Aon Reports Fourth Quarter and Full Year 2019 Results
LONDON, Jan. 31, 2020 /PRNewswire/ --
Fourth Quarter Key Metrics From Continuing Operations and Highlights
-- Total revenue increased 4% to $2.9 billion, including organic revenue
growth of 7%
-- Operating margin increased to 18.2%, and operating margin, adjusted for
certain items, increased 210 basis points to 27.9%
-- EPS increased to $1.58, and EPS, adjusted for certain items, increased
17% to $2.53
-- Repurchased 2.3 million Class A Ordinary Shares for approximately $450
million
-- Subsequent to the close of the fourth quarter, the Company completed its
acquisition of CoverWallet, expanding its position in the fast-growing
commercial insurance market for small and medium-sized businesses, as
well as the opportunity to leverage CoverWallet's platform to develop
and scale innovative digital client experiences
Full Year Key Metrics From Continuing Operations and Highlights
-- Total revenue increased 2% to $11.0 billion, including organic revenue
growth of 6%
-- Operating margin increased to 19.7%, and operating margin, adjusted for
certain items, increased 250 basis points to 27.5%
-- EPS increased to $6.37, and EPS, adjusted for certain items, increased
12% to $9.17
-- Cash flows from operations increased 9% to $1,835 million and free cash
flow increased 11% to $1,610 million
-- Repurchased 10.5 million Class A Ordinary Shares for approximately $2.0
billion
-- Completed all charges related to the restructuring program. The Company
expects to deliver $580 million of annualized savings in 2020,
reflecting a 39% return on investment prior to any reinvestment
Aon plc (NYSE: AON) today reported results for the three and twelve months ended December 31, 2019.
Net income from continuing operations attributable to Aon shareholders in the fourth quarter was $374 million, or $1.58 per share, compared to $276 million, or $1.13 per share, in the prior year period. Net income per share from continuing operations, adjusted for certain items, increased 17% to $2.53, including an unfavorable impact of $0.04 per share if the company were to translate prior year period results at current period foreign exchange rates ("foreign currency translation"), compared to $2.16 in the prior year period. Certain items that impacted fourth quarter results and comparisons with the prior year period are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 10 of this press release.
"Our fourth quarter results reflect strong operational and financial performance to finish the year, highlighted by organic revenue growth of 7%, including growth of 5% or greater in four of the five solutions lines, and substantial operating margin improvement of 210 basis points. For the full year, we delivered our strongest level of organic revenue growth in over 15 years and adjusted operating margin of 27.5%," said Greg Case, Chief Executive Officer. "Our strong performance reflects continued momentum as we strategically position the firm to bring the best of global Aon to clients and execute against our Aon United strategy. We enter 2020 in a position of strength to continue to improve the long-term growth profile of the firm that we believe will unlock significant value for clients and shareholders."
FOURTH QUARTER 2019 FINANCIAL SUMMARY
The fourth quarter financial results discussed herein represent performance from continuing operations unless otherwise noted.
Total revenue in the fourth quarter increased 4% to $2.9 billion compared to the prior year period driven by 7% organic revenue growth, partially offset by a 2% unfavorable impact from divestitures, net of acquisitions, and a 1% unfavorable impact from foreign currency translation.
Total operating expenses in the fourth quarter increased 4% to $2.4 billion compared to the prior year period due primarily to an increase in expense associated with 7% organic revenue growth, an increase in investments supporting growth initiatives across the portfolio, and a $51 million increase in restructuring charges, partially offset by $54 million of incremental savings from restructuring and other operational improvement initiatives, a $27 million favorable impact from foreign currency translation, and a $12 million decrease in expenses related to divestitures, net of acquisitions.
Restructuring expenses were $170 million in the fourth quarter, primarily driven by workforce reductions and other costs associated with restructuring and separation initiatives. All charges associated with the program have been completed as of the fourth quarter of 2019. In total, the Company incurred $1,433 million of expense, including $1,318 million of cash charges and $115 million of non-cash charges. In addition to the restructuring charges, the Company incurred $167 million of incremental capital expenditures, for a total cash investment of approximately $1,485 million associated with the three-year program. An analysis of restructuring and related costs by type is detailed on page 15 of this press release.
Restructuring savings in the fourth quarter from restructuring and other operational improvement initiatives are estimated to be $162 million, before any reinvestment, an increase of $54 million compared to the prior year period. Before any reinvestment of savings, restructuring and other operational improvement initiatives delivered estimated annualized savings of $529 million in 2019 and are expected to deliver estimated annualized savings of $580 million in 2020, an increase of $45 million from the previous estimated savings of $535 million in 2020. Incremental savings in 2020 are expected to be realized throughout the year and will be reported as part of overall operating performance.
Foreign currency exchange rates in the fourth quarter had a $7 million, or $0.03 per share, unfavorable impact on U.S. GAAP net income and an $8 million, or $0.04 per share, unfavorable impact on adjusted net income if the Company were to translate prior year quarter results at current quarter foreign exchange rates. The Company also incurred $6 million, or $0.02 per share, of net losses due to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies recorded in other expense. If currency were to remain stable at today's rates, we would expect an unfavorable impact of approximately $0.05 per share, or approximately $15 million reduction of operating income, in the first quarter of 2020.
