Willis Group Reports Fourth Quarter 2012 Results
7.0% reported growth in commissions and fees
7.5% organic growth in commissions and fees
Group announces 3.7% quarterly cash dividend increase
NEW YORK, February 12, 2013 – Willis Group Holdings plc (NYSE: WSH), the global insurance broker, today reported results for the fourth quarter of 2012 and twelve months ended December
31, 2012. The quarter also marked the culmination of Joe Plumeri’s 12 year tenure as CEO and
the appointment of Dominic Casserley in that role.
As the Company announced in December 2012, it incurred significant charges during the fourth
quarter related to goodwill impairment in North America and a change in the Company’s cash
retention awards program. Additionally, during the quarter, the Company set up a valuation
allowance against its deferred tax asset. These items, collectively, had a notable negative impact
on reported results. Excluding those items, all of which have no impact on the expected cash
profile of the company, the Company’s fourth quarter 2012 adjusted earnings per share were flat
versus the prior year quarter as higher commissions and fees were offset by higher salary and
benefits expense and taxes.
Financial highlights for:
Willis Group’s fourth quarter organic commissions and fees growth was 7.5%. Among the notable
highlights within the Company’s three segments was organic growth of 11.6% for Willis Global, with
positive organic growth in each of the Global businesses. Willis International contributed 7.4%
growth, driven by growth across all geographic regions, except Australasia, and with notable
improvement from Willis UK. Results for Willis North America showed organic growth of 5.0%
attributable, in part, to the reversal in the fourth quarter of 2011 of revenue that was improperly
recorded during 2011. Excluding that revenue reversal, organic growth in Willis North America was
3.1%, the best organic growth results delivered by the segment in six years.
“In the fourth quarter, Willis undertook a series of steps to pave the way forward for our company
and our shareholders. Those actions are reflected in our reported results,” said Dominic Casserley,
CEO of Willis Group Holdings. “With these actions behind us, and a quarter that resulted in
significantly improved revenue growth in our segments, particularly the turnaround in Willis North
America, we are encouraged by what lies ahead. We are laying a strong foundation at Willis,
defined by the service we offer our clients and the manner in which we run our business,
exemplified by the $524 million of cash flow we generated in 2012, an improvement of $85 million
over the previous year,” Casserley added.
Fourth Quarter 2012 Financial Results
Willis Group reported a net loss from continuing operations of $(804) million, or $(4.65) per share,
for the quarter ended December 31, 2012, compared with reported net income of $24 million, or
$0.14 per diluted share, in the same period a year ago. The quarter’s results were negatively
impacted by charges of $492 million related to the goodwill impairment in North America; $200
million related to the write-off of unamortized cash retention awards; $252 million related to the
accrual of 2012 cash bonuses; and a $113 million tax charge to establish a deferred tax asset
valuation allowance. The valuation allowance is related to the North America segment and is
directly associated with the recording of the goodwill impairment and cash retention charges.
Reported net income in the fourth quarter of 2011 was reduced by a $50 million charge related to
the 2011 Operational Review and $22 million related to the write-off of uncollectable accounts
Excluding the after-tax impact of the charges discussed in this release, adjusted net income from
continuing operations was $79 million, or $0.45 per diluted share, for the quarter ended December
31, 2012, compared with $79 million, or $0.45 per diluted share, in the same period a year ago.
The fourth quarter 2012 adjusted earnings per diluted share were negatively impacted by higher
taxes primarily caused by cumulative tax adjustments related to a change in the geographic mix of
income and higher estimated state tax costs that were recorded in the current quarter. Foreign
currency movements increased earnings by $0.01 per diluted share in the fourth quarter of 2012
compared with the fourth quarter of 2011.
Total commissions and fees for Willis Group were $867 million in the fourth quarter of 2012, up
7.0% from $810 million in the prior year quarter. The impact from foreign currency movements
amounted to negative 0.5% during the quarter compared to the prior year period. Excluding this
foreign exchange impact, organic commissions and fees increased 7.5% in the fourth quarter of
Investment income for Willis Group declined to $4 million in the fourth quarter of 2012, from $8
million in the fourth quarter of 2011 due to lower net yields on cash and cash equivalents.
