The operator introduces the Aon plc Third Quarter 2023 Conference Call and reminds participants that the call is being recorded. The CEO, Greg Case, reflects on the ongoing conflict in Israel and Gaza and expresses concern for the safety of colleagues and clients. He also thanks Aon colleagues for their hard work and dedication. The call will now focus on financial performance.

In the quarter, we saw strong results with 6% organic revenue growth and 80 basis points of adjusted operating margin expansion. Reinsurance solutions and health solutions had double-digit organic revenue growth, while wealth solutions and commercial risk saw 4% organic growth. Our team is already preparing for the 2024 renewals and there is a continued focus from clients to address underlying trends impacting their workforce and healthcare costs. However, external M&A and IPO markets had a negative impact on overall organic revenue growth. We are also announcing actions to accelerate our Aon United strategy and restructuring program to better meet the needs of our clients in the current challenging world.

Aon's Global Risk Management survey reveals that trade, technology, weather, and workforce stability are major forces impacting risk exposures. To address the increasing demand from clients, Aon is implementing a 3x3 plan over the next three years, which includes leveraging risk capital, embedding the Aon client leadership model, and accelerating business services to improve service experience and provide better solutions. This plan will benefit colleagues, clients, and shareholders.

The Aon team has made significant progress in their client service and financial performance, but they have decided to accelerate their strategy in order to meet increasing client demand and improve their execution. This will involve a $900 million restructuring program focused on two areas. The team believes that a more connected and culturally unified firm will lead to even greater success in the future.

The company is focusing on accelerating their Aon Business Services plan and aligning their workforce to deliver on the digital first opportunity. This investment is expected to drive $350 million in annual savings by 2026. The company expects mid-single-digit or greater organic revenue growth and ongoing margin expansion. While the program may impact free cash flow in the near-term, the company anticipates double-digit growth in the long-term. The company's strong operational performance demonstrates momentum in their Aon United strategy and allows them to double down on their strategic commitments. The company's goal is to address evolving client demand, improve colleague outcomes, and continue creating long-term shareholder value.

In the third quarter, Aon delivered strong operating results with 7% organic revenue growth, 80 basis points of adjusted margin expansion, and 10% adjusted operating income growth. The company expects mid-single-digit or greater organic revenue growth for the full year 2023 and over the long-term. Reported revenue growth of 10% in Q3 includes a favorable impact from changes in FX, while reported revenue growth of 7% year-to-date includes an unfavorable impact from changes in FX. Fiduciary investment income, not included in organic revenue growth, was $80 million in Q3 and $196 million year-to-date. Adjusted operating margins increased by 80 basis points to 30.8% due to revenue growth and efficiencies from Aon Business Services. Despite expense growth from investments in colleagues and technology, the company saw double-digit adjusted operating income growth and an 8% increase in adjusted EPS year-to-date.

In the third quarter, currency fluctuations had an unfavorable impact of $0.01 per share and a total unfavorable impact of $0.20 per share year-to-date. However, if currency rates remain stable, there is expected to be a favorable impact of $0.03 per share in the fourth quarter, resulting in a total unfavorable impact of $0.17 per share for the full year. Other nonoperating expenses had an unfavorable impact of $0.15 per share in Q3 and $0.59 per share year-to-date, mainly due to increased pension expenses and balance sheet adjustments. Free cash flow decreased by 4%, primarily due to higher cash tax payments and temporary invoicing delays. CapEx increased by $77 million compared to the previous year, but is expected to moderate in the fourth quarter and total $220 million to $250 million for the full year. Aon United program is also accelerating to drive long-term growth.

Aon is focusing on three strategic commitments, including accelerating Aon Business Services, unlocking advancements in risk and human capital, and implementing the Aon Client Leadership strategy. These commitments will drive value for clients, colleagues, and shareholders. The company plans to invest in standardizing operations, integrating platforms, and increasing product innovation and development. This will lead to annual savings of $350 million by 2026 and contribute to long-term margin expansion. The savings are expected to ramp up over time, with $100 million in 2024, $250 million in 2025, and $350 million in 2026. There will be no material impacts on cash flow in 2023.

