 89,369 - - - 89,369 --7.60 2009 25 March 1,887,989 - (97,043) (8,244) 1,782,702 532.90 15,771 8.24 2009 27 March 157,100 - - - 157,100 --8.24 2009 5 August 1,169,000 - - - 1,169,000 - 251,800 8.60 2009 9 September 46,221 - - (4,392) 41,829 598.19 - 8.70 2010 23 March - 2,623,974 (204,559) - 2,419,415 - 1,417 9.23 2010 4 August - 252,700 - - 252,700 --9.60 2010 6 September - 65,831 - - 65,831 --9.69 2010 21 December - 166,436 - - 166,436 --9.98 Sub-total 9,452,605 3,108,941 (521,296) (2,354,571) 9,685,679 546.39 1,179,491 8.05 Executive Share Option Scheme 2003 28 March 5,000 - - - 5,000 - 5,000 2.24 2003 8 September 406,500 - (26,500) (22,000) 358,000 606.09 353,000 2.69 2004 8 September 399,750 - - (169,250) 230,500 550.48 225,500 3.69 2005 6 April 1,481,201 - - (751,664) 729,537 534.39 722,037 4.27 2005 6 September 382,490 - - (211,500) 170,990 545.92 140,990 4.68 2006 29 September 1,134,550 - (7,500) (593,029) 534,021 541.59 524,021 5.75 Sub-total 3,809,491 - (34,000) (1,747,443) 2,028,048 540.69 1,970,548 4.34 Sharesave Scheme 2006 9 October - 3 Year 374,105 - (64,786) (309,319) - 517.72 -- 2006 9 October - 5 Year 525,965 - (34,170) (11,016) 480,779 541.42 6,171 1.27 2010 12 May - 3 Year - 1,391,949 (49,700) (434) 1,341,815 601.60 12,473 3.00 2010 12 May - 5 Year - 597,888 (14,711) (223) 582,954 601.72 4,696 5.00 Sub-total 900,070 1,989,837 (163,367) (320,992) 2,405,548 518.71 23,340 3.14 Total 14,162,166 5,098,778 (718,663) (4,423,006) 14,119,275 542.13 3,173,379 6.68 Options granted prior to 7th November 2002 Movement in number of options Options Granted/ Options Weighted Remaining outstanding adjust- outstanding average contractual at 1st Jan 11 ments Lapsed Exercised at 31st Dec 11 exercise (sale) life number number number number number price (p) years Restricted Share Scheme/Performance Share Plan 38,165 --(30,751) 7,414 689.63 0.28 Executive Share Option Scheme 690,743 - (10,000) (419,709) 261,034 672.76 0.64 Total 728,908 - (10,000) (450,460) 268,448 673.23 0.63 The weighted average options costs for 2011 were as follows: Share options - Executive Share Option Scheme 572.01 n/a 463.67 549.62 612.17
Movement in number of options Options Granted/ Options Weighted Remaining outstanding adjust- outstanding average contractual at 1st Jan 10 ments Lapsed Exercised at 31st Dec 10 exercise (sale) life number number number number number price (p) years Restricted Share Scheme/Performance Share Plan 102,177 --(64,012) 38,165 524.08 0.96 Executive Share Option Scheme 982,299 - (31,362) (260,194) 690,743 554.50 1.36 Total 1,084,476 - (31,362) (324,206) 728,908 552.91 1.34 The weighted average options costs for 2010 were as follows: Share options - Executive Share Option Scheme 536.86 n/a 582.35 422.95 572.01
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7. Services provided by the Group's auditor and network firms During the year the Group obtained the following services from the Group's auditor at the costs detailed below: 2011 2010 £'000 £'000 Fees payable to the Group's auditor for the audit of the Company and consolidated accounts 329 307 Fees payable to the Group's auditor and its associates for other services: - the audit of the Group's subsidiaries, pursuant to legislation 1,434 1,546 - other services pursuant to legislation 172 162 - tax services 157 107 - recruitment and remuneration - 33 - corporate finance transactions 28 - - all other services 162 191 - fees in respect of the Jardine Lloyd Thompson Group Pension Scheme - 4 2,282 2,350 The Audit & Risk Committee has a policy on the use of the external auditors for non-audit services to ensure that the auditor's independence is maintained and that appropriate approvals are sought for non-audit services depending upon their nature and value. Each year a limit is set on the total fees that can be paid to the external auditor in relation to non-audit services. For 2011 the Audit & Risk Committee has set this limit at £1 million (2010: £1 million).
8. Income tax expense 2011 2010 £'000 £'000 Current tax expense Current year 41,611 33,305 Under/(over) provided in prior years 337 (6,025) 41,948 27,280
Deferred tax expense Origination and reversal of temporary differences (1,775) 1,821 Reduction in tax rate 697 535 Benefit of tax losses recognised (1,056) - Adjustments in respect of prior years (604) (5,082) (2,738) (2,726) Total income tax expense 39,210 24,554
There were no non-recurring tax credits in the year. In 2010 there were non-recurring tax credits of £5,180,000 relating to the release of tax provisions and £5,113,000 relating to the release of a deferred tax liability in respect of overseas earnings no longer expected to be repatriated in the foreseeable future. The UK Government has announced various measures in relation to UK corporation tax including a 2% reduction in the headline rate of corporation tax from April 2011, and 1% in the three subsequent years to reduce the UK tax rate from 28% to 23%. As at 31st December 2011 the 2% rate reduction to 26% is already in force and only the first subsequent 1% rate reduction has been substantively enacted. Therefore the impact of the two remaining annual 1% reductions have not been incorporated into the income tax charge for the year ended 31st December 2011. The impact of a 1% rate reduction in the FinancialStatements deferred tax balances as at 31st December 2011 would result in the following changes:
1% rate change £’000 Impact on income statement 367 Impact on reserves 809
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
8. Income tax expense continued The tax on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows: 2011 2010 £'000 £'000 Profit before taxation 134,479 119,369 Tax calculated at UK Corporation Tax rate of 26.5% (2010: 28.0%) 35,637 33,423 Non-deductible expenses* 4,771 2,323 Tax losses not previously recognised (347) (1,170) Adjustments to tax charge in respect of prior years (267) (11,107) Benefit of tax losses recognised (1,056) - Effect of UK and non-UK tax rate differences 1,090 1,824 Effect of reduction in UK tax rate 734 317 Tax on associates (1,352) (1,056) Total income tax expense 39,210 24,554
* The non-deductible expenses relate principally to non-deductible entertainment expenses.
9. Earnings per share Basic earnings per share are calculated by dividing the profit attributable to the owners of the parent by the weighted average number of ordinary shares in issue during the year, excluding unallocated shares held by the Trustees of the Employee Share Ownership Plan Trust. Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Additional basic and diluted earnings per share are also calculated based on underlying earnings attributable to the owners of the parent. A reconciliation of earnings is set out below. 2011 2010 No of shares No of shares Weighted average number of ordinary shares in issue 218,127,384 216,663,347 Effect of outstanding share options 1,291,994 960,089 Adjusted weighted average number of ordinary shares for diluted earnings per share 219,419,378 217,623,436
2011 2010 Basic Diluted Basic Diluted pence per pence per pence per pence per £’000 share share £’000 share share Earnings reconciliation Underlying profit after taxation and non-controlling interests 99,447 45.6 45.3 88,219 40.7 40.5 Exceptional items and non-recurring items before tax (13,093) (10,731) Taxation thereon 2,392 2,883 Non-recurring tax credit - 10,293 (10,701) (4.9) (4.9) 2,445 1.1 1.2 Profit attributable to the owners of the parent 88,746 40.7 40.4 90,664 41.8 41.7
10. Dividends 2011 2010 £'000 £'000 Final dividend in respect of 2010 of 13.7p per share (2009: 12.5p) 30,743 27,690 Less: adjustment* (866) (592) 29,877 27,098 Interim dividend in respect of 2011 of 9.2p per share (2010: 8.8p) 20,123 19,182 50,000 46,280
* Adjustment relating to dividend equivalents accrued in respect of various performance related share awards and long-term incentive plans not currently anticipated to fully vest.
A final dividend in respect of 2011 of 14.8p per share (2010: 13.7p) amounting to a total of £32,274,000 (2010: £29,685,000) is proposed by the Board. The dividend proposed will not be accounted for until it has been approved at the Annual General Meeting on 26th April 2012.
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11. Goodwill Impairment Net carrying Gross amount losses amount £'000 £'000 £'000 At 31st December 2011 Opening net book amount 248,644 (4,861) 243,783 Exchange differences (1,491) 153 (1,338) Acquisitions 17,465 - 17,465 Closing net book amount 264,618 (4,708) 259,910 At 31st December 2010 Opening net book amount 232,432 (4,805) 227,627 Exchange differences 7,487 (56) 7,431 Acquisitions 8,725 - 8,725 Closing net book amount 248,644 (4,861) 243,783 Impairment tests for goodwill Goodwill is allocated to the Group's cash generating units (CGUs) identified according to country of operation and business segment. A summary of the goodwill allocation is presented below. Thistle London Employee Insurance Market Retail Benefits Services Total £'000 £'000 £'000 £'000 £'000 At 31st December 2011 Australasia - 20,700 --20,700 Asia - 11,280 - - 11,280 UK and Europe 72,764 13,193 56,148 25,579 167,684 Americas 18,863 41,383 - - 60,246 91,627 86,556 56,148 25,579 259,910 At 31st December 2010 Australasia - 20,701 - - 20,701 Asia - 11,360 - - 11,360 UK and Europe 71,360 5,779 56,299 26,437 159,875 Americas 18,862 32,985 - - 51,847 90,222 70,825 56,299 26,437 243,783 The recoverable amount of a CGU is determined based on value in use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five year period. Comparatives have been restated to reflect transfers between CGUs. Cash flows beyond the five year period are extrapolated using the estimated growth rates stated below: Thistle Employee Insurance Risk & Insurance Benefits Services Australasia Asia UK & Europe Americas UK & Europe UK Key assumption used for value-in-use calculations At 31st December 2011
Growth rate (1) - % 3.42 3.66 2.39 3.49 2.37 2.37 FinancialStatements Discount rate (2) - % 8.05 6.80 6.82 8.67 6.75 6.74 At 31st December 2010 Growth rate (1) - % 3.46 4.76 2.01 3.97 2.02 2.02 Discount rate (2) - % 8.17 8.06 6.25 7.92 6.23 6.23 1) Average growth rate used to extrapolate cash flows beyond five years. 2) Pre-tax discount rate applied to the cash flow projections. The key assumptions used in value in use calculations were: The budgeted trading profit growth:- management determines budgeted trading profit based on past experience and its expectation for market development. The budgeted IBA interest income growth:- this is based on past experience and long-term interest rates projections. The discount rates used are pre-tax and reflect specific risks relating to the relevant segment and country of operation. The weighted average growth rate used are consistent with long-term economic forecast in the countries of operation.
