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AON(AON) - 2023 Q4 - Annual Report
AONAON(AON)2024-02-15 16:00
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Revenue and Growth - Revenue increased by 897million(7897 million (7%) to 13.4 billion in 2023, driven by 7% organic revenue growth and a 2% favorable impact from fiduciary investment income[185][196] - Organic revenue growth, a non-GAAP measure, was 7% in 2023, compared to 6% in 2022[187] - Total revenue for 2023 increased by 7% to 13,376millioncomparedto13,376 million compared to 12,479 million in 2022, with organic revenue growth also at 7%[217] - Commercial Risk Solutions revenue increased by 328million(5328 million (5%) to 7.0 billion in 2023, with organic revenue growth of 5% driven by strong retention and net new business generation[197] - Commercial Risk Solutions revenue grew by 5% to 7,043millionin2023,withorganicgrowthof57,043 million in 2023, with organic growth of 5%[217] - Reinsurance Solutions revenue increased by 13% to 2,481 million in 2023, with organic growth of 10%[217] - Health Solutions revenue rose by 9% to 2,433millionin2023,withorganicgrowthof102,433 million in 2023, with organic growth of 10%[217] Operating Expenses and Margins - Operating expenses increased by 781 million (9%) to 9.6billionin2023,primarilyduetoorganicrevenuegrowth,legalsettlementexpenses,andrestructuringprogramcosts[185]−Adjustedoperatingmarginincreasedto31.69.6 billion in 2023, primarily due to organic revenue growth, legal settlement expenses, and restructuring program costs[185] - Adjusted operating margin increased to 31.6% in 2023 from 30.8% in 2022, driven by organic revenue growth and higher fiduciary investment income[188] - Adjusted operating margin improved to 31.6% in 2023 from 30.8% in 2022[221] - The company incurred 197 million in legal settlement expenses related to Vesttoo Ltd. transactions in 2023[221] - The company entered into a definitive agreement to acquire NFP in 2023, incurring 17millionintransactioncosts[221]NetIncomeandEarnings−Netincomedecreasedby17 million in transaction costs[221] Net Income and Earnings - Net income decreased by 18 million (1%) to 2.6billionin2023,withdilutedearningspershareincreasing32.6 billion in 2023, with diluted earnings per share increasing 3% to 12.51[186] - Adjusted diluted earnings per share increased by 0.75(60.75 (6%) to 14.14 in 2023, reflecting strong operational performance and 2.7billioninsharerepurchases[188]−Adjusteddilutedearningspershareincreasedto2.7 billion in share repurchases[188] - Adjusted diluted earnings per share increased to 14.14 in 2023 from 13.39in2022[224][225]CashFlowandLiquidity−Cashflowsfromoperatingactivitiesincreasedby13.39 in 2022[224][225] Cash Flow and Liquidity - Cash flows from operating activities increased by 216 million (7%) to 3.4billionin2023,reflectingstrongoperatingincomegrowthandworkingcapitaloptimization[186]−Freecashflowincreasedby3.4 billion in 2023, reflecting strong operating income growth and working capital optimization[186] - Free cash flow increased by 160 million (5%) to 3.2billionin2023,drivenbyhighercashflowsfromoperations[189]−Freecashflowgrewto3.2 billion in 2023, driven by higher cash flows from operations[189] - Free cash flow grew to 3,183 million in 2023 from 3,023millionin2022[227]−Netcashprovidedbyoperatingactivitiesin2023was3,023 million in 2022[227] - Net cash provided by operating activities in 2023 was 3.4 billion, an increase of 216millioncomparedto2022[240]−Cashandcashequivalentsandfundsheldonbehalfofclientsincreasedby216 million compared to 2022[240] - Cash and cash equivalents and funds held on behalf of clients increased by 646 million in 2023 compared to 2022[238] - Cash flows used for investing activities in 2023 were 188million,adecreaseof188 million, a decrease of 261 million compared to 2022[247] - The company completed the acquisition of three businesses in 2023 for a net cash consideration of 35million[249]−Capitalexpendituresin2023amountedto35 million[249] - Capital expenditures in 2023 amounted to 252 million, primarily for office refurbishment, software development, and computer equipment[250] Acquisitions and Investments - Aon entered into a definitive agreement to acquire NFP for approximately 7billionincashand20millionclassAordinaryshares,expectedtoclosebymid−2024[191]−AonNorthAmerica,Inc.secureda7 billion in cash and 20 million class A ordinary shares, expected to close by mid-2024[191] - Aon North America, Inc. secured a 2.0 billion unsecured term loan facility on February 16, 2024, to