01—Abstract
Summary
Summary of the 10-K filed February 24, 2015. Cited figures are marked; the original filing is the authoritative source.
Willis Group Holdings plc, one of the largest insurance brokers in the world, reported 2014 total revenues of $3.80 billiona, up $147 million or 4.0 percent from 2013, with commissions and fees of $3,767 million growing 3.7 percent.
Net income attributable to Willis Group Holdings was $362 millionb, or $2.00 per diluted share, compared with $365 million, or $2.04 per diluted share, in 2013. Operating margin fell to 17.0 percent from 18.1 percent, while underlying operating margin was 18.0 percent and organic commissions and fees grew 3.8 percent. Management attributed the growth primarily to the International segment, which grew commissions and fees 9.7 percent, and cited softening reinsurance rates across most classes of business as a continuing headwind.
The company launched a multi-year Operational Improvement Program in April 2014, expected to be complete by the end of 2017, targeting cumulative cost savings of at least $420 millionc and annual savings of approximately $300 million from 2018. Program spend was $36 million in 2014, with about $130 million expected in 2015. Liquidity remained solid, with cash and cash equivalents of $635 million, $1,222 million available under revolving credit facilities, and total debt of $2,309 million.
Cash flow from operations declined to $477 milliond from $561 million, and the company repurchased 5,050,000 shares for $213 million in 2014, with plans to buy back about $175 million in 2015. The quarterly dividend was raised to $0.31 per share in February 2015. Key risks highlighted include soft insurance pricing, intense competition from Marsh & McLennan and Aon, the Stanford Financial Group litigation (with claims in the Troice and Janvey actions seeking damages in excess of $1 billion), UK pension funding obligations, and foreign exchange exposure, since London market revenues are earned in multiple currencies while expenses are almost entirely in pounds sterling.
02—Key points
Key Highlights
- Total revenues rose 4.0 percent to $3,802 million in 2014, with commissions and fees up 3.7 percent to $3,767 million.
- Net income attributable to Willis Group Holdings was $362 million, or $2.00 per diluted share, versus $365 million, or $2.04, in 2013.
- Operating margin declined to 17.0 percent from 18.1 percent; underlying operating margin was 18.0 percent versus 18.6 percent in 2013.
- The International segment led growth with 9.7 percent commissions and fees growth, including 9.0 percent organic growth.
- The Operational Improvement Program targets at least $420 million of cumulative cost savings through 2017 and about $300 million of annual savings from 2018, with $36 million of restructuring costs in 2014.
- Cash flow from operations fell to $477 million from $561 million, and the company returned capital through $213 million of share repurchases and $210 million of dividends paid.
- The Stanford Financial Group litigation remains pending, with the Troice and Janvey actions seeking damages in excess of $1 billion, though management does not expect a material adverse effect.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 24, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $3.80B$3.65B | +4.0% |
| Operating Expenses | $3.15B$2.99B | +5.4% |
| Operating Income | $647.00M$663.00M | −2.4% |
| Interest Expense | $135.00M$126.00M | +7.1% |
| Net Income | $362.00M$365.00M | −0.8% |
| EPS (Basic) | $5.40$5.53 | −2.4% |
| EPS (Diluted) | $5.32$5.37 | −0.9% |
| Shares Outstanding (Basic) | 67.00M66.00M | +1.5% |
| Shares Outstanding (Diluted) | 68.00M68.00M | 0.0% |
05—Questions
Frequently Asked Questions
Why did operating margin decline in 2014?
Operating margin fell to 17.0 percent from 18.1 percent. The filing attributes the change to salaries and benefits rising 4.8 percent, driven by higher headcount, pay reviews and incentives, along with $36 million of restructuring costs for the Operational Improvement Program and increased travel and systems costs.
What is the outlook for commission revenue given market conditions?
The filing describes softening reinsurance rates across almost all classes of business and geographies, and notes that rate flattening and even reductions are being seen in many primary insurance territories. Because the company earns commissions as a percentage of premiums it does not control, softer premium rates can directly pressure revenues and margins.
How is Willis Group Holdings positioned on liquidity and debt?
At December 31, 2014, cash and cash equivalents were $635 million and $1,222 million was available under revolving credit facilities. Total debt was $2,309 million, with a capitalization ratio of 53.8 percent, and management stated it believes it has sufficient liquidity for the next twelve months.
What is the company's capital return policy?
The company repurchased 5,050,000 shares for $213 million in 2014 and intends to buy back approximately $175 million of shares in 2015 to offset dilution from employee stock option exercises. It declared a quarterly dividend of $0.31 per share in February 2015, an annual rate of $1.24, an increase of 3.3 percent.
What are the main legal and pension risks?
The company faces Stanford Financial Group-related lawsuits, in which the Troice and Janvey actions seek damages in excess of $1 billion, and it disputes the allegations. Its UK defined benefit pension plan requires additional contributions tied to EBITDA and exceptional shareholder returns, and it expects total 2015 contributions of about $116 million to its defined benefit plans.
06—Continue