Willis Group Reports First Quarter 2014 Results
Total revenues up 4.4%; reported and organic commissions and fees growth of 4.2%
Strong revenue growth in emerging markets, North America and reinsurance
Announcing program to further strengthen client service capabilities and to secure
expected cumulative cost savings of $420 million through 2017 and annual cost savings of
$300 million starting 2018
Cumulative charges of $410 million through 2017 associated with program
NEW YORK, April 29, 2014 – Willis Group Holdings plc (NYSE: WSH), the global risk advisor,
insurance and reinsurance broker, today reported results for the three months ended March 31,
Willis Group reported net income of $246 million or $1.35 per diluted share in the first quarter of
2014. This compares to net income of $219 million, or $1.24 per diluted share, in the year ago
Adjusted net income, which excludes the impact of items detailed in note 3 of the supplemental
financial information included in this press release was $248 million, or $1.36 per diluted share in
the current quarter, and was negatively impacted by foreign currency movements of $0.03 per
diluted share. Adjusted net income was $257 million, or $1.46 per diluted share, in the first quarter
“We began 2014 with another quarter of solid mid-single digit revenue growth and positive
contributions from each of our segments. Willis International and Willis North America both
performed strongly. Willis Global grew modestly, with a strong contribution from its reinsurance
business partially offset by its UK retail and specialty insurance businesses,” said Willis Group
CEO Dominic Casserley. “Adjusted operating income matched the prior year, as we continued to
invest in higher growth regions such as emerging markets, businesses such as Global Wealth
Solutions in Asia, and client service improvements such as our Connecting Willis initiative.”
Casserley continued, “The long-term strategy we set out at our 2013 Investor Conference calls for
continued investment to drive organic growth, a spread between revenues and expenses on
average of 70 basis points or more, and resulting in improved cash flow generation. We remain
confident about and committed to that plan. Further, as we continue to invest to grow revenues, we
also have an opportunity to take more action on expenses. Today we are launching a multi-year
operational improvement program designed to further strengthen our client service capabilities and
to deliver expected cumulative cost savings of approximately $420 million through 2017 and
annual cost savings of approximately $300 million starting in 2018.”
First quarter 2014 financial results
Total revenues, which include commissions and fees, investment income and other income, were
$1,097 million in the first quarter of 2014, an increase of 4.4% from $1,051 million in the first
quarter of 2013.
Total reported commissions and fees improved to $1,090 million in the first quarter of 2014, up
4.2% from $1,046 million in the prior year quarter. Foreign currency translation favorably impacted
commissions and fees by $3 million in the first quarter of 2014.
Organic commissions and fees growth in the first quarter of 2014 was 4.2% compared to the same
quarter in 2013.
Commissions and fees by segment
The table below reconciles reported commissions and fees growth to organic commissions and
fees growth, as defined in note 1 of the supplemental financial information, for the three months
ended March 31, 2014.
Willis North America segment
The North America segment achieved 4.7% organic commissions and fees growth in the first
quarter of 2014 compared with the first quarter of 2013.
Growth in commissions and fees was reported across most of North America’s geographic regions,
led by the Midwest and the South. Similarly, most of the product and industry practices reported
growth, with the construction practice up in the low teens and the human capital practice up mid-
Willis International segment
The International segment achieved 7.2% organic growth in commissions and fees in the first
quarter 2014 compared with the same period in 2013. Organic growth in the quarter was positively
impacted by $6 million related to the revenue recognition adjustment in China that negatively
impacted revenue in the fourth quarter of 2013. Excluding the 250 basis point impact of this
adjustment, organic growth in International would have been 4.7%.
Operations in Western Europe continued to expand in the first quarter, recording low single digit
growth with positive contributions from almost all countries across the region. Eastern Europe
recorded growth in the mid-teens. Latin America operations grew low-teens with strong results in
Brazil and strong performances from Venezuela, Argentina, Chile and Mexico. Operations in Asia
were strong, led by China and Hong Kong. Australasia was down, but by less than one percent.
Willis Global segment
The Global segment, which comprises Willis Re, Global Insurance (Willis UK and Specialties
businesses), Facultative, Risk, and Willis Capital Markets & Advisory, achieved 2.0% organic
growth in commissions and fees in the first quarter of 2014 compared with the first quarter of 2013.