Effective tax rate used in our U.S. GAAP financial statements for the fourth quarter was 13.4%, compared to 32.5% in the prior year period. After adjusting to exclude the applicable tax impact associated with certain non-GAAP adjustments, the adjusted effective tax rate for the fourth quarter of 2019 decreased to 15.7% compared to 16.5% in the prior year period, primarily driven by changes in the geographical distribution of income and a net favorable impact from discrete items. The prior year period also included a net favorable impact from discrete items. These adjustments are discussed in the "Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 10 of this press release.
Weighted average diluted shares outstanding decreased to 237.0 million in the fourth quarter compared to 245.0 million in the prior year period. The Company repurchased 2.3 million Class A Ordinary Shares for approximately $450 million in the fourth quarter. As of December 31, 2019, the Company had approximately $2.0 billion of remaining authorization under its share repurchase program.
FULL YEAR 2019 CASH FLOW SUMMARY
The full year 2019 cash flow summary provided below includes supplemental information related to free cash flow, which is a non-GAAP measure that is described in detail in "Reconciliation of Non-GAAP Measures - Organic Revenue Growth and Free Cash Flow" on page 9 of this press release.
Cash flows from operations for 2019 increased 9%, or $149 million, to $1,835 million compared to the prior year primarily driven by strong operational improvement, partially offset by approximately $130 million of net cash payments related to certain litigation settlements.
Free cash flow for 2019, defined as cash flow from operations less capital expenditures, increased 11%, or $164 million, to $1,610 million compared to the prior year, reflecting an increase in cash flow from operations and a $15 million decrease in capital expenditures.
FOURTH QUARTER 2019 REVENUE REVIEW
The fourth quarter revenue reviews provided below include supplemental information related to organic revenue, which is a non-GAAP measure that is described in detail in "Reconciliation of Non-GAAP Measures - Organic Revenue Growth and Free Cash Flow" on page 9 of this press release.
Three Months Ended
(millions) Dec 31, Dec 31,
%
Less: Currency
Less: Fiduciary
Less:
Organic Revenue
2019 2018 Change Impact Investment Acquisitions,
Income Divestitures &
Growth
Other
---
Commercial Risk Solutions $
1,331 $
1,273 5% (2)% -% -% 7%
Reinsurance Solutions 187 162 15 (1) 1 (2) 17
Retirement Solutions 494 509 (3) (1) (5) 3
Health Solutions 585 558 5 (1) 1 5
Data & Analytic Services 291 271 7 (2) 3 6
Elimination (3) (3) N/A N/A N/A N/A N/A
---
Total revenue $
2,885 $
2,770 4% (1)% -% (2)% 7%
===
Total revenue increased $115 million, or 4%, to $2,885 million, compared to prior year period, including organic revenue growth of 7%, primarily driven by strong new business generation globally across the portfolio and improved retention and penetration of existing clients within the renewal book.
Commercial Risk Solutions organic revenue growth of 7% was driven by growth across every major geography, highlighted by double-digit growth in the U.S., driven by strong new business generation and management of the renewal book portfolio, as well as double-digit growth in Latin America. On average globally, exposures and pricing were both modestly positive, resulting in a modestly positive market impact overall.
Reinsurance Solutions organic revenue growth of 17% was driven by double-digit growth across every major business, highlighted by continued net new business generation globally and strong growth in catastrophe bonds within capital markets transactions. In addition, market impact was modestly positive on results in the fourth quarter.
Retirement Solutions organic revenue growth of 3% was driven by growth across every major business, highlighted by particular strength in our rewards and assessment businesses within the Human Capital practice, as well as double-digit growth in delegated investment management. Results also reflect modest growth in core retirement driven by strong retention and project-related work.
Health Solutions organic revenue growth of 5% was driven by strong growth globally in health and benefits brokerage, with growth across every major geography and highlighted by particular strength internationally. In the U.S., we saw strong new business generation and double-digit growth in voluntary benefits, a specific area of continued investment driven by increased client demand. Results were partially offset by a decline in project-related work within the health care exchange business.
Data & Analytic Services organic revenue growth of 6% was driven by growth globally across our affinity business, with particular strength in the U.S. driven by double-digit new business generation. Results also reflect solid growth in the Aon Inpoint and ReView businesses driven by strong retention.
FOURTH QUARTER 2019 EXPENSE REVIEW
Three Months Ended
(millions, except percentages) Dec 31, 2019 Dec 31, 2018
$ %
Change
Change
---
Expenses
Compensation and benefits $
1,601 $
1,601
$ -%
Information technology 131 121 10 8
Premises 91 87 4 5
Depreciation of fixed assets 48 50 (2) (4)
Amortization and impairment of intangible assets 97 101 (4) (4)
Other general expense 393 311 82 26
Total operating expenses $
2,361 $
2,271 $
90 4%
===
Compensation and benefits expense was flat compared to the prior year period due primarily to a $63 million increase in restructuring charges and an increase in expense associated with 7% organic revenue growth, partially offset by $22 million of incremental savings from restructuring and other operational improvement initiatives, a $19 million favorable impact from foreign currency translation, and a $9 million decrease in expenses related to divestitures, net of acquisitions.
Information technology expense increased $10 million, or 8%, compared to the prior year period due primarily to an increase in investments to support growth initiatives across the portfolio and enhance capabilities of our Aon Business Services organization, partially offset by $12 million of incremental savings from restructuring and other operational improvement initiatives and a $7 million decrease in restructuring charges.
Premises expense increased $4 million, or 5%, compared to the prior year period due primarily to a $12 million increase in restructuring charges, partially offset by a reduction of costs as we continue to optimize our global real estate footprint.