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
12. Intangible assets Capitalised employment Computer contract software payments Other Total £'000 £'000 £'000 £'000 At 31st December 2011 Opening net book amount 23,159 10,720 4,402 38,281 Exchange differences (15) (49) (13) (77) Reclassification from current assets 2,494 --2,494 Additions 14,497 12,379 422 27,298 Companies acquired 37 - 25 62 Companies disposed (114) --(114) Disposals - (345) - (345) Amortisation charge (7,610) (7,910) (609) (16,129) Closing net book value 32,448 14,795 4,227 51,470 At 31st December 2011 Cost 73,207 32,643 8,837 114,687 Accumulated amortisation and impairment (40,759) (17,848) (4,610) (63,217) Closing net book value 32,448 14,795 4,227 51,470
At 31st December 2010 Opening net book amount 16,679 4,549 3,473 24,701 Exchange differences 79 21 22 122 Reclassification 211 --211 Additions 13,065 10,769 - 23,834 Companies acquired 12 - 1,437 1,449 Companies disposed (7) --(7) Disposals (51) (292) - (343) Amortisation charge (6,829) (4,327) (530) (11,686) Closing net book value 23,159 10,720 4,402 38,281 At 31st December 2010 Cost 57,702 22,158 8,376 88,236 Accumulated amortisation and impairment (34,543) (11,438) (3,974) (49,955) Closing net book value 23,159 10,720 4,402 38,281 At 31st December 2009 Cost 44,194 16,255 6,831 67,280 Accumulated amortisation and impairment (27,515) (11,706) (3,358) (42,579) Closing net book value 16,679 4,549 3,473 24,701
Additions to computer software during 2011 include £10,643,000 of capitalised costs in respect of internal developments (2010: £1,049,000). The 2011 reclassification represents costs for development projects not yet completed, previously recognised in current assets.
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13. Property, plant and equipment Land Leasehold Furniture & Motor & buildings improvements equipment vehicles Total £’000 £’000 £’000 £’000 £’000 At 31st December 2011 Opening net book amount 447 14,250 10,211 3,952 28,860 Exchange differences 4 (90) (87) (11) (184) Additions 39 2,970 3,838 2,133 8,980 Companies acquired - 115 83 - 198 Companies disposed - (57) --(57) Disposals ---(978) (978) Depreciation charge (40) (5,048) (4,928) (1,175) (11,191) Closing net book amount 450 12,140 9,117 3,921 25,628
At 31st December 2011 Cost 691 39,706 73,575 6,997 120,969 Accumulated depreciation (241) (27,566) (64,458) (3,076) (95,341) Closing net book amount 450 12,140 9,117 3,921 25,628
At 31st December 2010 Opening net book amount 100 14,653 10,170 3,522 28,445 Reclassification 9 676 715 491 1,891 Exchange differences --(211) - (211) Additions 36 2,863 4,526 1,780 9,205 Companies acquired 338 7 91 - 436 Companies disposed - (27) (19) - (46) Disposals - (183) (83) (588) (854) Depreciation charge (36) (3,739) (4,978) (1,253) (10,006) Closing net book amount 447 14,250 10,211 3,952 28,860
At 31st December 2010 Cost 643 39,901 76,837 7,244 124,625 Accumulated depreciation (196) (25,651) (66,626) (3,292) (95,765) Closing net book amount 447 14,250 10,211 3,952 28,860
At 31st December 2009 Cost 200 36,383 71,312 6,579 114,474 Accumulated depreciation (100) (21,730) (61,142) (3,057) (86,029) Closing net book amount 100 14,653 10,170 3,522 28,445
The net book value of property, plant and equipment held under finance leases is as follows:
2011 2010 FinancialStatements £'000 £'000 Furniture, equipment and motor vehicles 405 880
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
14. Investments in associates £'000 At 31st December 2011 Opening net book amount 60,794 Exchange differences (2,187) Share of results after tax and non-controlling interests 5,099 Dividends received (876) Acquisition 10,068 Disposal (513) Closing net book amount 72,385
At 31st December 2011 Cost 72,859 Provisions (474) Closing net book amount 72,385
At 31st December 2010 Opening net book amount 42,050 Exchange differences (686) Share of results after tax and non-controlling interests 3,772 Shareholding restructure 15,658 Closing net book amount 60,794
At 31st December 2010 Cost 61,268 Provisions (474) Closing net book amount 60,794
At 31st December 2009 Cost 42,524 Provisions (474) Closing net book amount 42,050
No impairment losses have been incurred during the year. The Group's interest in its principal associate Milestone, the new holding company of Siaci Saint Honoré, is as follows:
2011 2010 £'000 £'000 Assets 451,610 439,801 Liabilities (321,940) (239,049) Turnover 158,445 148,264 Net profit 21,246 21,344 Percentage held 26.18% 20.00% Country of incorporation France France
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15. Available-for-sale financial assets Available-for-sale financial assets are categorised according to their nature into one of two categories: 1) Investments and deposits consist mainly of Fixed Deposits. These investments are held at fair value and are classified between current and non- current assets according to maturity date. 2) Other investments include securities and other investments held for strategic purposes. These investments are held fair value unless a fair value cannot be accurately determined in which case they are held at cost less any provision for impairment.
Other Investments investments and deposits Total £'000 £'000 £'000 At 1st January 2011 1,908 38,260 40,168 Exchange differences 21 (84) (63) Additions - 159 159 Disposals/maturities - (38,126) (38,126) Revaluation deficit (included within equity) 16 (50) (34) Provision release 589 - 589 At 31st December 2011 2,534 159 2,693
Analysis of available-for-sale financial assets Current - 158 158 Non-current 2,534 1 2,535 At 31st December 2011 2,534 159 2,693
Available-for-sale investments and deposits Fiduciary - Own funds 159 At 31st December 2011 159
At 1st January 2010 1,590 80,015 81,605 Exchange differences 114 1,379 1,493 Additions 214 31,568 31,782 Disposals/maturities (8) (74,479) (74,487) Revaluation deficit (included within equity) (2) (223) (225) At 31st December 2010 1,908 38,260 40,168
Analysis of available-for-sale financial assets Current - 38,260 38,260 Non-current 1,908 - 1,908 At 31st December 2010 1,908 38,260 40,168
Available-for-sale investments and deposits FinancialStatements Fiduciary 38,089 Own funds 171 At 31st December 2010 38,260
The credit quality of available-for-sale investments and deposits is assessed by reference to external credit ratings, where available and other current and historical credit data including counterparty default rates: 2011 2010 £'000 £'000 AA 1 13,243 AA/A - 24,836 A 58 181 Other 100 - Total 159 38,260
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
16. Derivative financial instruments At 31st December 2011 At 31st December 2010 Assets Liabilities Assets Liabilities £'000 £'000 £'000 £'000 Interest rate swaps - fair value hedges 6,012 - -- Forward foreign exchange contracts - cash flow hedges 5,919 (13,573) 8,280 (12,526) Total 11,931 (13,573) 8,280 (12,526) Current 2,986 (5,759) 4,510 (4,282) Non-current 8,945 (7,814) 3,770 (8,244) Total 11,931 (13,573) 8,280 (12,526)
The credit quality of counterparties with whom derivative financial assets are held is assessed by reference to external credit ratings, where available, or to historical information about counterparty default rates: 2011 2010 £’000 £’000 AA 560 3,498 AA/A 6,297 698 A 5,074 4,084 Total 11,931 8,280
Maturity analysis The table below analyses the Group's derivative financial instruments which will be settled on a gross basis into relevant maturity groupings based upon the remaining period at the balance sheet date to contractual maturity. The amounts disclosed are the contractual undiscounted cash flows.
Less than Greater 1 year than 1 year At 31st December 2011 £’000 £’000 Forward foreign exchange contracts Outflow (243,317) (430,813) Inflow 241,270 430,291
At 31st December 2010 Forward foreign exchange contracts Outflow (213,654) (432,279) Inflow 211,582 432,017
The Group’s treasury policies are approved by the Board and are implemented by a ii) 11 years in respect of specific hedges on USD denominated long-term debt centralised treasury department. The treasury department operates within a drawn under the Group's USD private placement programme. framework of policies and procedures that establishes specific guidelines to manage No material amounts were transferred to the income statement during the currency risk, liquidity risk and interest rate risk and the use of counter-parties and period in respect of the fair value of financial derivatives. financial instruments to manage these. The treasury department is subject to a Transactions maturing within 12 months of the balance sheet date are classified regular internal audit. in current maturities. Transactions maturing in a period in excess of 12 months The Group uses various derivative instruments including forward foreign exchange of the balance sheet date are classified as non-current maturities. contracts, interest rate swaps and from time to time, foreign currency collars and a) Forward foreign exchange contracts options to manage the risks arising from variations in currency and interest rates. The Group’s major currency transaction currency exposure arises in USD and Derivative instruments purchased are primarily denominated in the currencies of the the Group continues to adopt a prudent approach in actively managing this Group's main markets. exposure. As at 31st December 2011 the Group had outstanding foreign Where forward foreign exchange contracts have been entered into to manage exchange contracts, principally in USD, amounting to a principal value of currency risk, they are designated as hedges of currency risk on specific future cash £671,561,000 (2010: £643,599,000). flows, and qualify as highly probable transactions for which hedge accounting is b) Interest rate swaps applied. The Group anticipates that hedge accounting requirements will continue to be met on its foreign currency and interest rate hedging activities and that no The Group uses interest rate hedges, principally interest rate swaps, to mitigate material ineffectiveness will arise which will result in gains or losses being recognised the impact of changes in interest rates. The notional principal amounts of through the profit and loss account. outstanding cross currency interest rate swaps as at 31st December 2011 was USD125,000,000 (2010: USD125,000,000). The fair value of financial derivatives based upon market values as at 31st December 2011 and designated as effective hedges was a liability of £7.6 million and has been c) Price risk deferred in equity (2010: liability of £4.2 million). Gains and losses arising on The Group does not have a material exposure to commodity price risk. derivative instruments outstanding as at 31st December 2011 will be released to the income statement at various dates up to: i) 48 months in respect of cash flow hedges on currency denominated UK earnings.
