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RNS

Preliminary Results

Released 07:00 28-Feb-2017

RNS Number : 9957X
Jardine Lloyd Thompson Group PLC
28 February 2017
 

28 FEBRUARY 2017

Jardine Lloyd Thompson Group plc

PRELIMINARY RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2016 (UNAUDITED)

Jardine Lloyd Thompson Group plc ("JLT" or "the Group") announces its preliminary results for the year ended 31 December 2016.

Despite challenging trading and economic conditions, JLT demonstrated the fundamental strength and resilience of its global franchise in delivering a good performance.

Financial Highlights

    Revenue growth of 9% to £1,261.3m

    Organic revenue growth of 2%

•    3% in JLT Specialty

•    4% in JLT Re

•    3% in International Employee Benefits

    Positive impact of foreign exchange movements

    Underlying* profit before tax of £172.6m, up 1%, reflecting US Specialty investment as planned **

•    Underlying profit before tax, excluding the US investment, up 5% to £199.6m

    Reported profit before tax down 13% to £134.9m

    Underlying profit margin down 80 bps to 15.4%

•    Underlying profit margin, excluding the US investment, down by 30 bps to 18.1%

    Reported diluted EPS down 21% from 48.0p*** to 37.8p

•     Underlying diluted EPS down 2% from 52.2p*** to 51.4p

    Final cash dividend of 20.6p bringing total dividend for 2016 to 32.2p, up 5%, reflecting the Board's confidence in the Group's underlying trading performance

* Underlying results exclude exceptional items of £37.7m

** Net investment in US Specialty in 2016 was £27.0m (2015: £20.5m)

*** 2015 comparatives revised

BUSINESS Highlights

    Successfully completed turnaround of UK Employee Benefits business, which is now set for a return to growth in revenues and profits; second half revenues of £85.1m exceeded those in the same period last year (H2 2015: £82.4m).

    Build-out of US Specialty continued, delivering US$56m of revenues and on track to deliver profits in 2019.  The peak of the investment programme was reached in 2016.  The recent acquisition of Construction Risk Partners completes JLT's global Construction capability.

    Disposed of non-core Thistle UK business, which made an operating loss of £3.6m in 2016 in the parts which were divested.

Dominic Burke, Group Chief Executive, commented:

"JLT has delivered a good set of financial results in 2016, particularly when set against the continued, challenging trading environment.  The Group entered 2017 in good shape, with momentum and confidence that JLT is well-positioned to deliver organic revenue growth more in line with historical rates.  I am proud of the achievements and progress we made in 2016 across all of our businesses.  The resilience we showed last year positions us very well for further growth."

Enquiries

Jardine Lloyd Thompson Group plc

Dominic Burke                                                          Chief Executive                                     020 7528 4948

Charles Rozes                                                         Finance Director                                   020 7528 4375

Paul Dransfield                                                         Head of Investor Relations                    020 7528 4933

Tom Burns/Dania Saidam                                        Brunswick Group LLP                           020 7404 5959

A presentation to investors and analysts will take place at 9am today at The St Botolph Building, 138 Houndsditch, London, EC3A 7AW. A live webcast of the presentation can be viewed on the Group's website www.jlt.com  and it will also be available after the event.

PRELIMINARY STATEMENT

JLT delivered a good set of financial results in 2016, when set against the continued challenging trading environment, which persisted throughout the year.  This included the sustained softness in both the insurance and reinsurance rating environments, depressed commodity prices and lacklustre global GDP growth.

The weakness of sterling from June 2016 was a positive factor in the Group's results; the estimated impact of £22.2m at underlying profit before tax level provided a helpful offset to the challenging trading environment.

The Group entered 2017 with momentum intact and confidence that JLT is well positioned to deliver organic revenue growth and to grow earnings across the Group's businesses.

Total revenues increased by 9%, or 3% at constant rates of exchange ("CRE"), to £1.26bn with overall organic revenue growth of 2%, consistent with that of 2015, once again impacted by the decline in revenues in the UK and Ireland Employee Benefits ("UK EB") business.


Total Revenue


Trading Margin


Underlying Trading Profit

£m

2016

Growth

CRE

Organic

2015


2016

CRE

2015


2016

CRE

2015















Risk & Insurance














Specialty Businesses

765.3

10%

4%

3%

693.0


16%

16%

19%


126.1

113.0

128.5

JLT Re

195.6

13%

4%

4%

173.6


21%

19%

19%


40.5

34.8

32.4


960.9

11%

4%

3%

866.6


17%

16%

19%


166.6

147.8

160.9















Employee Benefits














UK & Ireland

160.0

(4%)

(5%)

(8%)

167.4


8%

7%

8%


12.3

11.9

12.8

International EB

140.4

16%

5%

3%

121.1


26%

26%

25%


37.2

33.1

30.8


300.4

4%

(1%)

(3%)

288.5


16%

16%

15%


49.5

45.0

43.6















Group*

1,261.3

9%

3%

2%

1,155.1


15.4%

14.4%

16.2%


193.7

170.2

187.5

 

Notes:

-   CRE: Constant rates of exchange are calculated by translating 2016 results at 2015 exchange rates.

-   Organic growth is based on total revenue excluding the effect of currency, acquisitions, disposals and investment income.

-   Underlying results exclude exceptional items.

* Trading profit figures include central costs.

JLT's Risk & Insurance businesses delivered revenue growth of 11% to £960.9m, of which 3% was organic.  The rate of organic revenue growth was higher in JLT Re at 4%.  The Group's emerging markets businesses in Latin America and Asia saw good organic revenue growth, as did the US Specialty business.

Risk and Insurance trading margins contracted, primarily as a result of the US Specialty investment programme, but JLT Specialty maintained its trading margin and JLT Re grew to 21% (2015:19%).

The full year results of the Employee Benefits businesses were impacted by the disappointing performance of the UK and Ireland business in the first half.  The profits of UK EB rebounded in the second half of the year as anticipated and this provides confidence that the business is now firmly set for a return to growth.

The Group's International Employee Benefits operations saw headline revenue growth of 16%, which was primarily driven by foreign exchange, while organic revenue growth was 3%.  The trading margin rose 100 bps to 26%.

£m

2016

2015

Underlying trading profit

193.7

187.5

Underlying share of associates

1.0

5.5

Net finance costs

(22.1)

(22.9)

Underlying profit before taxation

172.6

170.1

Exceptional items

(37.7)

(15.1)

Profit before taxation

134.9

155.0

Underlying tax expense

(52.3)

(47.5)

Tax on exceptional items

8.3

5.9

Non-controlling interests

(9.4)

(10.3)

Profit after taxation and non-controlling interests

81.5

103.1

Underlying profit after taxation and non-controlling interests

110.9

112.3

Diluted earnings per share

37.8p

48.0p♦

Underlying diluted earnings per share

51.4p

52.2p♦

Total dividend per share

32.2p

30.6p

Restated following revision to the calculation

The Group's underlying trading profit increased by 3% to £193.7m; at CRE it decreased by 9%.  Underlying profit before tax increased by 1% to £172.6m.  The trading profit margin reduced from 16.2% to 15.4%.

Excluding the US Specialty net investment of £27m, the Group's underlying profit before tax would have increased by 5% and the trading profit margin would have been broadly maintained at 18.1%, compared to 18.4% for 2015.

Reported profit before tax reduced by 13% to £134.9m, which includes the impact of exceptional costs of £37.7m and, as a consequence, reported EPS decreased to 37.8p.

OPERATIONAL REVIEW

The Group operates two sets of businesses: Risk & Insurance and Employee Benefits. The results of the businesses within each of these areas are reported in more detail below:

risk & insurance


Total Revenue


Trading Margin


Underlying Trading Profit

£m

2016

Growth

CRE

Organic

2015


2016

CRE

2015


2016

CRE

2015















JLT Specialty

327.5

5%

3%

3%

311.2


22%

21%

22%


73.1

67.8

68.3

JLT Re

195.6

13%

4%

4%

173.6


21%

19%

19%


40.5

34.8

32.4

JLT Australia & New Zealand

117.7

7%

(4%)

(3%)

109.5


29%

29%

30%


34.1

30.6

32.7

JLT Asia

90.3

18%

5%

5%

76.6


19%

18%

17%


16.8

14.8

12.7

JLT Latin America

71.4

13%

5%

4%

63.1


30%

27%

34%


21.1

17.6

21.3

JLT Insurance Services

46.8

(7%)

(11%)

(11%)

50.6


2%

-

12%


0.9

-

6.0

JLT EMEA

41.8

39%

28%

17%

30.1


16%

16%

20%


6.8

6.1

6.0

JLT US Specialty

41.3

77%

57%

52%

23.3


-

-

-


(27.0)

(24.0)

(20.5)

JLT Canada

19.2

(6%)

(14%)

(14%)

20.4


(2%)

(3%)

7%


(0.5)

(0.6)

1.5

JLT Insurance Management

9.3

13%

2%

2%

8.2


8%

8%

6%


0.8

0.7

0.5


960.9

11%

4%

3%

866.6


17%

16%

19%


166.6

147.8

160.9

JLT Specialty

JLT Specialty generated a 5% increase in headline revenues to £327.5m, or a 3% increase both at CRE and on an organic basis. Trading profit increased by 7% to £73.1m, with the trading margin maintained at 22%.

This was a strong performance in challenging trading conditions which saw insurance rates continuing their downward trend across all Specialty lines.  The business had to contend in particular with the reduced economic activity in the energy and marine sectors, which led to a lower total value of risk to insure.  To put this in context, it has been reported that in excess of $1 trillion of oil and gas capital projects in 2015 and 2016 were deferred, delayed or abandoned.  JLT's Energy and Marine divisions saw a £12m reduction in year on year revenues, despite increasing their client bases and market shares, and an estimated £8.5m negative impact on Group trading profit.

The revenue base of Specialty is, however, both diverse and well-balanced, which enables JLT better to withstand sector-specific challenges.  In 2016 there were particularly strong performances by a number of divisions - including Aviation, Construction, Cargo and Food & Agriculture - with higher revenues driven by client retention and market share penetration.

In addition there were important client wins in the Cyber division across a range of major financial institutions and corporate clients, which in turn helped to drive growth across JLT's Financial Lines specialty.

International Specialty Businesses

JLT's international Specialty businesses together delivered revenues of £437.8m, an increase of 15% (or 4% at CRE), with organic growth of 3%.

Australia and New Zealand

On a reported basis the Australia and New Zealand businesses saw revenues increase by 7% to £117.7m, although this translated to a 4% reduction on a CRE basis.  The trading environment has been particularly competitive in Australia and New Zealand and this, coupled with the continued significant pressure on rates in the region, masked a good underlying performance by the business, with high levels of client retention and a number of high profile client wins, particularly in the Financial Lines and Corporate divisions. The new business wins have included an increasing number of 'coast to coast' appointments, further underlining JLT's growing national Specialty presence. 

Asia

Asia produced a strong performance in the year, with a headline 18% increase in revenues to £90.3m and a 5% organic growth rate.  Trading profits grew strongly, with an increase of 17% at CRE.  This was a good performance when set against the challenging economic conditions and fierce insurance rating pressure in the region.

Latin America

JLT's Latin American business delivered good revenue growth of 13%, with organic revenue growth of 4%. Operations in Brazil performed strongly despite the difficult economic backdrop in that country.  While Latin American Risk and Insurance experienced good revenue growth, trading profit reduced year on year, reflecting the planned investment in building specialty capabilities across the region, the benefits of which are expected to start to be seen in 2017.

US Specialty

The US Specialty business continued to make progress in its second full year of operation, achieving organic revenue growth in excess of 50%, higher than the rate in 2015.  The business continued a programme of recruitment, with headcount reaching 223 employees at the year end.  Revenues for the year were $56m, up from $36m in 2015, while continued investment in the business resulted in losses of $37m (£27.0m).

The business now has a proven capability and a track record of winning business in specialist areas such as Financial Lines and Cyber, Energy, Real Estate and Entertainment.

The recently announced investment in, and partnership with, Construction Risk Partners, a highly respected construction specialist broker, which reported some $24m in revenues in 2016, will establish a market-leading Construction practice as part of the US Specialty business.  The acquisition also completes JLT's global Construction capability and enables it to serve international clients wherever they operate around the world. 

Given the investments to date in hiring and a steadily growing client list, the Group is confident that US Specialty revenues will once again see a significant uplift in 2017.  The progress that has now been made in the US Specialty business means that 2016 represented the high-water mark for the losses recorded in this business. 

 

JLT Re

JLT Re delivered a strong performance in the year, with reported revenues increasing by 13% to £195.6m, representing market-leading organic revenue growth of 4%, twice the rate of 2015.

This performance was delivered despite the well documented, multi-year decline in pricing across most lines of reinsurance and in most geographies and the continued consolidation in capital providers.  JLT Re has continued to grow revenues and profits steadily despite consecutive years of downward rating pressure.

JLT Re's trading profits increased to £40.5m, with an improved trading margin of 21% (2015: 19%). This margin improvement was achieved while the business continues to invest significantly for future growth, not only in recruiting leading talent to further strengthen its General Property, Casualty and Specialty lines, and its analytics capabilities, but also in its infrastructure and systems.  Two acquisitions were completed in December 2016 to deepen the capabilities of the business in Healthcare and the Central American region. 

JLT Re operates on a global basis, and all regions delivered organic revenue growth in the year.  North America continues to deliver a strong performance, with the benefits of the significant investments made in talent and infrastructure now beginning to be realised. 

Looking to 2017 and the recent January renewals, a reduced rate of decline in prices from prior years has been evident, with global property-catastrophe pricing falling by 5.7%; this compares with 8.2% in 2016 and double-digit reductions in the two years prior to that.    Casualty price reductions were, however, similar to those seen in 2016, with Specialty classes seeing more substantial rate reductions than other areas, but again, a reduced rate of decline was noted.  

Today JLT Re is positioned amongst the leading global reinsurance brokers, providing real choice and differentiation. The strong start to the year which this business had underlines how the strategic investments made are enabling it to continue to take market share from its competitors.

Employee Benefits


Total Revenue


Trading Margin


Underlying Trading Profit

£m

2016

Growth

CRE

Organic

2015


2016

CRE

2015


2016

CRE

2015















UK & Ireland

160.0

(4%)

(5%)

(8%)

167.4


8%

7%

8%


12.3

11.9

12.8

Asia

87.3

11%

(2%)

-

78.9


31%

31%

31%


27.2

23.7

24.5

Australia & New Zealand

27.5

36%

22%

4%

20.3


20%

20%

16%


5.5

4.9

3.3

Latin America

21.7

15%

10%

10%

18.9


17%

18%

19%


3.7

3.7

3.5

Europe, Middle East & Africa

1.9

13%

15%

14%

1.7


10%

10%

(17%)


0.2

0.2

(0.3)

Canada

2.0

47%

35%

35%

1.3


31%

31%

(17%)


0.6

0.6

(0.2)


300.4

4%

(1%)

(3%)

288.5


16%

16%

15%


49.5

45.0

43.6

UK & IRELAND employee benefits

Reported revenues for the year for JLT's UK EB business were £160.0m, compared to £167.4m in 2015, reflecting the final impact of the cessation of commission revenue from life assurers - which amounted to £5m earned in 2015.  Second half revenues of £85.1m exceeded those of the same period in 2015 of £82.4m following the successful completion of the restructure of the business, which was an encouraging indication of the stabilisation in the revenue run rate.

