Willis Group Reports Third Quarter 2011 Results
4% reported growth and 2% organic growth in commissions and fees compared with third quarter of 2010
Reported operating margin of 11.8% compared with 14.5% in the third quarter of 2010; adjusted operating margin
of 13.8% compared with 14.5% in the third quarter of 2010
Reported earnings per diluted share of $0.34 compared with $0.37 in the third quarter of 2010; adjusted
earnings per diluted share of $0.41 compared with $0.37 in the third quarter of 2010
NEW YORK, October 24, 2011 – Willis Group Holdings plc (NYSE: WSH), the global insurance broker, today
reported results for the quarter and nine months ended September 30, 2011.
“We achieved steady 2% organic growth in commissions and fees in a quarter complicated by a number
of factors, including the impact from our operational review charge, further deterioration in the results of
the Loan Protector business we talked about last quarter, and some favorable factors, including tax-related adjustments,"
said Joe Plumeri, Chairman and Chief Executive Officer, Willis Group Holdings. “Underlying all of this, however,
organic growth within the Global and International segments came in strong – especially in light of
the difficult markets. That growth was offset by negative 4% reported and organic growth in our
North America segment driven by the disappointing Loan Protector results. Excluding the impact from that business,
reported and organic growth in North America would have been flat. Importantly, we continue to execute
against our plan to reduce expenses while implementing revenue initiatives and we believe we are well
positioned for growth in 2012.”
Third Quarter 2011 Financial Results
Reported net income for the third quarter of 2011 was $60 million, or $0.34 per diluted share,
compared with $64 million, or $0.37 per diluted share, in the same period a year ago.
Reported net income for the third quarter of 2011 was negatively impacted by a $15 million
(or $0.06 on a per diluted share basis) charge related to the 2011 operational review, as
detailed later in the release.
Adjusted net income per diluted share, which excludes the impact of items detailed later in the release,
was $0.41 in the third quarter of 2011, an increase of 11% compared with $0.37 in
the third quarter of 2010. Foreign currency movements increased earnings per diluted share by $0.01 compared
with the third quarter of 2010.
Total reported revenues for the quarter ended September 30, 2011 were $762 million compared with $733 million
for the same period last year, an increase of 4%. Total commissions and fees were $755
million, an increase of 4% from $723 million in the third quarter of 2010. Foreign currency
movements increased reported commissions and fees by 2% compared with the year ago period. Investment income
was $7 million, compared with $10 million in the third quarter of 2010.
Organic growth in commissions and fees was 2% compared with the third quarter of 2010. Organic growth
reflected net new business growth driven by improved client retention and new business generation.
North America Segment
In the North America segment, reported and organic commissions and fees declined 4% compared with the third
quarter of 2010. The decline in commissions and fees was primarily due to lower revenue generated
by Loan Protector. Excluding the Loan Protector results from both periods, organic commission and fee growth
in the North America segment was flat compared with the third quarter of 2010.
The North America segment continues to face headwinds from ongoing softness in the overall insurance rate environment
and a lack of sustained improvement in the US economy. Operating margin was 19.5% compared to
21.3% in the third quarter of 2010, primarily due to lower commissions and fees as a
result of the decline in the Loan Protector business, partially offset by cost savings, largely driven
by the 2011 operational review.
The International segment reported 11% growth in commissions and fees compared with the same period in 2010,
including a 6% favorable impact from foreign currency movements. Organic growth in commissions and fees was
5%, including double-digit expansion in Latin America and Eastern Europe. Continental Europe grew low-single digits, while
the UK and Ireland retail market was down slightly. Operating margin was 1.9% compared with 4.3%
in the third quarter of 2010. Higher amortization of retention awards and continued investment in future
growth were the primary drivers of the margin decline, partially offset by the net effect of
favorable foreign exchange movements.
