LONDON, April 26, 2019 /PRNewswire/ -- 

First Quarter Key Metrics From Continuing Operations

• Total revenue increased 2% to $3.1 billion, with organic revenue growth of 6%
• Operating margin increased 180 basis points to 27.7%, and operating margin, adjusted for certain items, increased 190 basis points to 33.7%
• EPS increased 15% to $2.70, and EPS, adjusted for certain items, increased 11% to $3.31
• For the first three months of 2019, cash flow from operations decreased 47% to $74 million, and free cash flow decreased 82% to $17 million

First Quarter Highlights

• Repurchased 0.6 million Class A Ordinary Shares for approximately $100 million
• Subsequent to the close of the quarter, announced a 10% increase to the quarterly cash dividend
• Aon's New Ventures Group announced the formal sponsorship of the firm's Intellectual Property Solutions to accelerate industry-leading innovation and scale our internal capabilities with greater speed to market

Aon plc (NYSE: AON) today reported results for the three months ended March 31, 2019.

Net income from continuing operations attributable to Aon shareholders was $659 million, or $2.70 per share, compared to $588 million, or $2.35 per share, in the prior year period. Net income per share from continuing operations attributable to Aon shareholders, adjusted for certain items, increased 11% to $3.31, including an unfavorable impact of $0.13 per share if the company were to translate prior year period results at current period foreign exchange rates ("foreign currency translation"), compared to $2.97 in the prior year period. Certain items that impacted first quarter results and comparisons with the prior year period are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 10 of this press release.

"Our results reflect increasing strength from our Aon United initiatives, as highlighted by strong organic revenue growth of 6%, substantial operating margin improvement of +190 basis points, and double-digit earnings per share growth for the first quarter," said Greg Case, Chief Executive Officer. "More important, we continue to strengthen our firm through investments in industry-defining content and capability, while increasing our relevance to clients, delivering strong financial results and unlocking significant shareholder value creation through double-digit free cash flow growth over the long-term."

FIRST QUARTER 2019 FINANCIAL SUMMARY
The first quarter 2019 financial results discussed herein represent performance from continuing operations unless otherwise noted.

Total revenue in the first quarter increased 2% to $3.1 billion compared to the prior year period driven by 6% organic revenue growth, partially offset by a 4% unfavorable impact from foreign currency translation.

Total operating expenses in the first quarter decreased 1% to $2.3 billion compared to the prior year period due primarily to a $93 million favorable impact from foreign currency translation, $45 million of incremental savings related to restructuring and other operational improvement initiatives, and a $21 million decrease in expenses related to divestitures, net of acquisitions, partially offset by a $17 million increase in restructuring charges and an increase in expenses associated with 6% organic revenue growth.

Restructuring expenses were $91 million in the first quarter, primarily driven by other costs associated with restructuring and separation initiatives and workforce reductions. As previously announced, the Company expects to invest $1,125 million in total cash over the three-year period, which will be completed in the fourth quarter of 2019. In addition, the Company expects to incur approximately $100 million of non-cash charges associated with the program. To date, the Company has incurred $1,073 million, or 88%, of the total estimated restructuring charges and $818 million, or 73% of the total estimated cash spend. In addition to the restructuring charges, the Company continues to estimate $200 million of incremental capital expenditures associated with the three-year program, of which $104 million, or 52%, has been incurred to date. An analysis of restructuring and related costs by type is detailed on page 15 of this press release.

Restructuring savings in the first quarter related to restructuring and other operational improvement initiatives are estimated at $108 million, before any potential reinvestment, an increase of $45 million compared to the prior year period. Before any potential reinvestment of savings, restructuring and other operational improvement initiatives are expected to deliver run-rate savings of $500 million annually by the end of 2019. To date, the Company has achieved $405 million, or 81%, of the total estimated annualized savings, before any potential reinvestment.

