annual report 2011 distinctive. Choice. Jardine LLoyd Thompson Group plc Jardine LLoyd Thompson Group plc 6 Crutched Friars London ec3n 2ph

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1 6 Crutched Friars London ec3n 2ph Tel: +44 (0) Fax: +44 (0) Company registration no: Jardine Lloyd Thompson Group plc Annual Report 2011 annual report 2011 distinctive. Choice. Jardine LLoyd Thompson Group plc Jardine LLoyd Thompson Group plc

2 Contents Principal Offices Overview Financial Highlights 1 Who We Are/Where We Operate 2 What We Do 3 Our Mission and Strategy 4 Our Structure 5 Segmental Breakdown 5 Business Review Chairman s Statement 6 Chief Executive s Review 8 Key Performance Indicators 12 Group Executive Committee 13 Review of Operations Risk & Insurance 14 Australasia 15 Asia 15 Latin America 16 Canada 16 Continental Europe 17 Insurance Management 17 JLT Specialty 18 Lloyd & Partners 18 JLT Reinsurance Brokers 19 Employee Benefits 20 Thistle Insurance Services 21 Associates 22 Finance Director s Review 23 Risk Management Report 28 Corporate Governance Directors Profiles 30 Directors Report 32 Remuneration Report 38 Corporate Social Responsibility 45 Financial Statements Independent Auditors Report 48 Consolidated Income Statement 49 Consolidated Statement of Comprehensive Income 50 Consolidated Group Balance Sheet 51 Consolidated Statement of Changes in Equity 52 Consolidated Statement of Cash Flows 53 Accounting Policies 54 Notes to the Financial Statements 1. Alternative income statement Segment information Operating profit Investment income Finance income and costs Employee information Services provided by the Group's auditor and network firms Income tax expense Earnings per share Dividends Goodwill Intangible assets Property, plant and equipment Investments in associates Available-for-sale financial assets Derivative financial instruments Employee benefit trust Trade and other receivables Cash and cash equivalents Trade and other payables Financial instruments by category Borrowings Deferred income taxes Provisions for liabilities and charges Share capital and premium Non-controlling interests Other reserves Qualifying employee share ownership trust Cash generated from operations Business combinations Business disposals Retirement benefit obligations Jardine Matheson Group Commitments Principal subsidiary and associated companies 104 Company Accounts Independent Auditors Report 106 Balance Sheet 107 Reconciliation of Movements in Shareholders Funds 107 Accounting Policies 108 Notes to the Company Accounts 109 Group Five Year Review 111 Advisors & Shareholder Information 112 Principal JLT Offices 113 Head office UK Jardine Lloyd Thompson Group plc Europe France JLTRS Energy (France) SA Ireland JLT Insurance Brokers Ireland Limited Norway Tripol AS Sweden JLT Risk Solutions AB Switzerland JLT Re Basel Branch UK JLT Specialty Limited JLT Reinsurance Brokers Limited Lloyd & Partners Limited JLT Benefit Solutions Limited JLT Online Thistle Insurance Services Limited JLT Insurance Management (Guernsey) UK Americas Barbados JLT Insurance Management (Barbados) Limited Bermuda JLT Park Limited JLT Insurance Management (Bermuda) Limited Brazil JLT do Brasil Corretagem de Seguros Ltda JLT Re Brasil Canada Jardine Lloyd Thompson Canada Inc Chile Orbital-JLT Corredores de Seguros +56 (2) JLT Chile Corredores de Reaseguros +56 (2) Colombia Jardine Lloyd Thompson Valencia y Iragorri Corredores de Seguros JLT Re Colombia, Corredores Colombianos de Reaseguros SA Peru Mariategui JLT Corredores de Seguros SA JLT Corredores de Reaseguros SA USA JLT Re (North America) Inc Africa/Middle East South Africa Jardine Lloyd Thompson (Proprietary) Limited UAE (Dubai) JLT Specialty Limited Asia China JLT Lixin Insurance Brokers Co Limited Hong Kong Jardine Lloyd Thompson Limited India Jardine Lloyd Thompson India Pvt. Limited Indonesia PT Jardine Lloyd Thompson Japan JLT Risk Solutions Japan Limited South Korea Jardine Lloyd Thompson Korea Limited Macau Jardine Lloyd Thompson Limited Malaysia Jardine Lloyd Thompson Sdn Bhd Philippines Jardine Lloyd Thompson Insurance Brokers Inc Singapore Jardine Lloyd Thompson Pte Limited JLT Risk Solutions Asia Pte Limited JLT Insurance Management (Singapore) Pte Limited JLT Re Asia Taiwan Jardine Lloyd Thompson Limited Thailand Jardine Lloyd Thompson Limited Vietnam Jardine Lloyd Thompson Limited Australasia Australia Jardine Lloyd Thompson Australia Pty Limited New Zealand Jardine Lloyd Thompson Limited For a full list of JLT s worldwide offices and JLT International Network partners, please visit our website

3 Overview Financial Highlights m % change Total revenue* % Underlying trading profit** % Overview Underlying profit before tax** % Reported profit before tax % Pence per share % change Reported diluted EPS 40.4p 41.7p (3%) Underlying diluted EPS** 45.3p 40.5p 12% Total dividend per share 24.0p 22.5p 7% A strong set of results particularly when viewed against the challenging economic conditions and the soft insurance rating environment experienced in the year. Dominic Burke Chief Executive Total revenue* m Underlying profit before tax** m Growth Rate of +10% Growth Rate of +13% Underlying trading profit** Underlying diluted EPS** m Pence Growth Rate of +13% p 40.5p 45.3p 2011 Growth Rate of +12% * Total revenue comprises fees, commissions and investment income ** Underlying results exclude exceptional and non-recurring items Jardine Lloyd Thompson Group plc Annual Report

4 Overview Who We Are JLT is an international group of Risk Specialists and Employee Benefits Consultants and one of the largest of its type in the world. We offer a distinctive choice to our clients and partners through our combination of independence, scale and specialism. As an independent business, we are able to operate with autonomy and flexibility. We have the scale to provide solutions to the complex demands of the world s leading companies and to deliver global servicing whilst recognising that the needs of each of our clients is unique. By developing highly specialised services, we provide our clients with a depth of expertise and experience. The value we create is driven through the personal determination of our 6,700 highly motivated and skilled people. Where We Operate Australia Barbados Bermuda Brazil Canada Chile China Colombia Finland France Guernsey Hong Kong India Indonesia Ireland Japan Korea Macau Malaysia New Zealand Norway Peru Philippines Singapore South Africa Sweden Switzerland Taiwan Thailand UAE (Dubai) UK USA Vietnam JLT has offices in 33 territories with some 6,700 employees supported by the JLT International Network enabling us to offer risk management and employee benefit solutions in over 135 countries 2 Jardine Lloyd Thompson Group plc Annual Report 2011

5 Jardine Lloyd Thompson Group plc Annual Report Overview

6 Overview Our Mission and Strategy Our Mission: Client First. Independent. Results Based. Client First We act in our client s best interests and bring the best of JLT to all of our clients. Independent We advise our clients without influence or bias and value innovation and creativity. Results Based We expect to be judged and rewarded on our performance. Our Strategy There are five elements to our strategy that balance the interests of our clients, our employees, our trading partners and our shareholders. Some examples of our achievements in 2011 are highlighted in grey below against each element. Basel, South Africa and Brazil Acquisition of Agri-food specialist New offices opened in Miami, Focusing and growing in specialist areas Building our international reach and relevance independent broker in Chile and a 25% interest in Marine & Aviation, a Acquired Orbital, a leading leading independent Italian broker FBD insurance brokers in Ireland Reorganisation of our retail operations across specialty lines Focusing on selected areas where we have distinctive knowledge that provides competitive advantage and seeking to become the market leader in every field where we operate. Strengthening our offering in the countries where we already operate and growing into new countries, especially the high-growth economies of the world where there is a natural overlap with our specialisms. Operating independently as One JLT Improving our efficiency and effectiveness Business Transformation Programme on target to deliver increased annualised savings of 23m for one-off costs of 27m Our Strategy Putting in place the improved processes and infrastructure required to sustain the next phase of our growth and reinvesting efficiencies into the business. Working together, colleagues in Hong Kong, Kuala Lumpur & London appointed to construction projects valued at US$15 billion Bringing the best of JLT to all of our clients and trading partners, through collaboration and sharing knowledge and resources, without allowing artificial boundaries such as reporting lines or geographies to stand in our way. Provide a distinctive working environment Attracting and retaining the best people by providing an enjoyable and inspiring working environment, investing in people s futures and rewarding them based on their performance and their potential. Group s trading profit margin improved from 17.4% to 18% Jardine Matheson s increased shareholding in JLT further emphasises the importance of JLT s independence Employee engagement surveys More than 500 new conducted in many regions colleagues joined JLT in 2011 and results being used to plan employee-related activites in Jardine Lloyd Thompson Group plc Annual Report 2011

