Willis Group Reports Second Quarter 2012 Results
NEW YORK, August 1, 2012 – Willis Group Holdings plc (NYSE: WSH), the global insurance broker, today
reported results for the quarter and six months ended June 30, 2012.
Highlights of the quarter ended June 30, 2012 include:
- Reported earnings per diluted share from continuing operations of $0.61 compared to $0.48 in second quarter of
2011; adjusted earnings per diluted share from continuing operations of $0.59 compared to $0.61 in year
- Reported commissions and fees decreased 2% compared with the second quarter of 2011;
- Organic growth in
commissions and fees of 2%; led by 7% organic growth in Global Segment;
- Reported operating margin of
21.3% compared to 18.1% in second quarter of 2011; adjusted operating margin of 20.7% compared to
21.5% in year ago quarter;
- Repurchased 1,040,000 shares for approximately $37 million during the quarter.
“The second quarter brought with it modest top-line growth and, more importantly, going forward, we are moving
past many of the difficult comparable items that make it harder to see the progress we’ve
made in the first half of this year,” said Joe Plumeri, Chairman and Chief Executive Officer,
Willis Group Holdings. “Strong results in our Global segment led the way and, looking forward, robust
sales pipelines and increased recruitment of new producers are evident across our businesses and are providing
momentum going into the second half of the year. The global economy continues to be challenging,
but the reports from our business heads each show positive developments which we will be sharing
with our investors on our earnings conference call.”
Second Quarter 2012 Financial Results
Reported net income from continuing operations for the quarter ended June 30, 2012 was $107 million, or
$0.61 per diluted share, compared with $84 million, or $0.48 per diluted share, in the same
period a year ago. Reported net income in the second quarter of 2012 was positively
impacted by a $5 million insurance recovery related to previously disclosed fraudulent activity. Reported net
income in the second quarter of 2011 was reduced by charges amounting to $18 million and
$11 million related to the 2011 Operational Review and a regulatory settlement, respectively.
Adjusted net income from continuing operations, which excludes the after-tax impact of those items discussed above, for
the quarter ended June 30, 2012 was $104 million, or $0.59 per diluted share, compared with
$107 million, or $0.61 per diluted share, in the same period a year ago.
Foreign currency movements increased earnings by $0.06 per diluted share in the second quarter of 2012 compared
with the second quarter of 2011.
Total commissions and fees were $837 million in the second quarter of 2012, down 2% from $852
million in the prior year quarter. Foreign currency movements negatively impacted reported commissions and fees by
4% compared with the prior year period. Organic commissions and fees increased 2% in the second
quarter of 2012 compared with the second quarter of 2011.
Investment income declined by $3 million in the quarter from $8 million in the second quarter of
2011 to $5 million in the second quarter of 2012 primarily due to declining net yields
on cash and cash equivalents.
North America Segment
Reported commissions and fees in the North America segment declined by 4% compared to the second quarter
of 2011 while organic commission and fees declined by 3% in the period. Organic commissions and
fees growth was negatively impacted by continued weakness in the Loan Protector business. Excluding Loan Protector
results from both periods, organic commissions and fees declined 2% compared to the second quarter of
2011. Premium rates in the segment increased period over period, while exposure levels declined slightly. The
North America segment’s operating margin was 15.2% in the second quarter of 2012, compared with 18.6%
in the second quarter of 2011. Excluding Loan Protector’s results from both periods, the North
America segment’s operating margin was 15.1% and 17.8% in the second quarter of 2012 and 2011,
The International segment reported a 6% decline in commissions and fees compared with the same period in
2011. Foreign currency movements had a negative 8% impact on commissions and fees during the quarter.
Organic growth in commissions and fees was 2%. Asia and Latin America delivered high single-digit growth,
and Continental Europe delivered low single-digit growth. While most countries in Continental Europe saw high single-digit
or low double-digit growth, the region was negatively impacted by declines in Spain and the Netherlands.
The UK business was down low single-digits in the quarter. The International segment’s operating margin was
16.4% in the second quarter of 2012 compared with 21.5% in the year ago period.
The Global segment, which comprises Reinsurance, Global Specialties, Willis Faber & Dumas, and Willis Capital Markets &
Advisory, reported 5% growth in commissions and fees in the second quarter of 2012 compared with
the second quarter of 2011. Unfavorable foreign currency movements had a negative 2% impact on commissions
and fees during the quarter. Organic growth in commissions and fees was 7% compared with the
comparable prior year quarter. Organic growth was led by Reinsurance which grew low double-digits, driven by
strong new business growth and an improvement in the rate environment in both North America and
International markets. Global Specialties grew mid single-digits while Willis Faber & Dumas was down low single-digits.
The Global segment’s operating margin was 33.2% in the second quarter of 2012, compared with 32.4%
in the year ago quarter.
Reported salaries and benefits were $500 million in the second quarter of 2012, compared with $505 million
in the second quarter of 2011, a decrease of 1%. Second quarter 2012 salaries and
benefits included a $14 million favorable impact from foreign currency movements. Reported salaries and benefits,
as a percentage of revenues, were 59.4% in the second quarter of 2012 compared with 58.7%
in the second quarter of 2011. Salaries and benefits in the second quarter of 2011 included
$10 million related to the 2011 Operational Review. Excluding the impact of the 2011 Operational Review
charge, second quarter 2011 salaries and benefits as a percentage of revenues was 57.5%.
The Company made $25 million of cash retention payments in the second quarter of 2012 compared with
$11 million in the second quarter of 2011. Amortization of cash retention payments was $54 million
in the second quarter of 2012 compared with $44 million in the second quarter of 2011.