fund the acquisition of NFP[262] Debt and Financing - Total debt at December 31, 2023 was 11.2billion,anincreaseof11.2 billion, an increase of 0.4 billion compared to 2022[254] - Aon Corporation repaid 500millionof2.20500 million of 2.20% Senior Notes in November 2022[255] - Aon Corporation and Aon Global Holdings plc issued 500 million of 5.00% Senior Notes due September 2032 in September 2022[255] - Aon Corporation and Aon Global Holdings plc issued 600millionof2.85600 million of 2.85% Senior Notes due May 2027 and 900 million of 3.90% Senior Notes due February 2052 in February 2022[255] - The U.S. commercial paper program capacity increased by 250millionto250 million to 1.3 billion, and the European program capacity is €625 million (690millionatDecember31,2023exchangerates)[257]−Totalcommercialpaperissuancesfor2023were690 million at December 31, 2023 exchange rates)[257] - Total commercial paper issuances for 2023 were 4,835 million, with net repayments of 27million[258]−AonCorporationhad27 million[258] - Aon Corporation had 2.0 billion in available credit from two primary committed credit facilities as of December 31, 2023[260] Pension and Employee Benefits - Pension contributions for 2023 were 50million,withanexpectedcontributionof50 million, with an expected contribution of 68 million in 2024[241] - The company estimates cash contributions of approximately 68milliontoitspensionplansin2024,comparedto68 million to its pension plans in 2024, compared to 50 million in 2023[305] - The U.S. pension plan's market-related value of assets was 1.8billionasofDecember31,2023,withafairvalueofplanassetsat1.8 billion as of December 31, 2023, with a fair value of plan assets at 1.5 billion[295][297] - Accumulated other comprehensive loss for pension plans is 1,909millionfortheU.S.,1,909 million for the U.S., 1,319 million for the U.K., and 431millionforotherplans,withestimated2024amortizationoflossat431 million for other plans, with estimated 2024 amortization of loss at 84 million, 36million,and36 million, and 13 million respectively[294] - The expected long-term rate of return on plan assets for 2024 is 5.14% for the U.K., 7.79% for the U.S., and 4.40% to 5.50% for other plans[298] - A 25 basis points increase in the discount rate would decrease the projected benefit obligation by 94millionfortheU.K.,94 million for the U.K., 53 million for the U.S., and 40millionforotherplans,whileadecreasewouldincreasetheobligationsby40 million for other plans, while a decrease would increase the obligations by 97 million, 55million,and55 million, and 42 million respectively[301] - A 25 basis points increase in the long-term rate of return on plan assets would decrease estimated 2024 pension expense by 9millionfortheU.K.,9 million for the U.K., 4 million for the U.S., and 3millionforotherplans,whileadecreasewouldincreasetheexpensebythesameamounts[304]FiduciaryandInvestmentIncome−Fiduciaryinvestmentincomesignificantlyincreasedto3 million for other plans, while a decrease would increase the expense by the same amounts[304] Fiduciary and Investment Income - Fiduciary investment income significantly increased to 274 million in 2023 from 76millionin2022[218]−Fiduciaryassetsincludedcashandcashequivalentsof76 million in 2022[218] - Fiduciary assets included cash and cash equivalents of 6.9 billion and 6.4billionatDecember31,2023and2022,respectively[234]−Thecompany′sfiduciaryinvestmentincomeisaffectedbychangesinshort−terminterestrates,withahypothetical100BPSdecreaseorincreaseintheyieldcurveimpactingpre−taxincomeby6.4 billion at December 31, 2023 and 2022, respectively[234] - The company's fiduciary investment income is affected by changes in short-term interest rates, with a hypothetical 100 BPS decrease or increase in the yield curve impacting pre-tax income by 69 million for both 2024 and 2025[329] Legal and Contingent Liabilities - The company incurred 197millioninlegalsettlementexpensesrelatedtoVesttooLtd.transactionsin2023[221]−Totallettersofcreditoutstandingwereapproximately197 million in legal settlement expenses related to Vesttoo Ltd. transactions in 2023[221] - Total letters of credit outstanding were approximately 86 million at December 31, 2023, compared to 74millionatDecember31,2022[266]−Themaximumexposureforcontractualcontingentguaranteeswasapproximately74 million at December 31, 2022[266] - The maximum exposure for contractual contingent guarantees was approximately 194 million at December 31, 2023, compared to 173millionatDecember31,2022[267]AssetsandLiabilities−Totalcurrentassetsamountto173 million at