10-QPeriod: Q3 FY2020

Aon plc Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 30, 2020For Securities:AON

Summary

Aon plc's third quarter 2020 performance showed resilience with total revenue holding steady year-over-year, driven by organic growth across key segments like Reinsurance Solutions and Commercial Risk Solutions. While overall revenue remained flat, this stability is notable given the economic uncertainties stemming from the COVID-19 pandemic. The company demonstrated strong expense management, leading to an increase in operating margin and a significant rise in net income and diluted earnings per share from continuing operations. This improved profitability, combined with a substantial increase in free cash flow, highlights the company's ability to navigate challenging market conditions and deliver value to shareholders. The company also provided updates on its significant business combination agreement with Willis Towers Watson (WTW), which continues to progress towards an expected completion in the first half of 2021, having secured key regulatory approvals. Despite ongoing pandemic-related uncertainties, Aon maintained a strong liquidity position and resumed its share repurchase program in the third quarter, signaling confidence in its financial outlook.

Financial Highlights

50 data points
Beta

Revenue

$2.38B

Net Income

$275.00M

11.5% Net Margin

EPS (Diluted)

$1.18

Total Assets

$31.36B

Cash & Equivalents

$821.00M

Free Cash Flow

$774.00M

Financial Statements
Beta
Revenue$2.38B
Operating Expenses$1.94B
Operating Income$441.00M
Interest Expense$80.00M
Net Income$275.00M
EPS (Basic)$1.18
EPS (Diluted)$1.18
Shares Outstanding (Basic)232.60M
Shares Outstanding (Diluted)233.50M

Key Highlights

  • 1Total revenue for Q3 2020 remained flat at $2.4 billion compared to Q3 2019, indicating stability amidst economic challenges.
  • 2Net income from continuing operations increased by 23% to $281 million in Q3 2020, with diluted EPS rising to $1.18 from $0.93 in the prior year.
  • 3Operating margin improved to 18.5% in Q3 2020, up from 15.1% in Q3 2019, driven by effective cost management and reduced restructuring charges.
  • 4Free cash flow for the first nine months of 2020 significantly increased by 91% to $1.9 billion, reflecting improved operational cash generation.
  • 5The pending business combination with Willis Towers Watson (WTW) is on track for completion in the first half of 2021, having received CFIUS approval and shareholder approval from both companies.
  • 6Aon successfully resumed its share repurchase program in the third quarter of 2020 after a temporary suspension, demonstrating confidence in its financial position and future outlook.
  • 7The company maintained a strong liquidity position, with cash flows from operations, available credit facilities, and capital markets expected to meet its needs.

Frequently Asked Questions

Aon's total revenue remained stable, increasing slightly by $6 million to $2.4 billion in the third quarter of 2020, compared to $2.379 billion in the third quarter of 2019. This was primarily due to a 1% favorable impact from acquisitions, net of divestitures, which was offset by a 1% unfavorable impact from fiduciary investment income.

Aon acknowledged that the COVID-19 pandemic created significant economic disruption and uncertainty. While core, recurring revenues remained relatively stable, more discretionary, project-based revenues were impacted. The company implemented cost-saving measures, including temporary salary reductions and reduced discretionary spending, and temporarily suspended its share buyback program. Despite these challenges, Aon maintained operational continuity and a strong liquidity position.

The business combination agreement with WTW is progressing, with both companies' shareholders approving the transaction. Key regulatory milestones, such as approval from the Committee on Foreign Investment in the United States (CFIUS), have been met. The combination is expected to be completed in the first half of 2021.

Aon demonstrated effective expense management, with total operating expenses decreasing by $75 million to $1.9 billion in the third quarter of 2020 compared to the prior year. This reduction was largely due to lower restructuring charges and expense discipline. Consequently, operating income increased by 22.5% to $441 million, and the operating margin improved to 18.5% from 15.1%.