At the time of its 2016 interim results the Group indicated that the business would deliver the majority of its profits in the second half and this has been the case.  Trading profit for the year was £12.3m, compared to break even at the half year.

The business successfully completed its restructure programme, which has resulted in a flatter, more client-centric structure and a headcount reduction of over 300 employees.  The programme will deliver £14m of annualised savings in 2017, £9m of which were delivered in 2016 (£7m of that in the second half).

The focus in 2016 was, and will continue to be into 2017, on transitioning and rebalancing the business so that revenues and trading profit margins can grow.  The emphasis of the business continues to be on investing to strengthen and enhance platforms and to build out the sales function.

It is anticipated that UK EB will deliver organic revenue growth for 2017 and this, taken with the £5m residual benefit of the restructure programme, means the Group is confident that this business is making steady progress towards delivering a 15% trading profit margin for 2018.

INTERNATIONal Employee Benefits

JLT's EB businesses in other parts of the world performed well.  

Asia

In Asia, the Private Client Services (PCS) high net worth life insurance broking business saw some slowdown in first half revenues due to regional economic uncertainty in South Asia; however, steps were taken in the second half to broaden the range of products offered by the business.  This succeeded in pulling revenues back up from the half year position, which had been negative year on year. 

Australia and New Zealand

The Australia and New Zealand EB business achieved 36% revenue growth, following the acquisitions made in 2015 and 2016 of rehabilitation services providers in relation to workers compensation insurance.  Organic revenue growth was 4%.  With a series of major client wins as a result of the expanded capability of the business, accelerated revenue growth and improved margins are anticipated in 2017.  The trading margin of the business improved to 20% (2015:16%). 

Latin America

JLT's Latin America EB operations delivered organic revenue growth of 10%.  Performance was particularly notable in Colombia - driven by the workers compensation business - and in Brazil, despite the challenging local economic backdrop.  Investment has continued to be made in building out capabilities and expanding the offering in the region, which drove a small increase in trading profit but a 200 bps reduction in trading margin.

ASSOCIATES

The Group's income from its Associates reduced by £4.5m to £1.0m following the disposal of JLT's French associate in May 2015.

OPERATING COSTS

In 2016, total underlying operating costs (excluding exceptional items) increased by £100m, or 10%, to £1,067.6m. Of this increase, £53m resulted from changes in foreign exchange rates; £17m from investment in US Specialty; £9m from the continued growth of the JLT Specialty business; and £7m from the net impact of acquisitions and disposals.  Staff costs in 2016 (outside of US Specialty) increased by £21m as a result of investment in the Fine Arts division in JLT Specialty, the build out of the Latin America operations and investments in other markets including Europe, Middle East and Africa.  The mix of the cost base remained unchanged, with staff and premises costs as the major individual expense items.

In 2017, the cost of the Group's operations in London will increase by approximately £7m as the business increases the space it occupies to accommodate growth in the business and other costs are incurred, such as higher UK business rates and the UK apprenticeship levy.

The Group's underlying operating cost ratio increased by 80 basis points to 84.6% of total revenues.  This reflected the impact of a higher level of planned investment in US Specialty, the trading loss incurred by Thistle UK in the year and the 2015 non-recurring reduction of £5.5m in Head Office costs. The impact of the continued investment in US Specialty was the principal reason for the increase in the staff costs to revenue ratio from 61.0% to 62.3%.

EXCEPTIONAL ITEMS

Total net exceptional costs were £37.7m (2015: £15.1m).  These were primarily driven by net costs of £21.1m relating to a litigation settlement, which was marginally less than originally anticipated; restructuring costs of £13.9m relating to the UK EB business; £1.2m of acquisition and related costs; and a £1.6m loss mainly on the disposal of a business in Indonesia.  The UK EB restructuring programme is complete and the remaining £5m of benefit is expected to be captured in 2017.

 

BalanCe Sheet and funding

The net assets of the Group increased to £351m from £331m. The key movements were:

•    an increase in goodwill of £47m, almost entirely due to the re-translation of goodwill recognised in foreign currencies.  The Group completed 7 acquisitions for a total consideration of £25.3m, the goodwill impact of which was offset by the 2 disposals in the year;

•    an increase in the investments in Associates related to the increase to 49% (from 26%) in the Group's interest in its Indian Associate business.  Approximately £6m of the increase related to foreign exchange;

•    a net increase in working capital of £31m which included £14m in respect of foreign exchange re-translation.  JLT Specialty's debtors increased in line with their business, with the debtor ageing profile remaining similar year-on-year.  JLT Re's debtors increased as a result of the nature of their business where, for certain lines, the collection period is more than 12 months from initial income recognition; and

•    an increase in the pension liability to £198m (2015: £130m), as a result of changes in corporate bond yields and inflation rates.  The deferred tax asset attributable to this movement was recognised in the tax line.

The Group continues to be well funded, with an appropriate mix of short and long-term debt, with a range of maturities that extend to 2029.

Net debt, defined as own funds less total borrowings net of transaction costs, was £496m (2015: £440m).  At 31 December 2016, the Group had committed long-term unsecured revolving credit facilities of £500m and drawn private placement loan notes equivalent to £508m, resulting in total committed debt facilities equivalent to £1,008m, with maturities between 2017 and 2029.  In January 2017, the Group agreed with its relationship banks an extension of its core revolving credit facility by a further one year to a new maturity date of 2022.

Gross borrowings were £688m, which includes £671m of borrowings under the Group's committed facilities, leaving unutilised committed facilities headroom of £337m.

Net finance costs in 2016 reduced by £1m to £22m.  They are expected to increase in 2017, due to acquisition spend.

The Net Debt to EBITDA ratio, calculated on a bank covenant basis, reduced from 1.7:1 at the end of 2015 to 1.6:1 at the end of 2016.  This remains well within JLT's bank covenant and continues to reflect an investment grade profile.  JLT will continue to invest in its businesses in line with its strategy and the Group anticipates keeping the Net Debt to EBITDA ratio within a conservative range.

cashflow

The Group primarily monitors operational cash flows, which report cash and net debt movements but exclude fiduciary funds; the statutory cash flows include movements in these funds.

In 2016, the Group generated £238m of EBITDA, which included £31m of outflows in respect of exceptional items (2015: £12m).  Operational free cash flow was £141m, which was lower as a percentage of EBITDA compared to 2015, but higher as a percentage than the prior three years.

Within operational free cash flow, the net increase in working capital in the year is predominantly driven by an increase in JLT Specialty and JLT Re debtors in line with their growth, but without a deterioration in the ageing profile. Annual capex outflow reduced in the year, primarily driven by a £15m reduction in staff related items, with the balance being split between IT and premises.

The net effect of acquisitions and disposals, including deferred consideration adjustments, was a cash inflow of £7m.

The tax charge for the year was £44.0m, representing an effective tax rate of 32.6% (2015: 26.8%). The underlying tax expense was £52.3m, representing an effective tax rate of 30.3% (2015: 27.9%). The year-on-year increase in the underlying tax expense was mainly due to deferred tax assets not being recognised in respect of certain of the Group's overseas operations, combined with the global nature of JLT's business and the different tax rates across those geographies.

Taken together, the net cash outflow of £15m for 2016 was relatively small compared to that of prior periods, and not unexpected given the growth and investment across JLT.  2015 cash flows were influenced by the proceeds from the sale of the Group's French associate in May 2015.

DIVIDENDS

Subject to shareholder approval, the final dividend will be increased to 20.6p per share for the year ended 31 December 2016 (2015: 19.5p) and will be paid on 4 May 2017 to shareholders on the register at 31 March 2017. This brings the total dividend for the year to 32.2p per share, compared to 30.6p for the prior year, an increase of 5.2%. 

BOARD AND SENIOR MANAGEMENT DEVELOPMENTS

There were a number of Board and senior management changes during the year.  James Twining stepped down from the Board with effect from 26 April 2016.  Bruce Carnegie-Brown joined the Board as a Non-executive Director on 1 May 2016 and succeeded Richard Harvey as Chairman of the Remuneration Committee on 1 November 2016.  Bruce will unfortunately be stepping down from the Board at the end of June, following his appointment as Chairman of Lloyd's of London.  Lord Leach, a Non-executive Director for many years, sadly died on 12 June 2016.  Adam Keswick joined the Board as Deputy Chairman with effect from 1 September 2016.  Richard Harvey retired from the Board with effect from 31 December 2016 and Jonathan Dawson succeeded him as Senior Independent Director with effect from the same date.

Mike Rice, CEO of JLT's US Specialty business, and William Nabarro, Special Adviser to the Group Chief Executive, both joined the Group Executive Committee with effect from 1 May 2016.  Lucy Clarke, Deputy CEO of JLT Specialty, joined the Group Executive Committee with effect from 26 September 2016. 

With effect from 28 February 2017, the following senior management changes are being made: Mike Methley is being appointed as Group Chief Operating Officer; Mark Drummond Brady becomes CEO of JLT Latin America and Chairman of JLT Canada, in addition to his current role as Deputy Group CEO; Mike Reynolds, Global CEO of JLT Re, assumes responsibility for JLT Insurance Management; and Bala Viswanathan, CEO of JLT UK & Ireland Employee Benefits, also becomes International Chairman of Employee Benefits.

impact of foreign exchange

There are two components to the Group's foreign exchange (FX) exposure: translation of overseas results into sterling; and transactional exchange where local revenues and costs are denominated in different currencies, which the Group seeks to mitigate by hedging where appropriate.

The translation of overseas results is done using an average rate.  Although the USD is a large driver of FX impacts, it is only one of approximately 30 currencies which affect the ultimate outcome in a given period.

The weakening of sterling after the EU referendum in June had a significant impact in the year.  While the Group's hedging programme has the effect of smoothing the achieved rate on USD transactional revenues, the scale of the sterling depreciation nonetheless saw material improvement in the achieved rate, especially in the second half of 2016.  Of the overall £22.2m gain at underlying profit before tax level, £13.4m related to transactional FX and £8.8m related to the translation of overseas results into sterling.

The FX market currently remains volatile, consequently it is not possible to predict the impact of foreign exchange on the Group's 2017 results with any certainty. 

restatement of EPS

During the year a review was undertaken of the application of IAS 33 "Earnings per share", following changes made during 2014 and 2015 to the terms of certain staff share awards that were classified as "Participating Equity Instruments" for the purposes of calculating Earnings per Share ("EPS").  This review has led to a restatement of the reported number of ordinary shares in 2015, resulting in a small increase of 1.6p in basic EPS for 2015, from 47.0p to 48.6p and an increase of 1.0p in reported diluted EPS for 2015, from 47.0p to 48.0p. 

OUTLOOK

JLT has entered 2017 with good momentum across all of its businesses.  The Group is therefore confident that it will deliver organic revenue growth more in line with historical rates, generating sustained year-on-year financial progress.



Consolidated income statement
for the year ended 31 December 2016


Notes

2016
£'000

2015
£'000

Fees and commissions

2

1,256,556

1,151,392

Investment income

2,4

4,730

3,689

Total revenue

2

1,261,286

1,155,081





Salaries and associated expenses

6

(794,363)

(727,334)

Premises


(66,849)

(61,167)

Other operating costs


(209,518)

(163,685)

Depreciation, amortisation and impairment charges

3

(34,951)

(30,538)

Operating profit

1,2,3

155,605

172,357

Analysed as:




Operating profit before exceptional items

1,2

193,672

187,462

Acquisition and integration costs

3

(1,245)

(21,155)

Restructuring costs

3

(13,900)

(9,878)

Net litigation costs

3

(21,114)

(1,556)

Net gain on sale of associate

3

-

18,595

Other exceptional items

3

(1,808)

(1,111)

Operating profit

1,2,3

155,605

172,357

Finance costs

5

(24,225)

(24,473)

Finance income

5

2,147

1,612

Finance costs - net

5

(22,078)

(22,861)

Share of results of associates


1,353

5,531

Profit before taxation

1,2

134,880

155,027

Income tax expense

8

(44,018)

(41,586)

Profit for the year                   


90,862

113,441

Profit attributable to:




Owners of the parent

2

81,466

103,099

Non-controlling interests


9,396

10,342



90,862

113,441

Earnings per share attributable to the owners of the parent during the year
(expressed in pence per share)

9


restated

Basic earnings per share


38.6p

48.6p

Diluted earnings per share


37.8p

48.0p





 

 

Consolidated statement of comprehensive income
for the year ended 31 December 2016


Notes

2016
£'000

2015
£'000

Profit for the year


90,862

113,441





Other comprehensive (expense)/income








Items that will not be reclassified to profit or loss




Remeasurement of post-employment benefit obligations

31

(71,642)

43,149

Taxation thereon


11,850

(8,856)

Total items that will not be reclassified to profit or loss


(59,792)

34,293





Items that may be reclassified subsequently to profit or loss




Fair value gains/(losses) net of tax:




- available-for-sale


42

(34)

- available-for-sale reclassified to the income statement


(181)

10

- cash flow hedges


(41,487)

(12,569)

Currency translation differences


105,369

(13,622)

Total items that may be reclassified subsequently to profit or loss


63,743

(26,215)

Other comprehensive income net of tax


3,951

8,078

Total comprehensive income for the year            


94,813

121,519

Attributable to:       




Owners of the parent


80,889

112,552

Non-controlling interests


13,924

8,967



94,813

121,519





 

Consolidated balance sheet
as at 31 December 2016


Notes

2016
£'000

2015
£'000

NET OPERATING ASSETS




Non-current assets




Goodwill

11

543,013

496,166

Other intangible assets

12

101,963

104,323

Property, plant and equipment

13

64,330

63,167

Investments in associates

14

50,928

41,180

Available-for-sale financial assets

15,20

23,805

15,466

Derivative financial instruments

16,20

117,043

33,684

Retirement benefit surpluses

31

509

366

Deferred tax assets

22

70,088

51,023



971,679

805,375

Current assets




Trade and other receivables

17

588,640

528,595

Derivative financial instruments

16,20

7,930

1,544

Available-for-sale financial assets

15,20

116,933

19

Cash and cash equivalents

18,20

939,945

901,087



1,653,448

1,431,245

Current liabilities




Borrowings

20,21

(54,729)

(22,338)

Trade and other payables

19

(1,257,782)

(1,086,278)

Derivative financial instruments

16,20

(33,136)

(6,115)

Current tax liabilities


(5,119)

(8,749)

Provisions for liabilities and charges

23

(8,826)

(18,594)



(1,359,592)

(1,142,074)

Net current assets


293,856

289,171

Non-current liabilities




Borrowings

20,21

(633,103)

(581,244)

Derivative financial instruments

16,20

(69,652)

(33,726)

Deferred tax liabilities

22

(11,378)

(16,978)

Retirement benefit obligations

31

(198,921)

(130,753)

Provisions for liabilities and charges

23

(1,571)

(1,043)



(914,625)

(763,744)