December 31, 2022[267] Assets and Liabilities - Total current assets amount to 1,661 million, with receivables due from non-guarantor subsidiaries at 1,431millionandothercurrentassetsat1,431 million and other current assets at 230 million[282] - Total non-current assets are 12,101million,including12,101 million, including 10,873 million in non-current receivables from non-guarantor subsidiaries and 1,228millioninothernon−currentassets[282]−Totalcurrentliabilitiesstandat1,228 million in other non-current assets[282] - Total current liabilities stand at 8,737 million, with payables to non-guarantor subsidiaries at 3,750millionandothercurrentliabilitiesat3,750 million and other current liabilities at 4,987 million[282] - Total non-current liabilities are 22,380million,including22,380 million, including 10,933 million in non-current payables to non-guarantor subsidiaries and 11,447millioninothernon−currentliabilities[282]Share−BasedCompensationandPerformancePlans−Thecompanyrecognizesshare−basedcompensationexpensebasedonthegrantdatefairvalue,withnoadjustmentsnecessaryfortheyearsendedDecember31,2023,2022,or2021[312]−Thelargestperformanceshareplan(LPP)hasathree−yearperformanceperiod,withpotentialexpensechangesrangingfrom011,447 million in other non-current liabilities[282] Share-Based Compensation and Performance Plans - The company recognizes share-based compensation expense based on the grant date fair value, with no adjustments necessary for the years ended December 31, 2023, 2022, or 2021[312] - The largest performance share plan (LPP) has a three-year performance period, with potential expense changes ranging from 0% to 200% of the targeted total expense based on performance achievement[315] - A 10% upward or downward adjustment in estimated performance achievement percentage for open performance periods would increase or decrease 2023 expense by approximately 8.7 million[315] Foreign Exchange and Interest Rate Sensitivity - Currency fluctuations had an unfavorable impact of 0.17onearningsperdilutedsharefortheyearendedDecember31,2023[229]−Thecompanyhashedgedapproximately450.17 on earnings per diluted share for the year ended December 31, 2023[229] - The company has hedged approximately 45% of its U.K. subsidiaries' expected exposures to the U.S. dollar, euro, and Japanese yen transactions for 2024 and 2025[326] - A hypothetical 10% adverse change in year-end exchange rates would result in a potential loss of 28 million and 18millioninfutureearningsfromforeignexchangederivativeinstrumentsfor2024and2025,respectively[327]−Ahypothetical118 million in future earnings from foreign exchange derivative instruments for 2024 and 2025, respectively[327] - A hypothetical 1% increase or decrease in interest rates would change the fair value of long-term debt by a decrease of 7% or an increase of 8%, respectively, at December 31, 2023[330] - The fair value of long-term debt was 9.2 billion as of December 31, 2023, exceeding the carrying value by 0.8billion[330]GoodwillandImpairment−Goodwillistestedforimpairmentatleastannuallyinthefourthquarter,withmorefrequenttestsifindicatorsofimpairmentarise,suchasasignificantdeclineinsharepriceorexpectedfuturecashflows[306]−ThecompanyusesaDCFmodeltodeterminethefairvalueofreportingunits,withsignificantjudgmentsinvolvedinforecastingandselectingdiscountrates,whichcouldimpactfuturegoodwillimpairmentcharges[309]RestructuringandCostSavings−TheAcceleratingAonUnitedProgramisexpectedtoresultincumulativecostsofapproximately0.8 billion[330] Goodwill and Impairment - Goodwill is tested for impairment at least annually in the fourth quarter, with more frequent tests if indicators of impairment arise, such as a significant decline in share price or expected future cash flows[306] - The company uses a DCF model to determine the fair value of reporting units, with significant judgments involved in forecasting and selecting discount rates, which could impact future goodwill impairment charges[309] Restructuring and Cost Savings - The Accelerating Aon United Program is expected to result in cumulative costs of approximately 1,000 million, with annualized expense savings of 350millionbytheendof2026[246]DistributableProfitsandCreditFacilities−DistributableprofitsasofDecember31,2023,wereinexcessof350 million by the end of 2026[246] Distributable Profits and Credit Facilities - Distributable profits as of December 31, 2023, were in excess of 27.5 billion[259] - Aon Corporation had $2.0 billion in available credit from two primary committed credit facilities as of December 31, 2023[260]