Broker has slashed debt from £10m to £1.1m, opening up acquisition opportunities

Jelf group chief executive Alex Alway believes that consolidators will seek to reduce their debt financing levels in the future as they become more cautious about taking on too much debt.

Alway was speaking at the release of Jelf’s results for the six months to 31 March 2012, which showed that the company made an after-tax profit of £1.1m.

That was up 41% on the £810,000 it posted in the comparable period last year.

During that period, Jelf’s insurance business revenues climbed 4% to £23.3m (H1 2011: £22.3m), while new business sales increased 14%, driven by organic growth.

The broker also sharply reduced net debt to £1.1m from the 2011 level of £10m, enabling it to take advantage of new acquisition opportunities.

“I think [debt financing] has a role to play because it is an efficient use of capital,” Alway said.

“I don’t think we’ll see it as much as it used to be. People are a bit more cautious about rolling up debt, so I think it won’t be seen at the levels that were previously there.”

Organic revenue growth

Alway said the results proved that Jelf was ahead of the curve, and was now reaping the rewards of its reorganisation in 2009-10 and of two years of solid investment.

The company launched a £13m three-year strategic framework in January, focusing on organic revenue growth and increased margins through sales productivity and efficiency improvements, particularly offering insurance to existing clients.

And its systems upgrade and integration is scheduled to be completed later this year, having also upgraded its offices in Gillingham and Plymouth.

Revenues were flat at £35.2m (H1 2011: £35m), but earnings before interest, tax, depreciation amortisation and exceptional items (EBITDAE) rose 5% at £4.4m (H1 2011: £4.2m), owing to lower cost of sales at £3.6m (H1 2011: £4.1m).

The EBITDAE margin increased to 12.6% from 12.1%.

In a statement, Alway said: “The group continues to make progress and the investment within the business in growth initiatives and in further improving cost efficiencies continues to make a difference.

“It is anticipated that this will drive improved performance in 2012/13 and beyond.”

Expanding affinity business

Alway indicated that conditions would continue to be difficult, pointing out that the motor rate movements reported at the previous financial year-end had fallen away as insurers reappraised claims provisions in light of performance.

“There have been some increases in medical insurance and group risk insurance ratings,” he said. “But these remain the exception and no other improvement of insurance ratings has been detected to date.

Alway said that Jelf would be expanding its affinity business in the second half of 2012 after poaching a team from a competitor.

“The final elements of the systems integration will be completed in the second half of 2012 and will leave the insurance business in a good shape for expansion,” he added. “We plan to continue to improve our margins despite a lack of improvement in the rating environment.”

Jelf bought two small insurance and employee benefits business portfolios during the first six months of the year, and Alway said the company was constantly looking at potential targets, but they needed to be the right fit.

Jelf’s board said it would review the group’s dividend policy before year end.

Talking points …

● Will consolidators change their strategy by focusing on paying down their debt ahead of schedule, rather than amassing too much debt burden?
● When will Jelf move back into the acquisition market, having not made a significant takeover for four years and with its competitors looking to swoop for potential targets?
● What return on investment will Jelf see from its new three-year strategic framework implemented this year, particularly given the current tough trading environment?