350,910

330,802

TOTAL EQUITY




Capital and reserves attributable to the owners of the parent




Ordinary shares

24

11,008

11,008

Share premium

24,26

104,111

104,074

Fair value and hedging reserves

26

(54,453)

(12,827)

Exchange reserves

26

83,561

(17,280)

Retained earnings


183,919

227,362

Shareholders' equity


328,146

312,337

Non-controlling interests


22,764

18,465



350,910

330,802

 

                                                                                                                                                                                                               

Consolidated statement of changes in equity
for the year ended 31 December 2016


Notes

Ordinary shares
£'000

Other reserves £'000

Retained earnings £'000

Shareholders' equity
£'000

Non- controlling
interests £'000

Total
equity
£'000

Balance at 1 January 2016


11,008

73,967

227,362

312,337

18,465

330,802

Profit for the period


-

-

81,466

81,466

9,396

90,862

Other comprehensive income/(expense) for the year


-

59,215

(59,792)

(577)

4,528

3,951

Total comprehensive income for the year


-

59,215

21,674

80,889

13,924

94,813

Dividends

10

-

-

(67,962)

(67,962)

(8,435)

(76,397)

Amounts in respect of share based payments:








- reversal of amortisation net of tax


-

-

24,952

24,952

-

24,952

- shares acquired


-

-

(17,809)

(17,809)

-

(17,809)

Acquisitions

29

-

-

-

-

(1,159)

(1,159)

Disposals

30

-

-

-

-

(31)

(31)

Change in non-controlling interests


-

-

(4,298)

(4,298)

-

(4,298)

Issue of share capital

24

-

37

-

               37

-

37

Balance at 31 December 2016


11,008

133,219

183,919

328,146

22,764

350,910


















Notes

Ordinary shares
£'000

Other
reserves
£'000

Retained earnings
£'000

Shareholders' equity
£'000

Non-
controlling
interests
£'000

Total
equity
£'000

Balance at 1 January 2015


 11,006

 98,674

 178,932

 288,612

 17,940

 306,552

Profit for the period


 -

 -

 103,099

 103,099

 10,342

 113,441

Other comprehensive (expense)/
income for the period


 -

 (24,840)

 34,293

 9,453

 (1,375)

 8,078

Total comprehensive (expense)/
income for the period


 -

 (24,840)

 137,392

 112,552

 8,967

 121,519

Dividends

10

 -

-

 (64,484)

 (64,484)

 (8,923)

 (73,407)

Amounts in respect of share based payments:








- reversal of amortisation net of tax


 -

 -

 21,740

 21,740

 -

 21,740

- shares acquired


 -

 -

 (26,056)

 (26,056)

 -

 (26,056)

Acquisitions


 -

 -

-

 -

 (787)

 (787)

Disposals


 -

 -

 -

 -

 1,268

 1,268

Change in non-controlling interests


 -

 -

 (20,162)

 (20,162)

 -

 (20,162)

Issue of share capital

24

 2

 133

 -

 135

 -

 135

Balance at 31 December 2015


 11,008

 73,967

 227,362

 312,337

 18,465

 330,802

 

Consolidated statement of cash flows
for the year ended 31 December 2016


Notes

2016
£'000

2015
£'000

Cash flows from operating activities




Cash generated from operations

28

166,712

215,380

Interest paid


(17,403)

(16,448)

Interest received


6,639

5,116

Taxation paid


(46,241)

(37,003)

Increase in net insurance broking payables


137,510

883



247,217

167,928

Dividend received from associates


935

800

Net cash generated from operating activities


248,152

168,728

Cash flows from investing activities




Purchase of property, plant and equipment

13

(9,556)

(15,183)

Purchase of other intangible assets

12

(30,215)

(45,940)

Proceeds from disposal of property, plant and equipment


928

1,282

Acquisition of businesses, net of cash acquired

29

(13,381)

(20,824)

Acquisition of associates


(3,013)

(411)

Proceeds from disposal of businesses, net of cash disposed

30

15,141

(122)

Proceeds from disposal of associates

2

-

80,235

Purchase of available-for-sale financial assets

15

(107,636)

(5,081)

Proceeds from disposal of available-for-sale financial assets


20

5,039

Purchase of available-for-sale other investments

15

-

(1,964)

Proceeds from disposal of available-for-sale other investments


303

243

Net cash used in investing activities


(147,409)

(2,726)

Cash flows from financing activities




Dividends paid to owners of the parent


(66,388)

(63,094)

Purchase of shares


(17,809)

(26,056)

Proceeds from issuance of ordinary shares

24

37

135

Proceeds from borrowings


355

17,637

Repayments of borrowings


(5,056)

(50,118)

Dividends paid to non-controlling interests


(8,435)

(8,923)

Net cash used in financing activities


(97,296)

(130,419)

Net increase in cash and cash equivalents


3,447

35,583

Cash and cash equivalents at beginning of year


901,087

871,246

Exchange gains/(losses) on cash and cash equivalents


35,411

(5,742)

Cash and cash equivalents at end of year

18

939,945

901,087

 

 

SIGNIFICANT ACCOUNTING POLICIES (UNAUDITED)
for the year ended 31 December 2016

BASIS OF PREPARATION

Compliance with IFRS

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU) and interpretations issued by the IFRS Interpretations Committee (IFRS IC) and the Companies Act 2006 applicable to Companies reporting under IFRSs. The financial statements comply with IFRS as issued by the International Accounting Standards Board (IASB).

Historical cost convention

The consolidated financial statements have been prepared on a going concern basis, under the historical cost convention, except for
the following:

the available-for-sale financial assets, financial assets and liabilities (including derivative financial instruments) are measured at fair value; and

defined benefit pension plans where plan assets are measured at fair value.

STANDARDS, AMENDMENTS AND INTERPRETATIONS EFFECTIVE IN 2016

No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January 2016 have
had a material impact on the Group.

BASIS OF CONSOLIDATION

Subsidiaries

Subsidiaries are all entities (including structured entities) over which the Group has control.

The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's net assets.

Acquisition related costs are expensed as incurred.

If a business combination is achieved in stages, the fair value of the Group's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a charge to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the income statement. Inter-company transactions, balances, income and expenses on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Transactions with non-controlling interests

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions that is, as transactions with the owners in their capacity as owners.

The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

Disposal of subsidiaries

When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss.

The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities.

This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

Associates

Associates are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting.

Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition.

The Group's investment in associates includes goodwill identified on acquisition.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.

The Group's share of post-acquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment.

When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the associates have been modified where necessary to ensure consistency with the policies adopted by the Group.

SEGMENT REPORTING

Operating segments are reported in a manner consistent  with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer.

FOREIGN CURRENCIES

Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency').

The consolidated financial statements are presented in sterling, which is the Group's functional and presentational currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. Translation differences on non-monetary 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 other comprehensive income.

Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentational currency are translated into the presentational currency as follows:

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and

all resulting exchange differences are recognised in other comprehensive income. On consolidation exchange differences arising from the translation of net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.

GOODWILL ARISING ON CONSOLIDATION

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is shown separately on the Balance Sheet. Goodwill on acquisitions of associates is included in investments in associates.

Goodwill is not amortised but it is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses.

Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units, or groups of cash generating units, for the purpose of impairment testing. Cash generating units represent the lowest level of geographical and business segment combinations that the Group uses for internal reporting purposes.

OTHER INTANGIBLE ASSETS

Computer software

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire them and bring them to use. These costs are amortised over their estimated useful lives. Costs associated with maintaining computer software programmes are recognised as an expense as incurred.

Development costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Capitalised development costs are amortised over their estimated useful lives from the point when the asset is ready to use.

The rates of amortisation are between 14% and 100% per annum.

Capitalised employment contract payments

The Group makes payments to certain key employees in recognition of them signing a long-term employment contact, usually three to five years. These payments are capitalised as intangible assets since legal rights protect the expected benefits that the Group will derive from the contracts.

The asset recognised is then amortised over the duration of the underlying contract within salaries and associated expenses.

Other

For acquisitions completed after 1 January 2004, the business acquired is reviewed to identify assets that meet the definition of an intangible asset per IAS 38. Examples of such assets include customer contracts, expectations of business renewal and contract related customer relationships. These assets are valued on the basis of the present value of future cash flows and are amortised to the income statement over the life of the contract or their estimated economic life.

The current maximum estimated economic life is fifteen years.

IMPAIRMENT OF ASSETS

Goodwill and other intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.

The recoverable amount is the higher of an asset's fair value less costs to sell and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest  levels for which there are separately identifiable cash flows (cash-generating units).

PROPERTY, PLANT AND EQUIPMENT

Assets are stated at their net book amount (historical cost less accumulated depreciation). Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated to write off the cost of such assets over their estimated useful lives.

The principal rates of depreciation are as follows:

Freehold land and buildings - between 0% and 2% per annum.

Leasehold improvements - between 10% and 20% per annum or over the life of the lease.

Furniture and office equipment - between 10% and 20% per annum.

Computer hardware - between 20% and 100% per annum.

Motor vehicles - between 25% and 33.33% per annum.

The depreciation rates are reviewed on an annual basis.

FINANCIAL ASSETS

The Group classifies its financial assets as loans and receivables and available-for-sale assets. The classification depends upon the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date.

The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. Loans and receivables are carried at amortised cost.

Available-for-sale financial assets

Available-for-sale financial assets are categorised into one of two categories:

Investments and deposits consist mainly of fixed term deposits, bonds and certificates of deposit. These investments are held at fair value and are classified between current and non-current assets according to the maturity date.

Other investments include securities and other investments held for strategic purposes and some debt instruments. These investments are held at fair value unless a fair value cannot be accurately determined in which case they are held at cost less any provision for impairment.

Interest on deposits and interest-bearing investments is credited as it is earned.

Regular purchases and sales of financial assets are recognised on the 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.

The fair values of quoted investments are determined based upon current bid price.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement.

Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of finance income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of finance income when the Group's right to receive payments is established.

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

INSURANCE BROKING RECEIVABLES AND PAYABLES

Insurance brokers act as agents in placing the insurable risks of their clients with insurers and, as such, are not liable as principals for amounts arising from such transactions. In recognition of this relationship, debtors from insurance broking transactions are not included as an asset of the Group. Other than the receivable for fees and commissions earned on a transaction, no recognition of the insurance transaction occurs until the Group receives cash in respect of premiums or claims, at which time a corresponding liability is established in favour of the insurer or the client.

In certain circumstances, the Group advances premiums, refunds or claims to insurance underwriters or clients prior to collection.

These advances are reflected in the consolidated balance sheet as part of trade receivables.

TRADE RECEIVABLES

Trade receivables are recognised initially at fair value and subsequently at amortised cost, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, dispute, default or delinquency in payments are considered indicators that the receivable is impaired.

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement.

When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

Whilst held in the Group's non-statutory trust accounts under appropriate client money regulation, fiduciary funds held are controlled by the Group and economic benefits are derived from them. As such these funds are recognised as an asset on the Group's balance sheet.

TRADE PAYABLES

Trade payables are initially recognised at fair value and subsequently measured at amortised cost except for deferred and contingent consideration which is always measured at fair value based on the underlying criteria of each transaction.

BORROWINGS

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Borrowings are recognised initially at fair value, net of transaction costs incurred. They are subsequently stated at amortised cost using the effective interest rate method.

DEFERRED INCOME TAX

The charge for taxation is based on the result for the year at current rates of tax and takes into account deferred tax.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not recognised. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax is charged or credited to equity in respect of any items, which is itself either charged or credited directly to equity.

Any subsequent recognition of the deferred gain or loss in the consolidated income statement is accompanied by the corresponding deferred income tax.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the Group controls the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

EMPLOYEE BENEFITS

Pension obligations

The Group operates a number of defined benefit pension schemes, and a number of employees are members of defined contribution pension schemes.

Full actuarial valuations of the Group's defined benefit schemes are carried out at least every three years.

A qualified actuary updates these valuations to 31 December each year. For the purposes of these annual updates, scheme assets are included at market value and scheme liabilities are measured on an actuarial basis using the projected unit credit method; these liabilities are discounted at the current rate of return of a high quality corporate bond of equivalent currency and term. The defined benefit surplus or deficit is calculated as the present value of defined benefit obligations less the fair value of the plan assets and is included on the Group's balance sheet. Surpluses are included only to the extent that they are recoverable through reduced contributions in the future or through refunds from the schemes. The net interest on the defined benefit surplus/deficit is included within finance costs. Actuarial gains and losses, including differences between the expected and actual return on scheme assets, are recognised through the consolidated statement of comprehensive income.

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

The costs of the Group's defined contribution pension schemes are charged to the income statement in the period in which they fall due.

 

Share-based compensation

The Group operates a number of equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense.

The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (at nominal value) and share premium (excess over nominal value) when the options are exercised.

PROVISIONS FOR LIABILITIES AND CHARGES

A provision is recognised where there is a present obligation, whether legal or constructive, as a result of a past event for which it is probable that a transfer of economic benefits will be required to settle the obligation and a reasonable estimate can be made of the amount of the obligation. Where appropriate the Group discounts provisions to their present value. The unwinding of the provision discounting is included as an 'interest expense' within finance costs in the income statement.

REVENUE

Fees and commissions

Fees and commissions are derived from three principal sources:

Insurance broking

Income relating to insurance broking is accounted for at the later of policy inception date or when the policy placement has been completed and confirmed.

Where there is an expectation of future servicing requirements an element of income relating to the policy is deferred to cover the associated contractual obligation.

Employee benefits

Income relating to employee benefit services includes fees and commissions. Fees are charged on a time-cost or fixed-fee basis and are recognised in line with the performance of the underlying service.

Commission is recognised upon confirmation of the underlying policy or product.

Other services

Fees and other income receivable are recognised in the period to which they relate and when they can be measured with reasonable certainty.

Investment income

Investment income arises from the holding of cash and investments relating to fiduciary funds and is recognised on an accruals basis.

EXCEPTIONAL ITEMS

Exceptional items are separately identified to provide greater understanding of the Group's underlying performance. Items classified as exceptional items may include, but are not limited to: gains or losses arising from the sale of businesses and investments; closure costs for businesses; restructuring costs; professional fees in respect of acquisitions; post acquisition integration costs; post acquisition and disposal adjustments to balance sheet items; and other credits and charges of a non-recurring nature that require inclusion in order to provide additional insight into the underlying business performance. Items of a non-recurring and material nature are charged or credited to operating profit and are classified to the appropriate income statement headings.

LEASES

Assets held under leasing agreements, which transfer substantially all the risks and rewards of ownership to the Group are included in property, plant and equipment. The capital elements of the related lease obligations are included in liabilities. The interest elements of the lease obligations are charged to the income statement over the period of the lease term.

The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the
lease term.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

DERIVATIVE FINANCIAL INSTRUMENTS

The Group only enters into derivative financial instruments in order to hedge underlying financial and commercial exposures. Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their
fair value.

The method of recognising the resulting gain or loss is dependent on the nature of the item being hedged.

The Group designates derivatives as either a hedge of the  fair value of a recognised asset or liability (fair value hedge), a hedge of a forecasted transaction or of the foreign currency risk on a firm commitment (cash flow hedge), or a hedge of a net investment in a foreign entity (net investment hedges).

Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective, are recorded in the income statement, along with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective, are recognised in equity. Where the forecasted transaction or firm commitment results in the recognition of a non-financial asset or of a non-financial liability, the 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 consolidated income statement and classified as income or expense in the same periods during which the hedged firm commitment or forecasted transaction affects the income statement.

The gain or loss relating to the ineffective portion is recognised immediately in the income statement. When a hedging instrument expires or is sold, any cumulative gain or loss existing in equity at that time remains in the hedging reserves and is recognised in the income statement when a hedge no longer meets the criteria for hedge accounting or when the committed or forecasted transaction ultimately occurs. When a committed or forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately recognised in the income statement.

DIVIDEND DISTRIBUTION

Dividends proposed or declared after the balance sheet date are not recognised as a liability at the balance sheet date. Final dividends are recognised as a charge to equity once approved and interim dividends are charged once paid.

FINANCIAL AND CAPITAL RISK MANAGEMENT

The Group's exposure to financial risks and its financial and capital management policies are detailed in the Finance Director's Review and the Risk Management Report of the Annual Report 2016.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments used in preparing the financial statements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. The resulting accounting estimates will, by definition, seldom equal the related actual results.

The estimates and assumptions that have a significant effect on the carrying amounts of assets and liabilities are discussed below.

a) Fair value estimation

The fair value of financial instruments traded in active markets (such as available-for-sale) is based upon quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair values of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

The fair value of acquired intangible assets is estimated based upon the present value of modelled related expected future cash flows.

Judgement may be applied in the determination of the growth rates, discount rates and the expected cash flows.

b) Impairment of assets

The Group tests annually whether goodwill and other assets that have indefinite useful lives suffered any impairment. Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its recoverable amount.

The recoverable amount of an asset or a cash generating unit is determined based on value-in-use calculations prepared on the basis of management's assumptions and estimates. This determination requires significant judgment. In making this judgment, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost; and the financial health of and near-term business outlook for the investment, including factors such as industry and sector performance, changes in regional economies and operational and financing cash flow.

c) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

 

d) Pension obligations

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions.

The assumption used in determining the net cost or income for pension obligations is a discount rate based upon high quality corporate bonds.

Any changes in the assumptions may impact the carrying amount of pension obligations, the charge in the income statement, or statement of
comprehensive income.

The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations.

In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on current market conditions. As well as the discount rate, the inflation rates and life expectancy are also key assumptions.

To set the price inflation assumptions the Group considers market expectations of inflation at the appropriate durations. Adjustments are made to these rates where necessary to reflect an inflation risk premium.

In determining the life expectancy assumptions the Group considers the mortality assumptions used by the Trustees of the pension schemes in their latest actuarial valuations and also mortality guidance laid out by legislation. This enables the Group to determine a best estimate of life expectancy that is appropriate for accounting purposes.

e) Errors and omissions liability

During the ordinary course of business the Group can be subject to claims for errors and omissions made in connection with its broking activities.

A balance sheet provision is established in respect of such claims 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.

The outcome of the currently pending and future proceedings cannot be predicted with certainty. Thus, an adverse decision in a current or future lawsuit could result in additional costs that are not covered, either wholly or partially, under insurance policies and are in excess of the presently established provisions. It is possible therefore that the financial position, results of operations or cash flows of the Group could be materially affected by the unfavourable outcome of litigation.

FUTURE DEVELOPMENTS

The following standards, other than IFRS 16, have been published and are not mandatory for 31 December 2016 reporting periods and the Group has not adopted them early.

Accounting standards and interpretation applicable on or after 1 January 2017

IFRS 9 -Financial Instruments

IFRS 9, ('Financial instruments') addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2015. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income (OCI) and fair value through profit or loss.

 

The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the 'hedged ratio' to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted.

The changes to the hedge accounting requirements are not expected to have a material impact on the Group. The classification of Financial Instruments is not expected to have a material impact on the Group, with the exception of  any items that are classified as fair value through OCI, where there will be no recycling through the Income statement. The change to an expected loss model will mainly focus of the Group's impairment of trade receivables. The impact of this is being assessed.

 

IFRS 15 - Revenue from contracts with customers

IFRS 15 ('revenue from contracts with customers') is effective for annual periods beginning on or after 1 January 2018 and addresses revenue recognition for customer contracts, with particular focus on aligning revenue recognition with the separate and distinct performance obligation to the customer.  The standard replaces IAS 18 ('revenue') and IAS 11 ('construction contracts') and related interpretations. The Group's review of the standard is on-going, but will implement in January 2018, reporting revenues on this basis for the half year period ending 30 June 2018 and full year period ending 31 December 2018. Restatements of 2017 revenues for these corresponding periods will be completed at those intervals.

Under existing accounting policies, the primary trigger for revenue recognition is the policy inception date, and this is anticipated to remain the same under the new standard. The Group defers some elements of revenue currently, primarily to reflect anticipated claims handling activity but is considering non-claims servicing requirements under the new standard. At this time, the Group is not able to conclude or quantify the impact of the new standard on revenues, but it is likely that further elements of revenue will be deferred for both insurance broking arrangements and long-term administrative contracts. The standard also requires costs to be aligned with revenue recognition wherever possible and this is also being reviewed.

IFRS 16 - Leases

IFRS 16, ('Leases') requires lessees to recognise a lease liability reflecting future lease payments and a 'right-of-use asset' for virtually all lease contracts. This differs from IAS 17 'Leases' where a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet) was required.

The standard is effective for annual periods beginning on or after 1 January 2019 and earlier application is permitted subject to EU endorsement. The Group is yet to assess IFRS 16's full impact.

 

 

Notes to the financial statements
For the year ended 31 December 2016

1. Alternative income statement

The format of the consolidated income statement 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. The statement provides a reconciliation between the underlying results used by the Group to assess performance and the IFRS income statement.


Year ended 31 December 2016


Underlying

profit

£'000

Exceptional

items

£'000

Total

£'000

Fees and commissions

1,256,556

-

1,256,556

Investment income

4,730

-

4,730

Salaries and associated expenses

(784,664)

(9,699)

(794,363)

Premises

(64,307)

(2,542)

(66,849)

Other operating costs

(184,173)

(25,345)

(209,518)

Depreciation, amortisation and impairment charges

(34,470)

(481)

(34,951)

Trading profit

193,672

(38,067)

155,605

Finance costs - net

(22,078)

-

(22,078)

Share of results of associates

975

378

1,353

Profit before taxation

172,569

(37,689)

134,880

 


Year ended 31 December 2015


Underlying

profit

£'000

Exceptional

items

£'000

Total

£'000

Fees and commissions

1,151,392

-

1,151,392

Investment income

3,689

-

3,689

Salaries and associated expenses

(704,435)

(22,899)

(727,334)

Premises

(58,852)

(2,315)

(61,167)

Other operating costs

(173,794)

10,109

(163,685)

Depreciation, amortisation and impairment charges

(30,538)

-

(30,538)

Trading profit

187,462

(15,105)

172,357

Finance costs - net

(22,861)

-

(22,861)

Share of results of associates

5,531

-

5,531

Profit before taxation

170,132

(15,105)

155,027

 

In 2015 total other operating costs includes the gain on the disposal of the Group's interest in Milestone, the holding company of Siaci Saint Honoré, and elements of the net litigation costs.

 

2. Segment information

Management has determined its operating segments based on the analysis used to make strategic decisions.

Business segment analysis

The Group is organised on a worldwide basis into three main segments: Risk & Insurance, Employee Benefits and Head Office & Other operations. These segments are consistent with the internal reporting structure of the Group.

The Risk & Insurance segment comprises JLT's global specialist, wholesale, reinsurance broking, personal lines and SME activities. The Employee Benefits segment consists of pension administration, outsourcing and employee benefits consultancy, healthcare and wealth management activities. Certain Risk & Insurance and Employee Benefits operating segments have been disclosed within the reporting segments given their individual size. The Head Office & Other segment consists mainly of holding companies, central administration functions, the Group's captive insurance companies and the Group's investments in associates.

JLT USA now qualifies as a reportable operating segment and as a result comparatives have been restated.

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 charge in respect of non-controlling interests are excluded from the segmental allocation.

Segment assets and liabilities

Assets and liabilities are not allocated to individual segments and are therefore all reported within Head Office & Other.

Investments in associates

The Group owns the following stakes in its principal associates: 20% of GrECo, which operates mainly in Austria and Eastern Europe; 25% of MAG JLT, which operates mainly in Italy and 25% of March-JLT, which operates mainly in Spain. The investment and the Group's share of the net results of these associates 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 Management Malta, JLT Energy (France) SAS and JLT Independent Insurance Brokers Private Ltd.

During the year, the Group increased its stake in JLT Independent Insurance Brokers Private Ltd. from 26% to 49% for a  consideration of  £3,013,000.

On 6 May 2015, the Group disposed of its 26% stake in Milestone, the holding company of Siaci Saint Honoré, generating cash proceeds of £80,235,000 and net exceptional gain of £18,595,000.

Other segment items

Capital expenditure comprises additions to property, plant and equipment and other intangible assets.


Risk & Insurance

Employee Benefits



Year ended
31 December 2016

JLT

Specialty

£'000

JLT

Re

£'000

JLT Australia

& New Zealand

£'000

JLT

Asia

£'000

JLT

USA

£'000

Other

Risk & Insurance

£'000

UK & Ireland

£'000

Asia

£'000

Other

Employee Benefits

£'000

Head Office

& Other

£'000

Total

£'000

Fees and commissions

 325,675

 195,065

 115,950

 90,133

 41,313

 188,103

 160,016

 87,260

 53,041

 -

 1,256,556

Investment income

 1,776

 541

 1,702

 149

 -

 488

 2

 17

 55

 -

 4,730

Total revenue

327,451

195,606

117,652

 90,282

41,313

188,591

 160,018

 87,277

 53,096

 -

 1,261,286

Underlying trading profit

 73,016

 40,521

 34,137

 16,825

 (26,981)

 29,060

 12,315

 27,130

 10,029

 (22,380)

 193,672

Operating profit

 52,172

 40,589

 34,135

 19,404

 (26,981)

 30,742

 (2,390)

 23,290

 9,851

 (25,207)

 155,605

Finance costs - net

 -

 -

 -

 -

 -

 -

 -

 -

 -

 (22,078)

 (22,078)

Share of results of associates

 -

 -

 -

 -

 -

 -

 -

 -

 -

 1,353

 1,353

Profit before taxation

 52,172

 40,589

 34,135

 19,404

(26,981)

 30,742

 (2,390)

 23,290

 9,851

 (45,932)

 134,880

Income tax expense

 -

 -

 -

 -

-

 -

 -

 -

 -

 (44,018)

 (44,018)

Non-controlling interests

 -

 -

 -

 -

-

 -

 -

 -

 -

 (9,396)

 (9,396)

Net profit attributable to the owners of the parent

 52,172

 40,589

 34,135

 19,404

(26,981)

 30,742

 (2,390)

 23,290

 9,851

 (99,346)

 81,466

Segment assets

Investments in associates










 2,574,199

 2,574,199

 50,928

 50,928

Total assets










 2,625,127

 2,625,127

Segment liabilities










 (2,274,217)

(2,274,217)

Total liabilities










 (2,274,217)

(2,274,217)

Other segment items:












Capital expenditure

2,997

7,406

2,821

1,401

3,204

4,759

11,338

314

391

5,140

 39,771

Depreciation, amortisation

and impairment charges

(9,434)

(3,141)

(2,274)

(2,932)

(3,434)

(4,424)

(7,583)

(1,262)

(1,109)

(14,310)

 (49,903)

 


Risk & Insurance

Employee Benefits



Year ended
31 December 2015 

JLT

Specialty

£'000

JLT

Re

£'000

JLT Australia

& New Zealand

£'000

JLT

Asia

£'000

JLT

USA

£'000

Other

Risk & Insurance

£'000

UK & Ireland

£'000

Asia

£'000

Other

Employee Benefits

£'000

Head Office

& Other

£'000

Total

£'000

Fees and commissions

310,366

173,274

107,504

76,406

23,285

172,138

167,376

78,903

42,140

-

1,151,392

Investment income

805

286

2,032

177

 -

 347

1

13

28

-

3,689

Total revenue

311,171

173,560

109,536

76,583

 23,285

 172,485

167,377

78,916

42,168

-

1,155,081

Underlying trading profit

68,294

32,416

32,745

12,657

 (20,544)

 35,286

12,829

24,433

6,295

(16,949)

187,462

Operating profit

60,071

36,739

32,745

12,814

(20,984)

33,303

8,041

24,431

4,481

(19,284)

172,357

Finance costs - net

-

-

-

-

-

-

-

-

-

(22,861)

(22,861)

Share of results of associates

-

-

-

-

-

-

-

-

-

5,531

5,531

Profit before taxation

60,071

36,739

32,745

12,814

 (20,984)

 33,303

8,041

24,431

4,481

(36,614)

155,027

Income tax expense

-

-

-

-

-

 -

-

-

-

(41,586)

(41,586)

Non-controlling interests

-

-

-

-

-

 -

-

-

-

(10,342)

(10,342)

Net profit attributable to the owners of the parent

60,071

36,739

32,745

12,814

 (20,984)

 33,303

8,041

24,431

4,481

(88,542)

103,099

Segment assets

Investments in associates










2,195,440

41,180

2,195,440

41,180

Total assets










2,236,620

2,236,620

Segment liabilities










(1,905,818)

(1,905,818)

Total liabilities










(1,905,818)

(1,905,818)

Other segment items:












Capital expenditure

10,578

8,877

1,737

2,752

7,531

4,374

10,851

1,510

473

12,440

61,123

Depreciation, amortisation

and impairment charges

(8,232)

(1,949)

(2,614)

(2,638)

(2,577)

(4,114)

(6,561)

(880)

(775)

(12,570)

(42,910)

Geographical segment analysis

Although the Group's two 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 Risk & Insurance segment operates in the United Kingdom, the Group's home country. In the Americas, the Risk & Insurance segment operates in Argentina, Bermuda, the Caribbean, Brazil, Canada, Colombia, Peru, Chile, and the United States. The Australian segment includes operations in Australia and New Zealand. In Europe, it operates in the Republic of Ireland, Sweden, Finland, Norway, Denmark, Germany, Guernsey, France, The Netherlands, Spain, Switzerland and Russia. The Asian segment includes operations in Singapore, Hong Kong, Taiwan, Indonesia, Japan, Thailand, South Korea, Philippines, Malaysia, China, Vietnam, Dubai, Qatar, Bahrain and Turkey. In Rest of the World, it operates in South Africa.

The Employee Benefits segment operates in the United Kingdom. In the Americas, the Employee Benefits segment operates in Brazil, Canada, Colombia and Peru. The Australian segment includes operations in Australia and New Zealand. In Europe, it operates in the Republic of Ireland and Switzerland. The Asian segment includes operations in Singapore, Hong Kong, Taiwan, Indonesia, Japan, Thailand, South Korea, Philippines, Malaysia, China and Vietnam. In Rest of the World, it operates in South Africa.

The Head Office & Other activities segment is mainly based in the United Kingdom with minor operations in the Americas, Europe and Asia. The Group's captive operations are included in the United Kingdom segment.

