"We delivered another solid quarter of financial results, supported by positive organic growth in each segment of our business. Combined with our continued focus on cost control, we expanded our adjusted operating margin by over 200 basis points,” said Joe Plumeri, Chairman and Chief Executive Officer, Willis Group Holdings. “I am pleased with our performance in the quarter as we continue to face a challenging environment, with rates still soft and economic pressures persisting in a number of countries in which we operate."
First Quarter 2010 Financial Results
Reported net income from continuing operations for the first quarter of 2010 was $204 million, or $1.20 per diluted share, compared with $192 million, or $1.15 per diluted share, in the same period a year ago. Reported net income in the first quarter of 2010 was impacted by a charge of $12 million, or $0.07 per diluted share, relating to the devaluation of the Venezuelan currency, and in the first quarter of 2009, by certain items, which are detailed later in this release.
Adjusted net income per diluted share from continuing operations was $1.27 in the first quarter of 2010 compared with $1.16 in the first quarter of 2009. Other foreign currency movements positively impacted adjusted earnings per diluted share from continuing operations by $0.06 in the first quarter of 2010. Total reported revenues for the first quarter of 2010 were $972 million compared with $930 million for the same period of 2009, an increase of 5 percent. Total commissions and fees were $963 million, an increase of 5 percent from $915 million reported in the first quarter of 2009. Foreign currency movements increased reported commissions and fees by 3 percent compared with the same period a year ago. Investment income was $9 million in the first quarter of 2010 compared with $13 million in the first quarter of 2009, a decline of 31 percent, principally due to lower interest rates.
Organic growth in commissions and fees was 3 percent in the first quarter of 2010 compared with the same period of 2009. Organic growth reflected net new business won of 5 percent, driven by solid new business generation with steady retention of existing clients. Partially offsetting net new business growth was a negative 2 percent impact from declining premium rates and other market factors.
The North America segment reported 3 percent decline in commissions and fees and 1 percent growth in organic commissions and fees in the first quarter of 2010 compared with the same period of 2009. Included in North America reported commissions and fees were legacy HRH contingent commissions of $8 million in the first quarter of 2010 compared with $20 million in the first quarter of 2009. North America continues to generate strong new business, with steady client and producer retention. The North America segment continued to benefit from specialist industry expertise, with strong results from the healthcare, financial institutions, personal lines and real estate/hospitality businesses. North America’s results also continue to reflect headwinds from the soft insurance market conditions and ongoing weakness in the US economy. As a result of organic growth in commissions and fees and ongoing cost management, operating margin expanded 60 basis points to 25.5 percent in the first quarter of 2010 compared with the prior year period.
The International business segment reported 12 percent growth in commissions and fees and 3 percent organic growth in commissions and fees in the first quarter of 2010 compared with the same period of 2009. Strong growth in the emerging economies of Latin America, Asia and Eastern Europe, was partially offset by slowing growth in some developed European economies and continued weakness in the UK and Ireland retail market. Excluding the UK and Ireland, the International business segment organic growth was 5 percent. Strong new business more than offset the soft rate environment and weakness in the UK and Ireland market. Operating margin was33.9 percent compared with 34.9 percent in the first quarter of 2009.
The Global segment, which comprises the Reinsurance, Global Specialties, Faber & Dumas, and Willis Capital Markets & Advisory divisions, reported 9 percent growth in commissions and fees and 7 percent organic growth in commissions and fees in the first quarter of 2010 compared with the first quarter of 2009. Growth was primarily driven by the Reinsurance division, with strong organic growth in commissions and fees, especially in North America. Solid net new business in this division more than offset the softness in reinsurance rates. Global Specialties contributed positive organic growth in commissions and fees, led by financial and executive risks and marine. Operating margin was a seasonally high 45.5 percent, in line with the first quarter of 2009.
Reported salaries and benefits were $486 million in the first quarter of 2010 compared with $480 million in the first quarter of 2009. Salaries and benefits improved to 50.0 percent of total revenue in the first quarter of 2010 compared with 51.6 percent in the first quarter of 2009.
Salaries and benefits do not reflect the unamortized portion of annual cash retention awards made to employees. Employees must repay a proportionate amount of these cash retention awards if they voluntarily leave the Company's employ (other than in the event of retirement or permanent disability) before a certain time period, currently three years. The Company makes cash payments to its employees in the year it grants these retention awards and recognizes these payments ratably over the period they are subject to repayment, beginning in the quarter in which the award is made.
During the first quarter of 2010, the Company made $169 million of cash retention payments compared with $111 million in the first quarter of 2009. Salaries and benefits in the first quarter of 2010 include $28 million of amortization of cash retention payments made on or before March 31, 2010 compared with $18 million in the first quarter of 2009. As of March 31, 2010, December 31, 2009 and March 31, 2009, the Company included $233 million, $98 million and $127 million, respectively, in other assets on the balance sheet, which represented the unamortized portion of cash retention payments made on or before those dates.
Reported other operating expenses were $149 million in the first quarter of 2010 compared with $138 million in the first quarter of 2009. Other operating expenses as a percentage of revenues were 15.3 percent in the first quarter of 2010 compared with 14.8 percent in the same quarter a year ago. Reported other operating expenses for the first quarter of 2010 included $12 million in respect to the devaluation of the Venezuelan currency.
Reported operating margin was 31.0 percent for the first quarter of 2010 compared with 29.5 percent for the same period of 2009. Excluding the impact from the devaluation of the Venezuelan currency and other items, which are detailed later in this release, adjusted operating margin was 32.2 percent for the first quarter of 2010 compared with 29.8 percent for the prior year period. The improvement in the adjusted operating margin reflected solid organic growth in commissions and fees and other expense savings.
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