Depreciation of fixed assets expense decreased $2 million, or 4%, compared to the prior year period.
Amortization and impairment of intangible assets expense decreased $4 million, or 4%, compared to the prior year period.
Other general expenses increased $82 million, or 26%, compared to the prior year period due primarily to an increase in investments to support growth initiatives across the portfolio and enhance capabilities of our Aon Business Services organization, partially offset by a $22 million decrease in restructuring charges and $20 million of incremental savings from restructuring and other operational improvement initiatives.
FOURTH QUARTER 2019 INCOME SUMMARY
The fourth quarter 2019 financial results discussed herein represent performance from continuing operations unless otherwise noted. In addition, certain noteworthy items impacted adjusted operating income and adjusted operating margins in the fourth quarters of 2019 and 2018, which are also described in detail in "Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 10 of this press release.
Three Months Ended
(millions, except percentages) Dec 31, Dec 31,
%
2019 2018
Change
---
Revenue $
2,885 $
2,770 4%
Expenses 2,361 2,271 4
Operating income $
524 $
499 5%
Operating margin 18.2% 18.0%
Operating income - as adjusted $
804 $
716 12%
Operating margin - as adjusted 27.9% 25.8%
---
Operating income increased to $524 million. Adjusting for certain items detailed on page 10 of this press release, operating income increased $88 million, or 12%, and operating margin increased 210 basis points to 27.9%, each compared to the prior year period. Adjusted operating income and margin primarily reflects strong organic revenue growth, including double-digit growth in certain priority areas of investment, and $54 million, or +190 basis points, of incremental savings from restructuring and other operational initiatives, partially offset by a $10 million unfavorable impact from foreign currency translation. Operating income growth and operating margin expansion compared to the prior year period also reflect the absorption of investment to support long-term Aon United growth initiatives.
Interest income increased $4 million to $4 million compared to the prior year period reflecting the currency composition of operating cash. Interest expense increased $10 million to $80 million compared to the prior year period reflecting higher outstanding debt balances. Other pension expense of $3 million reflects a $6 million settlement charge primarily in the UK, partially offset by $3 million of pension income. Other expense of $4 million primarily reflects net losses due to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies and losses on certain company-owned life insurance plans, partially offset by a gain on the sale of a business.
DISCONTINUED OPERATIONS
Net income from discontinued operations was $0 million, or an immaterial impact per share, compared to $69 million, or $0.28 per share, in the prior year period. Net income from discontinued operations in the prior year period was primarily impacted by tax adjustments related to finalizing the 2017 accounting for U.S. Tax Reform as it relates to the sale of the Divested Business.
2019 FULL YEAR SUMMARY
The full year financial results discussed herein represent performance from continuing operations unless otherwise noted.
Total revenue in 2019 increased $243 million, or 2%, to $11.0 billion compared to the prior year, driven by 6% organic revenue growth, partially offset by a 3% unfavorable impact from foreign currency translation and a 1% unfavorable impact from divestitures, net of acquisitions.
Net income from continuing operations attributable to Aon shareholders was $1,533 million, or $6.37 per share, compared to $1,060 million, or $4.29 per share, in the prior year. Net income per share from continuing operations, adjusted for certain items, increased 12% to $9.17, including an unfavorable impact of $0.23 per share from foreign currency translation, compared to $8.16 in the prior year. Certain items that impacted full year results and comparisons against the prior year are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 10 of this press release.
During 2019, the Company repurchased approximately 10.5 million Class A Ordinary Shares for approximately $2.0 billion at an average price of $186.33 per share.
Conference Call, Presentation Slides and Webcast Details
The Company will host a conference call on Friday, January 31, 2020 at 7:30 a.m., central time. Interested parties can listen to the conference call via a live audio webcast and view the presentation slides at www.aon.com.
About Aon
Aon plc (NYSE:AON) Aon is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
Safe Harbor Statement
This communication contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. 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, changes to the composition or level of our revenues, cash flow and liquidity, expected tax rates, 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", "potential", "looking forward", or similar expressions, we are making forward-looking statements.
The following factors, among others, could cause actual results to differ from those set forth in the forward looking statements: general economic and political conditions in different countries in which Aon does business around the world, including the U.K.'s expected withdrawal from the European Union; changes in the competitive environment; fluctuations in exchange and interest rates that could influence revenue and expense; changes in global equity and fixed income markets that could affect the return on invested assets; changes in the funding status of Aon's various defined benefit pension plans and the impact of any increased pension funding resulting from those changes; the level of Aon's debt limiting financial flexibility or increasing borrowing costs; rating agency actions that could affect Aon's ability to borrow funds; volatility in our tax rate due to a variety of different factors, including U.S. tax reform; changes in estimates or assumptions on our financial statements; limits on Aon's subsidiaries to make dividend and other payments to Aon; the impact of lawsuits and other contingent liabilities and loss contingencies arising from errors and omissions and other claims against Aon; the impact of, and potential challenges in complying with, legislation and regulation in the jurisdictions in which Aon operates, particularly given the global scope of Aon's businesses and the possibility of conflicting regulatory requirements across jurisdictions in which Aon does business; the impact of any investigations brought by regulatory authorities in the United States, U.K. and other countries; the impact of any inquiries relating to compliance with the U.S. Foreign Corrupt Practices Act and non-U.S. anti-corruption laws and with U.S. and non-U.S. trade sanctions regimes; failure to protect intellectual property rights or allegations that we infringe on the intellectual property rights of others; the effects of English law on our operating flexibility and the enforcement of judgments against Aon; the failure to retain and attract qualified personnel; international risks associated with Aon's global operations; the effect of natural or man-made disasters; the potential of a system or network breach or disruption resulting in operational interruption or improper disclosure of personal data; Aon's ability to develop and implement new technology; the damage to our reputation among clients, markets or third parties; the actions taken by third parties that perform aspects of our business operations and client services; the extent to which Aon manages certain risks created in connection with the various services, including fiduciary and investments and other advisory services and business process outsourcing services, among others, that Aon currently provides, or will provide in the future, to clients; Aon's ability to continue, and the costs and the costs and risks associated with, growing, developing and integrating companies that it acquires or new lines of business; changes in commercial property and casualty markets, commercial premium rates or methods of compensation; changes in the health care system or our relationships with insurance carriers; Aon's ability to implement initiatives intended to yield cost savings, and the ability to achieve those cost savings; risks and uncertainties in connection with the sale of our divested business; and our ability to realize the expected benefits from our restructuring plan.