As of June 30, 2012, December 31, 2011, and June 30, 2011, the Company included
$301 million, $196 million, and $293 million, respectively, in other assets on the balance sheet, representing
the unamortized portion of cash retention payments.
Reported other operating expenses were $129 million in the second quarter of 2012 compared with $164 million
in the second quarter of 2011. Foreign currency movements favorably impacted second quarter 2012 reported operating
expenses by $23 million. Reported other operating expenses were reduced by $4 million and $9 million
in the second quarter of 2012 and 2011, respectively, related to the release of funds and
reserves related to potential legal liabilities.
Further, reported other operating expenses in the second quarter of 2012 include a $5 million insurance recovery
related to previously disclosed fraudulent activity in a stand-alone North America business. Reported other operating expenses
in the second quarter 2011 include $11 million related to the FSA regulatory settlement, and $7
million of costs associated with the 2011 Operational Review. Adjusted for these items, other operating expenses
as a percentage of revenues were 15.9% in the second quarter of 2012, compared to 17.0%
in the year ago quarter.
Reported operating margin was 21.3% for the second quarter of 2012 compared with 18.1% for the same
period of 2011. Adjusted operating margin, adjusted for the items discussed above and as detailed in
note 4 of the supplemental financial information, was 20.7% for the quarter ended June 30, 2012,
compared with 21.5% a year ago.
Six Months 2012 Financial Results
Reported net income from continuing operations, for the six months ended June 30, 2012 was $332 million,
or $1.89 per diluted share, compared with $119 million, or $0.68 per diluted share, in the
same period a year ago. Reported net income for the first six months of 2012 and
2011 was impacted by certain items, as detailed in note 5 of the supplemental financial information.
Adjusted earnings from continuing operations per diluted share, which excludes the impact of items detailed in note
5 of the supplemental financial information, was $1.91 for the six months ended June 30, 2012
compared with $1.89 in the comparable period of 2011. Foreign currency movements increased earnings by
$0.04 per diluted share in the six months ended June 30, 2012 compared to the same
period in 2011.
Total commissions and fees were $1,842 million for the first six months 2012, flat compared to $1,851
million for the first six months of 2011. Organic growth in commissions and fees was 2%
in the first half of 2012 compared with the comparable period of 2011. Excluding the impact
of Loan Protector, organic commissions and fees grew 3% compared to the same period in 2011.
Reported operating margin was 26.7% for the six months ended June 30, 2012 compared with 21.1% for
the same period last year. Excluding items detailed in note 4 of the supplemental financial information,
adjusted operating margin was 27.2% for the first half of 2012 compared with 27.7% a year
The tax rate was 24.7% for the quarter ended June 30, 2012 and 24.1% for the six
months ended June 30, 2012. After excluding the impact of certain non-recurring items, the effective tax
rate for the quarter and six months ended June 30, 2012 was 24.5%.
Debt and Capital
As of June 30, 2012, cash and cash equivalents totaled $407 million and total debt was $2.41
billion. Total equity was $2.71 billion.
In February 2012 the Company announced its intention to buy back up to $100 million of its
ordinary shares during 2012. During the second quarter 2012, Willis bought back 1,040,000 shares for approximately
$37 million. In the six months ended June 30, 2012, the Company bought back 1,640,000 shares
for approximately $58 million.
The Board of Directors declared a regular quarterly cash dividend on the Company’s ordinary shares of $0.27
per share (an annual rate of $1.08 per share). The dividend is payable on October 15,
2012 to shareholders of record at September 28, 2012.
Outlook and Conclusion
“The last few quarters have tested our mettle, but we’re clear-eyed about the challenges we face ahead,
those we can control and those we can’t. We can’t turn the global economy around, but
we believe that our important initiatives in our sales and placement process will accelerate our momentum
in coming months and bode well for the second half of the year,” said Mr. Plumeri.
Conference Call and Web Cast
A conference call to discuss the second quarter 2012 results will be held on Thursday, August 2,
2012, 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 at www.willis.com. This call
will be available by replay starting at approximately 10:00 AM Eastern Time, and through September 3,
2012 at 5:00 PM Eastern Time, by calling (800) 216-3051 (domestic) or + 1 (402) 220-3759
(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, 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 or 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 those associated with the current Eurozone sovereign debt crisis, any
insolvencies of or other difficulties experienced by our clients, insurance companies or financial institutions;
- our ability to
implement and realize anticipated benefits of the 2011 Operational Review or any revenue generating initiatives;
- volatility or
declines in insurance markets and premiums on which our commissions are based, but which we do
- our ability to continue to manage our significant indebtedness;
- our ability to compete effectively in our
industry, including the impact of our refusal to accept contingent commissions from carriers in the non-Employee
Benefit areas of our retail brokerage business;
- 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
- our ability to retain key employees and clients and attract new business;
- the timing or ability
to carry out share repurchases and redemptions;
- the timing or ability to carry out refinancing 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;
- 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;
- 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 liabilities or funding
- our ability to achieve the expected strategic benefits of transactions;
- the impairment of the goodwill of one
of our reporting units, in which case we may be required to record significant charges to
- 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;
- our involvements
in and the results of any regulatory investigations, legal proceedings and other contingencies;
- underwriting, advisory or reputational
risks associated with non-core operations as well as the potential significant impact our non-core operations (including
our Loan Protector operations) can have on our financial results;
- our 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, 2011 and our
subsequent filings with the Securities and Exchange Commission. Copies are available online at http://www.sec.gov or www.willis.com.
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 consolidated financial
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