The Global segment, which comprises the Reinsurance, Global Specialties, London Markets Wholesale, and Willis Capital Markets &
Advisory business units, reported 12% growth in commissions and fees compared with the third quarter of
2010, including a 3% favorable benefit from foreign currency movements. Organic growth in commissions and fees
was 9%. Each of the business units recorded positive growth, highlighted by Reinsurance which grew low
double digits, driven primarily by new business growth and secondarily by revenues that may or may
not recur in future periods related to a profitability initiative in that business unit. Global Specialties
grew mid-single digits, driven by Energy, Marine and Construction while London Markets Wholesale and Willis Capital
Markets & Advisory, each also had a positive quarter. Operating margin was 22.4% compared with 23.1%
in the year ago quarter. The decrease in operating margin was driven by the net effect
of unfavorable foreign currency movements and higher amortization of retention awards, partially offset by lower pension
expense and strong growth in commissions and fees.
Reported salaries and benefits were $490 million compared with $462 million in the third quarter of 2010.
Salaries and benefits, as a percentage of revenues, were 64.3% compared with 63.0% in the third
quarter of 2010. Reported salaries and benefits included $7 million of severance and other costs associated
with the 2011 operational review charge. Excluding the impact of the charge, salaries and benefits as
a percentage of revenues would have been 63.4%.
Incentive compensation included $48 million of amortization of cash retention payments in the third quarter of 2011
compared with $28 million in the third quarter of 2010. As of September 30, 2010, December
31, 2010 and September 30, 2011, approximately $193 million, $173 million, and $243 million, respectively, was
included in other assets on the balance sheet, representing the unamortized portion of cash retention payments
made before those dates.
Reported other operating expenses were $147 million compared with $129 million in the third quarter of 2010.
Reported other operating expenses included $8 million of costs associated with the 2011 operational review. Other
operating expenses were favorably impacted by a $5 million release of funds related to potential legal
liabilities. Third quarter 2010 other operating expenses benefited from the release of a $7 million legal
accrual. Other operating expenses, as a percentage of revenues, were 19.3% compared with 17.6% in the
third quarter of 2010. Excluding the impact of the 2011 operational review charge, other expenses as
a percentage of revenues would have been 18.2%.
Reported operating margin was 11.8% compared with 14.5% for the same period last year. Excluding the 2011
operational review charge, adjusted operating margin was 13.8% compared with 14.5% a year ago. The decline
in the third quarter 2011 adjusted operating margin compared to the comparable prior period was primarily
due to the negative impact attributable to Loan Protector’s reduced financial performance and increased amortization of
retention awards, partially offset by savings associated with the 2011 operational review.
Nine Months 2011 Financial Results
Reported net income for the nine months ended September 30, 2011 was $179 million, or $1.02 per
diluted share, compared with $357 million, or $2.09 per diluted share, in the same period a
year ago. Reported net income was impacted by certain items, as detailed later in the release.
Adjusted earnings per diluted share, which excludes the impact of items detailed later in the release, were
$2.30 compared with $2.18 in the comparable period of 2010. Foreign currency movements positively impacted adjusted
earnings per diluted share by $0.06 compared to the same period in 2010.
Total reported revenues were $2,633 million compared with $2,504 million for the same period last year, an
increase of 5%. Total commissions and fees were $2,609 million, an increase of 5% from $2,475
million for the first nine months of 2010. Foreign currency movements increased reported commissions and fees
by 2% compared with the same period in 2010.
Organic growth in commissions and fees was 3% compared with the first nine months of 2010. This
growth reflected net new business won of 4% partially offset by a negative 1% impact from
declining premium rates and other market factors.
Reported operating margin was 18.4% compared with 23.0% for the same period last year. Excluding items detailed
later in the release, adjusted operating margin was 23.6% for the first nine months of 2011,
flat compared with the year ago period.
