Willis Group Reports Third Quarter 2012 Results
NEW YORK, October 23, 2012 - Willis Group Holdings plc (NYSE: WSH), the global insurance broker, today
reported results for the quarter and nine months ended September 30, 2012.
Highlights of the quarter ended September 30, 2012 include:
- Reported earnings per diluted share from continuing operations of $0.15 compared to $0.34 in third quarter of
2011; adjusted earnings per diluted share from continuing operations of $0.22 compared to $0.41 in year
- Reported commissions and fees decreased 1% compared with the third quarter of 2011;
- Organic growth in commissions and fees of 2%;
- Reported operating margin of 9.3% compared to 11.8% in third quarter of 2011; adjusted operating margin of
10.9% compared to 13.8% in year ago quarter;
- Repurchased 1.16 million shares for approximately $42 million during the quarter; completes $100 million 2012 repurchase program
“Our organic growth this quarter of 2%, which includes strong performances in a number of areas, offers
encouraging signs that Willis is moving past a range of issues that have affected our comparable
results quarter-over-quarter,” said Joe Plumeri, Chairman and CEO of Willis Group Holdings. “While we aimed to
do better, the 5% organic growth for International – aided by an impressive turnaround for our
UK business and the flat results for North America – are both well improved from the
prior quarter. The organic growth of 3% for Willis Global, while demonstrating excellent performance in many
areas, also highlights some of the comparables that dragged on our results broadly across Willis this
quarter. These comparables and other events warrant further elaboration,” Plumeri added.
“For example, a year ago, we benefitted from a number of one-off items throughout the group that
were unlikely to repeat this year,” Plumeri continued. “Those unusual benefits included $5 million from a
reinsurance profitability initiative; $5 million from the release of funds related to potential legal liabilities; $3
million of revenues related to the previously disclosed fraudulent activity in Chicago; and net beneficial tax
adjustments that were significantly higher than what was recorded this quarter. In addition, two items outside
of our operational control, declines in investment income and our associates line for Gras Savoye, deducted
$3 million and $12 million, respectively, from our earnings this quarter against a year ago. Taken
together, it’s important to highlight that all of these items had a significant impact on earnings
in the third quarter of 2011 and created an uneven comparison from this quarter to the
prior year,” Plumeri added.
“A broad picture of the issues that colored our results also includes the deferral of some expected
revenues from the third quarter into the fourth quarter and beyond. These include a number of
transactions with significant revenue attached to them involving our Willis Capital Markets & Advisory unit, and
other one-off deals in our businesses, that were pushed back or otherwise delayed,” Plumeri said.
“During twelve years of growth and shareholder return during my tenure, we’ve enjoyed periods when we got
the breaks and others, like the last few quarters, when we’ve recorded positive results even against
the overhang from sizable non-recurring items. As we compete vigorously to retain business, win new accounts
and minimize our costs during my final quarter as CEO, we believe that these negative comparables
are now largely receded. I am very confident that a few months from now, when Dominic
Casserley and Steve Hearn take over, they’ll steer a strong and streamlined company that is no
longer working against the tide,” Plumeri concluded.
Third Quarter 2012 Financial Results
Reported net income from continuing operations for the quarter ended September 30, 2012 was $26 million, or
$0.15 per diluted share, compared with $60 million, or $0.34 per diluted share, in the same
period a year ago. Reported net income in the third quarter of 2012 was impacted
by an $11 million charge related to a settlement with a former joint venture partner in
India and the related $1 million loss on disposal of the India operations. Reported net income
in the third quarter of 2011 was reduced by a $15 million charge related to the
2011 Operational Review.
Adjusted net income from continuing operations, which excludes the after-tax impact of those items discussed above, for
the quarter ended September 30, 2012 was $38 million, or $0.22 per diluted share, compared with
$72 million, or $0.41 per diluted share, in the same period a year ago.
Foreign currency movements increased earnings by $0.01 per diluted share in the third quarter of 2012 compared
with the third quarter of 2011.
Total commissions and fees were $749 million in the third quarter of 2012, down 1% from $753
million in the prior year quarter. Foreign currency movements negatively impacted reported commissions and fees by
3% compared with the prior year period. Organic commissions and fees increased 2% in the third
quarter of 2012 compared with the third quarter of 2011.
Investment income declined by $3 million in the quarter from $7 million in the third quarter of
2011 to $4 million in the third quarter of 2012 primarily due to declining net yields
on cash and cash equivalents.
North America Segment
Reported and organic commissions and fees were flat compared to the third quarter of 2011. The Human
Capital business was down mid-single digits primarily due to the impact on comparatives from the previously
disclosed fraudulent revenues recorded in third quarter of 2011. Construction business was up slightly due to
improved results in both recurring and project business. New business grew low-double digits, retention was
steady and rates improved slightly relative to the comparable prior year period. However, the rate improvement
was offset by a reduction in exposure units.
While the Company has not yet completed its annual goodwill impairment testing, which is conducted during the
fourth quarter each year, we expect that we will record a goodwill impairment charge associated with
our North America unit during the fourth quarter of 2012, and that the amount of this
non-cash, one-time charge may be material.
The International segment reported a 2% decline in commissions and fees compared with the same period in
2011. Foreign currency movements had a negative 7% impact on commissions and fees during the quarter.
Organic growth in commissions and fees was 5%. Asia and Latin America each delivered mid-teen growth,
and the UK business was up low single-digits in the quarter. Australasia and Europe were each
down low-single digits. Within Europe, Continental Europe delivered mild growth with Spain returning to positive growth,
while Eastern Europe was down, primarily driven by Russia.
