AON(AON) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a 6% organic revenue growth for the second quarter, marking the fourth consecutive quarter of achieving this growth rate, reflecting an acceleration of historical trends [5][15] - Operating margin expanded by 240 basis points, with operational income growth of 13% and EPS growth of 9%, despite facing foreign exchange headwinds [5][19] - For the first half of the year, the company achieved a 10% growth in operating income and an 11% growth in EPS, alongside a 210 basis points increase in operating margin [18] Business Line Data and Key Metrics Changes - The company highlighted strong performance across its core portfolio, driven by net new business generation and improved retention [18] - The Reinsurance Solutions segment experienced a 12% growth in Q2 and a 10% growth for the first half of the year, attributed to increased demand from insurers utilizing reinsurance capabilities [70][71] Market Data and Key Metrics Changes - The company noted that client demand is higher than ever, with many organizations feeling less prepared for traditional and emerging risks, as indicated by a global survey conducted with over 2,600 clients [8][9] - The survey revealed that only 12% of respondents use risk modeling, highlighting a significant opportunity for the company to address client needs in risk management [9] Company Strategy and Development Direction - The company is focused on its "Aon United" initiative, which aims to break down internal barriers and enhance client service by leveraging global resources [6][10] - Investments in innovative solutions, such as the Aon Architect tool, are aimed at addressing client challenges in managing healthcare costs and improving talent retention [12][13] - The establishment of the New Ventures Group is intended to accelerate innovation and expand the company's relevance in various sectors, including public sector partnerships [14][15] Management's Comments on Operating Environment and Future Outlook - Management emphasized the need for organizations to be better prepared for a range of risks, including cyber threats and climate change, which presents growth opportunities for the company [8][10] - The company is confident in achieving mid-single-digit organic revenue growth or greater over the long term, supported by strategic actions taken over the past decade [15][16] Other Important Information - The company expects to deliver $510 million in annualized savings in 2019 and $535 million in 2020 from ongoing restructuring initiatives [20][24] - Free cash flow declined to $255 million, impacted by legacy litigation payments, but the company anticipates strong growth in free cash flow moving forward [22][46] Q&A Session Summary Question: Sustainability of 6% organic growth rate - Management indicated that the 6% organic growth rate is sustainable due to strong client demand and effective execution of the Aon United strategy [29][30] Question: Cost savings and restructuring program - Management confirmed that the restructuring program is on track to deliver $535 million in savings for 2020, with clarity on projects and initiatives [40][42] Question: Impact of foreign exchange on margins - Management stated that FX had an immaterial impact on margins, with the primary drivers of margin expansion being organic revenue growth and operational leverage [44] Question: Free cash flow expectations - Management reiterated expectations for strong free cash flow growth in the second half of the year, driven by operational improvements and reduced cash uses [51][52] Question: Organic growth in the PC Brokers business - Management noted that while the impact from pricing is modest, client opportunities and the Aon United approach are the main drivers of growth [58][59]