Any or all of Aon's forward-looking statements may turn out to be inaccurate, and there are no guarantees about Aon's performance. The factors identified above are not exhaustive. Aon and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Further information concerning Aon and its businesses, including factors that potentially could materially affect Aon's financial results, is contained in Aon's filings with the SEC. See Aon's Annual Report on Form 10-K for the year ended December 31, 2018 and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2019, June 30, 2019, and September 30, 2019, and Aon's additional reports filed with the SEC for a further discussion of these and other risks and uncertainties applicable to Aon's businesses. These factors may be revised or supplemented in subsequent reports. Aon is under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statement that it may make from time to time, whether as a result of new information, future events or otherwise.
Explanation of Non-GAAP Measures
This communication includes supplemental information related to organic revenue growth, free cash flow, adjusted operating margin, and adjusted earnings per share for continuing operations that exclude the effects of intangible asset amortization, restructuring, capital expenditures, and certain other noteworthy items that affected results for the comparable periods. Organic revenue growth includes the impact of intercompany activity and excludes foreign exchange rate changes, acquisitions, divestitures, transfers between revenue lines, fiduciary investment income, and gains or losses on derivatives accounted for as hedges. The impact of foreign exchange is determined by translating last year's revenue, expense or net income at this year's foreign exchange rates. Reconciliations to the closest U.S. GAAP measure for each non-GAAP measure presented in this press release are provided in the attached appendices. Supplemental organic revenue growth information and additional measures that exclude the effects of certain items noted above do not affect net income or any other U.S. GAAP reported amounts. Free cash flow is cash flow from operating activity less capital expenditures. The effective tax rate, as adjusted, excludes the applicable tax impact associated with expenses for estimated intangible asset amortization, restructuring, and certain other noteworthy items. Management believes that these measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors. They should be viewed in addition to, not in lieu of, the Company's Condensed Consolidated Financial Statements, which can be found at www.aon.com. Industry peers provide similar supplemental information regarding their performance, although they may not make identical adjustments.
Investor Contact:
Media Contact:
Investor Relations
Will Dunn
312-381-3310
212-441-1819
investor.relations@aon.com
will.dunn@aon.com
Aon plc
Consolidated Statements of Income (Unaudited)
Three Months Twelve Months
Ended Ended
(millions, except per share data) Dec 31, Dec 31, % Dec 31, Dec 31, %
2019 2018 2019 2018
Change Change
---
Revenue
Total revenue $
2,885 $
2,770 4% $
11,013 $
10,770 2%
---
Expenses
Compensation and benefits 1,601 1,601 -% 6,054 6,103 (1)%
Information technology 131 121 8% 494 484 2%
Premises 91 87 5% 339 370 (8)%
Depreciation of fixed assets 48 50 (4)% 172 176 (2)%
Amortization and impairment of intangible assets 97 101 (4)% 392 593 (34)%
Other general expense 393 311 26% 1,393 1,500 (7)%
Total operating expenses 2,361 2,271 4% 8,844 9,226 (4)%
Operating income 524 499 5% 2,169 1,544 40%
Interest income 4 100% 8 5 60%
Interest expense (80) (70) 14% (307) (278) 10%
Other income (expense) (7) (8) (13)% 1 (25) (104)%
Income from continuing operations before income taxes 441 421 5% 1,871 1,246 50%
Income tax expense (1) 59 137 (57)% 297 146 103%
Net income from continuing operations 382 284 35% 1,574 1,100 43%
---
Net income (loss) from discontinued operations 69 (100)% (1) 74 (101)%
Net income 382 353 8% 1,573 1,174 34%
Less: Net income attributable to noncontrolling interests 8 8 -% 41 40 3%
Net income attributable to Aon shareholders $
374 $
345 8% $
1,532 $
1,134 35%
===
Basic net income per share attributable to Aon shareholders
Continuing operations $
1.59 $
1.14 39% $
6.42 $
4.32 49%
Discontinued operations 0.28 (100)% 0.30 (100)%
Net income $
1.59 $
1.42 12% $
6.42 $
4.62 39%
---
Diluted net income per share attributable to Aon shareholders
Continuing operations $
1.58 $
1.13 40% $
6.37 $
4.29 48%
Discontinued operations 0.28 (100)% 0.30 (100)%
Net income $
1.58 $
1.41 12% $
6.37 $
4.59 39%
Weighted average ordinary shares outstanding - basic 234.7 242.4 (3)% 238.6 245.2 (3)%
---
Weighted average ordinary shares outstanding - diluted 237.0 245.0 (3)% 240.6 247.0 (3)%
===
(1) The effective tax rate was 13.4%
and 32.5% for the three months
ended December 31, 2019 and 2018,
respectively, and 15.9% and 11.7%
for the twelve months ended
December 31, 2019 and 2018,
respectively.