The Global segment, which comprises Reinsurance, Global Specialties, Willis Faber & Dumas, and Willis Capital Markets &
Advisory (WCMA), reported flat growth in commissions and fees in the third quarter of 2012 compared
with the third quarter of 2011. Unfavorable foreign currency movements had a negative 3% impact on
commissions and fees during the quarter. Organic growth in commissions and fees was 3% compared with
the prior year quarter. Organic growth was led by mid-single digit growth in Global Specialties, driven
by Energy, Financial Solutions and Financial and Executive Risks, all up high-single digits. Willis Faber &
Dumas grew low-single digits while WCMA was down slightly. Growth in the WCMA business was negatively
impacted by deal closings pushed to the fourth quarter and beyond. Reinsurance was down low-single digits.
New business growth in Reinsurance was high-single digits, while year-over year comparisons were negatively impacted by
the non-recurrence of revenues from a profitability initiative in the third quarter of 2011.
Reported salaries and benefits were $502 million in the third quarter of 2012, compared with $489 million
in the third quarter of 2011, an increase of 3%. Third quarter 2012 salaries and benefits
included a $13 million favorable impact from foreign currency movements. Reported salaries and benefits, as
a percentage of revenues, were 66.6% in the third quarter of 2012 compared with 64.3% in
the third quarter of 2011. Salaries and benefits in the third quarter of 2011 included $7
million related to the 2011 Operational Review. Excluding the impact of the 2011 Operational Review charge,
third quarter 2011 salaries and benefits as a percentage of revenues was 63.4%.
The Company made $2 million of cash retention payments in the third quarter of 2012 compared with
$2 million in the third quarter of 2011. Amortization of cash retention payments was $49 million
in the third quarter of 2012 compared with $48 million in the third quarter of 2011.
As of September 30, 2012, December 31, 2011, and September 30, 2011, the Company included
$258 million, $196 million, and $243 million, respectively, in other assets on the balance sheet, representing
the unamortized portion of cash retention payments.
Reported other operating expenses were $146 million in the third quarter of 2012, unchanged from the third
quarter of 2011. Foreign currency movements favorably impacted third quarter 2012 reported operating expenses by $8
million. Reported other operating expenses were reduced by $5 million in the third quarter of 2011
related to the release of funds related to potential legal liabilities.
In addition, reported other operating expenses in the third quarter of 2012 include $11 million related to
a settlement with a former joint venture partner in India. Reported other operating expenses in the
third quarter 2011 include $8 million of costs associated with the 2011 Operational Review. Adjusted for
the items mentioned above, other operating expenses as a percentage of revenues were 17.9% in the
third quarter of 2012, compared to 18.2% in the year ago quarter.
Reported operating margin was 9.3% for the third quarter of 2012 compared with 11.8% 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 10.9% for the quarter ended September 30, 2012,
compared with 13.8% a year ago. The margin decline was driven primarily by declining operating performance
as expense growth exceeded revenue growth exacerbated by the non-recurrence of certain revenues and expense reductions
from the third quarter of 2011 to the third quarter of 2012, partially offset by the
net favorable movement in foreign exchange.
Nine Months 2012 Financial Results
Reported net income from continuing operations for the nine months ended September 30, 2012 was $358 million,
or $2.03 per diluted share, compared with $179 million, or $1.02 per diluted share, in the
same period a year ago. Reported net income for the first nine 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 $2.13 for the nine months ended September 30, 2012
compared with $2.30 in the same period of 2011. Foreign currency movements increased earnings by
$0.06 per diluted share in the nine months ended September 30, 2012 compared to the same
period in 2011.
Total commissions and fees were $2,591 million for the first nine months 2012, compared to $2,604 million
for the first nine months of 2011. Organic growth in commissions and fees was 2% in
the first nine months of 2012 compared with the same period of 2011.
Reported operating margin was 21.7% for the nine months ended September 30, 2012 compared with 18.5% for
the same period last year. Excluding items detailed in note 4 of the supplemental financial information,
adjusted operating margin was 22.5% for the first nine months of 2012 compared with 23.7% a
The tax rate was 26% for the quarter ended September 30, 2012 and 24% for the nine
months ended September 30, 2012. After excluding the impact of certain non-recurring items, the estimated effective
annual tax rate for the quarter and nine months ended September 30, 2012 was 24%.
Debt and Capital
As of September 30, 2012, cash and cash equivalents totaled $424 million and total debt was $2.4
billion. Total equity was $2.7 billion.
In February 2012 the Company announced its intention to buy back up to $100 million of its
ordinary shares during 2012. During the third quarter 2012, Willis bought back approximately 1,160,000 shares for
approximately $42 million. In the nine months ended September 30, 2012, the Company bought back 2,800,000
shares for approximately $100 million and has completed its announced share buy back in 2012.
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 January 15,
2013 to shareholders of record at December 31, 2012.
Conference Call and Web Cast
A conference call to discuss the third quarter 2012 results will be held on Wednesday, October 24,
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 November 24, 2012
at 5:00 PM Eastern Time, by calling (866) 395-4175 (domestic) or + 1 (203) 369-0475 (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;
likelihood of a significant impairment charge in the fourth quarter of 2012 associated with our North
America reporting unit;
- 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 not control;
- 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 a hurricane;
- our ability to retain key employees and clients and attract
- 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
- rating agency actions that could inhibit our ability to borrow funds or the pricing thereof;
significant decline in the value of investments that fund our pension plans or changes in our
pension plan liabilities or 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;
- 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 the Willis
Capital Markets and Advisory 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
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
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