01—Abstract
Summary
Summary of the 10-K filed February 14, 2020. Cited figures are marked; the original filing is the authoritative source.
Aon plc delivered a solid 2019 with revenue of $11,013 milliona (up 2% reported, 6% organic), operating margin expanding to 19.7% from 14.3%, and diluted EPS from continuing operations of $6.37 versus $4.29 in 2018.
Adjusted diluted EPS rose 12% to $9.17b, and free cash flow reached $1,610 million (up 11%). The improvement was driven by organic growth across all five solution lines, $169 million of incremental savings from restructuring and operational initiatives, and the completion of a restructuring plan that cost $1,433 million cumulatively and eliminated 5,832 positions. Aon also returned substantial capital, repurchasing $1.95 billion of shares and paying $410 million in dividends, while total debt rose to $7.3 billion.
The most significant strategic event is the proposed redomiciliation from the U.K. to Ireland, which shareholders approved on February 4, 2020 and which is expected to close March 31, 2020 subject to High Court approval. Management states the move will not materially change operations, listings, or the London headquarters, and it is intended to support capital management aligned with ROIC. Investors should note that the Reorganization remains conditional, and that Brexit uncertainty, the U.K. tax and capital-management constraints, and a large pending claim from Christchurch City Council (about $352 millionc) remain key risks.
Balance sheet and credit profile remain sound, with senior debt rated A- (S&P), BBB+ (Fitch), and Baa2 (Moody's), all stable. Operating cash flow was $1,835 milliond, although 2019 included roughly $130 million of net litigation settlement payments. Pension deficits and a sizeable exposure to fiduciary funds (which are not available for corporate use) are factors investors should continue to monitor.
02—Key points
Key Highlights
- Revenue of $11,013M grew 2% reported and 6% organically, with all five solution lines (Commercial Risk, Reinsurance, Retirement, Health, Data & Analytics) contributing similar or improved growth.
- Operating margin rose to 19.7% from 14.3%; adjusted operating margin reached 27.5% versus 25.0% in 2018, aided by $169M of incremental restructuring savings.
- Diluted EPS from continuing operations was $6.37 (vs. $4.29); adjusted diluted EPS was $9.17, up 12%.
- Free cash flow of $1,610M rose 11%, and operating cash flow of $1,835M grew 9%, though it included about $130M of litigation settlement payments.
- Aon repurchased $1.95B of shares in 2019 and paid $410M in dividends ($1.72/share); about $2.0B remained under the repurchase authorization at year-end.
- Proposed redomiciliation from the U.K. to Ireland was approved by shareholders on February 4, 2020, with completion targeted for March 31, 2020 pending High Court approval.
- Total debt rose to $7.3B; senior debt is rated A- (S&P), BBB+ (Fitch), and Baa2 (Moody's), all with stable outlooks.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 14, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $11.01B$10.77B | +2.3% |
| Operating Expenses | $8.84B$9.23B | −4.1% |
| Operating Income | $2.17B$1.54B | +40.5% |
| Interest Expense | $307.00M$278.00M | +10.4% |
| Net Income | $1.53B$1.13B | +35.1% |
| EPS (Basic) | $6.42$4.62 | +39.0% |
| EPS (Diluted) | $6.37$4.59 | +38.8% |
| Shares Outstanding (Basic) | 238.60M245.20M | −2.7% |
| Shares Outstanding (Diluted) | 240.60M247.00M | −2.6% |
05—Questions
Frequently Asked Questions
What is driving the proposed move of Aon's parent company from the U.K. to Ireland?
Management says the Reorganization is intended to drive shareholder value through more effective capital management that maximizes return on invested capital, while keeping Aon within the E.U. single market and preserving capital flexibility. The company states there will be no material change to operations, reporting, or NYSE listing (ticker AON), and that the London operating headquarters will remain. Completion is not assured and depends on court approval and other factors.
How did Aon's profitability improve in 2019?
Operating income rose to $2,169M from $1,544M, with operating margin up to 19.7%. The improvement reflected 6% organic revenue growth, $169M of incremental savings from restructuring and operational initiatives, lower amortization and impairment charges (down $201M, which included a $176M impairment in 2018), and a $62M decline in legacy litigation expense. Effective tax rate was 15.9%, versus 11.7% in 2018.
What are the main risks highlighted in the filing?
Key risks include exposure to commission revenue tied to insurance pricing cycles, competition from alternative capital and self-insurance, E&O and fiduciary claims, currency exposure (about 54% of revenue is non-U.S.), Brexit-related uncertainty, U.S. tax reform effects, and pension funding sensitivity. Notable pending matters include a claim by Christchurch City Council seeking about NZD 528M (roughly $352M) and a U.K./EU antitrust investigation into aviation and aerospace broking.
How much capital did Aon return to shareholders and how is its debt position?
Aon repurchased 10.5M shares for about $1.95B in 2019 and paid $410M in dividends. Total debt reached $7.3B, up $1.1B from 2018, largely from new senior notes issued in 2019 ($750M due 2029 and $500M due 2022). The company had no borrowings under its $900M and $400M credit facilities at year-end and stated it was in compliance with covenants.
06—Continue