Growth in the segment was led by Willis Re, which recorded high mid-single digit growth in the
seasonally largest quarter for the reinsurance business, driven by high-teens growth in Specialty
reinsurance and mid-single digit growth in North America reinsurance.
The Global Insurance unit had a disappointing quarter, down high single digits primarily due to
lower performance in three of the unit’s major businesses: Willis UK, Transportation, and
Construction, Property & Casualty. The weaker performance reflects varying degrees of lower new
business growth, lower retention and negative timing of revenues amongst those businesses. This
is the first time that Willis is reporting the results of Global Insurance operations since announcing
the change in its organizational structure that is designed to better connect Willis’s leading
specialty expertise in the London market with the retail client servicing capabilities of Willis UK.
Total reported expenses were $771 million in the first quarter of 2014, essentially flat compared
with $770 million in the first quarter of 2013. Foreign currency movements negatively impacted
total expenses in the first quarter of 2014 by $7 million.
Total expenses in the prior year quarter included $46 million related to the 2013 expense reduction
initiative. Excluding the impact of this item and excluding the negative impact from foreign
exchange movements in the current quarter, total expenses increased 5.5% compared with the
year ago quarter.
Reported salaries and benefits were $570 million in the first quarter of 2014, an increase of 0.4%
from $568 million in the year ago quarter. Foreign currency movements negatively impacted
salaries and benefits in the first quarter of 2014 by $4 million. Salaries and benefits in the first
quarter of 2013 included $29 million related to the expense reduction initiative. Adjusting for this
item and excluding the negative impact from foreign exchange movements in the current quarter,
the quarter over quarter increase in salaries and benefits was 5.0%. This increase was primarily
due to continued investment reflected in increased headcount relative to the prior year in growth
businesses and regions, as well as annual salary reviews globally.
Salaries and benefits were equivalent to 52% of revenues in the first quarter of 2014 while salaries
and benefits, excluding the charge related to the expense reduction initiative, were 51% of
revenues in the first quarter of 2013.
Other operating expenses in the first quarter of 2014 were $165 million, compared to $162 million
in the year ago period, an increase of 1.9%. Foreign currency movements negatively impacted
other operating expense in the first quarter of 2014 by $2 million. Other operating expenses in the
first quarter of 2013 included $12 million related to the expense reduction initiative. Adjusting for
this item, and excluding the negative impact from foreign exchange movements in the current
quarter, the quarter over quarter increase in other operating expenses was 8.7%, primarily due to
higher business development expenses and increased spend on systems related projects.
Depreciation and Amortization of intangible assets were $23 million and $13 million respectively, in
the first quarter of 2014. Depreciation and Amortization of intangible assets were $26 million and
$14 million, respectively, in the first quarter of 2013. Depreciation in the first quarter of 2013
included a $5 million charge related to the expense reduction initiative.
Willis Group reported and adjusted operating margin was 29.7% in the first quarter 2014, and was
negatively impacted by 50 basis points from foreign currency movements. This compares to
reported and adjusted operating margin in first quarter 2013 of 26.7% and 31.1%, respectively.
The decline in the adjusted operating margin was driven by higher salaries and benefits and other
operating expenses, partially offset by higher commissions and fees and other income.
The reported tax rate for the quarter ended March 31, 2014 was approximately 21%, compared to
approximately 19% for the first quarter of 2013. While both the current and prior year periods are
impacted by the requirement to maintain a valuation allowance against U.S. deferred tax assets,
the first quarter 2014 tax rate was higher primarily due to the expectation of paying current taxes in
the U.S. in 2014, which results in a higher tax charge on U.S. income in the current period
compared with the prior period.
Operational Improvement Program
During its July 2013 Investor Conference, Willis announced a number of growth initiatives and
financial goals intended to drive improved shareholder value. In line with those initiatives and
goals, the Company is announcing an operational improvement program that will allow Willis to
continue to strengthen its client service, realize operational efficiencies, and invest in new
capabilities for growth.
Starting in the second quarter of 2014, the program is expected to be complete by the end of 2017.
