Aon's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Aon (AON)

Q4 2011 Earnings Call

February 03, 2012 8:30 am ET

Executives

Gregory C. Case - Chief Executive Officer, President, Executive Director and Member of Executive Committee

Christa Davies - Chief Financial Officer and Executive Vice President

Analysts

Raymond Iardella - Macquarie Research

Keith F. Walsh - Citigroup Inc, Research Division

Brian Meredith - UBS Investment Bank, Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

Dan Farrell - Sterne Agee & Leach Inc., Research Division

Adam Klauber - Macquarie Research

Jay Gelb - Barclays Capital, Research Division

Yaron Kinar - Deutsche Bank AG, Research Division

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

Michael Zaremski - Crédit Suisse AG, Research Division

Presentation

Operator

Good morning, and thank you for holding. Welcome to Aon Corporation's Fourth Quarter Earnings Conference Call. [Operator Instructions] I would also like to 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 fourth quarter results, as well as having been posted on our website. Now it is my pleasure to turn the call over to Greg Case, President and CEO of Aon Corporation. Thank you, sir. You may begin.

Gregory C. Case

Thank you, Leslie, and good morning, everyone, and welcome to our fourth quarter conference call. Joining me here today is our CFO, Christa Davies. To begin, we finished the year with a quarter that was both challenging and exciting for our firm, challenging in a sense that the macroeconomic and industry pressure continues to be felt in many markets around the globe, albeit at a lesser pace, exciting in a sense that we took significant steps to substantially strengthen our global firm for long-term growth and value creation, including the proposed relocation of our corporate headquarters to London.

Consistent with previous quarters, I'd like to cover 3 areas before turning the call over to Christa for further financial review. And we'd note that there are slides available on our website for you to follow along with our commentary today. First is our performance against key metrics we communicate to shareholders; second is overall organic growth performance; and third is continued areas of investment across Aon.

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.

Turning to Slide 4. In the fourth quarter, organic revenue was 3% overall, with growth across Risk and HR Solutions highlighted by 4% growth in both Reinsurance and Outsourcing. Adjusted operating margin decreased 70 basis points, driven by an increase in intangible amortization expense over the prior year. And finally, EPS increased 15%, driven by strong underlying performance and effective capital management. For the full year, organic revenue growth was 2% overall, an improvement from flat in 2010 and minus 1% in 2009. Adjusted operating margin decreased 180 basis points, which includes 140 basis points of intangible amortization impact and the inclusion of Hewitt results. Finally, EPS increased 5%, driven by strong underlying performance and effective capital management.

Overall, we finished the year with improved organic revenue across our business, delivered cost savings, took significant steps to strengthen our firm and are effectively allocating capital, giving us both excitement and confidence in our ability to drive improved performance across our key metrics in 2012.

Turning to Slide 5, on the second topic of growth. I'm going to spend the next few minutes discussing the quarter for both of our segments. In Risk Solutions, overall organic revenue growth was 3%, with growth across all major businesses. As market-related conditions continue to stabilize, we're driving a set of initiatives that are strengthening underlying performance and positioning our Risk Solutions segment for long-term growth and leverage to an improving economy, with management of our renewal books through Client Promise and retention rates of 90% or better on average, highlighting strong client satisfaction; new business generation of nearly $280 million across our Retail business, with solid growth across many markets, including China, Latin America, New Zealand and The Netherlands, just to name a few, highlighting the strength of our global client serving capability; investments in new products and service capabilities with the rollout of GRIP, Aon Broking and Client Promise globally; and in our core treaty reinsurance business, net new business trends have now been positive for 3 consecutive quarters.

Reflecting on individual businesses, in the Americas, organic revenue growth was 3% as pricing and exposures are relatively flat. We saw solid new business growth in both Canada and Latin America and strong management of the renewal book portfolio, utilizing Client Promise in Latin America and the U.S. Results reflect strong performance, overcoming continued market weakness in the commercial construction sector. On the international side, organic revenue growth was 1% as pricing was flat to modestly down on average, with firmer pricing in catastrophe-exposed regions, really a strong performance given the plus 6% in the prior-year quarter. We saw strong growth in emerging markets and across Asia-Pacific, including double-digit growth in areas such as Thailand, China, Japan and Malaysia. U.K. and Continental Europe continue to be pressured as economic conditions remain fragile across many core markets in the region.

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