Aon (AON)

Q2 2011 Earnings Call

July 29, 2011 8:30 am ET

Executives

Greg Case - Chief Executive Officer, President, Executive Director and Member of Executive Committee

Christa Davies - Chief Financial Officer and Executive Vice President

Analysts

Yaron Kinar - Deutsche Bank AG

Dan Farrell - Sterne Agee & Leach Inc.

Keith Walsh - Citigroup Inc

Jay Cohen - BofA Merrill Lynch

Matthew Heimermann - JP Morgan Chase & Co

Brian Meredith - UBS Investment Bank

Meyer Shields - Stifel, Nicolaus & Co., Inc.

Michael Nannizzi - Goldman Sachs Group Inc.

Adam Klauber

Presentation

Operator

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Good morning, and thank you for holding. Welcome to Aon Corporation's Second Quarter Earnings Conference Call. [Operator Instructions] I would also like to remind all parties 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 second quarter results, as well as having been posted on our website.

Now it's my pleasure to turn the call over to Greg Case, President and CEO of Aon Corporation. Sir, you may begin

Greg Case

Thank you, and good morning, everyone. Welcome to our second quarter conference call. Joining me here today is our CFO, Christa Davies. To begin, our second quarter results reflect continued progress with solid growth in our Retail Brokerage business, delivery of synergy savings related to Aon Hewitt and the repurchase of more than 300 million of common stock. Consistent with our messages on previous calls, irrespective of the stock market, economic conditions or other challenges outside our control, we continue to execute on our strategy to substantially strengthen and unite Aon around the globe. Also consistent with previous quarters, I'd like to cover 3 areas before turning the call over to Christa for further financial review: First is our performance against key metrics we communicate to shareholders; second is continued areas of investment across Aon; and third is overall organic growth performance.

On the first topic, our performance versus key metrics. Each quarter, we measure our performance against the 3 metrics we focus on achieving over the course of the year, grow organically, expand margins and increase earnings per share. In the second quarter, organic growth was plus 1%, highlighted by solid growth in our Retail Brokerage business, placing us firmly on track for growth in 2011. Adjusted operating margin decreased 220 basis points, driven by the inclusion of Hewitt results, including a significant increase in intangible amortization expense. EPS increased 2% to $0.83, driven by strong underlying performance and effective capital management. Overall, our team views the underlying second quarter results as a quarter of continued progress as we strengthen the firm for long-term growth and value creation.

On the second topic, further areas of investments. We believe Aon is in a unique position. Solid operating performance combined with expense discipline and strong cash flow continues to enable substantial investment in colleagues and capabilities. A few examples include, in Risk Solutions. We're invested in innovative technology, such as our Global Risk Insight Platform, which delivers unmatched data and analytics, new revenue opportunities and greater insights into our commission yields across $54 billion of premium flow globally. We're also investing in additional capability and talent, as well as strengthening our international footprint for recently completed acquisitions such as Glenrand in South Africa, which solidifies our position as the largest broker on the continent of Africa.

We're investing in client leadership to drive greater productivity and efficiency with the rollout of the revenue engine in EMEA and Asia Pacific, the rollout of Client Promise, which is driving greater retention rates and ensuring clients understand our value proposition and the rollout of our Aon Broking platform to better match client needs with insurer appetite for risk in any geography around the globe.

In HR Solutions, we continue to strengthen our industry-leading position in both public and corporate healthcare exchanges, enabling clients to prepare for ultimate changes in healthcare legislation with design, purchasing and administration capability.

We're expanding our capability in investment management consulting as highlighted by the acquisition of EnnisKnupp, complementing our incredibly strong U.K. business with over $4.3 trillion in combined assets under advisement. And we're expanding our international footprint as the workplace is increasingly becoming more global with investments in key talent and capabilities across Asia.

Finally, we're continuing to invest in expanding our core HR BPO offerings through point solution opportunity such as dependent eligibility audits and assets management.

In summary, across Risk Solutions and HR Solutions, our fundamental client-serving capability continues to substantially strengthen around the globe. These investments, fully funded in the context of long-term margin improvement, position Aon very well to take advantage of an improving global economy and a long-term growth opportunity we see across our markets.

Finally, on the third topic of growth, I want to spend the next few minutes discussing the quarter for both our segments. In Risk Solutions, overall organic growth revenue was plus 2%, a continuation of the positive trends we saw in the prior quarter despite soft pricing, excess capital and fragile economic conditions globally. Against these headwinds, which are primarily market-related, we're driving a set of initiatives that continue to strengthen our underlying performance and give us confidence that our Risk Solutions business is firmly positioned for long-term growth and leveraged to an improving economy. With management of our renewable book portfolio through Client Promise and retention rates of 90% or better on average, highlighting strong client satisfaction.

New business generation, more than $240 million across our Retail business with strong growth in many markets including China, Africa, Australia, New Zealand, Italy, Denmark and U.S. Retail just to a name a few, highlighting the strength of our global client-serving capability, and investments in new products and service capabilities with the rollout of GRIP, Client Promise and Impact on Demand in global growth in 3 reinsurance, driven primarily by net new business.

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