7 Our Structure Jardine Lloyd Thompson Group Employee Benefits Risk & Insurance Thistle Insurance Services 17% 78% 5% page 20 page 14 page 21 Overview JLT Specialty 25% page 18 Australasia 15% page 15 Canada 4% page 16 Lloyd & Partners 9% page 18 Asia 10% page 15 Continental Europe 2% page 17 JLT Re 6% 1% Latin America Insurance 6% Management page 19 page 16 page 17 % = Contribution to Group revenue in 2011 Segmental Breakdown 2011 Revenue by division 2011 Turnover by location of client Risk & Insurance 642.4m UK Employee Benefits 137.0m Thistle Insurance Services 39.4m UK 34% Americas 25% Australasia 16% Asia 12% Europe 10% Rest of World 3% Turnover excludes investment income Jardine Lloyd Thompson Group plc Annual Report

8 Business Review Chairman s Statement I am pleased to be able to report another year of strong growth for JLT with a substantial increase in revenues and profits Geoffrey Howe Chairman I am pleased to be able to report another year of strong growth for JLT with a substantial increase in revenues and profits. These are a strong set of results particularly when viewed against the challenging economic conditions, the very competitive insurance rating environment experienced in the year and the lacklustre GDP growth in many of the more mature markets in which we trade. Performance Total revenue increased by 10% to million, or 8% at constant rates of exchange, with organic growth of 7%. Over recent years JLT has invested steadily in the recruitment of talented individuals who share our culture and values. We have also continued to make targeted acquisitions of specialty focused businesses. These targeted investments have helped us achieve and sustain strong rates of organic growth relative to our competitors over the last five years. There was no material net revenue impact from acquisitions in Underlying profit before tax was million, up 13%, while reported profit before tax was million, also up 13%. Net exceptional costs of 13.1 million in the year were mainly attributable to our Business Transformation Programme. Our trading profit margin increased 60 basis points to 18% which is encouraging given that we continue to invest for further growth. Reported diluted earnings per share was 40.4 pence (2010: 41.7 pence). This 3% reduction in our reported earnings per share is the consequence of the benefit of a non-recurring tax credit of 10.3 million in the prior year. Our underlying diluted earnings per share of 45.3 pence has increased by 12%. I am pleased to report that the directors have resolved to recommend an increased final dividend of 14.8 pence per share for the year to 31st December 2011 which will be paid on 1st May 2012 to shareholders on the register at 10th April This brings the total dividend for the year to 24 pence per share, an overall increase of 7%. The Chief Executive s Review, the Review of Operations and the Finance Director s Review cover the performance of the Group in more detail. Offer by JMH Investments Limited During 2011 our major shareholder, Jardine Matheson, determined that it wanted to increase its shareholding in JLT. The Board welcomed this initiative because of the stability and confidence which we believe flow to JLT as a result of having a strong and supportive major shareholder in terms of attracting and retaining clients and staff. Jardine Matheson's influence and contacts throughout Asia are also of great assistance to us. The partial offer to purchase million shares at 765p per share was heavily oversubscribed and resulted in the offer b ecoming unconditional in November Jardine Matheson now holds 40.20% of the share capital of JLT. Share buy-back We will, as in previous years, be seeking renewal of our standing share buy-back authority at the forthcoming Annual General Meeting. Corporate developments The Group has continued to follow its strategy to extend and develop its business with the ongoing expansion of our European presence which included the merging of our Italian business with that of Marine & Aviation S.p.A. and the acquisition in February 2012 of a 25% holding in a new joint venture in Spain formed with March- Unipsa. During the year the Group also increased its shareholding in Siaci Saint Honoré from 20% to 26%. 6 Jardine Lloyd Thompson Group plc Annual Report 2011

9 Employees* by division Employees* by geographical location London Market 1,606 Retail 2,792 Employee Benefits 1,608 Thistle Insurance Services 327 UK 3,180 Americas 1,040 Australasia 850 Asia 1,492 Europe 145 Head Office/Other 389 Rest of World 15 *As at 31st December 2011 In December our Irish business acquired FBD Insurance Brokers Limited, a well established Agri-food specialty broker. Our African strategy gained pace with our South African office receiving the necessary regulatory clearances and becoming fully operational. We also completed the acquisition of an initial 50.1% of the share capital of Orbital Corredores de Seguros in Chile which supports our Latin American strategy. The Employee Benefits business is expanding its international focus and continues to evolve as its marketplace changes with expansion in its defined contribution pension and benefits and wealth management businesses and a focus on technology solutions. Group Board and senior management changes The Group continues to review and strengthen its Board and senior management team. As reported last year, on 1st March 2011 Mark Drummond Brady was appointed as an Executive Director, having been with JLT since He is International Chairman of Risk & Insurance and a member of the Group Executive Committee. In January 2011, James Twining joined JLT as Group Strategy Director and a member of the Group Executive Committee. He was formerly with McKinsey & Company and his career has included investment banking. James has subsequently been appointed as International Chairman of Thistle and as the interim CEO of Thistle, pending the arrival of a new Thistle CEO later this year. There were also a number of changes to the senior management team including the appointment of Jonathan Palmer-Brown to the new role of Chairman of International Specialty and the appointment of Adrian Girling as Chairman of JLT Specialty. Adrian has accordingly relinquished his role as CEO of Thistle Insurance Services Limited. Our people JLT continues to benefit from the great quality and commitment of its people with their continued focus on achieving the best results for all our clients. The results in 2011 would not have been achieved without their dedication and willingness to go the extra mile and I would like to thank them all for their contribution to the business. Outlook Our emphasis on being a client-first organisation continues to serve us well, as demonstrated by our strong growth record. Our strategy, built around growing our areas of specialty, strengthening our international footprint and driving greater efficiency, provides us with confidence that we will continue to make financial progress in Geoffrey Howe Chairman 20th March 2012 Business Review Jardine Lloyd Thompson Group plc Annual Report

10 Business Review Chief Executive s Review Another strong set of results in 2011, demonstrating our continued ability to deliver on our strategy against the backdrop of a challenging economic climate. Dominic Burke Chief Executive We have delivered another strong set of results in 2011, demonstrating our continued ability to deliver on our strategy against the backdrop of a challenging economic climate. Overall, the Group achieved a 10% increase in revenues in 2011, representing an 8% increase at constant rates of exchange. Our organic growth remains strong at just over 7%, with no material net impact from acquisitions in the year. Our clear focus on growing our areas of specialty, strengthening our international reach and delivering greater operational efficiency, provides us with confidence that we will continue to make financial progress in Key financial highlights Our Risk & Insurance group delivered an increase in revenues of 11%, or 9% at constant rates of exchange. This was driven by our international retail business which delivered organic growth for the year of 10%. This included particularly strong performances from our operations in Asia and Latin America, with our businesses there growing organically by 29% and 19% respectively. Over the last three years, Asia s trading profit contribution to the Group has doubled as we continue to raise our market profile and areas of activity in the region. In Latin America, the profits from our combined operations has increased fourfold in the last three years. Our Australasian operations also had a good year with revenues up 16%, or 6% at constant rates of exchange, driven by some significant new business wins and enhanced client retention, particularly in the first half. Our operations in Australasia now account for 24% of the Group s trading profit. Risk & lnsurance Total Revenue Underlying Trading Profit m m Employee Benefits Total Revenue Underlying Trading Profit m m Thistle Insurance Services Total Revenue Underlying Trading Profit m m Trading Margin % 22% Trading Margin % 19% Trading Margin % 15% 8 Jardine Lloyd Thompson Group plc Annual Report 2011

