01—Abstract
Summary
Summary of the 10-K filed February 24, 2022. Cited figures are marked; the original filing is the authoritative source.
Willis Towers Watson (WTW) reported 2021 revenue of $8.998 billiona, up 4% from $8.615 billion as reported and up 6% on an organic basis.
Results were heavily affected by non-recurring items: net income attributable to WTW was $4.222 billionb, versus $996 million in 2020, driven largely by the $2.080 billion of income from discontinued operations (including a preliminary $2.3 billion pre-tax gain on the sale of the Willis Re treaty-reinsurance business to Gallagher) and a $1 billion termination receipt from Aon. Income from operations was $2.202 billion, and adjusted operating income was $1.791 billion, or 19.9% of revenue. Diluted EPS was $32.78, while diluted EPS from continuing operations was $16.63.
The company has reorganized into two segments effective January 1, 2022: Health, Wealth and Career and Risk and Broking. Cash and cash equivalents rose to $4.486 billionc at year-end 2021, from $2.039 billion, supported by operating cash flow of $2.061 billion and free cash flow of $1.913 billion. Total debt declined to $4.587 billion from $5.635 billion, and the company repurchased $1.627 billion of shares during the year, with approximately $3.9 billion of repurchase authority remaining.
The filing also discloses a three-year Transformation program targeting about $300 milliond of annual cost savings by the end of 2024 on a total investment of $750 million. Risks highlighted include elevated employee attrition (voluntary turnover of 15.2% in 2021 versus 8.7% in 2020), COVID-19 and inflation pressures on costs, errors-and-omissions and regulatory exposure, Brexit, and ongoing civil investigations into alleged exchanges of commercially sensitive information in aviation and aerospace broking. Management noted that the Corporate Risk and Broking segment's near-term growth was expected to be meaningfully slower than competitors' following colleague departures.
02—Key points
Key Highlights
- Reported revenue of $8.998 billion for 2021, up 4% from $8.615 billion; organic growth of 6%, excluding currency and acquisitions/divestitures.
- Net income attributable to WTW of $4.222 billion, inflated by $2.080 billion from discontinued operations (Willis Re sale) and a $1 billion Aon termination receipt recorded in transaction and integration, net.
- Income from operations rose to $2.202 billion from $859 million; adjusted operating income was $1.791 billion (19.9% margin) versus $1.554 billion in 2020.
- Adjusted EBITDA was $2.394 billion, compared with $2.141 billion in 2020; adjusted diluted EPS was $11.60, versus $9.71 in 2020.
- Free cash flow was $1.913 billion; cash and cash equivalents ended the year at $4.486 billion, up from $2.039 billion.
- Total debt was reduced to $4.587 billion from $5.635 billion, following repayments of the 3.500% and 5.750% senior notes; the company repurchased $1.627 billion of shares and retained about $3.9 billion of repurchase authority.
- Segment reorganization to Health, Wealth and Career and Risk and Broking effective January 1, 2022; a $750 million Transformation program targets about $300 million of annual savings by the end of 2024.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 24, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $9.00B$8.62B | +4.4% |
| Operating Expenses | $6.80B$7.76B | −12.4% |
| Operating Income | $2.20B$859.00M | +156.3% |
| Interest Expense | $211.00M$244.00M | −13.5% |
| Net Income | $4.22B$996.00M | +323.9% |
| EPS (Basic) | $32.88$7.68 | +328.1% |
| EPS (Diluted) | $32.78$7.65 | +328.5% |
| Shares Outstanding (Basic) | 128.00M130.00M | −1.5% |
| Shares Outstanding (Diluted) | 129.00M130.00M | −0.8% |
05—Questions
Frequently Asked Questions
Why did reported net income jump so sharply in 2021?
Net income attributable to WTW was $4.222 billion, compared with $996 million in 2020. The increase came mainly from $2.080 billion of income from discontinued operations, which includes a preliminary pre-tax gain of $2.3 billion on the sale of Willis Re to Gallagher, and from the $1 billion termination payment received from Aon after the proposed combination was called off. Management points to adjusted measures, such as adjusted net income of $1.495 billion, to show core performance.
What is the Willis Re divestiture and what remains outstanding?
WTW sold its treaty-reinsurance business to Arthur J. Gallagher & Co. for $3.25 billion of upfront cash plus an earnout of up to $750 million payable in 2025. The principal closing occurred on December 1, 2021. Certain businesses are still subject to a Deferred Closing, expected no later than the end of the second quarter of 2022, and a Transition Services Agreement covers services for up to two years.
What is the company's capital return and balance sheet position?
During 2021 WTW repurchased $1.627 billion of shares and paid $374 million in dividends. Cash rose to $4.486 billion, and total debt fell to $4.587 billion. The capitalization ratio decreased to 25.7% from 34.2%. The company had all of the borrowing capacity under its $1.5 billion revolving credit facility at December 31, 2021, and about $3.9 billion of remaining repurchase authority.
What key risks does the filing highlight?
The filing cites rising colleague attrition, with voluntary turnover at 15.2% in 2021 versus 8.7% in 2020; inflation and labor-market pressures on costs; ongoing regulatory and civil investigations into alleged exchanges of commercially sensitive information in aviation and aerospace insurance broking; errors-and-omissions claims; and the financial and operational effects of Brexit and the Willis Re transition. Management also said Corporate Risk and Broking growth was expected to lag competitors near term following colleague departures.
06—Continue