Willis North America Segment
The North America segment reported 4.7% commissions and fees growth in the fourth quarter of
2012 compared to the fourth quarter of 2011, reflecting a negative 0.3% impact from foreign
currency movements and 5.0% organic commissions and fees growth. Part of that growth,
however, is attributable to the previously disclosed $6 million of commissions and fees from a
North America business unit that were improperly recorded during 2011 and reversed in the fourth
quarter of 2011. Excluding that revenue reversal, organic growth in North America was 3.1%.
Underlying growth in commissions and fees in the fourth quarter of 2012 was recorded across all
North America geographic regions, and a number of the segment’s industry practices. Notable
among these results was the construction business, which recorded low single-digit growth, largely
driven by strong project business and growth in Surety.
As noted above, the Company completed its annual goodwill impairment testing and, as a result,
recorded a non-cash impairment charge related to goodwill in the North America segment of $492
million, pre-tax. The charge is reported within “Corporate and Other” in the segment information
note 7 of the supplemental financial information.
Willis International Segment
The International segment reported a 6.4% increase in commissions and fees in the fourth quarter
of 2012 compared with the same period in 2011, reflecting a negative 1.0% impact from foreign
currency movements and 7.4% organic growth.
Operations in Europe were up mid-single digits in the quarter with solid growth in Western Europe,
largely due to Denmark, Italy and Sweden, while Eastern Europe was up low-single digits.
Operations in the UK delivered solid mid-single digit growth in the quarter. Operations in Latin
America recorded strong double-digit growth, with most countries in the region delivering double-
digit growth. Operations in Asia were up low single digits, including a strong quarter in Japan.
Willis Global Segment
The Global segment reported 11.3% growth in commissions and fees in the fourth quarter of 2012
compared with the fourth quarter of 2011, reflecting a negative 0.3% impact from foreign currency
movements and 11.6% organic growth.
Each business in the Global segment delivered positive organic growth. Reinsurance recorded
high-single digit growth in a seasonally small quarter, with strong performances from North
America and Specialty Reinsurance. Global Specialties grew mid-single digits, led by growth in
Construction, Financial & Executive Risks, Financial Solutions and Marine. Willis Faber & Dumas
recorded double-digit growth, largely driven by new business. Willis Capital Markets & Advisory
had a strong quarter, recording $12 million of commissions and fees compared to $2 million in the
year ago quarter. The increase was largely driven by the closing of a number of capital market
transactions, several of which had been delayed during 2012.
Reported salaries and benefits for Willis Group were $967 million in the fourth quarter of 2012,
compared with $510 million in the fourth quarter of 2011, an increase of 89.6%. Fourth quarter
2012 salaries and benefits were negatively impacted by the previously noted one-time charges
totaling $452 million, which are discussed in more detail below. Fourth quarter 2012 salaries and
benefits were not impacted by foreign currency movements.
As previously disclosed in a Form 8-K filed with the Securities Exchange Commission on
December 19, 2012, the Company changed its cash retention awards during the fourth quarter of
2012 to eliminate the repayment requirement from past annual cash retention awards. In addition,
the Company replaced its annual cash retention award with an annual cash bonus that does not
include a repayment requirement. As a result of these changes, fourth quarter 2012 salaries and
benefits included $200 million related to the write-off of unamortized retention awards, and $252
million related to the accrual of 2012 bonuses. Excluding the two items described above, salaries
and benefits in the fourth quarter of 2012 were $515 million, or 59.1% of revenues.
Salaries and benefits in the fourth quarter of 2011 included $36 million related to the 2011
Operational Review. Excluding the impact of the 2011 Operational Review charge, fourth quarter
2011 salaries and benefits were $474 million, or 57.9% of revenues.
Reported other operating expenses were $150 million in the fourth quarter of 2012, down 22.7%
from $194 million recorded in the fourth quarter of 2011. Foreign currency movements favorably
impacted fourth quarter 2012 other operating expenses by $4 million.
Other operating expenses in the fourth quarter of 2012 include the benefit of a $5 million insurance
recovery. Other operating expenses in the fourth quarter 2011 included $14 million of costs
associated with the 2011 Operational Review and $22 million related to the write-off of
uncollectable accounts receivable. Adjusted for the items mentioned above, other operating
expenses as a percentage of revenues were 17.8% in the fourth quarter of 2012, compared to
19.3% in the year ago quarter.