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17. Employee benefit trust £'000 At 31st December 2011 Opening net book amount 510 Revaluation (included within equity) (19) Closing net book amount 491 At 31st December 2011 Cost 1,856 Accumulated amortisation (1,365) Closing net book amount 491
£'000 At 31st December 2010 Opening net book amount 462 Amortisation charge (24) Revaluation (included within equity) 72 Closing net book amount 510 At 31st December 2010 Cost 1,875 Accumulated amortisation (1,365) Closing net book amount 510 The above employee benefit trust investments represent unit trusts which were acquired to settle historic awards. In addition, the employee benefit trust holds 8,672,852 of ordinary shares (2010: 9,216,338) acquired to settle employee share based payments. Acquisitions of such shares are booked directly to equity.
18. Trade and other receivables 2011 2010 £'000 £'000 Trade receivables 211,480 198,043 Less: provision for impairment of trade receivables (10,516) (14,265) Trade receivables - net 200,964 183,778 Other receivables 73,728 68,364 Prepayments 14,019 19,293 288,711 271,435 As at 31st December 2011 the Group had exposures to individual trade counterparties within trade receivables. In accordance with Group policy, Group operating companies continually monitor exposures against credit limits and concentration of risk. No individual trade counterparty credit exposure is considered significant in the ordinary course of trading activity. Management does not expect any significant losses from non-performance by trade counterparties that have not been provided for. FinancialStatements Movements on the Group provision for impairment of trade receivables are as follows: 2011 2010 £'000 £'000 At 1st January (14,265) (9,745) Currency translation adjustments 84 (304) Provisions for receivables impairment (1,600) (4,867) Receivables written off during the year as uncollectible 3,655 491 Unused amounts reversed 1,610 160 At 31st December (10,516) (14,265) The creation and release of provision for impaired receivables have been included in 'other operating costs' in the income statement. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Group does not hold any collateral as security.
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
18. Trade and other receivables continued The following table sets out details of the age of trade receivables that are not overdue as well as an analysis of overdue amounts impaired and provided for. Trade Provision for Net trade receivables impairment receivables At 31st December 2011 £’000 £’000 £’000 Not overdue 123,209 - 123,209 Past due not more than three months 63,950 (29) 63,921 Past due more than three months and not more than six months 12,472 (1,935) 10,537 Past due more than six months and not more than one year 5,922 (2,625) 3,297 Past due more than one year 5,927 (5,927) - 211,480 (10,516) 200,964
Trade Provision for Net trade receivables impairment receivables At 31st December 2010 £’000 £’000 £’000 Not overdue 127,367 (2,999) 124,368 Past due not more than three months 48,085 (280) 47,805 Past due more than three months and not more than six months 11,971 (1,793) 10,178 Past due more than six months and not more than one year 5,163 (3,736) 1,427 Past due more than one year 5,457 (5,457) - 198,043 (14,265) 183,778
19. Cash and cash equivalents 2011 2010 £'000 £'000 Cash at bank and on hand 223,006 177,311 Short-term bank deposits 350,610 347,554 573,616 524,865
Fiduciary 483,615 455,730 Own funds 90,001 69,135 573,616 524,865
Fiduciary funds represent client money used to pay premiums to underwriters, to settle claims to policyholders and to defray commissions and other income. They are not available for general corporate purposes. The credit quality of cash at bank and short-term deposits can be assessed by reference to external credit ratings, where available, or to historical information about counterparty default rates: 2011 2010 £'000 £'000 AAA 51,460 70,644 AA 219,863 166,166 AA/A 156,080 179,430 A 123,203 99,526 Other 23,010 9,099 Total 573,616 524,865
The effective interest rate in respect of short-term deposits was 0.90% (2010: 0.80%). These deposits have an average maturity of 22 days (2010: 15 days).
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20. Trade and other payables 2011 2010 £'000 £'000 Insurance creditors 483,615 493,819 Social security and other taxes 13,569 12,871 Other payables 100,766 99,343 Accruals and deferred income 82,217 73,039 Deferred consideration (see note 24) 9,614 8,198 689,781 687,270
21. Financial instruments by category The accounting policies for financial instruments have been applied to the line items below: Derivatives Loans and used for Available- At 31st December 2011 receivables hedging for-sale Total Assets per balance sheet £’000 £’000 £’000 £’000 Available-for-sale financial assets --2,693 2,693 Derivative financial instruments - 11,931 - 11,931 Trade and other receivables 288,711 --288,711 Cash and cash equivalents 573,616 --573,616 Total 862,327 11,931 2,693 876,951
Derivatives Other used for financial hedging liabilities Total Liabilities per balance sheet £’000 £’000 £’000 Borrowings - (190,182) (190,182) Trade and other payables - (689,781) (689,781) Derivative financial instruments (13,573) - (13,573) Total (13,573) (879,963) (893,536)
Derivatives Loans and used for Available- At 31st December 2010 receivables hedging for-sale Total Assets per balance sheet £’000 £’000 £’000 £’000 Available-for-sale financial assets --40,168 40,168 Derivative financial instruments - 8,280 - 8,280 Trade and other receivables 271,435 --271,435 Cash and cash equivalents 524,865 --524,865 Total 796,300 8,280 40,168 844,748
Derivatives Other used for financial hedging liabilities Total Liabilities per balance sheet £’000 £’000 £’000 Borrowings - (145,385) (145,385) Trade and other payables - (687,270) (687,270) Derivative financial instruments (12,526) - (12,526) FinancialStatements Total (12,526) (832,655) (845,181)
Level 1 Level 2 Level 3 Total At 31st December 2011 £'000 £'000 £'000 £'000 Assets Derivatives used for hedging - 11,931 - 11,931 Available-for-sale financial assets - equity securities 89 - 2,171 2,260 - debt investments 274 --274 - fixed deposits 159 --159 Total assets 522 11,931 2,171 14,624 Liabilities Derivatives used for hedging - (13,573) - (13,573) Total liabilities - (13,573) - (13,573)
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
21. Financial instruments by category continued Level 1 Level 2 Level 3 Total At 31st December 2010 £'000 £'000 £'000 £'000 Assets Derivatives used for hedging - 8,280 - 8,280 Available-for-sale financial assets - equity securities 115 - 1,536 1,651 - debt investments 257 6,583 - 6,840 - fixed deposits 31,677 --31,677 Total assets 32,049 14,863 1,536 48,448 Liabilities Derivatives used for hedging - (12,526) - (12,526) Total liabilities - (12,526) - (12,526)
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm's length basis. These instruments are included in level 1. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. In 2011 the assets under level 3 have increased by £635,000 largely due to a provision release.
22. Borrowings 2011 2010 £'000 £'000 Current Bank overdraft - 693 Unsecured loan notes 1,159 1,545 Bank borrowings 442 33 Finance lease liabilities 241 454 1,842 2,725 Non current Bank borrowing 101,631 61,067 Unsecured loan notes 86,596 81,211 Finance lease liabilities 113 382 188,340 142,660 Total borrowings 190,182 145,385 The borrowings include secured liabilities (leases) of £354,000 (2010: £836,000). The exposure of the borrowings of the Group to interest rate changes and the periods in which the borrowings reprice are as follows:
6-12 or less Over 6 months months 1-5 years 5 years Fixed rate Total £'000 £'000 £'000 £'000 £'000 £'000
At 31st December 2011 102,790 683 113 - 86,596 190,182
At 31st December 2010 63,725 - 449 - 81,211 145,385
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22. Borrowings continued The effective interest rates at the balance sheet date were as follows: 2011 2010 £'000 £'000 Bank overdraft - 5.22% Unsecured loan notes - Private placement 3.55% 3.34% Unsecured loan notes - other 0.50% 0.50% Bank borrowings 2.30% 2.12% Finance lease liabilities 9.39% 8.75%
The carrying amounts and fair values of borrowings are as follows: Carrying Fair amount value 2011 2011 £'000 £'000 Current Unsecured loan notes 1,159 1,159 Bank borrowings 442 442 Finance lease liabilities 241 241 1,842 1,842 Non current Bank borrowings 101,631 101,631 Unsecured loan notes 86,596 86,596 Finance lease liabilities 113 113 188,340 188,340 Total borrowings 190,182 190,182
Carrying Fair amount value 2010 2010 £'000 £'000 Current Bank overdraft 693 693 Unsecured loan notes 1,545 1,545 Bank borrowings 33 33 Finance lease liabilities 454 454 2,725 2,725 Non-current Bank borrowings 61,067 61,067 Unsecured loan notes 81,211 81,211 Finance lease liabilities 382 382 142,660 142,660 FinancialStatements Total borrowings 145,385 145,385
Maturity of non-current borrowings (excluding finance lease liabilities): 2011 2010 £'000 £'000 Between 1 and 2 years 39 67 Between 2 and 3 years - - Between 3 and 4 years 101,592 - Between 4 and 5 years - 61,000 Over 5 years 86,596 81,211 188,227 142,278
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
22. Borrowings continued Finance lease liabilities - minimum lease payments: 2011 2010 £'000 £'000 No later than 1 year 253 496 Later than 1 year and not later than 2 years 67 303 Later than 2 years and not later than 3 years 49 89 Later than 3 years and not later than 4 years 3 14 Later than 4 years and not later than 5 years 2 - 374 902 Future finance charges on finance leases (20) (66) Present value of finance lease liabilities 354 836
The present value of finance lease liabilities is as follows: 2011 2010 £'000 £'000 No later than 1 year 241 451 Later than 1 year and not later than 2 years 62 289 Later than 2 years and not later than 3 years 47 82 Later than 3 years and not later than 4 years 2 14 Later than 4 years and not later than 5 years 2 - 354 836 Borrowing facilities The group has undrawn committed borrowing facilities: 2011 2010 £'000 £'000 Floating rate - expiring within one year - - - expiring beyond one year 166,000 209,000
Facilities expiring beyond one year relate to a) the committed unsecured £270 million revolving credit facility in the name of JIB Group Limited which matures in December 2015 and b) senior unsecured loan notes totalling $125 million issued by JIB Group Limited under the Group's private placement programme with maturities of $42 million (£27.3 million) in September 2017, $42 million (£27.3 million) in September 2020 and $41 million (£26.6 million) in September 2022. Drawings under the Group's private placement programme are subject to an equivalent spread over LIBOR of between 227 and 238 basis points. As at the balance sheet date drawings under the revolving credit facility are subject to a margin of 150 basis points above the relevant LIBOR interest rate and additionally incur commitment fees on the undrawn facility. The facilities' terms and conditions include common debt and interest cover covenants with which the Group expects to continue to comply.