Foreign currency exchange rates in the first quarter had a $34 million, or $0.12 per share, unfavorable impact on U.S. GAAP net income, and a $32 million, or $0.13 per share, unfavorable impact on adjusted net income if the Company were to translate prior year quarter results at current quarter foreign exchange rates. The Company also incurred $6 million, or $0.02 per share, of net losses due to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies recorded in other expense. If currency were to remain stable at today's rates, we would expect an unfavorable impact of approximately $0.04 per share in the second quarter of 2019, an unfavorable impact of approximately $0.01 per share in the third quarter of 2019 and an immaterial impact in the fourth quarter of 2019.

Effective tax rate used in our U.S. GAAP financial statements in the first quarter was 15.7%, compared to 15.9% in the prior year period. After adjusting to exclude the applicable tax impact associated with certain non-GAAP adjustments, the adjusted effective tax rate for the first quarter of 2019 increased modestly to 16.9% compared to 16.5% in the prior year quarter. The adjusted effective tax rate in both periods includes a net favorable impact from certain discrete items. Certain items that impacted first quarter results and comparisons with the prior year period are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 10 of this press release.

Weighted average diluted shares outstanding decreased to 243.7 million in the first quarter compared to 250.2 million in the prior year period. The Company repurchased 0.6 million Class A Ordinary Shares for approximately $100 million in the quarter. As of March 31, 2019, the Company had $3.9 billion of remaining authorization under its share repurchase program.

FIRST QUARTER 2019 CASH FLOW SUMMARY
Cash flow from operations for the first three months of 2019 decreased 47%, or $66 million, to $74 million compared to the prior year period. Strong operational improvement and working capital improvements in payables were more than offset by approximately $85 million of net cash payments related to legacy litigation and $15 million of incremental cash restructuring charges.

Free cash flow, defined as cash flow from operations less capital expenditures, decreased 82%, or $78 million, to $17 million for the first three months of 2019 compared to the prior year period, reflecting a decrease in cash flow from operations and a $12 million increase in capital expenditures, including investments in our operating model.

FIRST QUARTER 2019 REVENUE REVIEW
The first quarter revenue reviews provided below include supplemental information related to organic revenue, which is a non-GAAP measure that is described in detail in "Reconciliation of Non-GAAP Measures - Organic Revenue and Free Cash Flow" on page 9 of this press release.

Total revenue increased $53 million, or 2%, to $3,143 million, compared to the prior year period, including organic revenue growth of 6% primarily driven by strong new business generation and retention globally across our core portfolio, as well as strong growth in specific areas of continued investment including transaction liability, cyber solutions, and delegated investment management.

Commercial Risk Solutions organic revenue growth increased 6% compared to the prior year period driven by growth across every major geography, highlighted by double-digit growth in Latin America and strong growth across North America and Asia. Results reflect strong global new business generation and management of the renewal book portfolio. In North America, double-digit new business generation was highlighted by strength in our transaction liability business in the U.S.

Reinsurance Solutions organic revenue growth increased 9% compared to the prior year period driven by strong net new business generation globally in treaty, as well as double-digit growth globally in facultative placements and in capital markets transactions. In addition, market impact was modestly positive on results in the first quarter.

Retirement Solutions organic revenue growth increased 2% compared to the prior year period driven by solid growth in investment consulting and solutions, including double-digit growth in delegated investment management. Results also reflect modest growth in our actuarial retirement businesses globally, and growth across Performance, Rewards, and Assessment.

Health Solutions organic revenue growth increased 5% compared to the prior year period driven by solid growth globally in health and benefits brokerage, highlighted by particular strength internationally, including double-digit growth in China.

Data & Analytic Services organic revenue growth increased 5% compared to the prior year period driven by growth globally across our Affinity business, with particular strength across both business and consumer solutions in the U.S. and EMEA.

 FIRST QUARTER 2019 EXPENSE REVIEW

Compensation and benefits expense decreased $32 million, or 2%, compared to the prior year period due primarily to a $69 million favorable impact from foreign currency translation and $48 million of incremental savings related to restructuring and other operational improvement initiatives, partially offset by an increase in expense associated with 6% organic revenue growth.