Reported operating margin for Willis Group was (89.0)% for the fourth quarter of 2012 compared
with 9.9% for the same period of 2011. Adjusted operating margin, excluding the items discussed
above and as detailed in note 4 of the supplemental financial information, was 19.1% for the
quarter ended December 31, 2012, compared with 18.7% a year ago. The margin expansion was
driven primarily by higher commissions and fees and a reduction in other operating expenses,
partially offset by higher salaries and benefits expense and lower investment income.
Twelve Months 2012 Financial Results
Reported net loss from continuing operations for the year ended December 31, 2012 was $(446)
million, or $(2.58) per share, compared with reported net income of $203 million, or $1.15 per
diluted share, in 2011. Reported net loss in 2012 and reported net income in 2011 were 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 $2.58 for the year ended
December 31, 2012 compared with $2.74 in 2011. Foreign currency movements increased
earnings by $0.06 per diluted share in 2012 compared to 2011.
Total commissions and fees were $3,458 million for 2012, compared to $3,414 million for 2011.
Excluding a negative 1.8% impact from foreign currency movements, organic growth in
commissions and fees was 3.1% in 2012.
Reported operating margin was (6.0)% for the year ended December 31, 2012 compared with
16.4% for the prior year. Excluding items detailed in note 4 of the supplemental financial
information, adjusted operating margin was 21.6% in 2012 compared with 22.5% a year ago.
Excluding the impact of the charges referred to above and detailed in note 5, the effective tax rate
for the quarter and twelve months ended December 31, 2012 was 33% and 26%, respectively. The
effective tax rate for the fourth quarter and full year were impacted by higher than previously
estimated state income tax expense and a slightly higher rate of tax due to a change in the
geographic mix of income, being applied to the cumulative profits of prior periods. Excluding these
items, the effective underlying tax rate was 25% for both the fourth quarter and full year.
Debt and Capital
As of December 31, 2012, cash and cash equivalents totaled $500 million and total debt was
$2,353 million. Total equity was $1,731 million. As of December 31, 2011, cash and cash
equivalents were $436 million, total debt was $2,369 million, and total equity was $2,517 million.
Cash flow from operating activities for the 12 months ended December 31, 2012, was $524 million
compared to $439 million in 2011.
The new management team, in its initial assessment of the Company’s organizational design, has
identified a number of positions that it can eliminate and leases it can exit to realize cost savings.
The assessment is ongoing but will be completed in the first quarter of 2013 and is expected to
result in the elimination of approximately 200 full-time positions.
As a result, Willis Group expects to incur a pre-tax charge of approximately $35 million to $45
million in the first quarter of 2013. These actions are expected to deliver cost savings, primarily
through headcount reduction, of approximately $20 million to $25 million in 2013, beginning in the
second quarter, and annualized cost savings of approximately $25 million to $30 million.
At its February 2013 Board meeting, the Board of Directors approved a 3.7% increase in the
regular quarterly cash dividend from $0.27 per share to $0.28 per share (an annual rate of $1.12
per share). The dividend is payable on April 15, 2013, to shareholders of record at March 29,
Conference Call and Web Cast
A conference call to discuss the fourth quarter 2012 results will be held on Wednesday, February
13, 2013, at 8:00 AM Eastern Time. To participate in the live teleconference, please dial (866)
803-2143 (U.S.) 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 March 13, 2013, at 5:00
PM Eastern Time, by calling (800) 813-5526 (domestic) or + 1 (402) 280-1632 (international) with
no pass code, or by accessing the website.
The Company may refer to a slide presentation during its conference call. The slides will be
available to view and download from the Events & Presentations page in the Investor Relations
section of the Company’s website at www.willis.com.
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 any operational charges or any revenue generating
- 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 a hurricane;
- 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 obligations;
- our ability to achieve the expected strategic benefits of transactions or growth from associates;
- the further impairment of the goodwill of one of our reporting units, in which case we may be required to record
additional significant charges to earnings;
- 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 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
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
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 statements.
# # #