11 The London Market remains particularly competitive and the fact that our three London Market businesses delivered combined organic growth of 7% is a testament to the value created by the growth initiatives that we have been investing in for the past three years. Our UK and Ireland Employee Benefits division saw revenues increase by 5% to 137 million with the trading profit margin improving by 200 basis points to 19%, reflecting the strength and success of the diversification of this business over recent years and the realisation of the full benefits of the HSBC Actuaries and Consultants acquisition made at the beginning of Thistle Insurance Services, our UK based insurance distribution and underwriting company, delivered flat growth in 2011, reflecting the fact that it is more exposed than most other parts of the Group to the impact of the financial crisis on consumer confidence, and as a result has faced a very tough trading environment. That said, excluding an unprofitable book of business which we exited in late 2010, Thistle s underlying organic revenue growth was 4%. Details of the performance of each individual business area are set out in the Review of Operations on pages 14 to 22. Building on our momentum Taken as a whole, 2011 marks another positive year for JLT, building on the success and momentum of previous years. This year s results now mean that in the past five years JLT has delivered a 72% increase in revenue, a 96% increase in trading profit and an increase of 90% in underlying EPS. Underpinning this success has been our ability to deliver consistently strong levels of organic growth as we drive the business forward. This is a performance of which we are understandably proud, although we are by no means complacent and recognise that there is still much more to be done. We have achieved these year-on-year results in the face of a challenging set of economic and market headwinds, which worsened still further in 2011 in terms of the adverse rating environment, low interest rates, aggressive price-based competition, weak growth in most developed markets and continued macroeconomic uncertainty, particularly in the Eurozone. Our results illustrate the strength of the underlying business and our focus on delivering our strategy. It is by continuing to focus on this strategy that we believe we will drive continued earnings growth. Delivering on our specialty focus JLT has never sought to be all things to all people. Instead, we focus on those industries and risk classes where we can truly be distinctive through our greater knowledge, expertise, experience and depth of resource. Five years ago, our speciality focus was primarily driven through our London Market businesses. Today however, specialty sits at the core of our businesses in Australia, Asia, Canada, Latin America and increasingly in Europe. In Employee Benefits too, we are building our international strategy around our expertise in healthcare. Many of these specialty areas are common across our different businesses, for example sectors such as natural resources, aviation, financial risks, construction and telecommunications. We are therefore increasingly able to collaborate and share knowledge across these businesses to the benefit of our clients. Our reputation today as a specialty player is increasingly powerful in the race to secure talent around the world. Over the past few years we have been able to attract a large number of leading industry professionals and in the process have been able to grow our market share in our chosen sectors significantly. Looking forward, we will continue to expand and deepen our specialty focus, by recruiting talented individuals who share our culture and values and making targeted acquisitions of specialty focused businesses. Business Review Total Revenue Underlying Trading Profit Underlying Diluted EPS m m Year Compound Annual Growth Rate 11.4% Year Compound Annual Growth Rate 14.4% Pence Year Compound Annual Growth Rate 13.7% year growth rate 72% 5 year growth rate 96% 5 year growth rate 90% Jardine Lloyd Thompson Group plc Annual Report

12 Business Review Chief Executive s Review Organic Growth % 6% 7% 7% 2011 marks another positive year for JLT, building on the success and momentum of previous years. Organic growth is fees and commissions excluding the impact of acquisitions, disposals and currency. Dominic Burke Chief Executive Increasing our international reach and relevance JLT now has one of the leading international broker networks in the world with representation in 135 countries. Today, two thirds of our clients are domiciled outside the UK. This global presence is delivering tangible benefits. It gives us exposure to the faster growing economies of the world. It helps support and drive growth in our London Market businesses. Finally, it gives us access to and knowledge of the growing number of insurance capital centres around the world and our clients are increasingly benefiting from our ability to access these markets for the placement of their risks. In 2011, we continued to deliver against this strategy both by broadening our reach for example, our acquisition of Orbital in Chile and the establishment of our new start-up business in South Africa and by strengthening our existing operations for example, the acquisition of TK Benefits in Canada. We have also continued to build out our European Network through the acquisitions of a 25% stake in specialist broker Marine & Aviation S.p.A. in Italy and increasing our stake in Siaci Saint Honoré, the leading independent broker in France, from 20 to 26%. In February 2012, we also acquired a 25% stake in the largest independent specialty broker in Spain, March-Unipsa. This is in line with our European strategy of owning minority stakes in leading national independent players and these sit alongside our 20% shareholding in GrECo and our exclusive trading relationship with Ecclesia in Germany. Looking forward, we intend to continue to grow through targeted acquisitions and investments around the world to support our Risk & Insurance, Employee Benefits and Thistle businesses. JLT now has one of the leading international broker networks in the world with representation in 135 countries. JLT Representation 10 Jardine Lloyd Thompson Group plc Annual Report 2011

13 Enhancing our efficiency and effectiveness 2011 has seen a continued investment in improving our efficiency and effectiveness. In June 2012, we will conclude our successful three year Business Transformation Programme delivering recurring annual savings of 23 million for a total cost of 27 million. We have been investing those savings back into the business, reflected in the hiring of leading industry professionals and product innovation. As our operation in Mumbai has grown from 30 people five years ago to over 700 today, it has evolved from processing simple transactions to providing complex actuarial, accounting and legal services and become a knowledge centre for JLT rather than just a processing hub. As our ambitions for Mumbai have grown, we have been able to deliver significant improvements in quality and client service. It has also been the catalyst for far greater internal collaboration, as a One JLT mindset has been required to make the initiative a success. This transition of Mumbai to a more knowledge-based and collaborative operation provides us with the opportunity to grow revenues in the future at a faster rate than our costs, as we derive increasing operating leverage from our activities there. Driving our strategy The overall economic outlook for 2012 remains challenging and although there are currently some signs of the rating environment hardening, with the exception of catastrophe risks there is little consistency at this time in how the market is pricing risk. However, JLT's prospects are more tied to GDP growth than market rates and we still see a generally positive environment given our increasing presence in the faster growing economies and our weighting towards areas of specialty such as mining, construction, aviation and financial services, which continue to experience strong growth in these regions. In 2011, Jardine Matheson increased its shareholding in JLT from 30% to 40% representing a clear statement of its commitment to our strategy, our wider management team and our prospects. Importantly, Jardine Matheson s increased investment in JLT has provided certainty around our ownership. This has strengthened our competitive advantage as it has reaffirmed to our staff, our clients and the insurance markets of our long-term commitment to them and made us an even more attractive employer. Today JLT is a much more balanced business than it was five years ago, in terms of the mix of businesses and the lines of business and diversity of economies through which we generate our income. As a result, our earnings are of a higher quality and we are better equipped to deliver against our strategy. This gives us the confidence that we can build upon this year's strong results to achieve even greater success in Dominic Burke Chief Executive 20th March 2012 Business Review Jardine Lloyd Thompson Group plc Annual Report

14 Business Review Key Performance Indicators Group Total Revenue Per Employee* 000 Trading Margin** % Underlying PBT*** m Underlying Diluted Earnings*** Pence Per Share % 17.4% 18.0% Revenue per employee has increased across all segments of our business as we grow our specialist capabilities through the continued recruitment of leading industry professionals and targeted acquisitions. The strong organic growth in 2011 is particularly evident in Asia and Latin America as we continue to build our international reach and relevance with a focus on the faster growing economies. Trading margin continued to show improvement, reflecting strong revenue performance combined with improved efficiency and effectiveness achieved through the Group's Business Transformation Programme and our ongoing focus on cost control. The continuing success in delivering our strategic objectives is evidenced by the 13% increase in our underlying PBT and underlying diluted EPS which grew by 12%. Risk & Insurance Employee Benefits Thistle Insurance Services Total Revenue Per Employee* 000 Underlying PBT*** m Total Revenue Per Employee* 000 Underlying PBT*** m Total Revenue Per Employee* 000 Underlying PBT*** m *Revenue per employee is calculated using the average number of employees for the year. **Trading margin represents trading profit, being total revenue (fees, commissions and investment income) less operating expenses, divided by total revenue. ***Underlying results exclude exceptional and non-recurring items. 12 Jardine Lloyd Thompson Group plc Annual Report 2011

