Direct Line Insurance Group PLC Update on business transformation (8555H)

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RNS Number : 8555H

Direct Line Insurance Group PLC

26 June 2013

Direct Line Insurance Group plc

Update on business transformation

26 June 2013

Direct Line Insurance Group plc ("Direct Line Group" or "the Group") today announces further initiatives to improve its operational efficiency as part of the continued implementation of its business transformation plan.

On 3 August 2012 the Group announced a cost savings plan targeting gross annual cost savings of GBP100 million in 2014, when compared with the 2011 cost base of GBP1,134 million.(1) The benefits of this plan were expected to offset other anticipated increases in expenses, with the aim of keeping the cost base broadly flat between 2011 and 2014.

Today, Direct Line Group is announcing proposed further cost reduction initiatives, in addition to those previously disclosed, with the result that the Group's cost base for 2014 is now targeted to be approximately GBP1,000 million.(2) This reflects a net reduction in annual costs of approximately GBP130 million when compared with the 2011 cost base, and represents gross annual cost savings of more than twice the original GBP100 million target announced in August 2012.

As part of these further initiatives, it is anticipated that approximately 2,000 roles may become redundant. The Group has begun consultation with staff and their representative bodies. Those individuals potentially impacted are largely employed in roles across head office and support functions.

Direct Line Group will maintain employee consultation throughout the process, whilst aiming to mitigate the impact of staff redundancy through redeployment and identifying opportunities with other potential employers. The Group has first hand experience of successful staff redeployment and will do its utmost to assist those affected in seeking new employment opportunities.

The Group's original cost savings plan included an estimate of restructuring costs of GBP100 million to deliver the targeted GBP100 million of gross annual cost savings. Following today's announcement, restructuring costs to deliver all cost reduction initiatives, including provisions for onerous property leases, are now estimated to be GBP180 million. Of this GBP30 million was recognised in 2012 with the remaining GBP150 million expected to be recognised in 2013, or in 2014, with the phasing to be finalised(3) . The expected costs of migrating the Group's IT infrastructure, is unchanged at GBP100 million.

The cost reduction initiatives serve to underpin the aim of achieving the Group's target of a 15% Return on Tangible Equity. Direct Line Group will continue to explore opportunities to improve the performance of the business across the Group's five strategic pillars of distribution, pricing, claims, costs, and Commercial and International.

Paul Geddes, Chief Executive Officer of Direct Line Group, said:

"This is another step in the ongoing transformation of Direct Line Group and an important part of our aim to regain competitive edge. While we continue to invest in the business with the aim of winning in a market which is changing fast, it's clear that we need to become more efficient to deliver the good service and value our customers expect. We have not made these proposed changes lightly and understand the impact they will have on our people. As we have done in the past, we will deal fairly and carefully with those impacted, and do all we can to support them through these changes."

For further information, please contact:

 
 Neil Manser 
 Director of Investor Relations and Corporate 
  Development 
 Tel: [phone] 
 
 Rob Bailhache 
 Director of Communications 
 Tel: [phone] 
 

Notes

(1) Operating expenses from ongoing operations of GBP838 million and claims handling expenses of GBP296 million.

(2) Operating expenses from ongoing operations and claims handling expenses

(3) The table below sets out the current estimates for Restructuring and one-off costs for 2013 and 2014 and the actual reported figures for 2012. Table assumes all restructuring costs relating to cost reduction initiatives are incurred in 2013, although phasing remains to be finalised.

 
                                2012    2013    2014   Total 
                                GBPm    GBPm    GBPm    GBPm 
============================  ======  ======  ======  ====== 
 Cost reduction initiatives       30     150       -     180 
============================  ======  ======  ======  ====== 
 IT migration                      -      70      30     100 
============================  ======  ======  ======  ====== 
 Other                           160       -       -     160 
============================  ======  ======  ======  ====== 
 Total                           190     220      30     440 
============================  ======  ======  ======  ====== 
 

Company Overview

Direct Line Group is the largest retail general insurer in the UK, the number one direct motor insurer in Italy and the number three direct motor insurer in Germany. We operate a multi-brand, multi-product and multi-channel business that covers the majority of customer segments in the UK for personal lines general insurance and small medium-sized enterprise commercial insurance. Our brands offer the following products: motor, home, rescue, pet, travel and commercial.

This information is provided by RNS

The company news service from the London Stock Exchange

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