10-QPeriod: Q2 FY2020

Aon plc Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 31, 2020For Securities:AON

Summary

Aon plc's second-quarter 2020 results demonstrate resilience amidst global economic uncertainty. While total revenue saw a slight decline of 4% year-over-year, this was largely attributed to unfavorable foreign currency translation and a 1% organic revenue decline, primarily in more discretionary service areas impacted by COVID-19. Despite these top-line pressures, the company achieved a significant improvement in operating margin, both on a reported basis (increasing to 23.8% from 15.8%) and on an adjusted basis (to 26.8% from 24.4%). This margin expansion was driven by substantial cost management initiatives, including reduced restructuring charges, favorable foreign currency impacts, and temporary reductions in discretionary spending. Net income from continuing operations rose by a notable 43% to $410 million, leading to a 47% increase in diluted earnings per share from continuing operations to $1.70. The company also reported strong operating cash flow of $1.2 billion for the first six months of 2020, an increase of 238% year-over-year, underscoring effective working capital management. Aon continues to advance its strategic combination with Willis Towers Watson, having satisfied the CFIUS review, with shareholder meetings scheduled for August 2020.

Financial Highlights

50 data points
Beta

Revenue

$2.50B

Net Income

$398.00M

15.9% Net Margin

EPS (Diluted)

$1.70

Total Assets

$32.00B

Cash & Equivalents

$757.00M

Free Cash Flow

$851.00M

Financial Statements
Beta
Revenue$2.50B
Operating Expenses$1.90B
Operating Income$594.00M
Interest Expense$89.00M
Net Income$398.00M
EPS (Basic)$1.71
EPS (Diluted)$1.70
Shares Outstanding (Basic)232.70M
Shares Outstanding (Diluted)233.60M

Key Highlights

  • 1Total revenue for Q2 2020 decreased by 4% to $2.5 billion, primarily due to foreign currency translation and a 1% organic revenue decline, reflecting the impact of COVID-19 on discretionary services.
  • 2Operating margin significantly improved to 23.8% from 15.8% in the prior year period, driven by expense management initiatives and reduced restructuring charges.
  • 3Net income from continuing operations increased by 43% to $410 million, resulting in diluted EPS from continuing operations of $1.70, up from $1.14 in Q2 2019.
  • 4Operating cash flow for the first six months of 2020 was robust at $1.2 billion, a substantial increase of 238% compared to the prior year, driven by working capital improvements and operational efficiency.
  • 5The company made progress on its planned business combination with Willis Towers Watson, including the completion of the CFIUS review.
  • 6Aon temporarily suspended share repurchases in Q2 2020 to preserve liquidity amidst COVID-19 uncertainties, with a remaining authorization of $1.6 billion.
  • 7Adjusted operating margin improved to 26.8% from 24.4% in the prior year, reflecting cost controls and operating leverage.

Frequently Asked Questions

The COVID-19 pandemic primarily impacted Aon's revenue through a decline in more discretionary service areas. While core revenues remained relatively stable, the company saw a 1% organic revenue decline in Q2 2020, partly attributed to reduced demand for project-related services. Management implemented cost-saving measures, including reductions in discretionary spending, which helped mitigate the impact on profitability.

Aon and WTW entered into a business combination agreement in March 2020. Significant progress has been made, including satisfying the Committee on Foreign Investment in the United States (CFIUS) review. Shareholder meetings to approve the transaction were scheduled for August 2020, with an expected completion in the first half of 2021.

Aon demonstrated strong liquidity management. Cash flow from operating activities significantly increased to $1.2 billion in the first six months of 2020. The company also issued $1 billion in new senior notes and temporarily suspended share repurchases to preserve cash. Proactive steps were taken to reduce discretionary spending and manage working capital effectively.

The significant improvement in operating margin was driven by a combination of factors. These included a substantial decrease in restructuring charges, favorable impacts from foreign currency translation, and a temporary reduction and deferral of certain discretionary expenses. These cost-saving measures more than offset the slight decline in organic revenue.