15 Group Executive Committee Dominic Burke* Group Chief Executive Dominic joined the Group in 2000 when his business Burke Ford was acquired by JLT. After joining he became CEO of JLT's UK retail and Employee Benefits business. He was appointed Group COO in January 2005 and subsequently appointed Group CEO in December John Lloyd Chairman and CEO, Lloyd & Partners Ltd John was a founding partner of Lloyd Thompson in 1981 and served as its Chairman from 1993 until its merger with JIB Group in He was a Director of the JLT Group until the creation of Lloyd & Partners in Leo Demer CEO, Australasia Leo joined JLT Australia in 1985 and was appointed Managing Director of the Risk Services Division in Leo became Managing Director of JLT's Australian and New Zealand businesses in January 2008 and was appointed CEO of JLT Australasia and joined the Group Executive Committee in January Mark Drummond Brady* International Chairman Risk & Insurance Mark joined JLT in 1987 and built JLT's Financial Solutions operation. Today Mark plays a key role in developing JLT's Risk & Insurance business internationally and leading the continued expansion of the JLT International Network. Mark was appointed a Director of the Group in March Simon Mawson* Group Finance Director Simon joined JLT in August Simon is a Chartered Accountant and has held senior financial positions in Jardine Matheson and PT Astra International, prior to which he worked for PwC in the UK and Hong Kong. Warren Merritt CEO, Asia Pacific Warren joined JLT Australia in 1984 and has spent a number of years working in JLT's London Market operations. He became CEO of JLT Asia in 2008 and joined the Group Executive Committee in January Business Review Adrian Girling Chairman of JLT Specialty Limited. Adrian has been with JLT for over 30 years, he was CEO of Jardine Lloyd Thompson UK Limited, now Thistle Insurance Services Limited, for 15 years before being appointed Chairman of JLT Specialty Limited on 7th February Mike Methley Group COO Mike joined JLT in 1994 and was appointed Managing Director of JLT Asia in Mike was appointed Chief Operating Officer for the Group and a member of the Group Executive Committee in January Alan Griffin Chairman, JLT Reinsurance Brokers Alan joined JLT in 2005 to build the Group's capabilities in reinsurance and aviation. Alan entered the insurance broking industry in 1969 and has held various senior management positions within both reinsurance and aviation insurance. Jonathan Palmer-Brown Chairman of International Specialty Jonathan joined JLT in 2010 and is Chairman of International Specialty. He is a former Chairman of the London and International Insurance Brokers' Association and sits on the London Market Group. Martin Hiller CEO, JLT Specialty Limited Martin joined JLT in 1988 and was a founding member of the JLT Construction team. He became Managing Director of the Construction team in Martin joined the Group Executive Committee in 2006 and was appointed CEO of JLT Specialty Limited in Duncan Howorth CEO, JLT UK Employee Benefits Group, Int l Chairman of Employee Benefits Duncan joined JLT in 2000 when Abbey National Benefit Consultants was acquired by JLT to expand its Employee Benefits offering. Duncan became Managing Director of JLT Benefit Solutions Ltd in late 2005 and subsequently CEO and a member of the Group Executive Committee in James Twining Group Strategy Director and International Chairman of Thistle James joined JLT as Group Strategy Director and was appointed to the GEC on 1st January He was appointed Chairman of Thistle Insurance Services Limited in July 2011 and became Interim CEO on 1st January James previously worked at McKinsey & Company and his career has included investment banking and e-procurement. Vyvienne Wade* Group Legal Director, CEO of JLT Latin America, Chairman of JLT Insurance Management Vyvienne joined JLT in 1987 and was appointed as Group Legal Director in In 2002 Vyvienne was appointed to the main Board. Vyvienne is also a Non-Executive Director of Lloyd & Partners Limited. *Executive Director (more details on pages 30-31) Jardine Lloyd Thompson Group plc Annual Report

16 Business Review Review of Operations Risk & Insurance Financial highlights Total Revenue Underlying Trading Profit m m Risk & Insurance provides broking and risk management services for clients across an extensive range of business sectors. Principal lines of business Retail Delivering an increasingly specialist retail insurance broking service to clients in local, national and international markets. 11 Trading Margin 22% % 2010 Specialty Offering clients in selected industries insurance broking and risk management advice through dedicated specialist teams with deep client industry expertise. Wholesale Providing brokers in the US and elsewhere with access to insurance capacity in London, Bermuda and Continental Europe through our specialist wholesale broker. The Risk & Insurance group comprises our increasingly specialist retail broking operations around the world and our predominantly London Market based reinsurance broking, specialist risk and wholesale insurance broking businesses. During the period, macro-economic conditions remained very challenging throughout the more mature markets in which we trade. This was compounded by a very competitive insurance rating environment and intense competition amongst brokers. JLT s strategy of continuing to increase the specialty focus of all of its Risk & Insurance businesses delivered revenues of million for the year, an increase of 11%, or 9% at constant rates of exchange. The London Market remained particularly competitive but despite this our businesses that trade in this market delivered combined organic growth of 7%. Our Northern European operations in Ireland and the Nordic region had a strong year and both businesses have recently been strengthened with targeted acquisitions adding to their specialty capabilities. In Southern Europe our operation in Italy had a very challenging year. Action was taken to reposition this business and at the end of the year, we combined it with specialist broker Marine & Aviation S.p.A. in return for a 25% stake in the merged business. In Asia, we continue to make significant progress, with revenue growing by 28%, or 29% at constant rates of exchange, as the business expanded its areas of specialism and benefited from the continued successful expansion into the employee benefits sector. In Latin America, all of our operations performed well, with organic growth increasing revenues by 19%. JLT further expanded its footprint in the region with the acquisition of Orbital, the leading independent broker in Chile. Australasia had a good year with revenues up 16%, which was principally due to the benefit of the strengthening of the Australian dollar over the period. Trading in Canada was below our expectations and the senior leadership team has been strengthened there from the beginning of The trading profit margin for our Risk & Insurance group was 22%, unchanged from that achieved in 2010, despite the investments for growth being made right across our business. On pages 15 to 19 there is a more detailed commentary on the activities and performance of each of our businesses in the Risk & Insurance group. Reinsurance Delivering to clients an analytical approach to reinsurance broking and a wider variety of specialist risk management solutions. 14 Jardine Lloyd Thompson Group plc Annual Report 2011

17 Australasia Financial highlights Total Revenue Underlying Trading Profit m m Asia Financial highlights Total Revenue Underlying Trading Profit m m Trading Margin 28% % 2010 Our operations in Australasia have consistently delivered strong results and in 2011 contributed 24% of the Group s trading profit. Revenue of million was up 16%, or 6% at constant rates of exchange, with trading profit up 17% to 34.9 million. The trading margin remained at 28% despite difficult market conditions. The business is structured under five operating divisions: Public Sector, Echelon, Specialty, Enterprise Solutions and Benefit Solutions Australia. The Public Sector division, which includes our local, state and federal government authorities business, once again had an excellent year. Echelon, which comprises our claims management and risk & advisory services business, again showed strong growth and remains a business with good potential for significant future growth especially within the private sector. Specialty encompasses our retail and corporate businesses and has been more closely aligned with JLT s global strengths such as construction, energy, mining, financial lines and advisory corporate businesses. Enterprise Solutions includes our Thistle business and our regional network operations. This business has had a strong year which has been due in a large part to the successful establishment of the Thistle underwriting business. Benefit Solutions is largely built around life and health and has again shown good growth during Trading Margin 21% % 2010 In Asia, we continue to make significant progress. Over the last three years, Asia s trading profit contribution to the Group has doubled. Revenue increased by 28%, 29% at constant rates of exchange to 81.9 million in This increase was delivered by organic growth of 29% through the retention and penetration of existing business and substantial new business wins in capital risks, construction, employee benefits, energy and major corporate. Our investments in leading industry professionals in late 2010 and at the start of 2011 contributed strongly to the good results. Private Client Services which delivers wealth management solutions working closely with global private banks, has become the market leader in the region and continues to grow strongly. Hong Kong, Singapore, Specialty, Korea, Taiwan, China and Thailand all saw good growth during the year supported by new business wins. Following the major catastrophic losses resulting from the earthquake in Japan and the floods in Thailand, trading conditions in these countries tightened with rate increases and cover limitations being imposed by the market for these perils. The restructuring of our business in Japan was successfully completed with a number of senior professionals recruited to support this operation. China again enjoyed strong 30% growth in revenue with the region as a whole continuing to enjoy positive economic growth throughout the year. Business Review Principal lines of business Construction Professional Lines Energy & Marine Public Sector Healthcare Transport Property Principal lines of business Aviation Employee Benefits Construction Property Capital Risks Financial & Professional Risks Energy Jardine Lloyd Thompson Group plc Annual Report

