Aon Corp (

AOC

)

Q3 2010 Earnings Call

October 29, 2010 8:30 a.m. ET

Executives

Greg Case – CEO

Christa Davies - CFO

Analysts

Keith Walsh – Citi

Brian Meredith – UBS

Dan Farrell – Sterne Agee

Jay Gelb - Barclays Capital

Mel Hammerman – JP Morgan

Meyer Shields – Stiefel Nicolaus

Presentation

Operator

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Previous Statements by AOC
» Aon Corp. Q2 2010 Earnings Call Transcript
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» Aon Corporation Q3 2009 Earnings Call Transcript
» Aon Corporation Q2 2009 Earnings Call Transcript

Good morning and thank you for holding. Welcome to Aon Corporations Third Quarter 2010 Earnings Conference. At this time, all parties will be on a listen only mode until the question and answer portion of today’s call. If anyone has an objection, you may disconnect your line at this time.

I would like to also remind all parties, that this call is being recorded, and that it is important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature as defined by the Private Securities Reform Act of 1995.

Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. Information concerning risk factors that could cause such differences are described in the press release covering our third quarter results, as well as having been posted on our website.

Now, it is my pleasure to turn the call to Greg Case, President, and CEO of Aon Corporation. You may begin.

Greg Case

Thank you, and good morning everyone and welcome to our Third Quarter 2010 Conference Call. Joining me here today is our CFO, Christa Davies.

To begin, this was a very exciting quarter for our colleagues around the globe. Highlighted by a tremendous effort to complete the merger with Hewitt Associates, creating a global leader in HR solutions. First and foremost, on behalf of Aon colleagues around the world, I want to extend a heartfelt welcome to our associates from Hewitt and thank them, and all of our joint teams for the tremendous effort in bringing together our two firms. It’s just been extraordinary work all around.

Today, we’re fully launched with our leadership and teams in place, working together to serve clients with greater capability and contents that ever before. And the outcome of this work, substantially strengthens position, as a global leader in risk and people.

With Aon Risk Solutions and Aon Benfield in our brokerage segment, and Aon Hewitt in our consulting segment, each a clear global leader in their own right.

In addition to the close of Aon Hewitt, in the quarter we began the official launch of our four-year partnership with Manchester United, on July 12, which will support connectivity across global Aon, and substantially strengthen Aon’s brand recognition around the world.

Beyond these highlights, our team is delivering results to demonstrate continued progress and momentum. Irrespective of economic conditions, the soft market, or other challenges outside our control, we’re executing on our strategies to substantially strengthen our firm.

Consistent with previous quarters, I’d like to cover three areas before turning the call over to Christa, for further financial review. First is our performance against key commitments to shareholders. Second, continued areas of investment across Aon, including an update on the progress of Aon Hewitt, and third, is overall organic growth performance.

On the first topic, our performance versus commitments. Each quarter, we measure our performance against the three metrics we committed to shareholders to achieving over the course of the year; grow organically, expand margins and increase earnings per share.

In the third quarter, organic revenue was unchanged on a percentage basis, an improvement from a negative 1% in the prior quarter, as consulting delivered its second straight quarter of positive organic revenue, and our retail brokerage business posted its third straight quarter of sequential organic revenue improvement.

Adjusted operating market decreased 30 basis points, as improved operational performance across our combined segments was offset by a decline in revenue related to our ownership in certain insurance investment funds.

EPS, on adjusted basis, decreased 6% to $0.61 as improved operating segment results and effective capital management was more than offset by the unfavorable impact of a loss on sale of a business, a higher effective tax rate, as well as the fact that the prior year quarter benefited gains on certain investments.

Overall, we view the underline results of the quarter of progress, as we continue to build and strengthen our client serving capabilities. We also highlight and looking at progress, year to date, organic revenue overall is a negative 1%, but reflects three quarters in a roll of sequential organic revenue improvement from negative 3% in Q1, negative 1% in Q2, and now 0% in Q3.

Adjusted operating margin is up 30 basis points year-to-date, and EPS on an adjusted basis is up 5% year-to-date. These results demonstrate continued progress against our annual commitments to shareholders as we strengthen the firm for long-term growth and [inaudible].

On the second topic, further areas of investment, we believe Aon is in a unique position. Solid operating performance combined with solid expense discipline and a strong balance sheet, continues to enable substantial investments in colleagues and capabilities. As we have significant opportunity remaining to deliver cost savings under our restructuring programs, we’ll continue to build on our leadership position and industry leading capabilities.

A few examples include, in brokerage, we’re investing in innovative technology such as our global risk inside platform, and FAConnect, to ensure that clients have seamless access to the best that global Aon, in every region around the globe. In fact, GRIP has now completed over 650,000 trades, highlighting the unique value of this platform.

We’re also investing in additional capability with acquisition such as Allied North America, and FCC Global, strengthening our industry leading construction capability.

Finally, we’re investing in client leadership to drive greater productivity and efficiency with the rollout of the revenue engine in EMEA and Asia-Pacific, our Aon broking platform, to better match client needs with ensure appetite for risk, and client promise which is driving greater retention rates and ensuring clients understand our value proposition in a fully transparent way.

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