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.

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

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.

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.

SOURCE Aon plc

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