18 Business Review Review of Operations Latin America Financial highlights Total Revenue Underlying Trading Profit m m Canada Financial highlights Total Revenue Underlying Trading Profit m m Trading Margin 31% Trading Margin 13% % % JLT's Latin American business continued to progress well during 2011 with organic growth of 19% and trading profit of 14.9 million representing growth of 28% over Over recent years, JLT s operations across Latin America have continued to make year-on-year financial progress, with their contribution to the Group s trading profit increasing fourfold over the last three years. JLT Latin America enjoyed notable successes in the region winning major construction and infrastructure projects working together with colleagues in London. The Group s specialty areas such as natural resources, construction, telecommunications and aviation coincide with those industries that are beneficiaries of growth in the region. Our focus on employee benefits has also continued and now generates meaningful revenues in the region. During 2011, we completed the purchase of a majority stake in Orbital which is a Chilean retail and reinsurance broker. During the year we hired leading industry professionals to join us and JLT Latin America now has over 630 employees based in more than 20 offices across Brazil, Colombia, Peru and Chile. Our Canadian operations experienced a challenging trading environment in 2011 with market conditions remaining very competitive. Expectations that trading would improve in the second half were not met and, in early 2012, we strengthened our management team. Total revenues fell marginally by 1% to 30 million which was a 2% decrease over 2010 at constant rates of exchange. The trading margin reduced by 3% to 13%, nevertheless our public sector and professional practice businesses had a strong year. The business continues to operate along speciality lines which mirror the Group approach and wherever possible Canada integrates local opportunities with global JLT initiatives. During the year the Thistle underwriting business was launched building on the model of Thistle in the UK. The Business Transformation Programme is enabling our operation in Canada to implement back-office efficiencies and further enhance client service. Principal lines of business Energy, Oil & Power Industrial Risk Employee Benefits Aviation Construction Telecommunications Reinsurance Principal lines of business Construction Corporate Natural Resources & Energy Sport, Hospitality & Leisure Public Sector Risks Financial & Professional Risks 16 Jardine Lloyd Thompson Group plc Annual Report 2011

19 Continental Europe Financial highlights Total Revenue Underlying Trading Profit m m Insurance Management Financial highlights Total Revenue Underlying Trading Profit m m (0.6) 11 Trading Margin (3%) % 2010 Our Northern European operations had a strong year. Ireland exceeded our expectations and we have added to its specialty capabilities with the acquisition of FBD, an agri-food specialist. Our Nordic region businesses also performed well. Given the increasingly specialist emphasis of Ireland and the Nordic region, we have moved the management of these businesses into JLT Specialty from the start of In Southern Europe the performance of our Italian business was unsatisfactory and action was taken to reposition and merge that business with an independent specialty broker, Marine & Aviation S.p.A., at the conclusion of the year, in return for a 25% stake in the combined business. This will provide a strong foundation from which to build the leading independent broker in Italy. In February 2012 we announced the combining of our retail operations in Spain with March-Unipsa, the largest independent commercial insurance broker in Spain. JLT has taken a 25% stake in the combined business which has strong specialty capabilities in construction, tourism and marine & cargo. Taking minority positions in leading independent brokers in Spain and Italy aligns with our broader European strategy of securing exclusive commercial relationships. This is already the case in France with our 26% shareholding in Siaci Saint Honoré, in Central and Eastern Europe with our 20% interest in GrECo and with JLT s exclusive trading relationship with Ecclesia in Germany Trading Margin 8% % 2010 JLT Insurance Management helps corporations define and maximise the benefit of their captive insurance and alternative risk transfer strategies. It has operations in Bermuda, Singapore, Guernsey, Barbados and also in Malta through a joint venture. There was a modest improvement in the performance for JLT Insurance Management with revenue increasing 2%, or 4% at constant rates of exchange. Continued soft insurance market conditions remained challenging. However, new business development initiatives implemented in the year, particularly in emerging markets and new products, began to show positive results in the latter part of the year and this will continue into The continued commitment to service quality and efficiency has provided opportunities in more mature markets. JLT Insurance Management continues to be an important adjunct to our retail client base as an essential part of risk management. Business Review Principal lines of business Specialty Corporate Schemes Affinity Principal lines of business Captive Management Captive Consulting Protected Cell Vehicles Transformer Structures Jardine Lloyd Thompson Group plc Annual Report

20 Business Review Review of Operations JLT Specialty Financial highlights Total Revenue Underlying Trading Profit m m Lloyd & Partners Financial highlights Total Revenue Underlying Trading Profit m m Trading Margin 21% Trading Margin 23% % % JLT Specialty continued to deliver a strong performance, with revenue increasing by 11%, or 10% at constant rates of exchange, to million while maintaining a strong trading margin of 21%. The business delivered organic growth of 9% in challenging market conditions, its continued investment in people and its specialty focus enabling it to win market share. Strong performances were delivered by energy, marine, credit & political, real estate, construction and aviation, where more than 35 new airline accounts were won during the year. JLT s specialty teams are increasingly collaborating with their colleagues across the world to provide specialist advice on key projects and to develop local capability. In 2011 the business continued to make strategic investments in people to maintain its specialty focus and to grow its share of key industry and geographic markets as it pursues its vision to become London s leading specialist insurance broker in its defined sectors. This included the significant expansion of the financial risks team with the recruitment of additional senior market practitioners to add to the financial institutions and professional indemnity capabilities. JLT s specialist operations in both Ireland and the Nordic region will form part of JLT Specialty from Lloyd & Partners comprises our London and Bermuda specialist wholesale broking businesses. As a wholesale broker, Lloyd & Partners provides brokers in the US and elsewhere with access to insurance capacity in London, Bermuda and Continental Europe. It experienced another year of strong competition from the US domestic market, especially for property, healthcare and professional liability risks. Soft market conditions have prevailed in most classes of business during Despite the challenging market and economic environment a 3% increase in revenue was achieved, 2% at constant rates of exchange. The London business achieved headline growth of 4% which reflects strong levels of income growth from its cargo, specie, property and casualty teams. Bermuda experienced some decline in revenue as a result of its significant US exposure, but with strong management achieved an improvement in its trading margin was a year of consolidation and investment for Lloyd & Partners with recruitment of further leading industry professionals to enhance a number of existing specialty areas. Principal lines of business Aerospace Claims Consultancy Construction Credit, Political & Security Risks Energy Financial & Professional Risks Marine Real Estate Principal lines of business Property Healthcare Energy & Marine Professional Lines Cargo, Fine Art & Specie Casualty Programmes 18 Jardine Lloyd Thompson Group plc Annual Report 2011

21 JLT Reinsurance Brokers Financial highlights Total Revenue Underlying Trading Profit m m Trading Margin 22% % 2010 Our reinsurance business had a satisfactory year. Overall it achieved organic revenue growth of 3% whilst its trading margin improved from 21% to 22% is estimated to be the worst year on record in terms of insured natural catastrophe losses at $105 billion against the previous high of $100 billion in As losses mounted throughout the year, reinsurance rates in loss-affected areas experienced significant upward adjustments. The current profile of JLT Re s book of business, with its still relatively small international treaty book, means it did not benefit from the uplift in reinsurance rates in loss affected areas such as Australia, New Zealand and Japan. JLT Re initiatives executed during the year included opening operations in Miami, Basel and Sydney, adding to its treaty reinsurance capabilities in Singapore and entering the life reinsurance sector through its acquisition of a new Swiss-based team, each designed to enhance its distribution channels and facilitate further revenue growth. JLT Advisory completed its first full year of operation having closed its first meaningful corporate sale and generating a number of opportunities for its core reinsurance business. Business Review Principal lines of business All classes of treaty and facultative reinsurance Corporate Finance Advisory Jardine Lloyd Thompson Group plc Annual Report

