10-QPeriod: Q3 FY2012

Aon plc Quarterly Report for Q3 Ended Sep 30, 2012

Filed October 31, 2012For Securities:AON

Summary

Aon plc's (AON) third-quarter 2012 results show modest revenue growth and improved profitability, driven by solid organic growth in both the Risk Solutions and HR Solutions segments. The company reported a 1% increase in revenue to $2.74 billion, with organic revenue growth of 4%. Net income attributable to Aon shareholders rose slightly to $204 million, or $0.62 per diluted share, up from $198 million, or $0.59 per diluted share, in the prior year quarter. The company also highlighted progress in its restructuring initiatives and a successful redomestication to London, which is expected to yield long-term strategic benefits and optimize its tax rate. The company's liquidity remains strong, supported by cash flow from operations and available credit facilities. Aon continued its share repurchase program, returning capital to shareholders. While facing headwinds such as economic weakness in continental Europe and price compression in certain HR Solutions businesses, Aon's management remains focused on organic growth, margin expansion, and increasing earnings per share.

Financial Highlights

51 data points
Beta

Revenue

$2.74B

Net Income

$204.00M

7.5% Net Margin

EPS (Diluted)

$0.62

Total Assets

$29.51B

Cash & Equivalents

$290.00M

Free Cash Flow

$526.00M

Financial Statements
Beta
Revenue$2.74B
Operating Expenses$2.40B
Operating Income$339.00M
Interest Expense$57.00M
Net Income$204.00M
EPS (Basic)$0.62
EPS (Diluted)$0.62
Shares Outstanding (Basic)327.30M
Shares Outstanding (Diluted)331.00M

Key Highlights

  • 1Revenue increased by 1% to $2.74 billion, with organic revenue growth of 4% driven by both Risk Solutions and HR Solutions segments.
  • 2Net income attributable to Aon shareholders increased to $204 million ($0.62 per diluted share) from $198 million ($0.59 per diluted share) in the prior year quarter.
  • 3The company successfully completed its redomestication to London, which is expected to provide strategic benefits and tax efficiencies.
  • 4Operating expenses remained largely flat year-over-year, reflecting effective cost management and benefits from restructuring initiatives.
  • 5Aon maintained a strong liquidity position with $1.0 billion in cash and cash equivalents and short-term investments, and $1.2 billion in available credit facilities.
  • 6The company continued its share repurchase program, buying back $625 million in shares during the first nine months of 2012.
  • 7The Aon Hewitt restructuring plan is progressing, with over 1,800 jobs eliminated and expected annual savings of $325 million.

Frequently Asked Questions

Aon's revenue growth in the third quarter of 2012 was primarily driven by a 4% increase in organic revenue, which was a result of strong management of renewal portfolios and solid new business growth in Asia and emerging markets. Both the Risk Solutions and HR Solutions segments contributed to this organic growth.

The redomestication to London, completed in April 2012, is positioned by management as a long-term strategic move expected to strengthen their strategy, expand their portfolio penetration, enhance market integration, and optimize fiscal planning and capital allocation, including reducing their global tax rate. While specific immediate financial impacts are not detailed for the third quarter solely due to the redomestication, the company incurred $6 million in relocation costs during the quarter and anticipates an additional $12 million in costs through 2013.

Aon focuses on three key metrics: organic revenue growth, expanded margins, and increased earnings per share. In Q3 2012, organic revenue growth was 4%, adjusted operating margin for Aon overall was 17.5%, and adjusted diluted earnings per share from continuing operations attributable to Aon's shareholders was $0.95.

Aon is progressing with its Aon Hewitt Restructuring Plan, which aims to streamline operations following the acquisition of Hewitt Associates. As of September 30, 2012, over 1,800 jobs had been eliminated, and $214 million in expenses had been incurred. The plan is expected to result in cumulative costs of approximately $325 million and deliver approximately $280 million in annual savings in 2013. Additionally, the Aon Benfield Plan, initiated in 2008, was closed in Q1 2012, having delivered cumulative run-rate cost savings of approximately $146 million.