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23. Deferred income taxes Deferred income tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The following amounts, determined after appropriate offsetting, are shown in the consolidated balance sheet.
Assets Liabilities Net 2011 2010 2011 2010 2011 2010 £'000 £'000 £'000 £'000 £'000 £'000 Property, plant and equipment 3,254 3,698 (553) (126) 2,701 3,572 Provisions 7,239 6,331 (1,372) (950) 5,867 5,381 Losses 4,657 104 (2,563) - 2,094 104 Deferred Income - 39 - (220) - (181) Intangibles other than goodwill 1,054 69 (33) (29) 1,021 40 Goodwill 245 194 (3,189) (2,830) (2,944) (2,636) Other 1,016 3,880 (2,502) (5,809) (1,486) (1,929) Pensions 25,621 16,386 - - 25,621 16,386 Share based payments 11,710 11,239 - - 11,710 11,239 Fair values 1,856 1,054 - - 1,856 1,054 Tax assets/(liabilities) 56,652 42,994 (10,212) (9,964) 46,440 33,030 Set off of tax (2,132) (1,864) 2,132 1,864 - - Net tax assets/(liabilities) 54,520 41,130 (8,080) (8,100) 46,440 33,030
(Charge)/ At 1st Jan Exchange credit Credit Acquisitions At 31st Dec 2011 differences to income to equity of sub 2011 £'000 £'000 £'000 £'000 £'000 £'000 Accelerated tax depreciation 3,572 53 (924) --2,701 Provisions 5,381 (320) 806 --5,867 Losses 104 (173) 2,163 --2,094 Deferred income (181) - 181 --- Intangibles other than goodwill 40 (53) 1,034 --1,021 Goodwill (2,636) (149) (159) --(2,944) Other (1,929) 660 (276) - 59 (1,486) Pensions 16,386 (32) (421) 9,688 - 25,621 Share based payments 11,239 - 334 137 - 11,710 Fair values 1,054 --802 - 1,856 Net tax assets 33,030 (14) 2,738 10,627 59 46,440
The total current and deferred income tax charged to equity during the year is as follows: At At 1st Jan Credit 31st Dec 2011 to equity 2011 FinancialStatements £'000 £'000 £'000 Pension 18,684 11,115 29,799 Share based payments 7,875 2,249 10,124 Fair values: - foreign exchange 1,099 785 1,884 - available-for-sale (45) 17 (28) 1,054 802 1,856 27,613 14,166 41,779
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
23. Deferred income taxes continued Deferred tax assets are recognised to the extent that the realisation of the related tax benefits through the future taxable profits is considered probable. A deferred tax asset relating to tax losses of £2,029,000 (2010: £2,993,000) has not been recognised in the balance sheet in respect of certain of the Group's operations, principally Singapore and Japan, where it is considered likely that the losses will expire before use. A deferred tax asset relating to other deferred tax balances of £7,699,000 (2010: £6,577,000) has not been recognised in the balance sheet in respect of certain of the Group's overseas operations, principally the US, where it is considered likely that the asset is unlikely to be realised in the short term.
Deferred tax liabilities have not been recognised on temporary differences of £42 million (2010: £33 million) representing the unremitted earnings of subsidiaries and joint ventures. Such amounts are permanently reinvested. Deferred tax liabilities have not been recognised on temporary differences of £nil (2010: £nil) representing unremitted earnings of Associates.
24. Provisions for liabilities and charges Property related Litigation provisions provisions Other Total £'000 £'000 £'000 £'000 At 1st January 2011 6,802 10,316 916 18,034 Exchange adjustment - (12) - (12) Adjustment to gross basis - (1,900) - (1,900) Reclassification (to)/from current assets/liabilities (11) - 15 4 Utilised in the year (1,266) (5,408) (663) (7,337) Charged to the income statement 995 3,116 269 4,380 Interest charge 84 --84 At 31st December 2011 6,604 6,112 537 13,253
At 1st January 2010 7,474 20,418 380 28,272 Exchange adjustment 2 135 - 137 Adjustment to gross basis - 1,900 - 1,900 Reclassification from current assets/liabilities --756 756 Utilised in the year (980) (22,193) (220) (23,393) Charged to the income statement 184 10,031 - 10,215 Interest charge 122 --122 Companies acquired - 25 - 25 At 31st December 2010 6,802 10,316 916 18,034
2011 2010 £'000 £'000 Analysis of total provisions: Non-current - to be utilised in more than one year 4,252 4,935 Current - to be utilised within one year 9,001 13,099 13,253 18,034
Property related provisions The Group recognises a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract. Provision is made for the future rental cost of vacant property. In calculating the provision required, account is taken of the duration of the lease and any recovery of cost achievable from subletting. Property provisions occur principally in the USA and UK and relate to a variety of lease commitments. The longest lease terms for each country are to 2016 and 2017 respectively. Litigation provisions At any point in time the Group can be involved in a variety of litigation issues. A balance sheet provision is established in respect of such issues when it is probable that the liability has been incurred and the amount of the liability can be reasonably estimated. The Group analyses its litigation exposures based on available information, including external legal consultation where appropriate, to assess its potential liability. Where appropriate the Group also provides for the cost of defending or initiating such matters.
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24. Provisions for liabilities and charges continued Where a litigation provision has been made it is stated gross of any third party recovery. All such recoveries are included as "other receivables" within trade and other receivables. At 31st December 2011, in connection with certain litigation matters, the Group's litigation provisions include an amount of £0.1 million (2010 £1.9 million) to reflect this gross basis and the corresponding insurance recovery has been included within trade and other receivables. This presentation has had no effect on the Consolidated income statement for the year ended 31st December 2011 (2010: nil). Other Other provisions include provision for clawback of commission which arises on certain types of Employee Benefit contracts. Deferred consideration Liabilities are credited in respect of additional consideration payable following the initial completion of an acquisition. The amounts in respect of deferred consideration have been reclassified to trade and other payables. The prior year comparatives have been restated to reflect this treatment.
25. Share capital and premium Ordinary Share Number of shares premium Total shares £'000 £'000 £'000 Allotted, called up and fully paid At 1st January 2010 215,533,497 10,776 84,640 95,416 Allotted during the year 2,286,147 114 8,937 9,051 At 31st December 2010 217,819,644 10,890 93,577 104,467 Allotted during the year 1,392,864 70 6,093 6,163 At 31st December 2011 219,212,508 10,960 99,670 110,630
Ordinary shares carry rights to dividends, voting and proceeds on winding up. During the year there have been the following changes in the share capital of the Company: 1 Between 1st January and 31st December 2011 the Company issued 367,715 ordinary shares for a consideration of £1,164,955 to UK employees and 37,677 ordinary shares for a consideration of £157,310 (in local currency) to overseas employees following exercises by employees and former employees of options held under the Jardine Lloyd Thomson Group Sharesave Option Scheme. 2 Between 1st January and 31st December 2011 the Company issued 987,472 ordinary shares for a consideration of £4,840,379 following exercises by executives of options held under the Jardine Lloyd Thompson Group plc Executive Share Option Scheme.
26. Non-controlling interests
£’000 At 1st January 2011 8,441 Exchange adjustment (106) Acquisitions (257) Disposals 1,361
Profit for the year 6,523 FinancialStatements Dividends (3,635) At 31st December 2011 12,327
£’000 At 1st January 2010 6,760 Exchange adjustment 642 Acquisitions (1,405) Disposals 484 Profit for the year 4,151 Dividends (2,191) At 31st December 2010 8,441
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
27. Other reserves Fair value Total Share and hedging Exchange other premium reserves reserves reserves £'000 £'000 £'000 £'000 At 1st January 2011 93,577 (2,885) 38,027 128,719 Fair value losses net of tax - available-for-sale - (52) - (52) - cash flow hedges - (2,724) - (2,724) Currency translation differences --(7,896) (7,896) Net losses recognised directly in equity - (2,776) (7,896) (10,672) Issue of share capital 6,093 --6,093 At 31st December 2011 99,670 (5,661) 30,131 124,140
Fair value Total Share and hedging Exchange other premium reserves reserves reserves £'000 £'000 £'000 £'000 At 1st January 2010 84,640 7,890 29,836 122,366 Fair value losses net of tax - available-for-sale - (114) - (114) - cash flow hedges - (10,661) - (10,661) Currency translation differences --8,191 8,191 Net (losses)/gains recognised directly in equity - (10,775) 8,191 (2,584) Issue of share capital 8,937 --8,937 At 31st December 2010 93,577 (2,885) 38,027 128,719
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28. Qualifying employee share ownership trust During the period, QUEST allocated nil ordinary shares to employees in satisfaction of options that have been exercised under the Jardine Lloyd Thompson Sharesave Schemes. (2010: nil)
29. Cash generated from operations 2011 2010 £'000 £'000 Cash flows from Operating activities Profit before taxation 134,479 119,369 Investment income receivable (7,942) (9,433) Interest payable on bank loans and finance leases 7,027 4,508 Fair value (gains)/losses on financial instruments (92) 128 Net pension financing (income)/expenses (1,548) 1,162 Unwinding of liability discounting 350 629 Depreciation 11,191 10,006 Amortisation of intangible assets 16,129 11,686 Amortisation of share based payments 14,598 12,579 Amortisation of employee benefit trust - 24 Share of results of associates undertakings (5,099) (3,772) Non cash exceptional items 8,449 916 Profit on disposal of businesses (4,663) (1,800) Gains on disposal of property, plant and equipment (147) (26) Losses/(gains) on disposal of fixed asset investments 1 (86) Gains on disposal of current asset investments (10) (2) Increase in trade and other receivables (25,733) (35,453) Increase in trade and other payables - excluding insurance broking balances 3,547 2,905 Decrease in provisions for liabilities and charges (2,957) (13,178) Decrease in retirement benefit obligation (5,010) (3,655) Net cash inflow from operations 142,570 96,507
30. Business combinations Adjustments in respect of prior year acquisitions During the year, the deferred consideration booked in respect of acquisitions completed in previous years has been revised following the final settlement of amounts due or the revision of amounts due or the revision of estimates based on performance conditions.