Aon plc
Reconciliation of Non-GAAP Measures - Organic Revenue Growth and Free Cash Flow (Unaudited)
Organic Revenue Growth From Continuing Operations (Unaudited)
Three Months Ended
(millions) Dec 31, 2019 Dec 31, 2018 % Change Less:
Less:
Less: Organic
Currency Fiduciary Acquisitions, Revenue
Impact (1) Investment Divestitures Growth (3)
Income (2) & Other
---
Commercial Risk Solutions $
1,331 $
1,273 5% (2)% -% -% 7%
Reinsurance Solutions 187 162 15 (1) 1 (2) 17
Retirement Solutions 494 509 (3) (1) (5) 3
Health Solutions 585 558 5 (1) 1 5
Data & Analytic Services 291 271 7 (2) 3 6
Elimination (3) (3) N/A N/A N/A N/A N/A
---
Total revenue $
2,885 $
2,770 4% (1)% -% (2)% 7%
===
Twelve Months Ended
(millions) Dec 31, 2019 Dec 31, 2018 % Change Less:
Less:
Less: Organic
Currency Fiduciary Acquisitions, Revenue
Impact (1) Investment Divestitures Growth (3)
Income (2) & Other
---
Commercial Risk Solutions $
4,673 $
4,652 -% (3)% -% (4)% 7%
Reinsurance Solutions 1,686 1,563 8 (2) 1 (1) 10
Retirement Solutions 1,817 1,865 (3) (2) (3) 2
Health Solutions 1,667 1,596 4 (3) 2 5
Data & Analytic Services 1,184 1,105 7 (3) 6 4
Elimination (14) (11) N/A N/A N/A N/A N/A
---
Total revenue $
11,013 $
10,770 2% (3)% -% (1)% 6%
===
(1) Currency impact is determined by
translating last year's revenue at
this year's foreign exchange
rates.
(2) Fiduciary investment income for the
three months ended December 31,
2019 and 2018, respectively, was
$16 million and $16 million.
Fiduciary investment income for
the twelve months ended December
31, 2019 and 2018, respectively,
was $74 million and $53 million.
(3) Organic revenue growth includes the
impact of intercompany activity
and excludes the impact of changes
in foreign exchange rates,
fiduciary investment income,
acquisitions, divestitures,
transfers between revenue lines,
and gains and losses on
derivatives accounted for as
hedges.
Free Cash Flow from Continuing Operations (Unaudited)
Twelve Months Ended
(millions) Dec 31, Dec 31, %
2019 2018 Change
---
Cash Provided By Continuing
Operating Activities $
1,835 $
1,686 9%
Capital Expenditures Used for
Continuing Operations (225) (240) (6)
Free Cash Flow Provided by
Continuing Operations (1) $
1,610 $
1,446 11%
===
(1) Free cash flow is defined as cash
flow from operations less capital
expenditures. This non-GAAP
measure does not imply or
represent a precise calculation
of residual cash flow available
for discretionary expenditures.
Aon plc
Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share (Unaudited) (1)
Three Months Ended Twelve Months Ended
(millions, except percentages) Dec 31, Dec 31, % Dec 31, Dec 31, %
2019 2018 Change 2019 2018 Change
---
Revenue from continuing operations $
2,885 $
2,770 4% $
11,013 $
10,770 2%
Operating income from continuing operations $
524 $
499 5% $
2,169 $
1,544 40%
Amortization and impairment of intangible assets (2) 97 101 392 593
Restructuring 170 119 451 485
Legacy Litigation (3) 13 (3) 13 75
Operating income from continuing operations - as adjusted $
804 $
716 12% $
3,025 $
2,697 12%
---
Operating margin from continuing operations 18.2% 18.0% 19.7% 14.3%
Operating margin from continuing operations - as adjusted 27.9% 25.8% 27.5% 25.0%
---
Three Months Ended Twelve Months Ended
(millions, except per share data) Dec 31, Dec 31, % Dec 31, Dec 31, %
2019 2018 Change 2019 2018 Change
---
Operating income from continuing operations - as adjusted $
804 $
716 12% $
3,025 $
2,697 12%
Interest income 4 100% 8 5 60%
Interest expense (80) (70) 14% (307) (278) 10%
Other income (expense):
Other income (expense) - pensions - as adjusted (4) (3) 11 (127)% 9 38 (76)%
Other income (expense) - other (4) (14) (71)% (8) (26) (69)%
Total Other income (expense) - as adjusted (4) (7) (3) 133% 1 12 (92)%
Income before income taxes from continuing operations - as adjusted 721 643 12% 2,727 2,436 12%
Income tax expense (5) 113 106 7% 478 379 26%
Net income from continuing operations - as adjusted 608 537 13% 2,249 2,057 9%
Less: Net income attributable to noncontrolling interests 8 8 -% 41 40 3%
Net income attributable to Aon shareholders from continuing operations - as adjusted $
600 $
529 13% $
2,208 $
2,017 9%
---
Net income (loss) from discontinued operations - as adjusted(6)
$ $
(4) (100)% $
(1) $
(8) (88)%
Net income attributable to Aon shareholders - as adjusted $
600 $
525 14% $
2,207 $
2,009 10%
===
Diluted net income (loss) per share attributable to Aon shareholders
Continuing operations - as adjusted $
2.53 $
2.16 17% $
9.17 $
8.16 12%
Discontinued operations - as adjusted (0.02) (100)% (0.03) (100)%
Net income attributable to Aon shareholders - as adjusted $
2.53 $
2.14 18% $
9.17 $
8.13 13%
---
Weighted average ordinary shares outstanding - diluted 237.0 245.0 (3)% 240.6 247.0 (3)%
===
Effective Tax Rates (5)
Continuing Operations - U.S. GAAP 13.4% 32.5% 15.9% 11.7%
Continuing Operations - Non-GAAP 15.7% 16.5% 17.5% 15.6%
Discontinued Operations - U.S. GAAP 17.6% 1,437.2% 47.4% 15,949.3%
Discontinued Operations - Non-GAAP (6) 17.6% 20.1% 47.4% 29.7%
---
(1) Certain noteworthy items impacting
operating income in 2019 and 2018
are described in this schedule.
