Chief executive Toby Esser admits broker has ‘inefficiencies that need to be addressed’
Broking group Cooper Gay Swett & Crawford (CGSC) has embarked on a cost-cutting plan after rating agency Standard & Poor’s downgraded its credit rating to B- from B.
CGSC group chief executive Toby Esser said: “The by-products of our successful organic and acquisitive growth over the last 18 months are some profit-reducing inefficiencies that need to be addressed.
“Our 2013 results brought the less efficient aspects of our operating model into sharp focus, and have been a catalyst for positive change in reviewing how we operate across the group.”
S&P downgraded the broker’s credit rating because of a “continued decline in CGSC’s operating performance in the first half of 2014 relative to our expectations.”
The declines in the first half of 2014 follow a 35% decline in earnings before interest, tax, depreciation and amortisation (EBITDA) in 2013, which S&P said was mainly caused by “challenges” in the broker’s Latin American and London reinsurance broking business.
This caused CGSC’s debt-to-earnings ratio to jump to 9.5 times at the end of 2013 from 6.3 times in the previous year.
S&P had thought CGSC would be able to reduce the debt level to seven times earnings by the end of 2014, but at the half-year stage it had only slightly decreased to 9.2 times.
The rating agency said: “We believe that CGSC’s financial profile will not improve to a level commensurate with its current rating by year-end 2014.”
Despite the downgrade Esser was sanguine about CGSC’s future performance.
He said: “2013 was the first time in CGSC’s history that the business did not grow substantially in profit terms.
“The challenges facing the group continue to have an effect in 2014, but, as recognised by S&P, our focus on reducing costs, the significant acquisitions of NMB and Epsilon, the launch of start-ups ProPraxis, Latitude, Cooper Gay Dubai and Swett & Crawford Latin America, and the tactical sales strategies we have implemented are all beginning to have a positive impact.
“As a clear demonstration of this emerging upward trend July 2014 was our largest ever revenue month in CGSC’s history, and an excellent indicator that we are heading in the right direction.”
He added: “Despite the acquisitions and launches of some excellent businesses over the last 12 months we need to take some corrective action,” continued Esser. “Our focus is now on creating the best operating model and structure for our group, and continuing to instil a dynamic but efficient culture across our global businesses.”