2011 Operational Review
The Company recorded a pre-tax charge of $15 million (or $0.06 on a per diluted share basis)
in the third quarter of 2011 and $130 million (or $0.53 on a per diluted share
basis) in the nine months ended September 30, 2011, related to the previously announced operational review.
The Company has identified further opportunities for efficiencies and now anticipates that the total pre-tax charge
in 2011 related to the operational review will be approximately $160 million compared to the previously
announced estimate of approximately $130 million.
The Company anticipates that the operational review will now result in total cost savings of approximately $75
million in 2011 compared to the previously announced estimate of approximately $65 to $75 million. It
is also anticipated that the Company will achieve annualized cost savings of approximately $115 to $125
million beginning in 2012 compared to previously announced estimates of $95 to $105 million.
The tax rate was 4% for the quarter ended September 30, 2011 and 17% for the nine
months ended September 30, 2011. During the third quarter, the Company recorded an $8 million (or
$0.05 on a per diluted share basis) tax benefit to update the Company’s estimated annual effective
tax rate to 22% from the previously estimated 25%, driven by a change in estimate of
the impact of costs associated with the 2011 Operational Review and changes in the geographic mix
of income. Excluding the impact of certain non-recurring items, the estimate of the annual effective tax
rate would be approximately 24%.
As of September 30, 2011, cash and cash equivalents totaled $363 million and total debt was $2.4
billion. Total equity was $2.7 billion.
The Board of Directors declared a regular quarterly cash dividend on the Company’s ordinary shares of $0.26
per share (an annual rate of $1.04 per share). The dividend is payable on January 13,
2012 to shareholders of record on December 30, 2011.
“Make no mistake, Willis is making significant progress towards the goals that we had set out earlier
this year. We are achieving expense savings from our operational review and gaining traction in many
of our revenue initiatives,” said Mr. Plumeri. “Unfortunately, Loan Protector has had a greater than anticipated
decline this quarter and that is expected to continue in the fourth quarter, resulting in a
greater than anticipated negative impact on our earnings and margins in 2011. Accordingly, we now anticipate
our full year 2011 adjusted earnings per share will fall in the range of $2.70 and
$2.80 per diluted share, inclusive of the expected negative impact of Loan Protector in the fourth
quarter but exclusive of any positive or negative impact from foreign exchange in the fourth quarter.
Further, we now expect to achieve full year 2011 adjusted operating margin in the mid-22% range.
Looking ahead, I remain steadfast in my conviction that we can and will achieve all our
goals and we are on the right trajectory towards delivering significant growth in adjusted operating margin
and adjusted earnings per share in 2012.”
Conference Call and Web Cast
A conference call to discuss the third quarter 2011 results will be held on Tuesday, October 25,
2011, at 8:00 AM Eastern Time. To participate in the live teleconference, please dial (866) 803-2143
(domestic) or +1 (210) 795-1098 (international) with a pass code of “Willis”. The live audio web
cast (which will be listen-only) may be accessed on the Investor Relations page on www.willis.com.
This call will be available by replay starting at approximately 10:00 AM Eastern Time, and through
November 25, 2011 at 11:59 PM Eastern Time, by calling (866) 495-6480 (domestic) or +1 (203)
369-1769 (international) with no pass code, or by accessing the website.
Willis Group Holdings plc is a leading global insurance broker. Through its subsidiaries, Willis develops and delivers
professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public
entities and institutions around the world. Willis has more than 400 offices in nearly 120 countries,
with a global team of approximately 17,000 employees serving clients in virtually every part of the
world. Additional information on Willis may be found at www.willis.com.
We have included in this document ‘forward-looking statements’ within the meaning of Section 27A of
the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, which
are intended to be covered by the safe harbors created by those laws. These forward-looking statements
include information about possible or assumed future results of our operations. All statements, other than statements
of historical facts that address activities, events or developments that we expect or anticipate may occur
in the future, including such things as our outlook, potential cost savings and acceleration of adjusted
operating margin and adjusted earnings per share growth, future capital expenditures, growth in commissions and fees,
business strategies, competitive strengths, goals, the benefits of new initiatives, growth of our business and operations,
plans and references to future successes, are forward-looking statements. Also, when we use the words such
as ‘anticipate’, ‘believe’, ‘estimate’, ‘expect’, ‘intend’, ‘plan’, ‘probably’, or similar expressions, we are making forward-looking statements.