Fees and commissions are disclosed 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 disclosed based on the country in which they are located or occur. Interest bearing assets (eg cash & cash equivalents and investments & deposits) relating to the Group's own funds and deferred tax assets are excluded from segment assets. Interest bearing liabilities (eg borrowings) and income and deferred tax liabilities are excluded from segment liabilities. Items excluded from segmental allocation are referred to as "unallocated".

 


Fees and
commissions
(1)

Fees and
commissions
(2)

Segment
non-current
assets

Segment
assets

Segment
liabilities

Year ended 31 December 2016

£'000

£'000

£'000

£'000

£'000

UK

 600,837

 360,840

 356,861

 1,427,263

 (1,045,964)

Americas

 259,226

 375,886

 223,614

 462,989

 (233,192)

Australia

 146,958

 158,821

 49,651

 141,369

 (88,657)

Asia

 204,504

 199,823

 46,660

 218,807

 (152,245)

Europe

 37,717

 107,668

 24,711

 38,386

 (37,531)

Rest of the World

 7,314

 53,518

 7,809

 9,699

 (3,641)


 1,256,556

 1,256,556

 709,306

 2,298,513

 (1,561,230)

Investments in associates




 50,928

 -

Unallocated assets/(liabilities)




 275,686

 (712,987)

Total assets/(liabilities)




 2,625,127

 (2,274,217)

 


Fees and
commissions
(1)

Fees and
commissions
(2)

Segment
non-current
assets

Segment
assets

Segment
liabilities

Year ended 31 December 2015

£'000

£'000

£'000

£'000

£'000

UK

592,652

365,892

391,344

1,271,524

(854,669)

Americas

218,962

335,914

167,288

345,628

(178,662)

Australia

130,470

140,631

32,725

112,941

(74,525)

Asia

173,305

175,082

44,462

162,495

(124,704)

Europe

31,000

87,804

21,745

58,465

(31,818)

Rest of the World

5,003

46,069

6,092

8,433

(4,986)


1,151,392

1,151,392

663,656

1,959,486

(1,269,364)

Investments in associates




41,180

-

Unallocated assets/(liabilities)




235,954

(636,454)

Total assets/(liabilities)




2,236,620

(1,905,818)

 

3. Operating profit

The following items have been (credited)/charged in arriving at operating profit:


2016

£'000

2015

£'000

Foreign exchange gains:



- fees and commissions

(5,841)

(3,133)

- other operating costs

(10,838)

(3,236)


(16,679)

(6,369)

Amortisation of other intangible assets:



- software costs

19,813

17,171

- other intangible assets

2,131

1,767

Depreciation on property, plant and equipment:



- owned assets

12,291

11,316

- leased assets under finance leases

235

284

Impairment of goodwill (included in exceptional items below)

481

-

Total depreciation, amortisation and impairment charges

34,951

30,538

Amortisation of other intangible assets:



- employment contract payments (included in salaries and associated expenses)

14,952

12,372

(Gains)/losses on disposal of property, plant and equipment

(10)

60

Operating lease rentals payable:



- minimum lease payments:



- land and buildings

41,233

36,409

- furniture, equipment and motor vehicles

792

821

- computer equipment and software

543

364

- sub-leases receipts:



- land and buildings

(426)

(376)


42,142

37,218

Available-for-sale financial assets:



- fair value (gains)/losses

(87)

41

- losses on sale

8

72


(79)

113

Exceptional items:



Acquisition and integration costs of which:



- included in salaries and associated expenses

228

13,274

- included in premises costs

70

1,736

- included in other operating costs

947

6,145


1,245

21,155

Restructuring costs of which:



- included in salaries and associated expenses

9,355

9,314

- included in premises costs

1,689

233

- included in other operating costs

2,856

331


13,900

9,878

Net litigation costs:



- included in salaries and associated expenses

-

529

- included in premises costs

-

346

- included in other operating costs

21,114

681


21,114

1,556

Costs associated with a regulatory review:



- included in salaries and associated expenses

-

274

- included in other operating costs

488

1,258


488

1,532

Net loss on disposal of businesses of which:



- included in salaries and associated expenses

116

-

- included in premises costs

783

-

- included in other operating costs

391

527

- included in depreciation, amortisation and impairment charges

370

-


1,660

527

Net gain on sale of associate

-

(18,595)

Pension curtailment gain

(127)

(492)

Release of contingent considerations

(324)

(456)

Impairment of goodwill

111

-

Total exceptional items included within operating profit

38,067

15,105

Profit on sale of associates' subsidiary  - included in share of results of associates

(378)

-

Total exceptional items

37,689

15,105

 

4. Investment income


2016

2015


£'000

£'000

Interest receivable - fiduciary funds

4,730

3,689

Prior year investment income

3,689

4,398

Effect of:



- average cash balance variance

(190)

127

- interest yield variance

799

(614)

- foreign exchange variance

432

(222)


4,730

3,689

 

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 £797 million (2015: £766 million) denominated principally in US dollars (57%), sterling (18%) and Australian dollars (10%). The average return for 2016 was 0.60% (2015: 0.50%). Based upon average invested balances each 1% movement in the average achieved rate of return would impact anticipated interest income by some £8.0 million.

5. Finance income and costs


2016

2015


£'000

£'000

Interest receivable - own funds

 1,938

1,503

Investment income from available for-sale financial assets

 209

109

Interest expense:



- bank and other borrowings

 (17,434)

(16,733)

- finance leases

 (57)

(49)

- interest in respect of liability discounting

 (1,862)

(1,567)

Pension financing:



- expected return on post employment scheme assets

19,065

18,749

- interest on post employment scheme liabilities

(23,937)

(24,873)

Net pension financing expense

(4,872)

(6,124)

Finance costs - net

 (22,078)

(22,861)

Finance costs

 (24,225)

(24,473)

Finance income

 2,147

1,612

Finance costs - net

 (22,078)

(22,861)

 

Interest Rate Risk

The Group has both interest bearing assets, explained in note 4, and interest bearing liabilities that give rise to net exposures to changes in interest rates, primarily in US dollars and sterling. Where appropriate, the Group 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 (including fiduciary funds) and borrowings. Each 1% movement in the average achieved interest rate impacts interest expense by approximately £5.6 million based on average net borrowings in 2016.

6. Employee information (UNAUDITED)


2016

2015


£'000

£'000

a) Salaries and associated expenses



Wages and salaries

619,422

573,723

Social security costs

51,881

49,448

Pension costs

41,385

40,185

Equity settled share-based payments:



- incentive schemes (LTIP, SESS, ESOS)

25,174

19,991

- Sharesave Scheme

-

84


25,174

20,075

Other staff costs

56,501

43,903


794,363

727,334

 


2016

2015

b) Analysis of employees



Monthly average number of persons employed by the Group during the year



Geographical segment:



- UK

3,878

4,131

- Americas

1,813

1,679

- Australasia

1,130

1,133

- Asia

3,292

3,322

- Europe

253

234

- Rest of the world

133

105


10,499

10,604

Business segment:



- Risk & Insurance

6,174

5,990

- Employee Benefits

3,475

3,778

- Head Office & Other

850

836


10,499

10,604

 


2016

2015


£'000

£'000

c) Key management compensation



Salaries and short-term employee benefits

13,792

13,893

Post employment benefits

406

457

Other long-term benefits

333

448

Share-based payments

2,812

5,992


17,343

20,790

 

Key management personnel are defined as persons having authority and responsibility for planning, directing and controlling the activities of
the Group directly or indirectly, including any director of the Group. This represents the Group Board of Directors and the Group Executive
Committee only.

The Group's equity-settled share-based payments comprise the JLT Long Term Incentive Plan (2004/2013), Senior Executive Share Scheme, Executive Share Option Scheme and the Sharesave Schemes.

JLT Long Term Incentive Plan (2013)

The Group operates the Long Term Incentive Plan (LTIP) for Executive Directors and persons discharging managerial responsibility (PDMRs). The scheme was renewed in 2013. Awards under the scheme are granted in the form of nil-priced options and are satisfied using market-purchased shares. The awards vest in full or in part depending on satisfaction of the performance conditions. The awards have a 3 year performance period and have a 10 year life from the date of grant. Options attract discretionary dividend equivalents (DDEs) that are rolled up and paid, in cash, on vesting. DDEs are paid to option holders only on the options that have vested. Forfeited or lapsed options are not eligible to DDEs and the DDE that has accrued on the balance sheet is released to equity at the date of forfeiture.

Senior Executive Share Scheme

The Group operates a Senior Executive Share Scheme for senior management and employees. Awards under the scheme are granted in the form of nil-priced options and are satisfied using market-purchased shares. The majority of awards have no specific performance criteria attached, other than the requirement that employees remain in employment with the Group. Certain 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. The awards have a 10 year life from the date of grant. Options granted prior to 1 January 2014 attract unconditional DDEs throughout the vesting period, this means that DDEs are paid to the option holders as and when dividends are paid to ordinary shareholders, there is no clawback on the dividends in the event of a forfeiture of the options. The options granted post 1 January 2014 attract DDEs that are rolled up and paid in cash, on vesting. The Group amended the plan rules on the 8 June 2015. From that date, all vested options are no longer eligible to DDEs.

Executive Share Option Scheme

Options were granted at a fixed price (usually market price) and are exercisable after the vesting period (usually 3 years). Options are satisfied by the issue of new shares or market-purchased shares. Some options carry performance conditions where they are only exercisable when earnings per share is in excess of RPI for the three consecutive financial accounting periods preceding the date of exercise. The awards have a 10 year life from the date of grant. This scheme is now closed for new grants and options were last granted under this scheme on 29 September 2006.

Sharesave Scheme

The Sharesave Scheme is open to all employees and are exercised after 5 years from the date of grant. Options are satisfied by the issue of new shares or market-purchased shares. The price at which options are offered is not less than 80% of the market price on the date preceding the date of invitation. All Sharesave Scheme options have no performance criteria attached, other than the requirement that the employee remains in employment with the Group. All options must be exercised within 6 months of the vesting date. As at 31 December 2016, there are no options outstanding in the scheme.

Fair value of awards

Under IFRS 2 the fair value of awards granted during the year, calculated using a Black-Scholes model, is set out below:


      



Black-Scholes model assumptions




Exercise

price
pence

Performance period

Share price on grant date
pence

Volatility
%

Dividend yield
%

Maturity
years

Risk free Interest rate
%

Fair value of one award
pence

JLT Long Term Incentive Plan (2013)/

Senior Executive Share Scheme









2016

31 March

-

2016 - 22

844.50

20.67

-

1 - 6

0.86

844.50

2016

23 September

-

2016 - 21

1,013.00

21.87

-

1 - 5

0.21

1,013.00

 

The option holders who have awards under the JLT Long Term Incentive Plan (2004/2013) and the Senior Executive Share Scheme also receive payments equating to the dividends payable on their shares (subject to meeting the performance criteria). Assuming that the dividend yield is zero and that the options are issued with no cost to the employees, 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 a 3 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. For Executive Share Option and Sharesave Schemes this is 20%. For the JLT Long Term Incentive Plan (2004/2013) and the Senior Executive Share Scheme it is nil as both are issued with no cost to the employee.


Movement in number of options





Options outstanding

at 1 Jan 16
number

Granted
number

Lapsed
number

Exercised
number

Options outstanding

at 31 Dec 16
number

Weighted average exercise

(sale)
price (p)

Options exercisable

at 31 Dec 16
number

Remaining contractual
life years

JLT Long Term Incentive Plan (2004/2013)

1,927,782

925,700

(492,737)

(374,210)

1,986,535

873.22

-

8.42

Senior Executive Share Scheme

7,167,782

2,527,139

(128,558)

(1,639,371)

7,926,992

882.69

681,113

7.96

Executive Share Option Scheme

64,800

-

(18,800)

(46,000)

-

963.70

-

-

Total

 9,160,364

3,452,839

(640,095)

(2,059,581)

9,913,527

882.78

681,113

8.05

 


Movement in number of options





Options outstanding

at 1 Jan 15
number

Granted
number

Lapsed
number

Exercised
number

Options outstanding

at 31 Dec 15
number

Weighted

average

exercise (sale)
price (p)

Options exercisable at 31 Dec 15
number

Remaining contractual
life years

JLT Long Term Incentive Plan (2004/2013)

2,178,744

762,100

(326,796)

(686,266)

1,927,782

1,052.56

37,514

8.18

Senior Executive Share Scheme

7,006,456

2,784,511

(686,913)

(1,936,272)

7,167,782

1,026.77

887,022

8.00

Executive Share Option Scheme

301,576

-

-

(236,776)

64,800

1,018.15

64,800

0.75

Sharesave Scheme

417,429

-

(19,919)

(397,510)

-

1,010.94

-

-

Total

9,904,205

3,546,611

(1,033,628)

(3,256,824)

9,160,364

1,029.65

989,336

7.98

 

7. Services provided by the Company's auditor and its associates

During the year the Group (including its overseas subsidiaries) obtained the following services from the Group's auditor and its associates:


2016

2015


£'000

£'000

Fees payable to the Group's auditor for the audit of the parent Company and consolidated financial statements

200

217

Fees payable to the Group's auditor and its associates for other services:



- the audit of the Company's subsidiaries

2,449

2,436

- audit related assurance services

254

417

- tax compliance services

130

120

- tax advisory services

46

51

- other assurance services

190

131

- other non-audit services

135

23


3,404

3,395

 

In addition to the above, fees payable to the Company's auditor and its associates for audit services supplied to the Company's associated pension schemes amounted to £18,700 (2015: £18,200).

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 2016 the Audit & Risk Committee has set this limit at £1 million (2015: £1 million).

8. Income tax expense


2016

2015


£'000

£'000

Current tax expense



Current year

51,499

43,153

Adjustments in respect of prior years

(7,129)

(2,167)


44,370

40,986

Deferred tax (credit)/expense



Origination and reversal of temporary differences

(4,912)

(1,515)

Reduction in tax rate

               240

655

Adjustments in respect of prior years

4,320

1,460


              (352)

600

Total income tax expense

44,018

41,586

 

The total income tax expense in the income statement of £44,018,000 (2015: £41,586,000) includes a tax credit on exceptional items of £8,245,000 (2015: £5,914,000). There were no non-recurring tax credits in the year.

In July 2015 the UK Government announced further measures in relation to the UK corporation tax rate, reducing the headline rate of corporation tax to 19% from April 2017 and then to 18% from April 2020. A further 1% reduction in the main rate of corporation tax rate to 17% from 1 April 2020 was announced in Budget 2016. As at 31 December 2016, the additional 1% rate reduction to 17% from April 2020  has been enacted. The impact of the rate reduction to 17% has been incorporated into the income tax charge for the year ended 31 December 2016, taking into consideration when timing differences are expected to reverse.

