10-QPeriod: Q3 FY2016

Aon plc Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 28, 2016For Securities:AON

Summary

Aon plc's third-quarter 2016 results demonstrate resilience amidst ongoing market headwinds, including a negative impact in Reinsurance and challenging macroeconomic conditions globally. Total revenue remained relatively stable, increasing slightly to $2.7 billion, driven by a 4% organic revenue growth, which was offset by unfavorable foreign currency movements and divestitures. Profitability showed improvement, with net income attributable to Aon shareholders rising 4% to $307 million for the quarter. This was supported by effective cost management, including favorable foreign currency impacts and decreased expenses related to divestitures, despite increased investments to support organic growth and higher errors and omissions expenses. The company also reported strong cash flow generation, with operating cash flow increasing by 14% year-over-year, underscoring its financial stability and ability to fund strategic initiatives, such as the announced acquisition of Stroz Friedberg.

Financial Highlights

50 data points
Beta

Revenue

$2.20B

Net Income

$319.00M

14.5% Net Margin

EPS (Diluted)

$1.18

Total Assets

$25.25B

Cash & Equivalents

$483.00M

Free Cash Flow

$672.00M

Financial Statements
Beta
Revenue$2.20B
Operating Expenses$1.83B
Operating Income$368.00M
Interest Expense$70.00M
Net Income$319.00M
EPS (Basic)$1.19
EPS (Diluted)$1.18
Shares Outstanding (Basic)267.50M
Shares Outstanding (Diluted)269.60M

Key Highlights

  • 1Total revenue for Q3 2016 was $2.7 billion, a slight increase from the prior year, driven by 4% organic revenue growth, partially offset by currency headwinds and divestitures.
  • 2Net income attributable to Aon shareholders increased 4% to $307 million in Q3 2016, reflecting effective cost management and operational efficiencies.
  • 3Operating income margin improved to 15.4% in Q3 2016 from 15.1% in the prior year, indicating enhanced profitability.
  • 4Cash flow from operating activities showed significant strength, increasing 14% to $1.475 billion for the first nine months of 2016.
  • 5The company continued its active share repurchase program, buying back approximately 2.7 million shares for $301 million in Q3 2016, demonstrating commitment to returning capital to shareholders.
  • 6Aon announced plans to acquire Stroz Friedberg, a move expected to strengthen its cyber risk mitigation capabilities within Risk Solutions.
  • 7The HR Solutions segment reported solid organic growth in Consulting and Outsourcing, contributing to overall revenue stability despite broader segment challenges.

Frequently Asked Questions

Aon's total revenue for the third quarter of 2016 was $2.7 billion, a modest increase of $4 million compared to the prior year. This was primarily driven by a 4% organic revenue growth, which was offset by a 2% negative impact from foreign currency exchange rates and a 2% decrease related to divestitures.

Foreign currency fluctuations had an unfavorable impact on Aon's results. For the third quarter, foreign currency movements negatively affected revenue by 2% and had a favorable impact on operating expenses due to translation. The company noted that currency fluctuations can significantly impact period-to-period comparisons of revenue and earnings.

Aon is actively managing its expenses, which decreased by $5 million in the third quarter of 2016 compared to the prior year. This reduction was largely due to a favorable $50 million impact from foreign currency translation and a $41 million decrease in expenses related to divestitures. However, expenses increased to support organic revenue growth and due to higher errors and omissions expenses.

Aon believes its balance sheet and strong cash flow provide adequate liquidity. Primary sources include cash flow from operations, cash reserves, and debt capacity. Uses of liquidity are for operating expenses, capital expenditures, acquisitions, share repurchases, and dividends. The company expects its cash flows from operations and available credit facilities to be sufficient to meet its liquidity needs for the foreseeable future.