Deferred Change in Deferred consideration estimated consideration at 31st Paid during deferred at 31st Dec 2010 the year consideration Dec 2011 £'000 £'000 £'000 £'000
Revisions to deferred consideration 277 (96) (181) - FinancialStatements
2010 Acquisitions During the year, the process of finalising the provisional fair values in respect of acquisitions carried out during 2010 has been completed.
Provisional Revised fair value fair value reported at Change in acquired 31st Dec 2010 fair value £'000 £'000 £'000 Tripol AS 1,021 1,175 (154)
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
30. Business combinations continued These changes in fair value affected the following balance sheet classes: Provisional Revised fair value fair value reported at Change in acquired 31st Dec 2010 fair value £'000 £'000 £'000 Property, plant and equipment 1-1 Intangible assets 665 640 25 Trade and other receivables 1,091 1,054 37 Cash and cash equivalents - own cash 292 269 23 Trade and other payables (903) (672) (231) Current taxation (134) (123) (11) Deferred taxation 972 1,021 1,175 (154)
Goodwill calculation At At 31st Dec 2011 31st Dec 2010 Change £'000 £'000 £'000 Purchase consideration - cash paid 2,616 2,616 - - deferred consideration 1,141 1,141 - Total purchase consideration 3,757 3,757 - Less fair value of net assets acquired 1,021 1,175 (154) Goodwill 2,736 2,582 (154)
At At 31st Dec 2011 31st Dec 2010 Change £'000 £'000 £'000 Purchase consideration settled in cash 2,616 2,616 - Cash and cash equivalents - own cash in subsidiary acquired (292) (269) (23) Cash inflow on acquisition 2,324 2,347 (23)
Current year acquisitions During the year the following new business acquisitions and additional investments were completed: Percentage Acquisition voting rights Cost date acquired £'000 Alta SA Oct 2011 50% 9,727 FBD Insurance Brokers Group Dec 2011 100% 7,075 Acquisition of new business completed during the period Jan - Dec 2011 100% 1,446 Additional investments in existing businesses Jan - Dec 2011 - 4,849 23,097
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30. Business combinations continued Acquisition of Alta SA On 10th October 2011 the Group announced the acquisition of an initial 50.1% of Alta SA, the holding company of Orbital Corredores de Seguros, the 4th largest insurance broker in Chile, and Alta Re, a reinsurance broker which commenced operations in April 2010. It has been a member of the JLT International Network since 2010. The acquired business contributed revenue of £2,098,000 and a net profit of £763,000 to the Group for the period since acquisition. If the acquisition had taken place on 1st January 2011 the contribution to Group revenue and net profit would have been £6,699,000 and £2,325,000 respectively.
Goodwill calculation £'000 Purchase consideration - cash paid 9,727 Total purchase consideration 9,727 Less fair value of net assets acquired 519 Goodwill 9,208
The assets and liabilities arising from the acquisition were as follows: Acquiree's carrying amount Fair value £'000 £'000 Property, plant and equipment 197 197 Intangible assets 37 37 Trade and other receivables 713 713 Cash and cash equivalents - own cash 804 804 - fiduciary cash 570 570 Insurance payables (570) (570) Trade and other payables (659) (659) Current taxation (108) (108) Deferred taxation 52 52 Non-controlling interests (517) (517) 519 519
£'000 Purchase consideration settled in cash 9,727 Cash and cash equivalents - own cash in subsidiary acquired (804) 8,923 Cash and cash equivalents - fiduciary cash in subsidiary acquired (570) Cash outflow on acquisition 8,353
As at the 31st December 2011, the process of reviewing the fair values of assets acquired had not been completed and consequently the fair values stated above are provisional. None of the goodwill recognised is expected to be deductible for income tax purposes. FinancialStatements
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
30. Business combinations continued Acquisition of FBD Insurance Brokers Group On 29th December 2011, the Group acquired the FBD Insurance Brokers group of companies in Ireland, an agri-food speciality broker. The acquired business contributed no revenue or net profit to the Group to 31st December 2011. If the acquisition had taken place on 1st January 2011, the contribution to the Group revenue and net profit would have been £3,905,000 and £511,000 respectively.
Goodwill calculation £'000 Purchase consideration - cash paid 5,874 - deferred consideration 331 - contingent consideration 870 Total purchase consideration 7,075 Less fair value of net assets acquired 299 Goodwill 6,776
The assets and liabilities arising from the acquisition were as follows: Acquiree's carrying amount Fair value £'000 £'000 Property, plant and equipment 22 - Trade and other receivables 275 275 Cash and cash equivalents - own cash 924 924 - fiduciary cash 2,573 2,573 Insurance payables (2,573) (2,573) Trade and other payables (936) (805) Current taxation (100) (100) Deferred taxation 55 190 299
£'000 Purchase consideration settled in cash 5,874 Cash and cash equivalents - own cash in subsidiary acquired (924) 4,950 Cash and cash equivalents - fiduciary cash in subsidiary acquired (2,573) Cash outflow on acquisition 2,377
As at the 31st December 2011, the process of reviewing the fair values of assets acquired had not been completed and consequently the fair values stated above are provisional. Deferred consideration of £331,000 is based on the completion balance sheet as at the date of acquisition. The amount recognised is based on the disclosed net assets and will be adjusted on completion if required. Contingent consideration of £870,000, which is based on the expected net revenue of €4,950,000 for the financial year to 31st December 2012, is capped at £1,090,000. None of the goodwill recognised is expected to be deductible for income tax purposes.
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30. Business combinations continued Other acquisitions and additional investments Goodwill calculation £'000 Purchase consideration - cash paid 4,108 - deferred consideration 1,687 - cancellation of loans 500 Total purchase consideration 6,295 Less fair value of net assets acquired 774 Less equity movement on transactions with non-controlling interests 4,013 Goodwill 1,508
The assets and liabilities arising from the acquisitions were as follows: Acquiree's carrying amount Fair value £'000 £'000 Non-controlling interests 774 774
£'000 Purchase consideration settled in cash 4,108 Cash outflow on acquisition 4,108 As at the 31st December 2011, the process of reviewing the fair values of assets acquired had not been completed and consequently the fair values stated above are provisional. None of the goodwill recognised is expected to be deductible for income tax purposes.
Group summary of the net assets acquired and goodwill Alta SA FBD Group Others Total £'000 £'000 £'000 £'000 Purchase consideration - cash paid 9,727 5,874 4,108 19,709 - deferred consideration - 331 1,687 2,018 - contingent consideration - 870 - 870 - cancellation of loans --500 500 Total purchase consideration 9,727 7,075 6,295 23,097 Less fair value on acquisition occurring during the period 519 299 774 1,592 Less equity movement on transactions with non-controlling interests --4,013 4,013 Goodwill on acquisitions occurring during the year 9,208 6,776 1,508 17,492 Impact of revisions to deferred consideration (181) Impact of revisions to fair value adjustment in relation to acquisitions completed in 2010 154 Net increase in goodwill 17,465
Alta SA FBD Group Other Total
£'000 £'000 £'000 £'000 FinancialStatements Purchase consideration settled in cash 9,727 5,874 4,108 19,709 Cash and cash equivalents - own cash in subsidiary acquired (804) (924) - (1,728) 8,923 4,950 4,108 17,981 Cash and cash equivalents - fiduciary cash in subsidiary acquired (570) (2,573) - (3,143) Cash outflow on acquisition during the year 8,353 2,377 4,108 14,838 Impact on cash of revision to fair value adjustment in relation to acquisitions completed in 2010 (23) Cash outflow in the year 14,815
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
31. Business disposals On 31st December 2011, the Group disposed of 100% of its shareholding in its Italian operations (Jardine Lloyd Thompson S.p.A. and Jardine Lloyd Thompson S.r.L.).
Net assets and proceeds of disposal Total £'000 Property, plant and equipment 57 Intangible assets 114 Trade and other receivables 4,035 Cash and cash equivalents - own cash 753 - fiduciary cash 2,529 Insurance payables (2,529) Trade and other payables (2,830) Term loan (755) Current taxation 47 Net assets at disposal 1,421 Exchange gains recycled from exchange reserves (556) Gain on disposal 4,663 5,528
Consideration in the form of investment in associates 5,528
Cash and cash equivalents - own cash in subsidiary disposed (753) Cash and cash equivalents - fiduciary cash in subsidiary disposed (2,529) Cash outflow on disposal (3,282)
Other disposals During the year the Group completed other disposals, none of which were individually significant.
Net assets and proceeds of disposal Total £'000 Non-controlling interests 1,361 Equity movement on transaction with non-controlling interests 2,346 3,707
Deferred proceeds 2,703 Cash inflow on disposal during the year 1,004 Total consideration 3,707
Group summary of the received consideration JLT Italy Other Total £'000 £'000 £'000 Disposal consideration settled in cash - 1,004 1,004 Cash and cash equivalents - own cash in subsidiary disposed (753) - (753) - fiduciary cash in subsidiary disposed (2,529) - (2,529) Cash (outflow)/inflow on disposal during the year (3,282) 1,004 (2,278)
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32. Retirement benefit obligations The Group operates a number of pension schemes throughout the world, the most significant of which are of the defined benefit type and operate on a funded basis. The principal pension schemes are the Jardine Lloyd Thompson Pension Scheme in the UK, the JLT (USA) Employees' Retirement Plan, the Pension Plan for Employees of Jardine Lloyd Thompson Canada Inc and the Jardine Lloyd Thompson Ireland Limited Pension Fund.