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:


2016

2015


£'000

£'000

Profit before taxation

134,880

155,027

Tax calculated at UK Corporation Tax rate of 20% (2015: 20.25%)

26,976

31,393

Non-deductible expenses

4,214

4,405

Non recognition of tax losses

4,538

5,037

Other*

(595)

(3,878)

Adjustments in respect of prior years

(2,809)

(707)

Effect of difference between UK and non-UK tax rates

11,725

5,801

Effect of reduction in tax rate

240

655

Tax on associates

(271)

(1,120)

Total income tax expense

44,018

41,586

Other includes the non-taxable gain on disposal of subsidiaries

9. Earnings per share

Following changes to the terms of several share-based staff compensation schemes, whereby dividend rights eligibility were removed in certain circumstances, a comprehensive review of IAS 33 ('earnings per share' or 'EPS') was undertaken in the year to determine the impact of these changes. The schemes affected by this change include the JLT Long Term Incentive Plan (2004/2013), the Senior Executive Share Scheme, the Executive Share Option Scheme, and the Sharesave Scheme. The review considered whether the share options in these plans continued to qualify as participating equity instruments under IAS 33 for the purposes of calculating basic and diluted EPS. With the changes to schemes, the review concluded that only vested share options eligible to receive discretionary dividend equivalents should be included in the basic calculation. As a result, for the basic EPS calculation, the number of ordinary shares in 2015 should reduce from 219,234,336 to 210,767,437, resulting in an increase in basic EPS of 1.6p from 47.0p to 48.6p. The review also concluded that unvested share options should be included in the diluted EPS calculation, using the treasury stock method. This has the effect of reducing the number of ordinary shares in the 2015 diluted EPS calculation from 219,451,514 to 214,939,730, resulting in an increase in diluted EPS of 1.0p from 47.0p to 48.0p.

Under the revised calculation, basic EPS is calculated by dividing the profit attributable to shareholders by the sum of the weighted average number of ordinary shares in issue during the year and the vested share options eligible for discretionary dividend equivalents, excluding unallocated shares held by the Trustees of the Employees' Share Ownership Plan Trust, which are treated as treasury shares. The profit attributable to shareholders is the profit attributable to the owners of the parent adjusted for the dividend equivalents and undistributed earnings attributable to the unvested share options carrying unconditional dividend equivalent rights.

Diluted EPS is calculated by adjusting the weighted average number of ordinary shares in issue to take account of the potential dilutive effect of outstanding share options.

Basic and diluted EPS are also calculated based on underlying earnings attributable to shareholders, which exclude any exceptional items.

A reconciliation of earnings is set out below:


 2016

2015


No. of shares

No. of shares restated

Weighted average number of shares

210,455,334

210,767,437

Effect of outstanding share options

5,210,752

4,172,293

Adjusted weighted average number of shares

215,666,086

214,939,730

 


2016


£'000

£'000

£'000

Pence

Pence

   

Earnings    Adjustments2

Adjusted earnings for basic earnings per share

Basic earnings

per share

Diluted earnings

 per share

Underlying profit after taxation and non-controlling interests1

110,910

(175)

110,735

52.6

51.4

Exceptional items before tax

(37,689)





Taxation thereon

8,245






(29,444)

45

(29,399)

(14.0)

(13.6)

Profit attributable to the owners of the parent

81,466

(130)

81,336

38.6

37.8

 


2015


£'000

£'000

£'000

Pence

Pence


Earnings      Adjustments2

Adjusted earnings
for basic
earnings per
share

Basic

earnings

per share

restated

Diluted

earnings

per share

restated

Underlying profit after taxation and non-controlling interests1

112,290

(782)

111,508

52.9

52.2

Exceptional items before tax

(15,105)





Taxation thereon

5,914






(9,191)

63

(9,128)

(4.3)

(4.2)

Profit attributable to the owners of the parent

103,099

(719)

102,380

48.6

48.0

1 Underlying excludes exceptional items

2 Adjustments related to the dividends and undistributed earnings on unvested share options carrying dividends equivalent rights.

10. Dividends


2016

2015


£'000

£'000

Final dividend in respect of 2015 of 19.5p per share (2014: 18.3p)

 42,713

40,141

Less: adjustment*

(200)

(164)


 42,513

39,977

Interim dividend in respect of 2016 of 11.6p per share (2015: 11.1p)

 25,449

24,507


 67,962

64,484

 

*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 2016 of 20.6p per share (2015: 19.5p) amounting to a total of £45,100,000 (2015: £42,710,000) is proposed by the Board. The dividend proposed will not be accounted for until it has been approved at the Annual General Meeting on 27 April 2017.

11. Goodwill


Gross

amount

Impairment

losses

Net carrying

amount


£'000

£'000

£'000

At 31 December 2016




Opening net book amount

500,434

(4,268)

496,166

Exchange differences

47,380

(355)

47,025

Impairment

-

(481)

(481)

Acquisitions

17,854

-

17,854

Disposals

(17,551)

-

(17,551)

Closing net book amount

548,117

(5,104)

543,013

At 31 December 2015




Opening net book amount

480,176

(4,479)

475,697

Exchange differences

         (2,266)

211

(2,055)

Acquisitions

23,239

-

23,239

Disposals

(715)

-

(715)

Closing net book amount

500,434

(4,268)

496,166

 

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.

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 and are discounted using the weighted average cost of capital. Cash flows beyond the five year period are extrapolated using the estimated growth rates stated below:



Key assumptions


Net carrying

amount

Growth

rate (1)

Discount

rate (2)


£'000

%

%

At 31 December 2016




JLT Re

186,215

2.10%

7.06%

JLT Speciality

110,811

2.00%

6.05%

UK & Ireland Employee Benefits

78,717

2.00%

6.05%

Latin America

42,262

3.39%

11.16%

JLT Insurance Services

9,806

2.41%

7.24%

Asia

29,912

2.41%

6.48%

Australia & New Zealand

38,455

2.50%

8.26%

Others

46,835

2.46%

7.28%


543,013

2.28%

6.98%

At 31 December 2015




JLT Re

      161,767

2.13%

7.36%

JLT Speciality

      101,669

2.12%

6.45%

UK & Ireland Employee Benefits

        79,729

2.13%

6.46%

Latin America

        31,670

3.75%

11.14%

JLT Insurance Services

        30,894

2.09%

7.01%

Asia

        27,513

2.59%

7.06%

Australia & New Zealand

        24,068

2.82%

7.36%

Others

38,856

2.35%

7.78%


496,166

2.42%

7.23%

 

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 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 rates used are consistent with long-term economic forecasts in the countries of operation.
The value-in-use is compared to an adjusted goodwill. The adjusted goodwill is the goodwill grossed up to reflect a 100% ownership by the Group.

The key sensitivity analysis are:

A decrease of 1% on the growth rate resulted in a reduction of 19% in the excess between the value in use and the adjusted carrying value of goodwill.

An increase of 2% on the discount rate resulted in a reduction of 36% in the excess between the value in use and the adjusted carrying value of goodwill.

A combined decrease of 1% on the growth rate and an increase of 2% in the discount rate resulted in a reduction of 44% in the excess between the value in use and the adjusted carrying value of goodwill.

12. Other intangible assets


Computer
software

Capitalised

employment

contract

payments

Other

Total


£'000

£'000

£'000

£'000

At 31 December 2016

           

          



Opening net book amount

61,883

           25,902

            16,538

 104,323

Exchange differences

1,234

             1,157

             1,783

 4,174

Reclassification

-

(455)

455

-

Additions

20,342

             7,682

             2,191

 30,215

Companies acquired

3

                  -  

             3,921

 3,924

Companies disposed

(3,590)

                  -  

               (187)

 (3,777)

Amortisation charge

(19,813)

          (14,952)

            (2,131)

 (36,896)

Closing net book value

60,059

           19,334

            22,570

 101,963






At 31 December 2016





Cost

175,155

           61,424

            33,573

          270,152

Accumulated amortisation and impairment

(115,096)

          (42,090)

           (11,003)

         (168,189)

Closing net book amount

60,059

           19,334

            22,570

          101,963






At 31 December 2015





Opening net book amount

55,353

16,005

15,137

86,495

Exchange differences

(231)

213

(152)

(170)

Additions

23,884

22,056

-

45,940

Companies acquired

48

-

3,320

3,368

Amortisation charge

(17,171)

(12,372)

(1,767)

(31,310)

Closing net book value

61,883

25,902

16,538

104,323






At 31 December 2015





Cost

159,357

54,892

25,846

240,095

Accumulated amortisation and impairment

(97,474)

(28,990)

(9,308)

(135,772)

Closing net book amount

61,883

25,902

16,538

104,323






At 31 December 2014





Cost

135,451

36,039

22,878

194,368

Accumulated amortisation and impairment

(80,098)

(20,034)

(7,741)

(107,873)

Closing net book amount

55,353

16,005

15,137

86,495


Additions to computer software during 2016 include £18,097,000 of capitalised costs in respect of internal developments (2015: £20,523,000).

13. Property, plant and equipment


Land &
buildings

Leasehold
improvements

Furniture & equipment

Motor
vehicles

Total


£'000

£'000

£'000

£'000

£'000

At 31 December 2016






Opening net book amount

                 18

           46,035

           14,618

             2,496

           63,167

Exchange differences

                   2

             3,094

             2,112

               359

             5,567

Additions

                    -

             4,667

             3,955

               934

             9,556

Companies acquired

                    -

                 66

               116

                 69

               251

Companies disposed

                    -

              (377)

              (121)

              (269)

              (767)

Disposals

                    -

              (168)

              (303)

              (447)

              (918)

Depreciation charge

-

            (6,161)

            (5,360)

            (1,005)

          (12,526)

Closing net book amount

                 20

           47,156

           15,017

             2,137

           64,330







At 31 December 2016






Cost

                 74

           93,572

           95,805

             5,936

         195,387

Accumulated depreciation

                (54)

          (46,416)

          (80,788)

            (3,799)

        (131,057)

Closing net book amount

                 20

           47,156

           15,017

             2,137

           64,330







At 31 December 2015






Opening net book amount

210

43,660

14,163

3,372

61,405

Exchange differences

2

(498)

(574)

(197)

(1,267)

Additions

-

8,050

6,039

1,094

15,183

Companies acquired

-

452

345

13

810

Companies disposed

-

-

(22)

-

(22)

Disposals

(193)

(166)

(368)

(615)

(1,342)

Depreciation charge

(1)

(5,463)

(4,965)

(1,171)

(11,600)

Closing net book amount

18

46,035

14,618

2,496

63,167







At 31 December 2015






Cost

63

88,093

88,076

5,769

182,001

Accumulated depreciation

(45)

(42,058)

(73,458)

(3,273)

(118,834)

Closing net book amount

18

46,035

14,618

2,496

63,167







At 31 December 2014






Cost

365

82,333

85,400

6,493

174,591

Accumulated depreciation

(155)

(38,673)

(71,237)

(3,121)

(113,186)

Closing net book amount

210

43,660

14,163

3,372

61,405







The net book amount of property, plant and equipment held under finance leases is as follows:


2016

2015


£'000

£'000

Furniture, equipment and motor vehicles

777

650

 

14. Investments in associates

None of the associates are considered individually material to the Group. A reconciliation of the summarised financial information of the associates is presented in aggregate below.

On 6 May 2015, the Group disposed of its stake in its principal associate Milestone, the holding company of Siaci Saint Honoré. Milestone, in the opinion of the directors, was the only material associate to the Group. The associate had share capital consisting solely of ordinary shares, which was held directly by the Group; the country of incorporation or registration was also its principal place of business.


Place of

business/country of incorporation

% of

ownership

interest (2016)

% of

ownership

interest (2015)

Nature of

the relationship

Measurement method

Milestone (Siaci Saint Honoré)

France

-

-

Note 1

Equity

 

Note 1: Siaci Saint Honoré is a leading independent provider of insurance broking and employee benefit services to major French companies and multinational corporations.

Milestone is a private company and there is no quoted market price available for its shares.

There are no contingent liabilities relating to the Group's interest in the associate.

Summarised Income Statement and Statement of Comprehensive Income


Siaci


2016

2015


£'000

£'000

Revenue

-

54,820

Depreciation and amortisation

-

(2,132)

Interest income

-

1,018

Interest expense

-

(73)

Profit from continuing operations

-

22,078

Income tax expense

-

(7,200)

Profit after tax from continuing operations

-

14,878

Other comprehensive income

-

-

Total comprehensive income

-

14,878

 

Reconciliation of summarised financial information

Reconciliation of the summarised financial information presented to the carrying amount of its interest in associates.


Siaci

Others

Total


2016

2015

2016

2015

2016

2015


£'000

£'000

£'000

£'000

£'000

£'000

Opening net assets

-

203,594

35,072

30,176

35,072

233,770

Disposal during the year

-

(208,416)

-

-

-

(208,416)

Profit for the year

-

14,878

1,330

6,671

1,330

21,549

Other comprehensive income

-

-

-

167

-

167

Dividends

-

-

(4,592)

(2,306)

(4,592)

(2,306)

Change in non-controlling interests

-

(491)

-

90

-

(401)

Capital increase

-

-

2,854

1,677

2,854

1,677

Exchange differences

-

(9,565)

4,663

(1,403)

4,663

(10,968)

Closing net assets

-

-

39,327

35,072

39,327

35,072

Carrying value

-

-

50,928

41,180

50,928

41,180

 

15. Available-for-sale financial assets

Available-for-sale financial assets are categorised into one of two categories:

Investments and deposits, consist mainly of fixed term deposits, bonds and certificates of deposit. These investments are held at fair value and are classified between current and non-current assets according to the maturity date.

Other investments include securities and other investments held for strategic purposes and some debt instruments. The investments are held at 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
& deposits

Total


£'000

£'000

£'000

At 1 January 2016

             6,436

 9,049

         15,485

Exchange differences

               984

 10,983

           11,967

Additions

-

 107,636

       107,636

Companies disposed

6,301

-

6,301

Disposals/maturities

              (311)

 (20)

             (331)

Revaluation deficit (included within equity)

-

 11

               11

Amounts to be written off

              (331)

 -  

             (331)

At 31 December 2016

             13,079

 127,659

       140,738





Analysis of available-for-sale financial assets




Current

 -  

 116,933

 116,933

Non-current

 13,079

 10,726

 23,805

At 31 December 2016

 13,079

 127,659

 140,738





Analysis of available-for-sale investments & deposits




Fiduciary funds


 127,358


Own funds


 301


At 31 December 2016


 127,659






At 1 January 2015

4,746

9,642

14,388

Exchange differences

194

(571)

(377)

Additions

1,964

5,081

7,045

Disposals/maturities

(243)

(5,099)

(5,342)

Revaluation gain/(deficit) (included within equity)

(82)

(4)

(86)

Amounts to be written off

(143)

-

(143)

At 31 December 2015

6,436

9,049

15,485





Analysis of available-for-sale financial assets




Current

-

19

19

Non-current

6,436

9,030

15,466

At 31 December 2015

6,436

9,049

15,485


Analysis of available-for-sale investments & deposits




Fiduciary funds


 8,894


Own funds


 155


At 31 December 2015


9,049


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. This is summarised as follows:


2016

2015


£'000

£'000

AA

 49,621

4,133

AA/A

 37,297

-

A

 19,932

4,916

BBB

 20,809

-

Total

 127,659

9,049

16. Derivative financial instruments


         At 31 December 2016

         At 31 December 2015


Assets

Liabilities

Assets

Liabilities


£'000

£'000

£'000

£'000

Interest rate swaps - fair value hedges

 32,740

 (3,477)  

11,654

(5,490)

Forward foreign exchange contracts - cash flow hedges

 92,233

 (69,674)

23,574

(11,725)

Redemption liabilities - option contracts

 -  

 (29,637)

-

(22,626)

Total

 124,973

 (102,788)

35,228

(39,841)

Current

 7,930

 (33,136)

1,544

(6,115)

Non-current

 117,043

 (69,652)

33,684

(33,726)

Total

 124,973

 (102,788)

35,228

(39,841)

 

The credit quality of counterparties with whom derivative financial assets are held is assessed by reference to external credit ratings, where available, and other current and historical credit data including counterparty default rates. This is summarised as follows:


2016

2015


£'000

£'000

AA

 73,169

16,419

AA/A

 9,374

2,973

BBB

 42,430

15,836

Total

 124,973

35,228

 

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
1 year

Greater than
1 year

At 31 December 2016

£'000

£'000

Forward foreign exchange contracts



Outflow

 (477,260)

 (719,936)

Inflow

 443,578

 755,747


 

Less than
1 year

Greater than
1 year

At 31 December 2015

£'000

£'000

Forward foreign exchange contracts



Outflow

(275,406)

(442,156)

Inflow

269,827

461,276

 

17. Trade and other receivables


2016

2015


£'000

£'000

Trade receivables

         440,941

368,215

Less: provision for impairment of trade receivables

          (20,961)

(15,018)

Trade receivables - net

         419,980

353,197

Other receivables

         143,703

152,282

Prepayments

           24,957

23,116


         588,640

528,595

 

As at 31 December 2016, 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.

