Posted on 13 Feb 2013 by Neilson
Willis Group Holdings plc, the global insurance broker, today reported results for the fourth quarter of 2012 and twelve months ended December 31, 2012. The quarter also marked the culmination of Joe Plumeri's 12 year tenure as CEO and the appointment of Dominic Casserley in that role.
As the Company announced in December 2012, it incurred significant charges during the fourth quarter related to goodwill impairment in North America and a change in the Company's cash retention awards program. Additionally, during the quarter, the Company set up a valuation allowance against its deferred tax asset. These items, collectively, had a notable negative impact on reported results. Excluding those items, all of which have no impact on the expected cash profile of the company, the Company's fourth quarter 2012 adjusted earnings per share were flat versus the prior year quarter as higher commissions and fees were offset by higher salary and benefits expense and taxes.
Willis Group's fourth quarter organic commissions and fees growth was 7.5%. Among the notable highlights within the Company's three segments was organic growth of 11.6% for Willis Global, with positive organic growth in each of the Global businesses. Willis International contributed 7.4% growth, driven by growth across all geographic regions, except Australasia, and with notable improvement from Willis UK. Results for Willis North America showed organic growth of 5.0% attributable, in part, to the reversal in the fourth quarter of 2011 of revenue that was improperly recorded during 2011. Excluding that revenue reversal, organic growth in Willis North America was 3.1%, the best organic growth results delivered by the segment in six years.
"In the fourth quarter, Willis undertook a series of steps to pave the way forward for our company and our shareholders. Those actions are reflected in our reported results," said Dominic Casserley, CEO of Willis Group Holdings. "With these actions behind us, and a quarter that resulted in significantly improved revenue growth in our segments, particularly the turnaround in Willis North America, we are encouraged by what lies ahead. We are laying a strong foundation at Willis, defined by the service we offer our clients and the manner in which we run our business, exemplified by the $524 million of cash flow we generated in 2012, an improvement of $85 million over the previous year," Casserley added.
Fourth Quarter 2012 Financial Results
Willis Group reported a net loss from continuing operations of $(804) million, or $(4.65) per share, for the quarter ended December 31, 2012, compared with reported net income of $24 million, or $0.14 per diluted share, in the same period a year ago. The quarter's results were negatively impacted by charges of $492 million related to the goodwill impairment in North America; $200 million related to the write-off of unamortized cash retention awards; $252 million related to the accrual of 2012 cash bonuses; and a $113 million tax charge to establish a deferred tax asset valuation allowance. The valuation allowance is related to the North America segment and is directly associated with the recording of the goodwill impairment and cash retention charges.
Reported net income in the fourth quarter of 2011 was reduced by a $50 million charge related to the 2011 Operational Review and $22 million related to the write-off of uncollectable accounts receivable.
Excluding the after-tax impact of the charges discussed in this release, adjusted net income from continuing operations was $79 million, or $0.45 per diluted share, for the quarter ended December 31, 2012, compared with $79 million, or $0.45 per diluted share, in the same period a year ago. The fourth quarter 2012 adjusted earnings per diluted share were negatively impacted by higher taxes primarily caused by cumulative tax adjustments related to a change in the geographic mix of income and higher estimated state tax costs that were recorded in the current quarter. Foreign currency movements increased earnings by $0.01 per diluted share in the fourth quarter of 2012 compared with the fourth quarter of 2011.
Total commissions and fees for Willis Group were $867 million in the fourth quarter of 2012, up 7.0% from $810 million in the prior year quarter. The impact from foreign currency movements amounted to negative 0.5% during the quarter compared to the prior year period. Excluding this foreign exchange impact, organic commissions and fees increased 7.5% in the fourth quarter of 2012.
Investment income for Willis Group declined to $4 million in the fourth quarter of 2012, from $8 million in the fourth quarter of 2011 due to lower net yields on cash and cash equivalents.