The items shown with the caption
"as adjusted" are non-GAAP
measures.
(2) Included in the twelve months ended
December 30, 2018 was a $176
million non-cash impairment
charge taken on certain assets and
liabilities held for sale.
(3) During the fourth quarter of 2019
we settled legacy litigation that
had been reported in a prior year
as an adjustment to GAAP earnings.
In connection with the
settlement, we recorded a $13
million charge in the quarter,
which represents the difference
between the amount accrued in the
prior year and the final
settlement amount of the legacy
litigation.
(4) Adjusted Other income (expense)
excludes pension settlement
charges of $5 million and $37
million for the three and twelve
months ended December 31, 2018,
respectively.
(5) Adjusted items are generally taxed
at the estimated annual effective
tax rate, except for the
applicable tax impact associated
with estimated restructuring plan
expenses, legacy litigation,
accelerated tradename
amortization, impairment charges
and non-cash pension settlement
charges, which are adjusted at the
related jurisdictional rate. In
addition, tax expense excludes the
tax impacts of the sale of the
disposal group and enactment date
impacts of U.S. Tax Reform.
(6) Adjusted net income from
discontinued operations excludes
the gain on sale of discontinued
operations of $73 million and $82
million for the three and twelve
months ended December 31, 2018,
respectively. The effective tax
rate was further adjusted for the
applicable tax impact associated
with the sale, as applicable.
Aon plc
Pro Forma Historical Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings Per Share from Continuing Operations as Adjusted for Changes in Accounting Guidance (Unaudited) (1)(2)
Pro Forma Periods
Reported Periods
Three Months Ended (5) Full
Three Months Ended (6) Full
Three Months Ended (7) Full
Year Year Year
2017 (5) 2018 (6) 2019 (7)
(millions, except per share data) Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31,
2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019
--- ---
Revenue
Commercial Risk Solutions $
989 $
1,041 $
915 $
1,218 $
4,163 $
1,184 $
1,166 $
1,029 $
1,273 $
4,652 $
1,118 $
1,167 $
1,057 $
1,331 $
4,673
Reinsurance Solutions 671 345 257 153 1,426 742 380 279 162 1,563 788 420 291 187 1,686
Retirement Solutions 385 388 492 489 1,754 424 431 501 509 1,865 420 419 484 494 1,817
Health Solutions 428 281 277 526 1,512 451 309 278 558 1,596 486 317 279 585 1,667
Data & Analytic Services 273 281 287 299 1,140 294 277 263 271 1,105 336 286 271 291 1,184
Elimination - (4) (5) (1) (10) (5) (2) (1) (3) (11) (5) (3) (3) (3) (14)
---
Total revenue $
2,746 $
2,332 $
2,223 $
2,684 $
9,985 $
3,090 $
2,561 $
2,349 $
2,770 $10,770 $
3,143 $
2,606 $
2,379 $
2,885 $
11,013
---
Expenses
Compensation and benefits 1,548 1,471 1,420 1,568 6,007 1,616 1,494 1,392 1,601 6,103 1,584 1,501 1,368 1,601 6,054
Information technology 88 98 109 124 419 115 123 125 121 484 117 126 120 131 494
Premises 84 86 89 89 348 93 96 94 87 370 87 85 76 91 339
Depreciation of fixed assets 54 54 40 39 187 39 47 40 50 176 40 40 44 48 172
Amortization of intangible assets 43 460 101 100 704 110 282 100 101 593 97 97 101 97 392
Other general expenses 307 330 307 328 1,272 318 535 336 311 1,500 346 344 310 393 1,393
---
Total operating expenses 2,124 2,499 2,066 2,248 8,937 2,291 2,577 2,087 2,271 9,226 2,271 2,193 2,019 2,361 8,844
Operating income 622 (167) 157 436 1,048 799 (16) 262 499 1,544 872 413 360 524 2,169
Amortization of intangible assets 43 460 101 100 704 110 282 100 101 593 97 97 101 97 392
Restructuring 144 155 102 96 497 74 195 97 119 485 91 127 63 170 451
Legacy Litigation - 103 (25) (3) 75 13 13
Regulatory and compliance matters - 34 8 (14) 28
Operating income - as adjusted 809 482 368 618 2,277 983 564 434 716 2,697 1,060 637 524 804 3,025
--- ---
Operating margin from continuing operations - as adjusted 29.5% 20.7% 16.6% 23.0% 22.8% 31.8% 22.0% 18.5% 25.8% 25.0% 33.7% 24.4% 22.0% 27.9% 27.5%
---
Interest income 2 8 10 7 27 4 1 5 2 1 1 4 8
Interest expense (70) (71) (70) (71) (282) (70) (69) (69) (70) (278) (72) (77) (78) (80) (307)
Other income (expense):
Other income (expense) - pensions - as adjusted (3) 8 9 9 16 42 9 9 9 11 38 4 5 3 (3) 9
Other income (expense) - other - as adjusted (4) (10) (5) (5) (19) (39) (17) 4 1 (14) (26) (4) 1 (1) (4) (8)