The pension costs accrued for the year are comprised as follows:
2011 2010 UK Overseas Total UK Overseas Total £’000 £’000 £’000 £’000 £’000 £’000 Defined benefit schemes -99 --- Defined contribution schemes 14,359 11,871 26,230 14,080 10,317 24,397 14,359 11,880 26,239 14,080 10,317 24,397
The Jardine Lloyd Thompson Pension Scheme is based in the UK and has two sections; one providing defined benefits and the other providing benefits on a defined contribution basis. The assets of the scheme are held in a trustee administered fund separate from the Company. With effect from 1st December 2006 the Scheme was amended to eliminate future benefit accruals. Under the Scheme as amended, a participant's normal retirement benefit will be determined based on their service and compensation prior to 1st December 2006. The latest valuation of the Jardine Lloyd Thompson Pension Scheme was undertaken on a preliminary basis as at 1st April 2011. It is anticipated that this, together with the revised funding plan will be finalised by the end of June 2012. This preliminary valuation was updated to 31st December 2011 by a qualified actuary employed by the Group. The principal overseas schemes are: a) The JLT (USA) Incentive Savings Plan which is a defined contribution scheme. Employees may contribute up to 50% of their salary subject to an IRS maximum each year – $16,500 in 2011 – and the Group contributes at a rate of 100% of each 1% contributed by the employee up to a maximum employee contribution of 4%, up to a maximum of $9,800. Employees aged over 50 may make "catch-up" contributions subject to an IRS maximum each year - $5,500 in 2011. b) The JLT (USA) Employee Retirement Plan which is a defined benefit scheme. The latest actuarial valuation was undertaken at 1st January 2011 by independent actuaries. With effect from 31st July 2005 the Plan was amended to eliminate future benefit accruals. Under the Plan as amended, a participant's normal retirement benefit will be determined based on their service and compensation prior to 31st July 2005. c) The Pension Plan for Employees of Jardine Lloyd Thompson Canada Inc. The JLT Canada Pension Plan has two sections; one providing defined benefits based primarily on the 2007 pensionable salary and the other providing benefits on a defined contribution basis. The JLT pension contribution for the defined contribution plan ranges from 3% to 15% based on age and service. The last formal valuation of the JLT Canada Pension Plan was undertaken as at 31st December 2008 by a qualified third party actuary. The defined benefits section was amended to eliminate future benefit accruals with effect from 1st January 2009. d) The Jardine Lloyd Thompson Ireland Limited Pension Fund is a defined benefit pension scheme with assets held in a separately administered fund. The contributions are agreed between the Trustees and the Company based on advice by a qualified actuary. The most recent triennial actuarial valuation for funding purposes was carried out by a qualified independent actuary as at 1st June 2008. With effect from 30th November 2008 the scheme was closed to new entrants and future service accrual. A funding proposal, effective 30th April 2010, was accepted by the Pensions Board. e) The Jardine Matheson Executive Staff Retirement Plan (JMESRP), Jardine Matheson Resident Staff Retirement Plan (JMRSRP) and Menu Plan section B and C of the Jardine Matheson Group Retirement Plan (JMGRP). The JMRSRP and section C of the JMGRP provided benefits based on final salary, which were solely funded by the participating employer, while the JMESRP and section B of the JMGRP provided benefits based on final salary, which were funded by both the participating employer and the members. FinancialStatements With effect from 31st December 2009, the participation in the JMESRP, JMRSRP and JMGRP (collectively the plans) ceased and the schemes were closed. The accrued rights of the members in the plans were transferred to the Hong Kong Mandatory Provident Fund (MPF) scheme on 1st January 2010. The MPF scheme provides benefits on a defined contribution basis. The scheme is funded by both the employer and the members. The employer contribution under the MPF scheme ranges from 5% to 15% of the member's monthly basic salary based on an age factor. The MPF scheme is held and administered by a separate trust, which is funded by both the participating employer and the members.
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
32. Retirement benefit obligations continued The principal actuarial assumptions used were as follows: UK US Canadian Irish At 31st December 2011 Scheme Scheme Scheme Scheme Rate of increase in salaries n/a n/a 4.00% n/a Rate of increase of pensions in payment (a) 2.95% n/a 3.50% 3.00% Discount rate 4.85% 4.00% 4.50% 5.10% Inflation rate 2.60%-3.05% 3.00% 2.50% 2.00% Revaluation rate for deferred pensioners 1.70% n/a n/a 2.00% Expected return on plan assets (b) 6.57% 7.25% 7.00% 6.10% Mortality - life expectancy at age 65 for male members: (c) Aged 65 at 31st December 23.7 19.6 19.6 21.4
UK US Canadian Irish At 31st December 2010 Scheme Scheme Scheme Scheme Rate of increase in salaries n/a n/a 4.00% n/a Rate of increase of pensions in payment (a) 3.35% n/a 3.50% 3.00% Discount rate 5.45% 5.15% 5.50% 5.10% Inflation rate 3.10%-3.45% 3.00% 2.50% 2.00% Revaluation rate for deferred pensioners 2.60% n/a n/a 2.00% Expected return on plan assets (b) 6.51% 8.00% 7.00% 5.20% Mortality - life expectancy at age 65 for male members: (c) Aged 65 at 31st December 23.6 18.9 19.5 21.4
(a) In respect of the UK scheme, retail prices are limited to 5% per annum.
(b) The expected return on scheme assets assumption was determined as the average of the expected returns on the intended long term asset strategy or the actual assets held by the schemes on 31st December of the previous year.
(c) Mortality assumptions for the UK scheme are based on 100% PN*A00yobLC0.5%U for pensioners and 105% PN*A00yobLC0.5%U for deferred pensioners.
Mortality assumptions for the US scheme are based on the RP-2000 Mortality Table projected to 2010 by Scale AA.
Mortality assumptions for the Canadian scheme are based on the 1994 Uninsured Pensioner Mortality Table projected generationally using Scale AA for all members.
Mortality assumptions for the Irish scheme, in respect of both active and deferred pensioners, assume that deaths after retirement will be in accordance with standard mortality tables, 62% PNML00 for males and 70% PNFL00 for females. Pre retirement mortality has been assumed as nil.
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32. Retirement benefit obligations continued
UK Scheme Overseas Schemes Total Defined benefit obligation 2011 2010 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 Present value of funded obligations (523,846) (492,911) (66,407) (59,425) (590,253) (552,336) Fair value of plan assets 424,624 435,498 44,630 44,003 469,254 479,501 Net liability recognised in the balance sheet (99,222) (57,413) (21,777) (15,422) (120,999) (72,835)
UK Scheme Overseas Schemes Total Reconciliation of defined benefit liability 2011 2010 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 Opening defined benefit liability (57,413) (71,626) (15,422) (16,267) (72,835) (87,893) Exchange differences - - (117) (395) (117) (395) Pension income/(expense) 1,657 (836) (118) (326) 1,539 (1,162) Employer contributions 716 - 4,303 3,655 5,019 3,655 Total (loss)/gain recognised in reserves (44,182) 15,049 (10,423) (2,089) (54,605) 12,960 Net liability recognised in the balance sheet (99,222) (57,413) (21,777) (15,422) (120,999) (72,835)
UK Scheme Overseas Schemes Total Reconciliation of defined benefit obligation 2011 2010 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 Opening defined benefit obligation (492,911) (480,701) (59,425) (54,379) (552,336) (535,080) Exchange differences - - 274 (1,490) 274 (1,490) Service cost - - (9) - (9) - Interest cost (26,408) (26,920) (2,937) (2,982) (29,345) (29,902) Loss on defined benefit obligation (21,463) (2,362) (6,971) (3,133) (28,434) (5,495) Actual benefit payments 16,936 17,072 2,661 2,559 19,597 19,631 Closing defined benefit obligation (523,846) (492,911) (66,407) (59,425) (590,253) (552,336)
UK Scheme Overseas Schemes Total Reconciliation of fair value of assets 2011 2010 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 Opening value of assets 435,498 409,075 44,003 38,112 479,501 447,187 Exchange differences - - (391) 1,095 (391) 1,095 Expected return on assets 28,065 26,084 2,828 2,656 30,893 28,740 Actuarial (loss)/gain (22,719) 17,411 (3,452) 1,044 (26,171) 18,455 Employer contributions 716 - 4,303 3,655 5,019 3,655 Actual benefit payments (16,936) (17,072) (2,661) (2,559) (19,597) (19,631) Closing value of assets 424,624 435,498 44,630 44,003 469,254 479,501 FinancialStatements
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
32. Retirement benefit obligations continued The analysis of the fair value of the scheme assets is as follows:
UK Scheme Overseas Schemes At 31st December 2011 Long-term Value Value Long-term Value Value rate of return £'000 % rate of return £'000 % Equities 7.68% 180,252 43% 8.03% 28,646 64% Bonds 5.45% 234,233 55% 5.05% 10,571 24% Other assets ---3.50% 1,053 2% Cash 5.45% 10,139 2% 2.37% 4,360 10% Total market value 6.57% 424,624 100% 6.93% 44,630 100%
UK Scheme Overseas Schemes At 31st December 2010 Long-term Value Value Long-term Value Value rate of return £'000 % rate of return £'000 % Equities 8.01% 152,473 35% 8.57% 30,270 69% Bonds 5.66% 268,307 61% 6.32% 9,820 22% Other assets 8.01% 11,489 3% 4.00% 2,464 6% Cash 5.66% 3,229 1% 2.30% 1,449 3% Total market value 6.51% 435,498 100% 7.19% 44,003 100%
Other assets include hedge funds and property. The scheme does not hold cash as a strategic investment and cash balances at the 31st December represent working balances. The long-term rates of return on scheme assets at 31st December 2011 have been derived considering market conditions at 31st December 2010.
