AON(US:AON)2024-02-15 16:00Revenue and Growth - Revenue increased by $897 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 $13,376 million compared to $12,479 million in 2022, with organic revenue growth also at 7%[217] - Commercial Risk Solutions revenue increased by $328 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 $7,043 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 $2,433 million in 2023, with organic growth of 10%[217] Operating Expenses and Margins - Operating expenses increased by $781 million (9%) to $9.6 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 $17 million in transaction costs[221] Net Income and Earnings - Net income decreased by $18 million (1%) to $2.6 billion in 2023, with diluted earnings per share increasing 3% to $12.51[186] - Adjusted diluted earnings per share increased by $0.75 (6%) to $14.14 in 2023, reflecting strong operational performance and $2.7 billion in share repurchases[188] - Adjusted diluted earnings per share increased to $14.14 in 2023 from $13.39 in 2022[224][225] Cash Flow and Liquidity - Cash flows from operating activities increased by $216 million (7%) to $3.4 billion in 2023, reflecting strong operating income growth and working capital optimization[186] - Free cash flow increased by $160 million (5%) to $3.2 billion in 2023, driven by higher cash flows from operations[189] - Free cash flow grew to $3,183 million in 2023 from $3,023 million in 2022[227] - Net cash provided by operating activities in 2023 was $3.4 billion, an increase of $216 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 $188 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 $35 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 $7 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 $11.2 billion, an increase of $0.4 billion compared to 2022[254] - Aon Corporation repaid $500 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 $600 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 $250 million to $1.3 billion, and the European program capacity is €625 million ($690 million at December 31, 2023 exchange rates)[257] - Total commercial paper issuances for 2023 were $4,835 million, with net repayments of $27 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 $50 million, with an expected contribution of $68 million in 2024[241] - The company estimates cash contributions of approximately $68 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 $1.8 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 $1,909 million for the U.S., $1,319 million for the U.K., and $431 million for other plans, with estimated 2024 amortization of loss at $84 million, $36 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 $94 million for the U.K., $53 million for the U.S., and $40 million for other plans, while a decrease would increase the obligations by $97 million, $55 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 $9 million for the U.K., $4 million for the U.S., and $3 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 $76 million in 2022[218] - Fiduciary assets included cash and cash equivalents of $6.9 billion and $6.4 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 $197 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 $74 million at December 31, 2022[266] - The maximum exposure for contractual contingent guarantees was approximately $194 million at December 31, 2023, compared to $173 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 $1,431 million and other current assets at $230 million[282] - Total non-current assets are $12,101 million, including $10,873 million in non-current receivables from non-guarantor subsidiaries and $1,228 million in other non-current assets[282] - Total current liabilities stand at $8,737 million, with payables to non-guarantor subsidiaries at $3,750 million and other current liabilities at $4,987 million[282] - Total non-current liabilities are $22,380 million, including $10,933 million in non-current payables to non-guarantor subsidiaries and $11,447 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 $0.17 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 $18 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 $0.8 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 $350 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]