Information technology expense increased $2 million, or 2%, compared to the prior year period due primarily to an increase in investments supporting growth initiatives and an increase in expense associated with 6% organic revenue growth.

Premises expense decreased $6 million, or 6%, compared to the prior year period due primarily to $5 million of incremental savings related to restructuring and other operational improvement initiatives and a $4 million favorable impact from foreign currency translation, partially offset by a $7 million increase in restructuring costs.

Depreciation of fixed assets increased $1 million, or 3%, compared to the prior year period.

Amortization and impairment of intangible assets decreased $13 million, or 12%, compared to the prior year period primarily due to a $6 million decrease related to divestitures, net of acquisitions, and a favorable impact from foreign currency translation.

Other general expenses increased $28 million, or 9%, compared to the prior year period due primarily to a $19 million increase in restructuring costs, a $9 million decrease in savings related to restructuring and other operational improvement initiatives, and an increase in expense associated with 6% organic revenue growth, partially offset by a $14 million favorable impact from foreign currency translation.

FIRST QUARTER 2019 INCOME SUMMARY
The first quarter 2019 financial results discussed herein represent performance from continuing operations unless otherwise noted. In addition, certain noteworthy items impacted adjusted operating income and adjusted operating margins in the first quarters of 2019 and 2018, which are also described in detail in "Reconciliation of Non-GAAP Measures - Operating Income from Continuing Operations and Diluted Earnings Per Share" on page 10 of this press release.

Operating income increased $73 million, or 9%, compared to the prior year period. Adjusting for certain items detailed on page 10 of this press release, operating income increased $77 million, or 8%, and operating margin increased +190 basis points to 33.7%, each compared to the prior year period. Adjusted operating income and margin primarily includes a favorable impact from strong organic revenue growth of 6% and incremental savings from restructuring and other operational improvements of $45 million, or +140 basis points, partially offset by an unfavorable impact from foreign currency translation of $38 million. Operating income growth and operating margin expansion compared to the prior year period also reflects the absorption of near-term reinvestment of restructuring savings in client-facing colleagues and capabilities to support long-term Aon United growth initiatives.

Interest income decreased $2 million to $2 million. Interest expense increased $2 million to $72 million compared to the prior year period reflecting higher outstanding term debt and an increase in commercial paper borrowings. Other pension income decreased $5 million to $4 million. Other expense was a $4 million impact on the quarter as net losses of $6 million due to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies and $4 million of losses on certain company owned life insurance plans was partially offset by a gain on sale of certain businesses. The prior year period included net losses related to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies and losses related to certain long-term investments.

DISCONTINUED OPERATIONS
Net income from discontinued operations was $0 million, or an immaterial impact per share, compared to net income of $6 million, or $0.02 per share, in the prior year period.

Conference Call, Presentation Slides and Webcast Details
The Company will host a conference call on Friday, April 26, 2019 at 7:30 a.m., central time. Interested parties can listen to the conference call via a live audio webcast and view the presentation slides at www.aon.com.

About Aon
Aon plc (NYSE:AON) Aon is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.