Movements on the Group provision for impairment of trade receivables are as follows:


2016

2015


£'000

£'000

At 1 January

             (15,018)

(10,724)

Currency translation adjustments

                (1,483)

(26)

Companies acquired

                   (243)

(28)

Provisions for impairment of trade receivables

                (8,355)

(9,849)

Receivables written off during the year as uncollectible

                 2,980

2,499

Unused amounts reversed

1,158

3,110

At 31 December

(20,961)

(15,018)

 

The creation and release of provisions 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.

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
receivables

Provision for
impairment

Net trade
receivables

At 31 December 2016

£'000

£'000

£'000

Not overdue

324,227

  -  

      324,227

Past due not more than three months

75,419

         (805)

           74,614

Past due more than three months and not more than six months

16,797

         (2,377)

    14,420

Past due more than six months and not more than one year

      12,684

         (5,965)

     6,719

Past due more than one year

         11,814

       (11,814)

     -  


440,941

(20,961)

419,980

 


Trade
receivables

Provision for
impairment

Net trade
receivables

At 31 December 2015

£'000

£'000

£'000

Not overdue

270,706

-

270,706

Past due not more than three months

60,212

(539)

59,673

Past due more than three months and not more than six months

19,002

(2,600)

16,402

Past due more than six months and not more than one year

8,512

(2,975)

5,537

Past due more than one year

9,783

(8,904)

879


368,215

(15,018)

353,197

 

18. Cash and cash equivalents


2016

2015


£'000

£'000

Cash at bank and in hand

 514,474

463,665

Short-term bank deposits

 425,471

437,422


 939,945

901,087




Fiduciary funds

 748,628

737,676

Own funds

 191,317

163,411


 939,945

901,087

 

Fiduciary funds represent client money held in the form of premiums due to underwriters, claims paid by insurers and due to policyholders, and funds held to defray commissions and other income. Fiduciary funds are not available for general corporate purposes.

The credit quality of cash at bank and in hand and short-term deposits is assessed by reference to external credit ratings, where available and other current and historical credit data including counterparty default rates. This is summarised as follows:


2016

2015


£'000

£'000

AAA

 10,685

12,237

AA

 318,613

336,311

AA/A

 125,247

112,869

A

 146,111

107,744

BBB

 322,953

327,567

Other

 16,336

4,359

Total

 939,945

901,087

The effective interest rate in respect of short-term deposits was 0.94% (2015: 0.87%). These deposits have an average maturity of 16 days (2015: 24 days).

 

19. Trade and other payables


2016

2015


£'000

£'000

Insurance payables

 875,986

746,570

Social security and other taxes

 18,735

17,161

Other payables

 198,156

166,880

Accruals and deferred income

 137,408

137,905

Deferred and contingent consideration

 27,497

17,762


 1,257,782

1,086,278

All payables are considered current as the non-current portion is not material.

20. Financial instruments by category

The accounting policies for financial instruments have been applied to the line items below:

At 31 December 2016

Loans and receivables

Derivatives

used for

hedging

Available-
for-sale

Total

Assets per balance sheet

£'000

£'000

£'000

£'000

Available-for-sale financial assets

 -  

 -  

 140,738

 140,738

Derivative financial instruments

 -  

 124,973

 -  

 124,973

Trade and other receivables (a)

 563,683

 -  

 -  

 563,683

Cash and cash equivalents

 939,945

 -  

 -  

 939,945

Total

 1,503,628

 124,973

 140,738

 1,769,339

 



Derivatives

used for

hedging

Other
financial liabilities

Total

Liabilities per balance sheet


£'000

£'000

£'000

Borrowings


 -  

 (687,832)

 (687,832)

Trade and other payables (b)


 -  

 (1,120,374)

 (1,120,374)

Redemption liabilities - option contracts


 (29,637)

 -  

 (29,637)

Derivative financial instruments


 (73,151)

 -  

 (73,151)

Total


 (102,788)

 (1,808,206)

 (1,910,994)

 

At 31 December 2015

Loans and receivables

Derivatives

used for

hedging

Available-
for-sale

Total

Assets per balance sheet

£'000

£'000

£'000

£'000

Available-for-sale financial assets

-

-

15,485

15,485

Derivative financial instruments

-

35,228

-

35,228

Trade and other receivables (a)

505,479

-

-

505,479

Cash and cash equivalents

901,087

-

-

901,087

Total

1,406,566

35,228

15,485

1,457,279

 



Derivatives

used for

hedging

Other
financial
liabilities

Total

Liabilities per balance sheet


£'000

£'000

£'000

Borrowings


-

(603,582)

(603,582)

Trade and other payables (b)


-

(948,373)

(948,373)

Redemption liabilities - option contracts


(22,626)

-

(22,626)

Derivative financial instruments


(17,215)

-

(17,215)

Total


(39,841)

(1,551,955)

(1,591,796)

 

(a)  Prepayments are excluded from the trade and other receivables balance, as this analysis is required only for financial instruments.

(b) Non-financial liabilities are excluded from the trade and other payables balance, as this analysis is required only for financial instruments.

The following table presents the Group's financial assets and liabilities that are measured at fair value at 31 December 2016.


Level 1

Level 2

Level 3

Total

At 31 December 2016

£'000

£'000

£'000

£'000

Assets





Derivatives used for hedging

-

124,973

-

124,973

Available-for-sale financial assets





- equity securities

-

-

1,115

1,115

- debt investments

-

-

11,964

11,964

- fixed deposits

127,659

-

-

127,659

Total

127,659

124,973

13,079

265,711






Liabilities





Deferred and contingent consideration

-

-

(27,497)

(27,497)

Redemption liabilities - option contracts

-

-

(29,637)

(29,637)

Derivatives used for hedging

-

(73,151)

-

(73,151)

Total

-

(73,151)

(57,134)

(130,285)

 


Level 1

Level 2

Level 3

Total

At 31 December 2015

£'000

Assets





Derivatives used for hedging

-

35,228

-

35,228

Available-for-sale financial assets





- equity securities

311

-

1,312

1,623

- debt investments

-

-

4,813

4,813

- fixed deposits

9,049

-

-

9,049

Total

9,360

35,228

6,125

50,713

Liabilities





Deferred and contingent consideration

-

-

(17,762)

(17,762)

Redemption liabilities - option contracts

-

-

(22,626)

(22,626)

Derivatives used for hedging

-

(17,215)

-

(17,215)

Total

-

(17,215)

(40,388)

(57,603)

 

Apart from where disclosed, there are no differences between the fair value and the carrying value of financial assets and liabilities.

Instruments included in level 1 are financial instruments traded in active markets for which the fair value is based upon 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.

Instruments included in level 2 are financial instruments that are not traded in an active market (for example, over-the-counter derivatives) and for which the fair value is determined by using internal and external models. These models 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. Level 2 includes derivatives used for hedging. The valuations of which are performed using a discounted cash flow methodology incorporating observable market forward foreign exchange and interest rates.

During the year there were no transfers between level 1 and level 2. There were no changes in valuation techniques during the year.

Instruments included in level 3 are financial instruments for which one or more of the significant inputs is not based on observable market data. In respect of deferred and contingent consideration and Redemption liabilities - option contracts, unobservable inputs include management's assessment of the expected future performance of relevant acquired businesses and are valued using a discounted cash flow methodology.

A 1% movement in the discount rate applied in the calculation of the redemption liability in respect of JLT Specialty Insurance Services Inc., the largest item within the redemption liability, would result in a change of the overall redemption liability of 10%.

A reconciliation of the movements in level 3 is provided below:




Assets

Level 3

£'000

Liabilities

Level 3

£'000

At 1 January 2016



6,125

 (40,388)

Exchange differences



984

 (8,509)

Companies disposed



6,301

 -  

Companies acquired



-

 (12,686)

Utilised in the year



-

 6,686

Charged to income statement



(331)

 (2,237)

At 31 December 2016



13,079

(57,134)

Of the £331,000 charged to the income statement, £148,000 is included in net finance costs and £183,000 in Other operating costs.

Of the £2,237,000 charged to the income statement, £1,862,000 is included in net finance costs and £375,000 in Other operating costs.

 

The Group's treasury policies are approved by the Board and are implemented by a centralised treasury department. The treasury department operates within a framework of policies and procedures that establish specific guidelines to manage currency risk, liquidity risk and interest rate risk and the use of counterparties and financial instruments to manage these risks. The treasury department is subject to periodic review by internal audit.

The Group uses various derivative instruments including forward foreign exchange contracts, interest rate swaps and, from time to time, foreign currency collars and options to manage the risks arising from variations in currency and interest rates. Derivative instruments purchased are primarily denominated in the currencies of the Group's main markets.

Where forward foreign exchange contracts have been entered into to manage currency risk, they are designated as hedges of currency risk on specific future cash flows, and qualify as highly probable transactions for which hedge accounting is 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 material ineffectiveness will arise which will result in gains or losses being recognised through the income statement.

The fair value of financial derivatives based upon market values as at 31 December 2016 and designated as effective cash flow hedges was a net asset of £22.6 million and has been deferred in equity (2015: net asset of £11.8 million). Gains and losses arising on derivative instruments outstanding as at 31 December 2016 will be released to the income statement at various dates up to:

i)  47 months in respect of cash flow hedges on currency denominated UK earnings.

ii) 13 years in respect of specific hedges on USD denominated long-term debt drawn under the Group's USD private placement programme.

iii)             10 years in respect of interest rate hedges on sterling denominated long-term debt drawn under the Group's private placement programme.

No material amounts were transferred to the income statement during the year in respect of the fair value of financial derivatives.

Transactions maturing within 12 months of the balance sheet date are classified in current maturities. Transactions maturing in a period in excess of 12 months of the balance sheet date are classified as non-current maturities.

a)             Forward foreign exchange contracts

The Group's major currency transaction exposure arises in USD and the Group continues to adopt a prudent approach in actively managing this exposure. As at 31 December 2016 the Group had outstanding foreign exchange contracts, principally in USD, amounting to a principal value of £1,199,325,000 (2015: £731,103,000).

As a guide, each 1 cent movement in the achieved rate (taking into account the hedges in place) currently translates into a change of approximately £1.8 million in revenue, with a corresponding impact on trading profit equal to approximately 70% of the revenue change.

b)             Interest rate swaps

The Group uses interest rate hedges, principally interest rate swaps, to mitigate the impact of changes in interest rates. The notional principal amount of outstanding cross currency interest rate swaps as at 31 December 2016 was USD500,000,000 and £75,000,000 (2015: USD500,000,000 and £75,000,000). A net gain of £29.3 million (2015: net gain £6.2 million) on these instruments was offset by a fair value loss of £29.3 million (2015: loss £6.2 million) on the private placement loans, both of which were recognised in the income statement in the year.

c)             Redemption liabilities

The redemption liabilities represent the valuation of the put options provided in the shareholders agreements of JLT Specialty Insurance Services Inc., JLT Sigorta ve Reasurans Brokerligi Ltd Sirketi and JLT SCK Corretora e Administradora de Seguros Ltda. Fair value of these liabilities resulted in an expense of £699,000 which was recognised in the income statement in the year.

d)             Price risk


The Group does not have a material exposure to commodity price risk.

The maximum exposure to credit risk at the reporting date is the fair value of the derivatives in the balance sheet.

SHAREHOLDER Information

21. Borrowings (UNAUDITED)


2016

£'000

2015

£'000

Current



Bank overdraft

 18,223

21,702

Unsecured loan notes

 35,980

-

Bank borrowings

 243

418

Finance lease liabilities

 283

218


 54,729

22,338

Non Current



Unsecured loan notes

 471,975

419,394

Bank borrowing

 160,629

161,435

Finance lease liabilities

 499

415


 633,103

581,244

Total borrowings

 687,832

603,582

 

The borrowings include secured liabilities (finance leases) of £782,000 (2015: £633,000).

The exposure of the borrowings of the Group to interest rate changes and the periods in which the borrowings re-price are as follows:

 


6 months

or less

£'000

6-12

months

£'000

1-5
years

£'000

Over

5 years

£'000

Fixed rate

£'000

Total

£'000

At 31 December 2016

632,035

243

-

-

55,554

687,832

At 31 December 2015

557,334

-

418

-

45,830

603,582

 

The effective interest rates at the balance sheet date were as follows:

 


2016

£'000

2015

£'000

Bank overdraft

-

-

Unsecured loan notes - private placement

2.69%

2.84%

Bank borrowings

1.34%

1.53%

Finance lease liabilities

9.96%

8.14%

 

Maturity of non-current borrowings (excluding finance lease liabilities):


2016

£'000

2015

£'000

Between 1 and 2 years

 -

30,220

Between 2 and 3 years

 2

6

Between 3 and 4 years

 67,386

-

Between 4 and 5 years

 160,626

56,092

Over 5 years

 404,590

494,511


 632,604

580,829

 

Finance lease liabilities - minimum lease payments:


2016

£'000

2015

£'000

No later than 1 year

 337

255

Later than 1 year and no later than 2 years

 268

204

Later than 2 years and no later than 3 years

 173

142

Later than 3 years and no later than 4 years

 78

80

Later than 4 years and no later than 5 years

 32

31

Later than 5 years

-

-


 888

712

Future finance charges on finance leases

 (106)

(79)

Present value of finance lease liabilities

 782

633

 

The present value of finance lease liabilities is as follows:

 


2016

£'000

2015

£'000

No later than 1 year

 283

218

Later than 1 year and no later than 2 years

 233

180

Later than 2 years and no later than 3 years

 161

127

Later than 3 years and no later than 4 years

 74

73

Later than 4 years and no later than 5 years

 31

35

Later than 5 years

-

-


 782

633

 

Lease liabilities are effectively secured as the rights to the leased assets revert to the lessor in the event of default.