UK Scheme Overseas Schemes Total Reconciliation of return on assets 2011 2010 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 Expected return on assets 28,065 26,084 2,828 2,656 30,893 28,740 Actuarial (losses)/gains (22,719) 17,411 (3,452) 1,044 (26,171) 18,455 Actual return on assets 5,346 43,495 (624) 3,700 4,722 47,195
The amounts recognised in the consolidated income statement are as follows:
UK Scheme Overseas Schemes Total 2011 2010 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 Service cost - - (9) - (9) - Total (included within salaries and associated expenses) - - (9) - (9) - Interest cost (26,408) (26,920) (2,937) (2,982) (29,345) (29,902) Expected return on assets 28,065 26,084 2,828 2,656 30,893 28,740 Total (included within finance income/(costs)) 1,657 (836) (109) (326) 1,548 (1,162) Gains/(losses) before taxation 1,657 (836) (118) (326) 1,539 (1,162)
The amounts included in the consolidated statement of recognised income and expense are as follows:
UK Scheme Overseas Schemes Total 2011 2010 2011 2010 2011 2010 £’000 £’000 £’000 £’000 £’000 £’000 Loss on defined benefit obligation (21,463) (2,362) (6,971) (3,133) (28,434) (5,495) Actuarial (losses)/gains (22,719) 17,411 (3,452) 1,044 (26,171) 18,455 Total actuarial (losses)/gains recognised (44,182) 15,049 (10,423) (2,089) (54,605) 12,960 Cumulative actuarial losses recognised (173,198) (129,016) (36,507) (26,084) (209,705) (155,100)
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32. Retirement benefit obligations continued The five year history of experience adjustments is as follows: UK Scheme 2011 2010 2009 2008 2007 £'000 £'000 £'000 £'000 £'000 Defined benefit obligation at end of year (523,846) (492,911) (480,701) (376,859) (442,751) Fair value of plan assets 424,624 435,498 409,075 365,913 415,499 Deficit in the scheme (99,222) (57,413) (71,626) (10,946) (27,252)
Difference between the expected and actual return on plan assets - amount (£’000) (22,719) 17,411 23,856 (59,326) (6,295) - expressed as a percentage of plan assets (5.35%) 4.00% 5.83% (16.21%) (1.52%)
Experience losses/(gains) on plan liabilities - amount (£’000) 903 1,902 (4,639) (6,450) (2,227) - expressed as a percentage of the present value of plan liabilities (0.17%) (0.39%) 0.97% 1.71% 0.50%
Overseas Schemes 2011 2010 2009 2008 2007 £'000 £'000 £'000 £'000 £'000 Defined benefit obligation at end of year (66,407) (59,425) (54,379) (67,006) (50,106) Fair value of plan assets 44,630 44,003 38,112 48,661 49,966 Deficit in the schemes (21,777) (15,422) (16,267) (18,345) (140)
Difference between the expected and actual return on plan assets - amount (£’000) (3,452) 1,044 2,918 (17,765) (58) - expressed as a percentage of plan assets (7.73%) 2.37% 7.66% (36.51%) (0.26%)
Experience losses/(gains) on plan liabilities - amount (£’000) 308 453 (3,060) 2,012 482 - expressed as a percentage of the present value of plan liabilities (0.46%) (0.76%) 5.63% (3.00%) (1.79%)
During 2007 the schemes in Canada, Ireland and Hong Kong were recognised on the Group balance sheet for the first time. The 2007 returns represent amounts in respect of the USA scheme only.
The expected employer contributions for the year ending 31st December 2012 are as follows: Defined benefit £'000 UK Scheme 7,000 USA Scheme 2,731
Canadian Scheme 1,059 FinancialStatements Irish Scheme 795 Total expected contributions 11,585
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
33. Jardine Matheson Group At 31st December 2011, the Jardine Matheson Group owns 40.22% of the Company shares via its wholly-owned subsidiary JMH Investments Limited. The remaining 59.78% of the shares are widely held. In the normal course of business a number of the Group's subsidiaries undertake, on an arms-length basis, a variety of transactions with the Jardine Matheson Group (JMG) and its associates (JMA). The following transactions were carried out during the year: JMG JMA Total 2011 2011 2011 £'000 £'000 £'000 Income Fees and commissions 2,801 2,651 5,452
Expenditure Administrative expenses 737 - 737
Year-end balances arising from these transactions: Trade and other receivables 2,542 583 3,125 Trade and other payables (174) (6) (180) 2,368 577 2,945
JMG JMA Total 2010 2010 2010 £'000 £'000 £'000 Income Fees and commissions 3,201 1,532 4,733
Expenditure Administrative expenses 728 - 728
Year-end balances arising from these transactions: Trade and other receivables 1,848 560 2,408 Trade and other payables (208) (2) (210) 1,640 558 2,198
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34. Commitments Capital commitments Capital expenditure contracted for at the balance sheet 2011 2010 £'000 £'000 Furniture and equipment - 57
Operating lease commitments - where a Group company is the lessee The future aggregate minimum lease payments under a non-cancellable operating leases are as follows: 2011 2010 £'000 £'000 Not later than 1 year 23,941 21,693 Later than 1 year and not later than 5 years 55,430 46,232 Later than 5 years 18,318 8,270 97,689 76,195
Sub-leases Operating lease commitments - where a Group company is the lessor The future aggregate minimum lease payments under a non-cancellable operating sub-leases are as follows: 2011 2010 £'000 £'000 Not later than 1 year 1,693 1,701 Later than 1 year and not later than 5 years 3,621 3,711 5,314 5,412
Legal and other loss contingencies Jardine Lloyd Thompson Group plc and its subsidiaries are subject to various claims and legal proceedings principally consisting of alleged errors and omissions in connection with the placement of insurance/reinsurance and consulting services. IFRS requires that liabilities for contingencies be recorded when it is probable that a liability has been incurred before the balance sheet date and the amount can be reasonably estimated. Significant management judgement is required to comply with this guidance. The Group analyses its litigation exposure based on available information, including external legal consultation where appropriate, to assess its potential liability. On the basis of present information, amounts already provided, availability of insurance coverages and legal advice received, it is the opinion of management that the disposition or ultimate determination of such claims will not have a material adverse effect on the consolidated financial position of the Group. However, it is possible that future results of operations or cash flows for any annual period could be materially affected by an unfavourable resolution of these matters. At 31st December 2011, the Group has contingent liabilities in respect of guarantees and letters of credit on behalf of Group companies amounting to £14,072,000 (2010: £8,925,000). FinancialStatements
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Financial Statements Notes to the Financial Statements for the year ended 31st December 2011
35. Principal subsidiary and associated companies The following were the principal subsidiary and associated undertakings at 31st December 2011. Unless otherwise shown, the capital of each company is wholly-owned, is in ordinary shares and the principal country of operation is the country of incorporation/registration. Where a company is not wholly- owned, the percentage of the capital held is shown in brackets. Country of incorporation/registration Notes Principal subsidiary undertakings Insurance broking and consulting JLT Benefit Solutions Limited England Thistle Insurance Services Limited England Expacare Limited England JLT Specialty Limited England JLT Reinsurance Brokers Limited England Profund Solutions Limited England Lloyd & Partners Limited England JLT Wealth Management Limited England JLT Investment Management Limited England JLT Insurance Brokers Ireland Limited Ireland FBD Insurance Brokers Limited Ireland JLT-Siaci Espana, SL (61.6%) Spain JLT Risk Solutions AB Sweden Jardine Lloyd Thompson Australia Pty Limited Australia Jardine Lloyd Thompson Limited New Zealand JLT Lixin Insurance Brokers Co., Limited (51%) China Jardine Lloyd Thompson Limited Hong Kong JLT Risk Services Japan Limited Japan Jardine Lloyd Thompson Korea Limited Korea Jardine Lloyd Thompson Insurance Brokers Inc. Philippines Jardine Lloyd Thompson Pte Limited Singapore JLT Risk Solutions Asia Pte Limited Singapore Jardine Lloyd Thompson Sdn Bhd (49%) Malaysia a Jardine Lloyd Thompson Limited Taiwan Jardine Lloyd Thompson Limited (49%) Thailand a, b PT Jardine Lloyd Thompson (80%) Indonesia JLT Park Limited Bermuda JLT Insurance Management (Bermuda) Limited Bermuda Jardine Lloyd Thompson Canada Inc. Canada JLT Brasil Holdings Participacoes Limited (72.4%) Brazil Alta SA (50.1%) Chile Jardine Lloyd Thompson Valencia y Iragorri Corredores de Seguros SA (68%) Colombia JLT Re Colombia, Corredores Colombianos de Reaseguros SA (70%) Colombia Mariategui JLT Corredores de Seguros SA (62.2%) Peru JLT Corredores de Reaseguros SA (62.2%) Peru Group insurance Eagle & Crown Limited Bermuda Intermediate holding company JIB Group Limited England JLT Latin American Holdings Limited England JMIB Holdings BV Netherlands JLT Holdings (Bermuda) Limited Bermuda JLT Holdings Inc USA Associated undertakings Milestone (26.2%) (holding company of Siaci Saint Honoré) France GrECo International Holdings AG (20%) Austria Marine & Aviation S.p.A. (25%) Italy Sterling Re, Intermediario de Reaseguro, SA de C.V. (34%) Mexico
Notes Share capital divided into: a ordinary and preferred shares b 100% of common stock owned by the Group
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Financial Statements Contents
Company Accounts Independent Auditors’ Report 106 Balance Sheet 107 Reconciliation of Movements in Shareholders’ Funds 107 Accounting Policies 108 Notes to the Company Accounts a) Profit and loss account 109 b) Dividends 109 c) Investments 109 d) Debtors 109 e) Creditors- amounts falling due within one year 109 f) Share capital 110 g) Risk management 110 h) Reserves 110 i) Auditor’s remuneration 110 FinancialStatements
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Financial Statements Independent Auditor’s Report to the members of Jardine Lloyd Thompson Group plc
We have audited the parent company financial statements of Jardine Opinion on other matters prescribed by the Companies Lloyd Thompson Group plc for the year ended 31 December 2011 Act 2006 which comprise the Balance Sheet, the Reconciliation of Movements In our opinion: in Shareholders’ Funds, the Accounting Policies and the related notes. The financial reporting framework that has been applied in their • the part of the Directors’ Remuneration Report to be audited has preparation is applicable law and United Kingdom Accounting been properly prepared in accordance with the Companies Act Standards (United Kingdom Generally Accepted Accounting Practice). 2006; and • the information given in the Directors’ Report for the financial year Respective responsibilities of directors and auditors for which the parent company financial statements are prepared is As explained more fully in the Directors’ Responsibilities Statement set consistent with the parent company financial statements. out on page 36 and 37, the directors are responsible for the preparation of the parent company financial statements and for being Matters on which we are required to report by exception satisfied that they give a true and fair view. Our responsibility is to We have nothing to report in respect of the following matters where audit and express an opinion on the parent company financial the Companies Act 2006 requires us to report to you if, in our opinion: statements in accordance with applicable law and International • adequate accounting records have not been kept by the parent Standards on Auditing (UK and Ireland). Those standards require us to company, or returns adequate for our audit have not been comply with the Auditing Practices Board’s Ethical Standards for received from branches not visited by us; or Auditors. • the parent company financial statements and the part of the This report, including the opinions, has been prepared for and only for Directors’ Remuneration Report to be audited are not in the company’s members as a body in accordance with Chapter 3 of agreement with the accounting records and returns; or Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility • certain disclosures of directors’ remuneration specified by law are for any other purpose or to any other person to whom this report is not made; or shown or into whose hands it may come save where expressly agreed • we have not received all the information and explanations we by our prior consent in writing. require for our audit. Scope of the audit of the financial statements Other matters An audit involves obtaining evidence about the amounts and We have reported separately on the group financial statements of disclosures in the financial statements sufficient to give reasonable Jardine Lloyd Thompson Group plc for the year ended 31 December assurance that the financial statements are free from material 2011. misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied Andrew Kail (Senior Statutory Auditor) and adequately disclosed; the reasonableness of significant for and on behalf of PricewaterhouseCoopers LLP accounting estimates made by the directors; and the overall Chartered Accountants and Statutory Auditors presentation of the financial statements. In addition, we read all the London financial and non-financial information in the annual report to identify 20 March 2012 material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Notes: Opinion on financial statements (a) The maintenance and integrity of the Jardine Lloyd Thompson Group plc website is the responsibility of the directors; the work In our opinion the parent company financial statements: carried out by the auditors does not involve consideration of these • give a true and fair view of the state of the company’s affairs as at matters and, accordingly, the auditors accept no responsibility for 31 December 2011; any changes that may have occurred to the financial statements • have been properly prepared in accordance with United Kingdom since they were initially presented on the website. Generally Accepted Accounting Practice; and (b) Legislation in the United Kingdom governing the preparation and • have been prepared in accordance with the requirements of the dissemination of financial statements may differ from legislation in Companies Act 2006. other jurisdictions.