Safe Harbor Statement

This communication contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. These forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts that address activities, events or developments that we expect or anticipate may occur in the future, including such things as our outlook, future capital expenditures, growth in commissions and fees, changes to the composition or level of our revenues, cash flow and liquidity, expected tax rates, business strategies, competitive strengths, goals, the benefits of new initiatives, growth of our business and operations, plans and references to future successes, are forward-looking statements. Also, when we use the words such as "anticipate", "believe", "estimate", "expect", "intend", "plan", "probably", "potential", "looking forward", or similar expressions, we are making forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward looking statements: general economic and political conditions in different countries in which Aon does business around the world, including the U.K.'s expected withdrawal from the European Union; changes in the competitive environment; fluctuations in exchange and interest rates that could influence revenue and expense; changes in global equity and fixed income markets that could affect the return on invested assets; changes in the funding status of Aon's various defined benefit pension plans and the impact of any increased pension funding resulting from those changes; the level of Aon's debt limiting financial flexibility or increasing borrowing costs; rating agency actions that could affect Aon's ability to borrow funds;; volatility in our tax rate due to a variety of different factors, including U.S. tax reform; changes in estimates or assumptions on our financial statements; limits on Aon's subsidiaries to make dividend and other payments to Aon; the impact of lawsuits and other contingent liabilities and loss contingencies arising from errors and omissions and other claims against Aon; the impact of, and potential challenges in complying with, legislation and regulation in the jurisdictions in which Aon operates, particularly given the global scope of Aon's businesses and the possibility of conflicting regulatory requirements across jurisdictions in which Aon does business; the impact of any investigations brought by regulatory authorities in the U.S., U.K. and other countries; the impact of any inquiries relating to compliance with the U.S. Foreign Corrupt Practices Act and non-U.S. anti-corruption laws and with U.S. and non-U.S. trade sanctions regimes; failure to protect intellectual property rights or allegations that we infringe on the intellectual property rights of others; the effects of English law on our operating flexibility and the enforcement of judgments against Aon; the failure to retain and attract qualified personnel; international risks associated with Aon's global operations; the effect or natural or man-made disasters; the potential of a system or network breach or disruption resulting in operational interruption or improper disclosure of personal data; Aon's ability to develop and implement new technology; the damage to our reputation among clients, markets or third parties; the actions taken by third parties that perform aspects of our business operations and client services;  the extent to which Aon manages certain risks created in connection with the various services, including fiduciary and investments and other advisory services and business process outsourcing services, among others, that Aon currently provides, or will provide in the future, to clients; Aon's ability to continue, and the costs and the costs and risks associated with, growing, developing and integrating companies that it acquires or new lines of business; changes in commercial property and casualty markets, commercial premium rates or methods of compensation; changes in the health care system or our relationships with insurance carriers; Aon's ability to implement initiatives intended to yield cost savings, and the ability to achieve those cost savings; risks and uncertainties in connection with the sale of our divested business; and our ability to realize the expected benefits from our restructuring plan.

Any or all of Aon's forward-looking statements may turn out to be inaccurate, and there are no guarantees about Aon's performance. The factors identified above are not exhaustive. Aon and its subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Further information concerning Aon and its businesses, including factors that potentially could materially affect Aon's financial results, is contained in Aon's filings with the SEC. See Aon's Annual Report on Form 10-K for the year ended December 31, 2018 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 for a further discussion of these and other risks and uncertainties applicable to Aon's businesses. These factors may be revised or supplemented in subsequent reports.  Aon is under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statement that it may make from time to time, whether as a result of new information, future events or otherwise.

Explanation of Non-GAAP Measures

This communication includes supplemental information related to organic revenue growth, free cash flow, adjusted operating margin, and adjusted earnings per share for continuing operations that exclude the effects of intangible asset amortization, restructuring, capital expenditures, and certain other noteworthy items that affected results for the comparable periods. Organic revenue growth includes the impact of intercompany activity and excludes foreign exchange rate changes, acquisitions, divestitures, transfers between revenue lines, fiduciary investment income, and gains or losses on derivatives accounted for as hedges. The impact of foreign exchange is determined by translating last year's revenue, expense or net income at this year's foreign exchange rates.  Reconciliations to the closest U.S. GAAP measure for each non-GAAP measure presented in this press release are provided in the attached appendices.  Supplemental organic revenue growth information and additional measures that exclude the effects of certain items noted above do not affect net income or any other U.S. GAAP reported amounts.  Free cash flow is cash flow from operating activity less capital expenditures. The effective tax rate, as adjusted, excludes the applicable tax impact associated with expenses for estimated intangible asset amortization, restructuring, and certain other noteworthy items. Management believes that these measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors.  They should be viewed in addition to, not in lieu of, the Company's Consolidated Financial Statements.  Industry peers provide similar supplemental information regarding their performance, although they may not make identical adjustments.

SOURCE Aon plc