 

The carrying amount of the Group's borrowings are denominated in the following currencies:

 


2016

£'000

2015

£'000

Sterling

 264,657

263,729

US Dollar

 422,148

338,796

Other currencies

 1,027

1,057


 687,832

603,582

 

Borrowing facilities

The Group has undrawn committed borrowing facilities of:


2016

£'000

2015

£'000

Floating rate



- expiring beyond one year

337,000

336,000

 

Facilities expiring within one year relate to:

a)   Senior unsecured loan notes totalling USD42 million (£33.9 million) issued by JIB Group Limited under the Group's 2010 private placement programme in September 2017 with a coupon of 5.02%.

Facilities expiring beyond one year relate to:

b)   The committed unsecured £500 million revolving credit facilities in the name of JIB Group Limited. As at the balance sheet date, drawings under the revolving credit facilities are subject to a margin and fees of 115 basis points above the relevant LIBOR interest rate and additional commitment fees on the undrawn facility. In January 2017, the Group agreed with its relationship banks to exercise an extension option, under existing agreed terms, by a further one year from February 2021 to a new maturity date of February 2022.

c)    Senior unsecured loan notes totalling USD83 million issued by JIB Group Limited under the Group's 2010 private placement programme with USD42 million (£33.9 million) in September 2020 with a coupon of 5.59% and USD41 million (£33.1 million) in September 2022 with a coupon of 5.69%. Drawings under the Group's private placement programme are swapped into sterling floating and are subject to an equivalent spread over LIBOR of between 227 and 238 basis points.

d)   Senior unsecured loan notes totalling USD250 million issued by JIB Group Limited under the Group's 2012 private placement programme with maturities of USD40 million (£32.3 million) in January 2020 with a coupon of 3.21%, USD140 million (£113.2 million) in January 2023 with a coupon of 3.78% and USD70 million (£56.6 million) in January 2025 with a coupon of 3.93%. The proceeds of this placement have been swapped into sterling at fixed and LIBOR based floating rates and are subject to an equivalent spread over LIBOR of between 205 and 220 basis points.

e)   Senior unsecured loan notes totalling £75 million issued by JIB Group Limited under the Group's April 2014 private placement programme maturing in April 2026 with a coupon of 4.27%. The proceeds of this placement have been swapped into LIBOR based floating rates and are subject to an equivalent spread over LIBOR of 150 basis points.

f)    Senior unsecured loan notes totalling USD125 million issued by JIB Group Limited under the Group's October 2014 private placement programme with maturities of USD62.5 million (£50.5 million) in October 2026 with a coupon of 3.93% and USD62.5 million (£50.5 million) in October 2029 with a coupon of 4.13%. The proceeds of this private placement in October 2014 have been swapped into sterling at LIBOR based floating rates and are subject to an equivalent spread over LIBOR of between 146 and 157 basis points.

The terms and conditions of the Group's facilities include common debt and interest cover covenants with which the Group expects to continue
to comply.

Liquidity risk

Liquidity risk arises from an inability to maintain an optimal cost of capital or meet the short term financial demands of the business. The Group has implemented the following steps to mitigate the risk:

      - Management reviews of business unit balance sheets and cash flows

      - Maintenance of committed credit facilities

      - Compliance with regulatory minimum capital requirements and regular stress testing

      - Maintenance of a conservative funding profile.

 

22. 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


2016

£'000

2015

£'000

2016

£'000

2015

£'000

2016

£'000

2015

£'000

Property, plant and equipment

 1,555

2,105

 (554)

(746)

 1,001

1,359

Provisions

 15,937

11,588

 (5,273)

(910)

 10,664

10,678

Losses

 1,858

2,986

 -

-

 1,858

2,986

Deferred income

 879

285

 (5,386)

(8,619)

 (4,507)

(8,334)

Other intangibles

 3,052

2,436

 (616)

(48)

 2,436

2,388

Goodwill

 298

237

 (3,046)

(6,024)

 (2,748)

(5,787)

Other

 3,407

7,033

 (1,826)

(2,933)

 1,581

4,100

Pensions

 32,532

22,125

 (131)

(93)

 32,401

22,032

Share based payments

 4,858

6,554

 -

-

 4,858

6,554

Fair values

 11,166

-

 -

(1,931)

 11,166

(1,931)

Tax assets/(liabilities)

 75,542

55,349

 (16,832)

(21,304)

 58,710

34,045

Set off of tax

 (5,454)

(4,326)

 5,454

4,326

 -

-

Net tax assets/(liabilities)

 70,088

51,023

 (11,378)

(16,978)

 58,710

34,045

 

The majority of the deferred tax is not expected to reverse within 12 months.


At 1

January

2016

£'000

Exchange

differences

£'000

Credit/

(charge)

to income

£'000

Credit/

(charge)

to equity

£'000

Acquisitions/

disposals

of sub

£'000

At 31

December

2016

£'000

Accelerated tax depreciation

 1,359

 (204)

 (154)

-

-

 1,001

Provisions

 10,678

 58

 (79)

-

 7

 10,664

Losses

 2,986

 44

 (1,172)

-

-

 1,858

Deferred income

 (8,334)

 3,241

 586

-

-

 (4,507)

Other intangibles

 2,388

 454

 (102)

-

 (304)

 2,436

Goodwill

 (5,787)

 3,446

 (407)

-

-

 (2,748)

Other

 4,100

 (4,534)

 2,015

-

-

 1,581

Pensions

 22,032

 7

 828

 9,534

-

 32,401

Share based payments

 6,554

-

 (1,163)

 (533)

-

 4,858

Fair values

 (1,931)

-

-

 13,097

-

 11,166

Net tax assets

 34,045

 2,512

 352

 22,098

 (297)

 58,710

 

The total current and deferred income tax charged to equity during the year is as follows:


At 1 January

2016


Credit/(charge)

to equity


At 31 December

2016


£'000


£'000


£'000

Pensions

 34,351


 11,850


 46,201

Share based payments

 12,033


 (222)


 11,811

Fair values:






- foreign exchange

 (16)


 13,196


 13,180

- available-for-sale

 (30)


 199


 169


 (46)


 13,395


 13,349


 46,338


 25,023


 71,361

 

 

23. PROVISIONS FOR LIABILITIES AND CHARGES


Property

related provisions

£'000

Litigation provisions

£'000

Other

£'000

Total

£'000

At 1 January 2016

 1,300

 18,223

 114

 19,637

Exchange differences

 94

 230

 -

 324

Utilised in the year

 (349)

 (16,328)

 -

 (16,677)

Charged/(credited) to the income statement

 1,984

 5,326

 (78)

 7,232

Companies disposed

 (110)

 (9)

 -

 (119)

At 31 December 2016

 2,919

 7,442

 36

 10,397

 

 

At 1 January 2015

 4,881

 5,570

 362

 10,813

Exchange differences

 19

 30

 -

 49

Reclassification from current liabilities

 462

 -

 -

 462

Utilised in the year

 (3,372)

 (3,710)

 (8)

 (7,090)

Credited/(charged) to the income statement

 (690)

 16,333

 (240)

 15,403

At 31 December 2015

 1,300

 18,223

 114

 19,637

 

 




2016

£'000

2015

£'000

Analysis of total provisions





Current - to be utilised within one year



 8,826

18,594

Non-current - to be utilised in more than one year



 1,571

1,043




 10,397

19,637

 

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 and expected dilapidation expenses. 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 US and UK and relate to a variety of lease commitments. The longest lease term expires in 2026.

Litigation provisions

At any point in time the Group can be involved in a variety of litigation and dispute issues. A 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. However, the final outcome could differ materially from the amount provided.

The amount charged to the income statement in 2016 includes litigation costs related to employment contract disputes.

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 31 December 2016, in connection with certain litigation matters, the Group's litigation provisions include an amount of £0.1million (2015: £0.1million) 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 31 December 2016 (2015: nil).

Other

Other provisions include provisions for clawback of commission which arises on certain types of Employee Benefits contracts.

 

24. Share capital and premium


Number of shares

Ordinary

shares

£'000

Share

premium

£'000

Total

£'000

Allotted, called up and fully paid





At 1 January 2015

 220,136,567

 11,006

 103,941

 114,947

Issued during the year

 34,440

 2

 133

 135

At 31 December 2015

 220,171,007

 11,008

 104,074

 115,082

Issued during the year

 10,000

 -

 37

 37

At 31 December 2016

 220,181,007

 11,008

 104,111

 115,119

 

 

Ordinary shares carry rights to dividends, voting and proceeds on winding up and have a par value of £0.05.

During the year the Company issued 10,000 (2015: 34,440) ordinary shares for a consideration of £38,250 (2015: £134,532) following exercises by executives of options held under the Jardine Lloyd Thompson Group plc Executive Share Option Scheme.

The Employee Benefit Trust holds 8,715,895 ordinary shares (2015: 8,994,952) acquired to settle employee share based payments. Acquisitions of such shares are booked directly to equity.

 

25. Non-controlling interests

The Group's total non-controlling interests' financial position for the year is £22,764,000 of which £10,556,000 is attributed to JLT's Private Client Services group of business (PCS). PCS is defined as a material non-controlling interest to the Group. The non-controlling interests in respect of other entities are not individually material.

Set out below is the summarised financial information for PCS.

Summarised Balance Sheet




2016

£'000

2015

£'000

Current





Assets



 62,294

49,451

Liabilities



(34,218)

(28,535)

Total



 28,076

20,916

Non-current





Assets



 3,152

2,998

Liabilities



(316)

(312)

Total



 2,836

2,686

Net assets



30,912

23,602

 

25. Non-controlling interests

Summarised Statement of Comprehensive Income




2016

£'000

2015

£'000

Revenue



64,018

55,357

Profit for the year



20,663

18,195

Other comprehensive income



550

95

Total comprehensive income for the year



21,213

18,290






Total comprehensive income attributable to non-controlling interests



5,166

4,575

Dividends paid to non-controlling interests



2,229

4,289

 

Summarised Statement of Cash Flows




2016

£'000

2015

£'000

Net cash generated from operating activities



19,897

34,522

Net cash used in investing activities



(291)

(1,403)

Net cash used in financing activities



(18,348)

(17,340)

Net increase in cash and cash equivalents



1,258

15,779

 

The information above is the amount before inter-company eliminations.

 

26. Other reserves


Share

premium

£'000

Fair value

and hedging

£'000

Exchange

reserves

£'000

Total

£'000

At 1 January 2016

 104,074

 (12,827)

 (17,280)

 73,967

Fair value gains/(losses) net of tax:





- available-for-sale

 -

 42

 -

42

- available-for-sale reclassified to the income statement

 -

(181)

-

(181)

- cash flow hedges

 -

 (41,487)

 -

 (41,487)

Currency translation differences

 -

 -

 100,841

 100,841

Net (losses)/gains recognised directly in equity

 -

 (41,626)

 100,841

 59,215

Issue of share capital

 37

 -

 -

 37

At 31 December 2016

 104,111

 (54,453)

 83,561

 133,219

 


Share

premium

£'000

Fair value and hedging

£'000

Exchange

reserves

£'000

Total

£'000

At 1 January 2015

 103,941

 (234)

 (5,033)

 98,674

Fair value (losses)/gains net of tax:





- available-for-sale

 -

 (34)

 -

 (34)

- available-for-sale reclassified to the income statement

 -

 10

-

 10

- cash flow hedges

 -

 (12,569)

 -

 (12,569)

Currency translation differences

 -

 -

 (12,247)

 (12,247)

Net losses recognised directly in equity

 -

 (12,593)

 (12,247)

 (24,840)

Issue of share capital

 133

 -

 -

 133

At 31 December 2015

 104,074

 (12,827)

 (17,280)

 73,967

 

27.  Qualifying Employee Share Ownership Trust

During the year, the Qualifying Employee Share Ownership Trust (QUEST) allocated nil ordinary shares to employees in satisfaction of options that have been exercised under the Sharesave schemes (2015: nil).

 

28.  Cash generated from operations


2016

£'000

2015

£'000

Profit before taxation

 134,880

155,027

Investment and finance income

 (6,877)

(5,301)

Interest payable on bank loans and finance leases

 17,491

16,782

Fair value (gains)/losses on available-for-sale financial assets

 (87)

41

Net pension financing expenses

 4,872

6,124

Unwinding of liability discounting

 1,862

1,567

Depreciation

 12,526

11,600

Amortisation of other intangible assets

 36,896

31,310

Amortisation of share based payments

 24,892

20,075

Share of results of associates' undertakings

 (1,353)

(5,531)

Non cash exceptional items

 5,294

21,959

Losses on disposal of businesses

 1,660

527

(Gains)/losses on disposal of property, plant and equipment

 (10)

60

Losses on disposal of available-for-sale financial assets

 8

72

Gain on sale of associates

 -

(19,142)

Increase in trade and other receivables

 (67,160)

(23,475)

Increase in trade and other payables - excluding insurance broking balances

 24,788

22,539

Decrease in provisions for liabilities and charges

 (12,440)

(7,833)

Decrease in retirement benefit obligations

 (10,530)

(11,021)

Net cash inflow from operations

 166,712

215,380

 

29. Business combinations

Adjustments in respect of prior year acquisitions

During the year, the contingent 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.

 

Revisions to contingent consideration during the year

 Consideration at 31 Dec 15

£'000

 Change in estimated consideration impacting goodwill

£'000

 Consideration at 31 Dec 2016

£'000

 Paid during the year

£'000

Ingham Holdings Limited

 1,577

 (1,577)

 -  

 -  

Keenan Insurances (Ireland)

 46

 (46)

 -  

 -  


 1,623

 (1,623)

 -  

 -  

 

 

2016 Acquisitions

During the year, the process of finalising the provisional fair values in respect of acquisitions carried out during 2015 has resulted in following changes.



 Revised fair value acquired

£'000

 Provisional fair value reported at

31 Dec 2015

£'000

 Change in fair value

£'000

Close Brothers Asset Management (Close brothers)


 491

 580

 (89)

Pierre Leblanc & Associés SAS (PL&A)


 1,127

 990

 137



 1,618

 1,570

 48

 

These changes in fair value affected the following balance sheet classes:



Revised fair value acquired

£'000

Provisional

fair value

reported at

31 Dec 2015

£'000

Change in

fair value

£'000

Property, plant and equipment


 43

 4

 39

Other intangible assets


 1,068

 1,068

 -  

Trade and other receivables


 713

 713

 -  

Cash and cash equivalents




  

- own cash


 511

 511

 -  

- fiduciary cash


 2,218

 2,218

-

Insurance payables


 (2,218)

 (2,218)

 -  

Trade and other payables


 (793)

 (704)

 (89)

Current taxation


 76

 (22)

 98



 1,618

 1,570

 48

 

Goodwill calculation


At

31 Dec 2016

£'000

At

31 Dec 2015

£'000

Change

£'000

Purchase consideration





- cash paid


 6,030

 6,030

 -  

- contingent consideration


 717

 717

 -  

- deferred consideration


 248

 248

 -  

Total purchase consideration


 6,995

 6,995

 -  

Less: fair value of net assets acquired


 1,618