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Financial Statements Balance Sheet at 31st December 2011
2011 2010 Notes £’000 £’000 NET OPERATING ASSETS Non-current assets Investment in subsidiary undertakings c 66,814 66,814 Investment in associate undertakings c 242 242 67,056 67,056 Current assets Debtors d 363,433 398,165 Cash 2,942 2,924 366,375 401,089 Creditors - amounts falling due within one year e (150,399) (114,788) Net current assets 215,976 286,301 Total assets less current liabilities 283,032 353,357 Capital and reserves Ordinary shares f 10,960 10,890 Share premium h 99,670 93,577 Merger reserve h 9,604 9,604 Profit and loss account h 162,798 239,286 Shareholders' funds 283,032 353,357
The notes on pages 109 and 110 form an integral part of these financial statements. Approved by the Board on 20th March 2012 and signed on its behalf by :
Simon Mawson Finance Director
Reconciliation of Movements in Shareholders’ Funds for the year ended 31st December 2011
2011 2010 Notes £’000 £’000 Loss for the year a (26,488) (16,161) Dividends b (50,000) (46,280) New shares issued 6,163 9,051 Net movements in shareholders' funds (70,325) (53,390) Opening shareholders' funds 353,357 406,747
Closing shareholders' funds 283,032 353,357 FinancialStatements
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Financial Statements Accounting Policies
Basis of preparation The Board has decided that the continued use of UK GAAP at the entity level is a more appropriate method of accounting rather than the application of IFRS as required to be used for the preparation of the Group consolidated accounts. These separate entity level accounts have been produced on a going concern basis under the historical cost convention, using consistently applied accounting policies and in accordance with the Companies Act 2006 and applicable accounting standards. A summary of the principal accounting policies is set out below:
Foreign currencies Foreign currency transactions are translated into sterling using the exchange rates prevailing at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at rates of exchange ruling at the balance sheet date. Exchange differences arising on translation are taken directly to the profit and loss account to the extent that the Company is exposed to exchange differences arising on such assets and liabilities.
Taxation The charge for taxation is based on the result for the year at current rates of tax and takes into account deferred tax. Full provision for deferred tax, without discounting, is made for all timing differences that have arisen but not reversed at the balance sheet date.
Consolidated accounts Separate consolidated accounts have been prepared and are presented on pages 49 to 104.
Subsidiary and associated undertakings Investments in subsidiary and associated undertakings are stated in the balance sheet of the Company at cost less any provisions for permanent diminution in value. A list of principal subsidiaries is set out in note 35 on page 104.
Investment income Interest on deposits and interest-bearing investments is credited as it is earned.
Dividend distribution Dividends proposed or declared after the balance sheet dates are not recognised as a liability at the balance sheet date. Final dividends are recognised as a charge to shareholders' funds once approved and interim dividends are charged once paid.
Cash flow statement The Company is exempt under the terms of FRS 1 from the requirement to publish its own cash flow statement, as its cash flows are included within the consolidated cash flow statement of the Group.
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Financial Statements Notes to the Company Accounts for the year ended 31st December 2011
a. Profit and loss account The Company has taken advantage of the exemption contained in Section 408 of the Companies Act 2006 not to present its own profit and loss account and there are no recognised gains or losses other than the loss for the year. The loss for the year dealt with in the accounts of the Company is £26,488,000 (2010: loss £16,161,000).
b. Dividends 2011 2010 £’000 £’000 Final dividend in respect of 2010 of 13.7p per share (2009: 12.5p) 30,743 27,690 Less: adjustment* (866) (592) 29,877 27,098 Interim dividend in respect of 2011 of 9.2p per share (2010: 8.8p) 20,123 19,182 50,000 46,280
*Adjustment relating to dividend equivalents accrued in respect of various performance related share awards and long-term incentive plans not currently anticipated to fully vest.
A final dividend in respect of 2011 of 14.8p per share (2010: 13.7p) amounting to a total of £32,274,000 (2010: £29,685,000) is proposed by the Board. The dividend proposed will not be accounted for until it has been approved at the Annual General Meeting on 26th April 2012.
c. Investments Subsidiary Associate undertakings undertakings Total £'000 £'000 £'000 Cost At 1st January 2011 and 31st December 2011 66,814 242 67,056
The directors believe that the value of the investments is not less than the amount at which they are held.
d. Debtors 2011 2010 £’000 £’000 Other debtors and prepayments 2 100 Corporation tax 7,025 7,072 Amounts due from Group undertakings 356,406 390,993 363,433 398,165
e. Creditors - amounts falling due within one year
2011 2010 FinancialStatements £’000 £’000 Bank overdraft 5,091 18,522 Dividends payable 2,009 1,864 Other creditors 242 245 Amounts due to Group undertakings 143,057 94,157 150,399 114,788
The bank overdraft arises in connection with the Group's UK bank pooling facility and is offset by cash balances held by other Group companies in the UK.
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Financial Statements Notes to the Company Accounts for the year ended 31st December 2011
f. Share capital Details of the Company's share capital are given in note 25 on page 89.
g. Risk management Details of the risk management for the Company are given in the Finance Director’s Review and the Risk Management Report on pages 23 to 29.
h. Reserves Share Profit & premium Merger loss account account reserve reserve Total £'000 £'000 £'000 £'000 At 1st January 2011 93,577 9,604 239,286 342,467 Retained loss for the period --(26,488) (26,488) Dividends paid --(50,000) (50,000) Shares issued 6,093 --6,093 At 31st December 2011 99,670 9,604 162,798 272,072
i. Auditor’s remuneration Details of the auditor’s remuneration is given in note 7 on page 73.
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Financial Statements Group Five Year Review for the year ended 31st December 2011
2007 2008 2009 2010 2011 £'000 £'000 £'000 £'000 £'000 Fees and commissions 473,194 536,093 612,918 740,679 812,004 Investment income 17,450 15,849 6,425 5,601 6,760 Total revenue 490,644 551,942 619,343 746,280 818,764 Trading expenses: Salaries and associated expenses (298,363) (329,282) (370,493) (441,797) (489,700) Premises (31,595) (31,232) (35,414) (40,125) (42,394) Other operating costs (55,290) (90,560) (100,036) (128,801) (133,319) Depreciation, amortisation and impairment charges (12,978) (11,240) (12,587) (17,365) (19,410) Operating profit 92,418 89,628 100,813 118,192 133,941 Finance income/(costs) - net 125 (322) (2,587) (2,595) (4,561) Share of results of associates after tax and non-controlling interests 2,669 3,502 3,785 3,772 5,099 Profit before taxation 95,212 92,808 102,011 119,369 134,479 Income tax expense (22,006) (27,978) (28,745) (24,554) (39,210) Profit for the year 73,206 64,830 73,266 94,815 95,269
Non-controlling interests (804) (1,219) (2,377) (4,151) (6,523) Profit attributable to the owners of the parent 72,402 63,611 70,889 90,664 88,746
Diluted earnings per share 33.7p 29.6p 33.1p 41.7p 40.4p Underlying diluted earnings per share 26.0p 30.4p 33.8p 40.5p 45.3p Dividends per share 20.5p 20.5p 21.0p 22.5p 24.0p FinancialStatements
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Advisors & Shareholder Information
Independent Auditors Financial Calendar PricewaterhouseCoopers LLP Ex Dividend Date Chartered Accountants and Statutory Auditors 4th April 2012 7 More London Riverside London SE1 2RT Record Date 10th April 2012 Principal Bankers Annual General Meeting The Royal Bank of Scotland 26th April 2012 280 Bishopsgate London EC2M 4RB Final Dividend Payable 1st May 2012 Barclays Bank PLC 1 Churchill Place Interim Results Announced London E14 5HP July 2012
HSBC Bank Plc Interim Dividend Payable 8 Canada Square October 2012 Canary Wharf London E14 5HQ Dividend Mandates Shareholders who wish dividends to be paid Registrars and Transfer Office directly into a bank or building society account Capita Registrars should contact Capita Registrars or complete The Registry the dividend mandate form attached to their 34 Beckenham Road dividend cheque. Beckenham Kent BR3 4TU Secretary and registered office Telephone: D J Hickman FCIS (from within the UK) 0871 664 0300 6 Crutched Friars (from outside the UK) +44 20 8639 3399 London EC3N 2PH www.capitaregistrars.com Telephone: 020 7528 4444 Facsimile: 020 7528 4185 Stockbrokers Company Registration Number: 1679424 JPMorgan Securities Limited 125 London Wall London EC2Y 5AJ Telephone: 020 7777 2000
Numis Securities Limited 10 Paternoster Square London EC4M 7LT Telephone: 020 7260 1000
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112 Jardine Lloyd Thompson Group plc Annual Report 2011