---
Total Other income (expense) - as adjusted (3)(4) (2) 4 4 (3) 3 (8) 13 10 (3) 12 6 2 (7) 1
---
Income before income taxes from continuing operations - as adjusted 739 423 312 551 2,025 909 509 375 643 2,436 990 567 449 721 2,727
Income taxes 98 68 54 81 301 150 75 48 106 379 167 102 96 113 478
---
Income from continuing operations - as adjusted 641 355 258 470 1,724 759 434 327 537 2,057 823 465 353 608 2,249
Less: Net income attributable to noncontrolling interests 14 9 7 7 37 16 10 6 8 40 17 10 6 8 41
--- ---
Net income attributable to Aon shareholders from continuing operations - as adjusted $
627 $
346 $
251 $
463 $
1,687 $
743 $
424 $
321 $
529 $
2,017 $
806 $
455 $
347 $
600 $
2,208
===
Diluted earnings per share from continuing operations - as adjusted $
2.35 $
1.31 $
0.98 $
1.82 $
6.47 $
2.97 $
1.71 $
1.31 $
2.16 $
8.16 $
3.31 $
1.87 $
1.45 $
2.53 $
9.17
=== ===
Weighted average ordinary shares outstanding - diluted 267.0 264.3 257.3 254.5 260.7 250.2 247.4 245.6 245.0 247.0 243.7 242.8 239.1 237.0 240.6
=== ===
Notes
(1) Certain noteworthy items impacting
operating income in 2017, 2018, and
2019, are described in this
schedule. The items shown with the
caption "as adjusted" are non-GAAP
measures.
(2) The 2017 historical periods
presented above have been adjusted
retrospectively to reflect Aon's
adoption of the new revenue
recognition standard in the first
quarter of 2018. For a complete
reconciliation of prior period
reported balances to the pro forma
adjusted balances above, please
refer to our press release issued
on February 2, 2018.
(3) Adjusted Other income (expense)
excludes pension settlement charges
taken within each respective
period. Pension settlement charges
were $128 million for the three and
twelve months ended December 31,
2017. Pension settlement charges
were $7 million, $16 million, $9
million, and $5 million,
respectively, for the three months
ended March 31, 2018, June 30,
2018, September 30, 2018, and
December 31, 2018, and $37 million
for the twelve months ended
December 31, 2018.
(4) For illustrative purposes, the
impact of the total foreign
currency related to the new revenue
accounting guidance is excluded
from the Pro Forma financial
statements. The impact on Other
income (expense) of foreign
currency due to this new guidance
was $(2) million, $(4) million,
$(6) million, and $1 million,
respectively, for the three months
ended March 31, 2017, June 30,
2017, September 30, 2017, and
December 31, 2017, and $(11)
million for the twelve months ended
December 31, 2017.
(5) The non-GAAP effective tax rates
reported were 11.1%, 15.6%, 17.5%,
and 15.5%, respectively, for the
three months ended March 31, 2017,
June 30, 2017, September 30, 2017,
and December 31, 2017, and 14.9%
for the twelve months ended
December 31, 2017. Adjusted items
are generally taxed at the
estimated annual effective tax
rate, except for the applicable tax
impact associated with estimated
restructuring expenses, accelerated
tradename amortization, impairment
charges, regulatory and compliance
provisions, and non-cash pension
settlements, which are adjusted at
the related jurisdictional rate. In
addition, tax expense excludes the
provisional estimates of the impact
of U.S. Tax Reform. The non-GAAP
effective tax rates for continuing
operations, adjusted for the change
in accounting guidance were 13.3%,
16.1%, 17.3%, and 14.7% for the
three months ended March 31, 2017,
June 30, 2017, September 30, 2017,
and December 31, 2017, and 14.9%
for the twelve months ended
December 31, 2017.
(6) The non-GAAP effective tax rates
reported were 16.5%, 14.7%, 12.8%,
and 16.5% respectively, for the
three months ended March 31, 2018,
June 30, 2018, September 30, 2018,
and December 31, 2018 and 15.6% for
the twelve months ended December
31, 2018. Adjusted items are
generally taxed at the estimated
annual effective tax rate, except
for the applicable tax impact
associated with estimated
restructuring expenses, legacy
litigation, accelerated tradename
amortization, impairment charges,
and non-cash pension settlement
charges, which are adjusted at the
related jurisdictional rate. In
addition, tax expense excludes the
tax impacts of the sale of certain
assets and liabilities previously
classified as held for sale, as
well as enactment date impacts of
US Tax Reform.