There are important uncertainties, events and factors that could cause our actual results or performance to
differ materially from those in the forward-looking statements contained in this document, including the following:
- the impact of any regional, national or global political, economic, business, competitive, market, environmental and regulatory conditions
on our global business operations;
- the impact of current financial market conditions on our results of
operations and financial condition, including as a result of the impact of the volume of foreclosures,
any insolvencies of or other difficulties experienced by our clients, insurance companies or financial institutions;
our ability to continue to manage our significant indebtedness;
- our ability to compete effectively in
- the impact of the 2011 operational review and our ability to implement and
realize anticipated benefits of such review and the Willis Cause, or any other initiative we pursue;
- material changes in commercial property and casualty markets generally or the availability of insurance products
or changes in premiums resulting from a catastrophic event, such as a hurricane, or otherwise;
the volatility or declines in other insurance markets and premiums on which our commissions are based,
but which we do not control;
- our ability to retain key employees and clients and
attract new business;
- the timing or ability to carry out share repurchases, refinancings or take
other steps to manage our capital and the limitations in our long-term debt agreements that may
restrict our ability to take these actions;
- any fluctuations in exchange and interest rates that
could affect expenses and revenue;
- rating agency actions that could inhibit our ability to borrow
funds or the pricing thereof;
- a significant decline in the value of investments that fund
our pension plans or changes in our pension plan funding obligations;
- our ability to achieve the
expected strategic benefits of transactions;
- our ability to receive dividends or other distributions in needed amounts
from our subsidiaries;
- changes in the tax or accounting treatment of our operations;
- any potential
impact from the US healthcare reform legislation;
- the potential costs and difficulties in complying with
a wide variety of foreign laws and regulations and any related changes, given the global scope
of our operations;
- our involvements in and the results of any regulatory investigations, legal proceedings
and other contingencies;
- risks associated with non-core operations including underwriting, advisory or reputational;
exposure to potential liabilities arising from errors and omissions and other potential claims against us; and
- the interruption or loss of our information processing systems or failure to maintain secure information systems.
The foregoing list of factors is not exhaustive and new factors may emerge from time to time
that could also affect actual performance and results. For more information see the section entitled ‘Risk
Factors’ included in Willis’ Form 10-K for the year ended December 31, 2010 and the Form
10-Q for the quarter ended June 30, 2011. Copies of the Form 10-K and Form 10-Q
are available online at http://www.sec.gov or www.willis.com or on request from the Company as
set forth in Part I, Item 1 ‘Business – Available Information’ in Willis’ Form 10-K.
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and
therefore also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In
light of the significant uncertainties inherent in the forward-looking statements included in this document, our inclusion
of this information is not a representation or guarantee by us that our objectives and plans
will be achieved.
Our forward-looking statements speak only as of the date made and we will not update these forward-looking
statements unless the securities laws require us to do so. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this document may not occur, and we caution you
against unduly relying on these forward-looking statements.
Non-GAAP Supplemental Financial Information
This press release contains references to non-GAAP financial measures as defined in Regulation G of SEC rules.
Consistent with Regulation G, a reconciliation of this supplemental financial information to our GAAP information is
in the note disclosures that follow. We present such non-GAAP supplemental financial information, as we believe
such information is of interest to the investment community because it provides additional meaningful methods of
evaluating certain aspects of the Company’s operating performance from period to period on a basis that
may not be otherwise apparent on a GAAP basis. This supplemental financial information should be viewed
in addition to, not in lieu of, the Company’s condensed financial statements.
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