22 Business Review Review of Operations Employee Benefits Financial highlights Total Revenue Underlying Trading Profit m m Principal lines of business Trustee Solutions Offering a range of services designed to meet the requirements of pension scheme trustees including pensions and actuarial consulting, administration, governance and communications. 11 Trading Margin 19% % 2010 Employee Benefit Solutions Providing advice on the design, implementation and operation of employee benefit programmes, using JLT s own integrated online benefit platform, BenPal. Wealth Management Offering advice and support to scheme members faced with increasing scheme options, and through its Chartered Financial Practice offering high net worth clients holistic financial advice. Investment Solutions Advising institutional clients on all aspects of investment and managing assets for high net worth individuals. Pension Capital Strategies Providing strategic consultancy and execution for a range of de-risking and risk transfer options to sponsors and trustees of Defined Benefit schemes. Independent Trustee Services Providing independent trustee services to Defined Benefit schemes, particularly to those where risk and conflict may arise or complex transactions may be contemplated. Our UK and Ireland Employee Benefits business delivered a 5% increase in revenues and a 20% increase in trading profit in the year, at a trading margin of 19%. This success reflects the continued diversification of the business and is all the more noteworthy when set against a difficult macro trading environment and clients reducing discretionary spend. The UK pensions and benefits market continues to evolve. The process of closure and de-risking of Defined Benefit Schemes and the growth in Defined Contribution Schemes continued into JLT advised on over 20 scheme buy-ins/outs during the year and working with its insurer partners were active in many more. Pension Capital Strategies continues to secure appointments to assist sponsors manage their obligations. A significant number of new clients were secured by its Trustee Solutions business, including Home Retail Group. The Independent Trustee business grew further, winning new mandates and engaging in significant transactions during the year including the ground breaking deficit for equity swap in Uniq PLC and its subsequent 800 million buy-out. The role of an independent trustee is becoming more prevalent as schemes seek experience in negotiating funding positions with sponsors and transactions with third parties. The Employee Benefit Solutions business grew again during the year, supported by JLT s BenPal technology solution. Client implementations have now exceeded 90 and new clients included Hitachi Data Systems, Wilmington Group plc and FNZ. The UK Government confirmed its Auto Enrolment legislation in We see this as a major opportunity over the next three years to support clients as they address compliance. During the year we secured appointments to work with leading retailers Morrisons Supermarkets, Halfords and Staples amongst other important clients. The Wealth Management business grew during the year, with demand from members for pension advice increasing as employers changed schemes and from high earners seeking advice on tax changes to pensions. Our investment management business continues to grow as it attracts more high net worth investors to our platform. Assets under advice or management now exceed 1 billion, up from 600 million at the time of the iimia acquisition in early As the rate of growth of Defined Contribution pension assets accelerates, we see significant opportunity in the provision of investment solutions to these schemes and their members harnessing both our investment consulting expertise in the Defined Benefit market and our investment management experience in the retail market. We will commence reporting our international Employee Benefits results separately from the 2012 interims. These will include revenues and the trading profit line to give a clearer perspective of our international business which we believe offers exciting opportunities particularly in healthcare over the medium term. 20 Jardine Lloyd Thompson Group plc Annual Report 2011

23 Thistle Insurance Services Financial highlights Total Revenue Underlying Trading Profit m m Principal lines of business Direct Online Distributing and underwriting insurance products to consumers and small companies through the internet or via a contact centre. Affinity Working with affinity groups to distribute and underwrite insurance products to their members. 11 Trading Margin 15% % 2010 Public & Social Distributing and underwriting insurance to the Public Sector and to Housing Association tenants. Thistle distributes non-advised insurance products and facilities into niche or 'privileged access' segments of the consumer, small business and not-for-profit sectors. This sales activity is underpinned by a set of underwriting facilities where Thistle has been provided with underwriting authority by various insurers. This allows Thistle to share in the underwriting profitability of its business without taking any capital risk. Thistle sells insurance in one of two ways: Direct - where it sells directly to consumers, small businesses and the not-for-profit sector Intermediated - where it sells through third party brokers who have the relationship with the ultimate customers. Thistle businesses seek to sell to and service their clients through the internet, the telephone and via on the ground sales teams. Thistle tends not to act as a traditional broker, although our London Market business still performs this vital role for independent regional brokers in specialist areas or to complement its broader activity. The relative size of Thistle's insurance premiums by transaction tends to be lower than other parts of JLT and the volumes higher, which therefore requires a robust technology based operating platform and efficient processes in order to transact in a cost effective way. This is an area of significant ongoing investment. Thistle is more exposed than most parts of the Group to the impact of the current crisis on UK consumer confidence, and has faced a very tough trading environment, reflected in the flat performance for the year, although excluding an exited book of unprofitable business Thistle s underlying organic revenue growth was 4%. We remain committed to the Thistle strategy and we have already taken the know-how and business model to Australia and Canada and believe Asia and Latin America also provide good potential opportunities. Business Review Intermediated This Insurance Distributing and underwriting insurance products to a network of more than 1,600 independent regional brokers. This London Market Providing UK independent regional brokers with access to the London Insurance Market. Expacare Distributing and underwriting expatriate healthcare insurance through independent brokers in the UK and abroad. Jardine Lloyd Thompson Group plc Annual Report

24 Business Review Review of Operations Associates Financial highlights Contribution after tax m In 2011 the contribution from our associates after tax was 5.1 million 5.1 compared to 3.7 million in 2010, an increase of 35%. This increase in part reflects the change in shareholding in Siaci 3.7 Saint Honoré, which increased from 20% to 26% in July 2011 and the contribution from GrECo for the full year rather than for six months as in More details of our key associates at 31st December 2011 are set out below. Associate holdings at 31st December 2011 JLT Interest Siaci Saint Honoré France 26% GrECo Central & Eastern Europe/CIS 20% JLT Sterling Mexico 34% Marine & Aviation-JLT Italy 25% Siaci Saint Honoré, France Siaci Saint Honoré, our associate company headquartered in Paris, continues to flourish as a leading provider of insurance broking and employee benefits services to major French companies and multinational corporations. A capital restructuring took place in July which resulted in JLT s shareholding increasing from 20% to 26%. The value of our collaboration with Siaci Saint Honoré and its impact in bringing business to the London Market has continued to grow in 2011, both for Risk & Insurance and Employee Benefits. Siaci Saint Honoré's international healthcare insurance and claims handling operation, principally based in Calgary, Paris, Dubai and Shanghai, also continues to performed well. GrECo, Central and Eastern Europe/CIS JLT has a 20% equity share in the GrECo Group, an independent insurance broker and consultant and market leader in Central and Eastern Europe. Headquartered in Austria, it has 52 offices with 660 employees in 15 countries. Its operations outside Austria are branded GrECo JLT. GrECo saw continued growth in its Austrian business and GrECo JLT continues to develop its presence throughout Central and Eastern Europe and the CIS. The rebranding of these offices and the exclusive European Trading Partnership have enabled new business initiatives to be developed, which are already making good progress. JLT Sterling, Mexico Sterling Re Intermediario de Reaseguro S.A. de C.V, which trades as JLT Sterling, is a joint venture company incorporated in June 2010 in which JLT has a 34% shareholding, the balance of the shares being held by Lorant MS. The business met its financial objectives in 2011, despite extremely challenging trading conditions and the partnership with Lorant MS continues to provide a broad range of opportunities including bringing Mexican business into the international market. Marine & Aviation JLT, Italy At the end of 2011, JLT combined its existing Italian broking business with Marine & Aviation S.p.A. to form Marine & Aviation- JLT taking a 25% share interest in the newly formed joint venture. The combined business has expertise in marine, aviation, corporate clients, high-net worth and affinity. The combined business provides a strong foundation from which to build the leading independent insurance broker in Italy. 22 Jardine Lloyd Thompson Group plc Annual Report 2011