The program is expected to deliver cumulative cost savings of approximately $420 million through
2017 and annual cost savings of approximately $300 million starting in 2018. The estimated
phasing of cost savings is: approximately $5 million in 2014, approximately $45 million in 2015,
approximately $135 million in 2016 and approximately $235 million in 2017. The estimated cost
savings are before any potential reinvestment. However, the Company expects the majority of
savings to be reflected in earnings. To achieve these savings, the Company expects to incur
cumulative charges amounting to approximately $410 million through the end of 2017.
Total charges, actual savings and timing may vary positively or negatively from these estimates
due to changes in the scope, underlying assumptions or execution risk of the restructuring plan
throughout its duration.
The main elements of the program will include:
- Movement of more than 3,500 support roles from higher cost locations to Willis facilities in
lower cost locations, bringing the ratio of employees in higher cost versus lower cost
locations from approximately 80:20 to approximately 60:40;
- Net workforce reductions in support positions;
- Lease consolidation in real estate and reductions in ratios of seats per employee and
square footage of floor space per employee; and
- Information technology systems simplification and rationalization.
The Company expects that about 70% of the annualized 2018 savings will come from role
relocation and reduction, and about 30% of the savings from real estate, information technology
and other areas.
As the program proceeds, Willis will provide regular updates on the associated savings from the
program as well as the charge. Willis will also disclose certain key operational metrics that will
demonstrate how the program is making the changes which drive savings, including the ratio of
roles in higher cost locations to lower cost locations, the ratio of seats per employee, and square
footage of floor space per employee.
The program will be overseen by a sub-committee of Willis Group’s Operating Committee chaired
by David Shalders, Group Operations & Technology Director.
Dominic Casserley commented: “Our announcement today follows months of detailed analysis of
our cost base that identified opportunities for savings in areas such as workforce location, real
estate rationalization and more effective use of technology. Capturing these savings will reduce our
operational cost base and enable us to strengthen further our client service through investment in
new client service capabilities and simplified operational systems and processes. This decisive
program reinforces our commitment laid out at our 2013 Investor Conference to grow revenues
faster than expenses over the medium term, driving increased cash flow generation.”
Balance sheet highlights
As of March 31, 2014, cash and cash equivalents were $734 million, total debt was $2,322 million
and total equity was $2,472 million. As of December 31, 2013, cash and cash equivalents totaled
$796 million, total debt was $2,326 million and total equity was $2,243 million.
At its April 2014 Board meeting, the Board of Directors approved a regular quarterly cash dividend
of $0.30 per share (an annual rate of $1.20 per share). The dividend is payable on July 15, 2014 to
shareholders of record at June 30, 2014.
In February, Willis announced that it intended to buy back $200 million in shares in 2014 to offset
the increase in shares outstanding resulting from the exercise of employee stock options. Since the
announcement, and through the end of the first quarter of 2014, the Company bought back
904,000 shares for $38 million.
Change in disclosure and presentation
The Company filed a Form 8-K on April 4, 2014, describing certain changes to the structure of its
operations, changes to segmental financial information, and changes to the presentation of certain
items in the consolidated statement of operations. A summary of the impact on selected financial
data for years 2013, 2012 and 2011 was included in the Form 8-K and is also included in the slide
presentation that will be referred to in the conference call outlined below. The slides are available
to view and download from the investor relations section of the Company’s website at
Conference call, webcast and slide presentation
A conference call to discuss the first quarter 2014 results will be held on Wednesday, April 30,
2014, at 8:00 AM Eastern Time. To participate in the live call, please dial (866) 803-2143 (U.S.) or
+1 (210) 795-1098 (international) with a pass code of “Willis”. A live (listen-only) audio web cast
may be accessed through the investor relations section of the Company website at www.willis.com.
A replay of the call will be available through May 30, 2014 at 5:00 PM Eastern Time, by calling
(866) 509-3699 (U.S.) or + 1 (203) 369-1911 (international). A replay of the webcast will be
available through the website.
Willis Group Holdings plc is a leading global risk advisor, insurance and reinsurance broker. With
roots dating to 1828, Willis operates today on every continent with more than 18,000 employees in
over 400 offices. Willis offers its clients superior expertise, teamwork, innovation and market-
leading products and professional services in risk management and transfer. Our experts rank
among the world’s leading authorities on analytics, modelling and mitigation strategies at the
intersection of global commerce and extreme events. Find more information at our Website,
www.willis.com, our leadership journal, Resilience, or our up-to-the-minute blog on breaking news,
WillisWire. Across geographies, industries and specialisms, Willis provides its local and
multinational clients with resilience for a risky world.
