Aon, 1Q2020: Net income rose by 17% year-on-year

4 May 2020 — press.release
Aon ended the first three months of 2020 with a net income of USD 772 million, 17% higher when compared to the first quarter or prior year. However, "the first quarter 2020 financial results are not necessarily indicative of results that may be expected for the full year or any future period, particularly in light of the continuing effect of the COVID-19 outbreak," the company explained.

Total revenue in the first quarter increased 2% to USD 3.2 billion compared to the prior year period driven by 5% organic revenue growth, partially offset by a 2% unfavorable impact from foreign currency translation and a 1% unfavorable impact from divestitures, net of acquisitions.

Total operating expenses in the first quarter decreased 4% to USD 2.2 billion compared to the prior year period due primarily to a USD 91 million decrease in restructuring charges, a USD 40 million favorable impact from foreign currency translation, and the preemptive reduction and deferral of certain discretionary expenses in an effort to proactively manage liquidity due to uncertainties surrounding COVID-19 and its impact on the Company, partially offset by USD 18 million of transaction costs related to the pending combination with Willis Towers Watson, an increase in investments supporting growth initiatives and Aon Business Services, and an increase in expense associated with 5% organic revenue growth.


Aon 1Q2020 preliminary figures, y-o-y changes

  • Revenues: USD 3,219 million (+2%), of which:
    • Commercial Risk Solutions: USD 1,146 million (+3%)
    • Reinsurance Solutions: USD 848 million (+8%)
    • Retirement Solutions: USD 397 million (-5%)
    • Health Solutions: USD 502 million (+3%)
    • Data & Analytic Services: USD 331 million (-1%)
  • Expenses: USD 2,186 million (-4%)
  • Operating income: USD 1,033million (+18%)
  • Net income: USD 772million (+17%)



Total revenue increased USD 76 million, or 2%, to USD 3,219 million compared to the prior year period, including organic revenue growth of 5%, primarily driven by strong new business generation in Reinsurance Solutions and strong management of the renewal book globally in Health Solutions and Commercial Risk Solutions:
  • Commercial Risk Solutions organic revenue growth of 4% was driven by growth across every major geography, highlighted by double-digit growth in Canada and Latin America, primarily driven by strong retention and management of the renewal book portfolio. On average globally, exposures and pricing were both modestly positive, resulting in a modestly positive market impact overall.
  • Reinsurance Solutions organic revenue growth of 9% was driven by strong net new business generation globally in treaty and solid growth in facultative placements, partially offset by a modest decline in capital markets transactions. Results in the quarter include a modest positive impact from the timing of certain revenue, which will be spread evenly for the balance of 2020. In addition, market impact was modestly positive on results in the quarter.
  • Retirement Solutions organic revenue growth was flat, driven by solid growth in Investments, including double-digit growth in delegated investment management, as well as modest growth in Human Capital, primarily for assessment services. Results in the quarter were offset by a decline in core retirement, reflecting a decrease in billable hours and discretionary project-related work, primarily as a result of COVID-19.
  • Health Solutions organic revenue growth of 5% was driven by growth across every major geography in health and benefits brokerage, highlighted by particular strength in Latin America, Asia, and the EMEA region. Results in the quarter also include growth in the active exchange business.
  • Data & Analytic Services organic revenue growth of 1% was driven by growth globally across the affinity business, with particular strength in the U.S. across both business and consumer solutions. Results in the quarter also reflect pressure in certain, more discretionary parts of the business, primarily as a result of COVID-19.

Compensation and benefits expense decreased USD 62 million, or 4%, compared to the prior year period due primarily to a USD 26 million favorable impact from foreign currency translation, a USD 24 million decrease in restructuring charges, and expense discipline, partially offset by an increase in expense associated with 5% organic revenue growth:

Information technology expense decreased USD 6 million, or 5%, compared to the prior year period due primarily to an USD 11 million decrease in restructuring charges, partially offset by an increase in investments supporting growth initiatives and Aon Business Services.

Premises expense decreased USD 14 million, or 16%, compared to the prior year period due primarily to a USD 9 million decrease in restructuring charges and a reduction of costs as the Company continues to optimize its global real estate footprint.

Depreciation of fixed assets increased USD 1 million, or 3%, compared to the prior year period. Amortization and impairment of intangible assets was similar to the prior year period.

Other general expenses decreased USD 4 million, or 1%, compared to the prior year period due primarily to a USD 47 million decrease in restructuring charges, a USD 9 million favorable impact from foreign currency translation, and the preemptive reduction and deferral of certain discretionary expenses, partially offset by USD 18 million of transaction costs related to the pending combination with Willis Towers Watson, USD 7 million of costs related to move of the jurisdiction for the firm's parent company to Ireland, and an increase in expense associated with 5% organic revenue growth.

Cash flows provided by operations for the first three months of 2020 increased USD 264 million to USD 338 million compared to the prior year period, primarily reflecting strong operational improvement and near-term actions taken to improve working capital in an effort to proactively manage liquidity due to uncertainties surrounding COVID-19 and its impact on the Company. The prior year period included approximately USD 85 million of net cash payments related to legacy litigation.

Free cash flow, defined as cash flows from operations less capital expenditures, increased USD 262 million, to USD 279 million for the first three months of 2020 compared to the prior year period, reflecting an increase in cash flows from operations, partially offset by a USD 2 million increase in capital expenditures.


Greg Case, Chief Executive Officer of Aon, said:

"We are fortunate to operate from a position of strength, as demonstrated by the strong results our team delivered in the first quarter (...). I want to thank our 50,000 colleagues around the world for their remarkable support of each other and our clients as we navigate through this humanitarian and economic crisis. Our Aon United Strategy and pending combination with Willis Towers Watson are more important than ever as we focus on accelerating innovation to bring the best of our firm to clients during this time of unprecedented volatility."



More financial information about Aon can be found at ir.aon.com.


Source: aon.mediaroom.com

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