25 Business Review Finance Director s Review The results for 2011 demonstrate the ability of the Group to achieve continued organic growth, with the savings derived from the Business Transformation Programme providing the continued capacity to invest in client facing staff and technology. The results for 2011 demonstrate the ability of the Group to achieve continued organic growth, with the savings derived from the Business Transformation Programme providing the continued capacity to invest in client facing staff and technology. Underlying trading profit for the year increased by 13% to 147 million, an increase of 10% at constant rates of exchange (CRE), reflecting: revenue growth of 10% to million, an increase of 8% at CRE. This increase comprised organic growth of 7% and a combined contribution from acquisitions and growth in investment income of 1%. Investment income on fiduciary funds was 6.8 million (2010: 5.6 million); an improvement in the underlying trading margin, which increased from 17.4% to 18%, notwithstanding continued investment for growth. As a consequence the operating cost ratio has continued to reduce. Reported profit before tax was million (2010: million) which includes net exceptional and non-recurring costs of 13.1 million, comprising Business Transformation Programme costs of 8.9 million, costs of 1.9 million associated with the Jardine Matheson share purchase, restructuring costs in Italy of 1.7 million and acquisition integration costs of 0.6 million. Simon Mawson Finance Director The tax charge for the year was 39.2 million, representing an underlying tax expense of 41.6 million. The 2010 comparative tax expense included non-recurring tax credits of 13.2 million, primarily relating to a reassessment of the Group's tax position, following the resolution of several long outstanding tax matters with various tax authorities which amounted to 10.3 million. The underlying effective tax rate for 2011 was 28% (2010: 29%). Profit after tax and non-controlling interests was 88.7 million (2010: 90.7 million). Diluted earnings per share were 40.4p on a reported basis (2010: 41.7p). Business Transformation Programme The Group's three-year Business Transformation Programme remains on schedule to complete in June The purpose of the Programme is to streamline back-office processes and enhance delivery of the services we provide to clients. By the end of the Programme, this initiative is expected to deliver some 23 million of recurring cost savings per annum, in return for cumulative one-off costs of 27 million. Due to the material size of this non-recurring expenditure, the one-off costs to achieve the Programme are included as exceptional. Business Review H H m Actual Actual Actual Forecast Incremental One-off costs (7) (7) (9) (4) Associated benefits Cumulative One-off costs (7) (14) (23) (27) Recurring benefits Jardine Lloyd Thompson Group plc Annual Report

26 Business Review Finance Director s Review Performance Summary Despite challenging trading conditions continuing in all its key markets, JLT once again delivered a strong financial performance in This is summarised in the table below which includes a comparison using constant rates of exchange (CRE). m Total Revenue Trading Margin Underlying Trading Profit ** 2011 Growth CRE Organic* 2011 CRE CRE 2010 RISK & INSURANCE Retail businesses: Australasia % 6% 5% 28% 28% 28% Asia % 29% 29% 21% 23% 21% Latin America % 19% 19% 31% 31% 28% Canada 30.0 (1%) (2%) (2%) 13% 13% 16% Continental Europe 20.9 (4%) (7%) (17%) (3%) (3%) 16% (0.6) (0.6) 3.5 Insurance Management 5.0 2% 4% 5% 8% 8% 6% South Africa (0.7) (0.7) % 11% 10% 22% 23% 24% London Market businesses: JLT Specialty % 10% 9% 21% 20% 21% Lloyd & Partners % 2% 2% 23% 22% 24% JLT Reinsurance % 4% 3% 22% 21% 21% % 7% 7% 21% 21% 21% RISK & INSURANCE % 9% 8% 22% 22% 22% EMPLOYEE BENEFITS % 5% 5% 19% 19% 17% THISTLE INSURANCE SERVICES % 15% 14% Central Overheads (25.1) (25.1) (27.0) % 8% 7% 18.0% 17.8% 17.4% Underlying trading profit Associates after tax Underlying net finance costs (4.5) (3.5) Underlying profit before taxation Net exceptional costs (13.1) (10.7) Profit before taxation for the year Underlying tax expense (41.6) (37.7) Non-recurring tax credit and tax on net exceptional items Non-controlling interests (6.6) (4.2) Profit after taxation (after non-controlling interests) Underlying profit after taxation (after non-controlling interests) Diluted earnings per share 40.4p 41.7p Underlying diluted earnings per share 45.3p 40.5p *Organic growth is based on total revenue excluding the effect of currency, acquisitions and disposals and investment income. Total revenue comprises fees, commissions and investment income. **Underlying results exclude exceptional and non-recurring items. CRE (Constant rates of exchange). 24 Jardine Lloyd Thompson Group plc Annual Report 2011

27 Operating cost ratio Underlying operating costs divided by fees and commissions Dividend cover Underlying diluted earnings per share divided by total dividend per share 84.2% 83.2% 82.7% 1.6x 1.8x 1.9x Dividends The board is recommending a final dividend in respect of 2011 of 14.8p per share. Together with the interim dividend of 9.2p per share, this brings the total dividend to 24.0p per share, an increase of 7%. This represents improved dividend cover of 1.9 times, based on underlying diluted earnings per share, compared to 1.8 times in Balance sheet and cash flow Net debt at 31st December 2011 was 100 million. The increase of 24 million compared to 2010 was primarily due to our continuing acquisition programme. Net pension liabilities increased by 48 million to 121 million. This is mainly due to a reduction in the discount rate used to measure accounting liabilities. Otherwise the key pension scheme assumptions broadly remain on a consistent basis with Financing and liquidity Following the successful refinancing in 2010 the Group has committed long term unsecured debt facilities equivalent to 352 million with maturities between 2015 and Gross borrowings as at 31st December, 2011 were 190 million with unutilised headroom of approximately 162 million. This provides JLT with core committed long term funding and flexibility to support the future growth of the business. Foreign exchange management and currency risk The Group has transactional and translational foreign exchange exposures. The transactional exposure arises primarily in the London Market businesses, which have a sterling cost base but which have a significant proportion of US dollar-denominated revenues (approximately US$265 million in 2011, representing 20% of the Group s revenue). Business Review USD Revenue Protection Full Year Projections Forward Rates Actual Hedging rates achieved as at 28th Feb 2012 $1.52 $1.54 $1.54 $1.56 $1.53 % revenue hedged 100% 86% 85% 70% 20% Market forward rates as at 28th Feb 2012 $1.58 $1.57 $1.57 $1.56 Blended rates after hedging $1.52 $1.54 $1.54 $1.56 $1.55 Value of $265m revenue 174m 172m 172m 170m 171m Approx year-on-year revenue impact 3m ( 2m) - ( 2m) 1m Jardine Lloyd Thompson Group plc Annual Report