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 global economic conditions on our results of operations and financial condition, including
as a result of those associated with the Eurozone, any insolvencies of or other difficulties experienced by our
clients, insurance companies or financial institutions;
- our ability to implement and fully realize anticipated benefits of our new growth strategy and revenue generating
- our ability to implement and realize anticipated benefits of any expense reduction initiative, including our ability
to achieve expected savings from the multi-year operational improvement program as a result of unexpected
costs or delays and demand on managerial, operational and administrative resources and/or macroeconomic
factors affecting the program;
- volatility or declines in insurance markets and premiums on which our commissions are based, but which we do
- our ability to develop and implement technology solutions and invest in innovative product offerings in an
efficient and effective manner;
- our ability to continue to manage our significant indebtedness;
- our ability to compete in our industry, including any impact if we continue to refuse to accept contingent
commissions from carriers in the non-Human Capital areas of our retail brokerage business
- our ability to develop new products and services;
- 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;
- fluctuations in our earnings as a result of potential changes to our valuation allowance(s) on our deferred tax
- 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, including a downgrade to our credit rating, that could inhibit our ability to borrow funds or
the pricing thereof and in certain circumstances cause us to offer to buy back some of our debt;
- 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 anticipated benefits of any acquisition or other transactions in which we may engage,
including any revenue growth or operational efficiencies;
- our ability to effectively integrate any acquisition into our business;
- our inability to exercise full management control over our associates, such as Gras Savoye;
- our ability to receive dividends or other distributions in needed amounts from our subsidiaries;
- changes in the tax or accounting treatment of our operations and fluctuations in our tax rate;
- any potential impact from the US healthcare reform legislation;
- our involvement 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 & 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, data security breaches or failure to maintain
secure information systems;
- impairment of the goodwill in one of our reporting units, in which case we may be required to record significant
charges to earnings.
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, 2013 and our subsequent filings with the Securities and Exchange Commission. Copies
are available online at 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
earnings release or 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.
WILLIS GROUP HOLDINGS plcSUPPLEMENTAL FINANCIAL INFORMATION
(in millions, exceptper share data) (unaudited)
1.Definitions ofnon-GAAPfinancial measures
Webelievethatinvestors’understanding ofthe Company’sperformanceisenhancedbyourdisclosureofthefollowing non-GAAP financialmeasures. Our method ofcalculating these measuresmay differ from those usedby othercompanies and therefore comparabilitymay be limited.
Organic commissionsand fees growth
Organiccommissionsand feesgrowth excludes:(i)the impactofforeign currencytranslation;(ii)the firsttwelvemonths of net commission and fee revenues generated from acquisitions;and (iii) the net commission and feerevenues related to operations disposed of in each period presented, from reported commissions and feesgrowth.
Webelieve organicgrowth in commissionsand feesprovidesa measure thatthe investmentcommunitymayfind helpfulinassessingtheperformance ofoperationsthatwere partofouroperationsin both thecurrentandprior periods,and providesameasure against which our businessesmay be assessed in the future.
Adjusted operatingincome, adjusted net incomeand adjusted net incomeper dilutedshare
Adjusted operating income, adjusted netincomeand adjusted netincomeperdiluted share are calculated byexcluding the impact of certain items from operating income, netincomeand netincomeper diluted share,
respectively,themostdirectlycomparable GAAPmeasures.Webelieve thatexcluding theseitems,asapplicable,fromoperating incomeand netincome, provides a more complete and consistent comparativeanalysis of our results ofoperations.
2. Adjusted operating income
The following table reconciles operating income, the most directly comparable GAAP measure, to adjusted
operating income, for the three months ended March 31, 2014 and 2013:
3. Adjusted net income
The following table reconciles net income and net income per diluted share, the most directly comparable GAAP
measures, to adjusted net income and adjusted net income per diluted share, for the three months ended March
31, 2014 and 2013:
4. Condensed consolidated income statements by quarter
5. Segment information by quarter
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