(7) The non-GAAP effective tax rates
reported were 16.9%, 18.0%, 21.4%,
and 15.7% respectively, for the
three months ended March 31, 2019,
June 30, 2019, September 30, 2019,
and December 31, 2019 and 17.5% for
the twelve months ended December
31, 2019. Adjusted items are
generally taxed at the estimated
annual effective tax rate, except
for the applicable tax impact
associated with estimated
restructuring expenses and
accelerated tradename amortization,
which are adjusted at the related
jurisdictional rate. In addition,
the tax expense excludes the tax
impacts of payment of certain
legacy litigation and enactment
date impacts of the Tax Cuts and
Jobs Act of 2017.
Aon plc
Consolidated Statements of Financial Position (Unaudited)
As of
(millions) December 31, December 31,
2019 2018
---
Assets
---
Current Assets
Cash and cash equivalents $
790 $
656
Short-term investments 138 172
Receivables, net 3,112 2,760
Fiduciary assets (1) 11,834 10,166
Other current assets 602 618
Total Current Assets 16,476 14,372
Goodwill 8,165 8,171
Intangible assets, net 783 1,149
Fixed assets, net 621 588
Operating lease right-of-use assets 929
Deferred tax assets 645 561
Prepaid pension 1,216 1,133
Other non-current assets 570 448
Total Assets $
29,405 $
26,422
===
Liabilities and equity
Liabilities
Current Liabilities
Accounts payable and accrued liabilities $
1,939 $
1,943
Short-term debt and current portion of long-term debt 712 251
Fiduciary liabilities 11,834 10,166
Other current liabilities 1,086 936
Total Current Liabilities 15,571 13,296
Long-term debt 6,627 5,993
Non-current operating lease liabilities 944
Deferred tax liabilities 199 181
Pension, other postretirement, and postemployment liabilities 1,738 1,636
Other non-current liabilities 877 1,097
Total Liabilities 25,956 22,203
---
Equity
Ordinary shares - $0.01 nominal value 2 2
Additional paid-in capital 6,152 5,965
Retained earnings 1,254 2,093
Accumulated other comprehensive loss (4,033) (3,909)
Total Aon Shareholders' Equity 3,375 4,151
Noncontrolling interests 74 68
Total Equity 3,449 4,219
Total liabilities and equity $
29,405 $
26,422
===
(1) Includes cash and short-term
investments of $5,154 million and
$3,866 million for the periods
ended December 31, 2019 and 2018,
respectively.
Aon plc
Consolidated Statements of Cash Flows (Unaudited)
Year ended December 31
(millions) 2019 2018
---
Cash flows from operating activities
Net income $
1,573 $
1,174
Less: Income from discontinued operations, net of income taxes (1) 74
Adjustments to reconcile net income to cash provided by operating activities:
Loss (gain) from sales of businesses and investments, net (13) 6
Depreciation of fixed assets 172 176
Amortization and impairment of intangible assets 392 593
Share-based compensation expense 317 338
Deferred income taxes (36) (225)
Change in assets and liabilities:
Fiduciary receivables (409) (679)
Short-term investments - funds held on behalf of clients (1,246) (320)
Fiduciary liabilities 1,655 999
Receivables, net (371) (127)
Accounts payable and accrued liabilities (28) 25
Restructuring reserves 3 23
Current income taxes (20) 34
Pension, other postretirement and other postemployment liabilities (156) (259)
Other assets and liabilities 1 2
Cash provided by operating activities 1,835 1,686
---
Cash flows from investing activities
Proceeds from investments 61 71
Payments for investments (113) (80)
Net sales (purchases) of short-term investments - non-fiduciary 35 348
Acquisition of businesses, net of cash acquired (39) (58)
Sale of businesses, net of cash sold 52 (10)
Capital expenditures (225) (240)
Cash provided by (used for) investing activities (229) 31
---
Cash flows from financing activities
Share repurchase (1,960) (1,470)
Issuance of shares for employee benefit plans (131) (149)
Issuance of debt 6,052 5,754
Repayment of debt (4,941) (5,417)
Cash dividends to shareholders (410) (382)
Noncontrolling interests and other financing activities (103) (35)
Cash used for financing activities (1,493) (1,699)
---
Effect of exchange rates on cash and cash equivalents 21 (118)
Net increase (decrease) in cash and cash equivalents 134 (100)
Cash and cash equivalents at beginning of period 656 756
Cash and cash equivalents at end of year $
790 $
656
===
Aon plc
Restructuring Plan (Unaudited) (1)
Years ended December 31
2019 2018 2017 Completed Plan Total
Workforce reduction $
205 $
115 $
299 $
619
Technology rationalization 39 47 33 119
Lease consolidation 33 28 8 69
Asset impairments 14 13 26 53
Other costs associated with restructuring and separation (2) 160 282 131 573
Total restructuring and related expenses $
451 $
485 $
497 $
1,433
===
(1) In the Consolidated Statements of
Income, workforce reductions are
included in "Compensation and
benefits," technology
rationalization is included in
"Information technology," lease
consolidations are included in
"Premises," asset impairments are
included in "Depreciation of fixed
assets," and other costs associated
with restructuring and separation
are included in "Other general
expenses" depending on the nature of
the expense.
(2) Other costs associated with the
Restructuring Plan include those to
separate the Divested Business, as
well as moving costs, and consulting
and legal fees. These costs are
typically recognized when incurred.
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SOURCE Aon plc