28 Business Review Finance Director s Review The Group continues to operate a prudent hedging programme to reduce the volatility caused by exchange rate movements, by entering into forward foreign exchange contracts. In 2011, the Group achieved an average rate of US$1.52. The Group s hedging position as at 28th February 2012 is set out in the table on page 25 along with an indication of the potential yearon-year revenue impact based on current market rates. As a guide, each one cent movement in the achieved rate (taking into account the hedges in place) currently translates into a change of approximately 1 million in revenue, with a corresponding impact on trading profit equal to approximately 65% of the revenue change. Based on current hedging levels, in 2012 it would take a movement of 7 cents in the spot rate to create a 1 cent movement in the achieved rate. The Group has significant investments in overseas operations. Movements in exchange rates between balance sheet dates will affect the sterling value of the Group s consolidated balance sheet. The Group does not hedge exposure to currency movements that affect the translation of the profits of overseas subsidiaries earned in foreign currencies, except to the extent that those profits are expected to be distributed to the holding company. The currency profile of the Group s borrowings is managed to mitigate exposure to translation exposures where practical and cost effective. Interest rate risk The Group has both interest bearing assets 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 and borrowings. Each 1% movement in the average achieved rate of return impacts interest income receivable by approximately 7.0 million, based on average invested balances. Counterparty credit risk The Group's gross exposure to credit risk at 31st December 2011 is 787 million, representing own cash, fiduciary funds, investments and deposits, derivative assets and trade receivables. The Group maintains a counterparty policy based on credit analysis, market data and published ratings criteria to manage the concentration of funds and exposure to individual counterparties. Deposit limits are assigned to each counterparty appropriate to its credit rating and overall financial profile. The Group manages its own cash and invested fiduciary funds in the form of deposits with investment grade banks, AAA money market funds and other secure short-term money market instruments. All deposit counterparties are subject to review at Board level. The Group s approval criteria include a requirement that financial institutions maintain a minimum long-term rating of A, with additional reference to credit default swap spreads and capital base and Tier 1 capital ratios. All exposures to individual counterparties are subject to a formal credit limit to control concentrations of credit exposure and limit the impact of default risk. Counterparty limits, ratings, credit default spread rates and capital base, together with utilisation levels, are reviewed regularly and reported to the Group Board and Audit & Risk Committee. The respective credit quality by rating of each class of financial asset is included within the notes to these accounts. Capital risk and liquidity The Group's objectives when managing capital are to safeguard the ability to continue to provide returns for shareholders and benefits for other stakeholders and to maintain an efficient capital structure to ensure an optimal cost of capital. In order to achieve these objectives, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group manages its balance sheet through monthly reviews, controls and financial reporting. The Group continues to maintain adequate, committed, long-term credit facilities to ensure that it is well positioned to meet seasonal capital requirements and to support the strategic growth of the business. There are no restrictions on the use of these facilities in the normal course of business. The insurance broking operations within the Group operate in a number of jurisdictions where local regulation requires a minimum level of capital to be maintained. The total regulatory capital to be held by the Group is not considered significant in the context of the total available capital. The total capital of the Group at 31st December 2011 and 2010 was as follows: m Total own funds (90.1) (69.3) Borrowings Net debt Total equity Total capital Jardine Lloyd Thompson Group plc Annual Report 2011

29 Acquisitions On 10th October 2011, the Group took a 50.1% holding in Alta SA, the parent company of Orbital Corredores de Seguros a leading insurance broker in Chile for a consideration of 9.73 million. This business contributed revenue of 2.1 million and a net profit of 763,000 for the period since acquisition. On 29th December 2011, the Group acquired FBD Insurance Brokers Limited in Ireland, a specialist in the agri-food sector. This contributed no revenue or net profit to the Group for On 31st December 2011 the Group disposed of its shareholdings in its Italian operations, Jardine Lloyd Thompson S.p.A. and Jardine Lloyd Thompson S.r.l., when these businesses were merged with Marine & Aviation S.p.A., an independent Italian insurance broker with strong positions in the marine and aviation sectors as well as other growing specialisms. The Group has a 25% stake in the newly formed joint venture, which did not contribute any revenue or profit to the Group in On 15th February 2012 the Group agreed to combine its shareholding in its Spanish operation, JLT-Siaci Espana S.L., with that of March-Unipsa Correduria de Seguro, Spain s largest independent insurance broker with specialty capabilities including construction, marine and cargo and tourism. The Group acquired a 25% stake in the merged business for a total consideration of 16.8 million. Business Review Basis of presentation The Group's 2011 financial statements include a consolidated income statement, balance sheet, statement of comprehensive income, statement of changes in equity and a statement of cash flows. These statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. Statutory accounts of individual Group companies are prepared, as required, in accordance with applicable local accounting standards. The balance sheet of the parent company, Jardine Lloyd Thompson Group plc, which is included in this Annual Report, has been prepared in accordance with generally accepted accounting principles in the UK. Simon Mawson Finance Director 20th March 2012 Jardine Lloyd Thompson Group plc Annual Report

30 Business Review Risk Management Report Responsibility and accountability for risk management is shared across all Group companies, with ultimate responsibility resting with the Board. Each operating company maintains controls and procedures appropriate to its own business and regulatory environment while conforming to Group standards and guidelines. The identification and mitigation of major business risks is the responsibility of operational management and the Board. As a global company JLT faces a range of risks, each of which has the potential to impact on financial performance or the achievement of strategic business objectives. JLT's Group-wide risk management activities are supported and co-ordinated through a centralised Group risk management team. Assurance is gained through financial, operational, compliance and quality based auditing. Significant failures are reported to the executive directors to ensure that remedial action is taken. The responsibility for internal controls within associated undertakings rests essentially with the senior management of those operations, the role of the Group being to monitor its investments and to exert influence, normally through Board representation. The directors acknowledge that they are responsible for the Group s risk management and internal control systems and for reviewing their effectiveness. The Board has undertaken a review and is satisfied that appropriate processes and procedures are in place within the Group's businesses. In view of the continued expansion of the Group these need to be continually monitored to ensure that they keep pace with the requirements of the business. Further review and development of the Group's risk management and control framework will be undertaken in Corporate governance and oversight Our risk governance framework acknowledges that responsibility for the management of risk resides with the operational management of our businesses, and allocates responsibility for the oversight of risk management to the local Boards and Audit & Risk Committees. This structure operates across our international operations with ultimate responsibility and oversight resting with the Group Board and the Group Audit & Risk Committee. Principal risks The principal risks faced by the Group are summarised in the table opposite. Financial risks The principal financial risks are also discussed in more detail in the Finance Director s Review on pages 23 to Jardine Lloyd Thompson Group plc Annual Report 2011

31 Principal Risks STRATEGIC AND OPERATIONAL RISKS Nature of Risk Risk Mitigation Strategic Risks Loss of Key Staff Risks to the business model arising from changes in external events, our markets and customer behaviour as well as risks arising from mergers and acquisitions Risks arising from the inability to retain key staff within our core business operations GEC and Board review of strategic risks Strategic review and planning process Global efficiency initiative Acquisition due diligence and risk assessment processes Succession planning processes Effective appraisal and development programmes Robust contracts of employment Business Interruption Loss of IT Environment Information Security Risk of business interruption arising from a major external event Risks arising from non-performance of an IT supplier, malicious act, cyber crime and staff not following Group IT policies and procedures Risk of loss of records, breach of confidentiality or inadequate security measures Dedicated Group business continuity management function Detailed Group business continuity policy and procedures Regular independent review and testing of business continuity plans Detailed IT policy and procedures in place Strong governance procedures over IT outsourcing and service level agreements in place Monitoring of compliance with a Group IT security policy and service level agreements Limits of authority in place. Group Information Security Policy Risk-based monitoring and reviews monitoring performed by Group Information Security Officer and Internal Audit Business Review CONDUCT OF BUSINESS RISKS Errors & Omissions Regulatory Sanctions/Financial Crime Risks arising from non-compliance with operating procedures in place across the Group, or alleged negligence in provision of services/advice Risks arising from non-compliance with or misinterpretation of local and international regulations and failure to meet regulatory standards Common operating procedures and compliance policy Continuous training in errors & omissions avoidance Central and regional risk and compliance monitoring Strong procedural and systems controls including workflow management Insurance Regular and ongoing quality and compliance audits Common operating procedures and compliance policy Continuous staff training programmes Central and regional risk and compliance resource Regular and ongoing compliance audits Insurance FINANCIAL RISKS Capital Risk and Liquidity Foreign Currency Interest Rate Risk Risks arising from an inability to maintain an efficient capital structure and ensure an optimal cost of capital Risk of adverse impact on the balance sheet or earnings arising from exposure to significant foreign currency transactions Risk of adverse impact on earnings from net exposure to changes in interest rates Monthly reviews of the Group balance sheet Management of refinancing and liquidity risk including maintenance of adequate, committed credit facilities Compliance with regulatory minimum capital resources and regular stress testing Prudent management of currency exposures through the maintenance of a rolling hedging programme using forward foreign currency transactions and derivatives where appropriate Regular review and sensitivity analysis Prudent use of interest rate hedging instruments where appropriate to hedge future interest rate exposures Counterparty Risk Risk of loss of own cash, fiduciary funds, investments and deposits, derivative assets and trade receivables as a result of the failure of key counterparties Board approved investment and counterparty policy to: - limit the concentration of funds and exposure with any one party - define cash and investments policy Active management and monitoring of counterparty limits, financial strength and credit profile of key counterparties Regular review by Board and Audit & Risk Committee of counterparty limits, ratings, credit default swap spread rates, utilisation and compliance with applicable regulation Jardine Lloyd Thompson Group plc Annual Report

32 Corporate Governance Directors Profiles Jardine Lloyd Thompson Group plc Annual Report 2011