Motor insurer in huge cost-cutting drive heads for leap in profits

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CHURCHILL owner Direct Line Group is expected to post a leap in half-year profits this week as it refuses to get dragged into a motor insurance price war and it ramps up cost-cutting efforts.

The UK’s biggest motor insurer recently announced three site closures and said another 2,000 jobs were under threat – up to a quarter of them at three offices in Leeds – as it revealed plans to more than double its original cost savings target to over £200m in gross annual savings by 2014, or £130m a year on a net basis. Nearly 500 jobs could be affected at offices in The Headrow, The Wharf and at Pudsey.

Direct Line, which also owns brands including Green Flag and Privilege, has already axed 1,200 jobs since last August under the cost-cutting drive.

Profits surged 47 per cent to £94.3m in the first three months of the year thanks to cost savings and unusually low weather-related claims.

It also put profit over sales volumes in its motor arm by holding prices while rivals slashed premiums, as well as by cutting the number of new young drivers it takes on who are deemed a bigger risk.

This saw gross premiums fall 4.5 per cent during the first three months of the year to around £1bn, but analysts at Numis Securities said the focus on profit “bodes well”.

They are forecasting a 21 per cent hike in operating profits in the first half, to £270m. Improving trends in bodily injury claims are also expected, according to Numis.

Direct Line, which reports on Friday, was spun out of Royal Bank of Scotland (RBS) when it floated on the stock market last year. Taxpayer-backed RBS floated Direct Line to appease European Union rules on state aid. RBS still owns 48.5 per cent of the insurer but must sell its entire stake by the end of 2014.

Meanwhile, the rising popularity of online and mobile betting will be in sharp focus when bookmaker William Hill also reports interim figures on Friday.

It saw sums wagered online on sports outstrip those made “over the counter’’ in its high street betting shops throughout the first quarter, with increasing numbers of bets made through its mobile apps. Its app was downloaded 45,000 times on Grand National day and 51,000 times during the Cheltenham Festival. Analysts are pencilling in a 12 per cent rise in half-year pre-tax profits to £147m.

Ivor Jones, analyst at Numis Securities, is expecting more “strong growth” in the online business, predicting that the 45 per cent contribution to overall earnings seen in the first quarter will have increased even further.

William Hill employs more than 15,000 people, including about 3,000 staff in Yorkshire, of which more than 1,100 are based in Leeds, where the company has two offices. The company also has a call centre in Sheffield.