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JLT bosses defend restructuring plan as share price falls

Jardine Lloyd Thompson Group Plc's senior executives have defended a restructuring plan that will incur £45 million of one-off costs and is likely to result in job cuts.

The U.K.-listed global insurance broker announced with its results on Feb. 28 an overhaul that will organize the company around three global divisions: reinsurance, specialty and employee benefits. The company said the change, which closely follows a 2016 restructuring of its U.K. employee benefits business, is designed to ensure consistent processes across the group. The program will cost £45 million, spread over two years, but JLT expects it to result in £40 million of annual savings by the end of the 2020 financial year.

Although the restructuring was announced alongside a 45% boost in profit and a higher dividend, JLT's share price was down 1.76% to £13.42 at 3:03 p.m. in London on Feb. 28.

RBC Capital Markets analyst Kamran Hossain said in a same-day research note that he viewed the restructuring as a "positive sign that JLT is focused on delivering for shareholders," but added: "Some may be disappointed by the further exceptional charges in the business in the coming year."

Job cuts likely

Speaking to analysts during an earnings call, JLT CEO Dominic Burke declined to give details about the effect of the restructuring on headcount, promising more information in the company's first-quarter interim management statement, after it has spoken to staff.

But he added: "Any restructuring program producing that sort of cost benefit goes ultimately to the number of people you employ."

Burke also said that the changes were "about setting this business up for growth. It is making sure we retain the right talent in the right place to serve clients."

The restructuring program was designed to ensure that JLT could take advantage of opportunities to grow, according to the CEO.

"We see the runway for growth as being substantial," he said. "We have bee accruing and retaining the best talent in this market over the last decade. That has been at the expense of our competitors. This is our time, and we need to be positioned to take advantage of the opportunity of growth we see in front of us."

In response to questions from analysts about why JLT had chosen to record the restructuring costs as exceptional, CFO Charlie Rozes said this had been done so to ensure speedy results.

"We have a unique opportunity to make an investment in the business that has a relatively quick payback," he said. "If we were to attempt doing this on a business-as-usual basis within our annual budgets, not only do I think we would take more risk, but it would take a very long time to deliver. Being able to accelerate the cost and the benefit I think is a good trade to make."

U.S. employee benefits push

One of the plans JLT is working on to boost growth is launching a U.S. employee benefits operation. Burke said the proposed foray would focus mainly on health and life insurance rather than retirement, pensions or investments, and would likely be built up through a combination of organic growth and "targeted acquisitions."

"A core priority of the group is to evaluate the right way of launching it, and I would expect us to so something sometime during 2018," he said.