01—Abstract
Summary
Summary of the 10-K filed February 23, 2021. Cited figures are marked; the original filing is the authoritative source.
Willis Towers Watson reported 2020 revenue of $9.35 billiona, up from $9.04 billion in 2019, with organic revenue growth of 2%.
Income from operations fell to $1.18 billionb from $1.33 billion, mainly reflecting higher salaries and benefits, transaction and integration expenses, and an additional depreciation charge tied to an abandoned software asset. Net income attributable to Willis Towers Watson was $996 million, or $7.65 diluted EPS, versus $1.04 billion and $8.02 a year earlier. Adjusted diluted EPS rose to $11.70 from $10.96, and adjusted EBITDA reached $2.47 billion.
The company reported that the COVID-19 pandemic negatively affected revenue growth, mainly in discretionary businesses, and expects that impact to continue through much of 2021. The dominant event for investors is the pending combination with Aon plc announced March 9, 2020. Under the agreement each WTW shareholder receives 1.08 Aon ordinary shares per WTW share, with existing Aon holders expected to own about 63%c and existing WTW holders about 37% of the combined company.
Shareholders of both companies approved the deal on August 26, 2020. The filing says antitrust review remains ongoing and the parties expect closing in the first half of 2021, subject to regulatory approvals. Balance sheet and cash flow were strong during the year.
Cash and cash equivalents were $2.1 billiond at year-end, and operating cash flow was $1.77 billion. Free cash flow was $1.55 billion, and total debt was $5.6 billion.
The company paid $346 million in dividends and made no share repurchases during 2020 because of Aon transaction restrictions. Pending divestiture of the Miller business, expected to close in the first quarter of 2021 for total consideration of GBP 591 million ($808 million), and the $90 million Merger-related securities settlement (with $75 million and $15 million for the federal and Delaware actions) are also notable.
02—Key points
Key Highlights
- Revenue rose 3% to $9.35 billion in 2020; organic growth was 2%, with CRB, IRR and BDA growing organically and HCB flat.
- Income from operations fell to $1.18 billion from $1.33 billion, and net income attributable to WTW declined to $996 million from $1.04 billion.
- Adjusted diluted EPS increased to $11.70 from $10.96, and adjusted EBITDA rose to $2.47 billion from $2.30 billion.
- Pending Aon combination: 1.08 Aon shares per WTW share; shareholder approvals obtained August 26, 2020; closing expected in the first half of 2021 pending regulatory approvals.
- Free cash flow reached $1.55 billion, up from $835 million, supported by working capital improvement; cash and equivalents ended the year at $2.1 billion.
- TRANZACT, acquired July 30, 2019, generated $557 million of revenue in 2020 versus $245 million in 2019, and Max Matthiessen was sold in September 2020 with an $86 million gain.
- A $210 million litigation settlement was accrued, including $90 million for Merger-related securities litigation and $120 million for Stanford litigation paid in January 2021.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 23, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $8.62B$8.37B | +2.9% |
| Operating Expenses | $7.76B$7.32B | +6.0% |
| Operating Income | $859.00M$1.05B | −18.5% |
| Interest Expense | $244.00M$234.00M | +4.3% |
| Net Income | $996.00M$1.04B | −4.6% |
| EPS (Basic) | $7.68$8.05 | −4.6% |
| EPS (Diluted) | $7.65$8.02 | −4.6% |
| Shares Outstanding (Basic) | 130.00M130.00M | 0.0% |
| Shares Outstanding (Diluted) | 130.00M130.00M | 0.0% |
05—Questions
Frequently Asked Questions
What happens to WTW shareholders if the Aon combination closes?
Each WTW shareholder will receive 1.08 Aon ordinary shares for each WTW ordinary share. The companies estimated that existing Aon shareholders would own about 63% and existing WTW shareholders about 37% of the combined company on a fully diluted basis. The filing says closing is expected in the first half of 2021, subject to antitrust and other regulatory approvals.
How did COVID-19 affect 2020 results?
The filing states that COVID-19 did not have a material adverse impact on overall 2020 financial results, but it negatively affected revenue growth, mainly in discretionary businesses. Human Capital and Benefits organic revenue was flat. The company expects the impact to continue through much of 2021, and it may still have a substantial negative effect.
Why did operating income decline despite higher revenue?
Income from operations fell $146 million to $1.18 billion. The filing attributes this mainly to higher salaries and benefits, transaction and integration expenses of $110 million (mostly Aon-related legal fees), restructuring costs of $24 million, and an extra $35 million depreciation charge for an abandoned software asset. Other income, net rose to $399 million, partly offsetting these costs.
How is the company's capital position and shareholder return?
Total debt was $5.6 billion at year-end, with a capitalization ratio of 34.2%. The company paid $346 million in dividends during 2020 and declared a quarterly dividend of $0.71 per share, payable April 15, 2021. No share repurchases occurred in 2020 due to restrictions under the Aon agreement. About $500 million of 5.750% senior notes maturing in March 2021 were expected to be repaid from cash on hand.
06—Continue