The company is expecting to incur $900 million in cash restructuring charges over the next three years, which is less than 10% of their underlying free cash flow. This is expected to result in a 4% cost takeout and contribute to long-term margin expansion. The company expects mid-single-digit or greater organic revenue growth and high single-digit free cash flow in 2023. While restructuring will temporarily reduce free cash flow, the company expects to return to double-digit growth in the long-term through operating income growth and working capital improvements.

The paragraph discusses Aon's strategy for long-term financial progress, including focusing on key metrics such as organic revenue growth, margin expansion, and free cash flow. The company plans to continue allocating capital towards share repurchases, as well as investing in organic and inorganic growth opportunities. Aon also remains confident in its balance sheet and plans to add incremental debt as EBITDA grows. Overall, the company sees potential for sustainable growth and shareholder value creation. The operator then opens the call for questions.

The speaker is responding to a question about the company's free cash flow and explains that the lower guidance is due to a temporary invoicing delay. They also discuss a restructuring program that aims to deliver better solutions for clients and colleagues. The program is different from previous ones and is expected to generate $350 million in savings, but the speaker hints that there may be more savings to come. The company's Aon Business Services platform is seen as a key tool in achieving these goals.

The company is focused on improving its services for clients and has the support of 15,000 colleagues. This involves connecting data analytics and operating platforms and aligning teams. The investment in this strategy is expected to have a high return on investment. An example of how this strategy benefits clients is through providing cutting-edge climate analytics, as seen with a client in Asia Pacific. This client is using the analytics to integrate into their risk modeling and make informed decisions about their loan exposures.

Aon Business Services is developing capabilities to help clients assess and manage climate physical risk in their businesses. This will be achieved through a $900 million investment, which is expected to deliver $350 million in savings by 2026. Aon expects mid-single-digit organic revenue growth or greater, and adjusted operating margin expansion in the next few years. The company will also focus on maintaining a strong cash flow and disciplined return on invested capital. This investment is expected to contribute to long-term shareholder value creation.

During a conference call, Paul Newsome asks about the restructuring charge and its impact on margin improvement. Christa Davies responds by saying that the company expects the charge to contribute to margin expansion, but they also have a holistic approach to margin expansion and continue to invest in technology. Greg Case adds that the company does not see margin as a zero-sum game between clients, colleagues, and shareholders.

The company's focus on providing incremental value to clients through Aon Business Services is driving margin improvement. This is reflected in their decision to invest in creating greater capabilities and their confidence in continued margin improvement over time. The restructuring charge being taken is larger than previous efforts due to the company's response to unmet client needs and their focus on Aon Business Services as a catalyst for driving risk capital, human capital, and client leadership strategies. They have brought in new leaders and developed a three-year strategy to strengthen and connect their firm.

In this paragraph, Aon CEO Greg Case discusses the company's strategy of using standardized platforms and operations to deliver innovative products and benefit clients, colleagues, and shareholders in the long term. He emphasizes the importance of Aon Business Services, which brings together 15,000 colleagues and external talent to scale new integrated analytics and meet the demands of clients. This is a structural investment that is being made much faster than before, and is a bet on Aon's history of success. The CEO and team are excited about this strategy and see it as a way to effectively innovate and meet client demands.

The acceleration program at Aon is focused on using Aon Business Services as a catalyst to standardize operations and create scale, allowing for the application of AI and data analytics to drive greater value for clients. The strategy also involves bringing together risk capital and human capital to do more for clients, with examples such as using reinsurance knowledge for commercial clients and bonds for healthcare resiliency. The company is confident in their data science talent, but new hires may be part of the plan.

Eric Andersen discusses the cutting-edge nature of his company's 1,000 data scientists in their risk capital business. Greg Case adds that the key is connecting these individuals through a strategy around analytics and prioritization to address client issues. This integrated platform will also involve talent from other areas such as health and talent. The company has brought in experts from outside the industry to enhance their understanding of risk and volatility. This presents a great opportunity for colleagues to unlock potential and have meaningful discussions with clients.

During a conference call, a question was asked about the slowdown in commercial risk growth in the third quarter. The CEO and team explained that the slowdown was primarily due to a decrease in M&A and call M&A services. However, they remain confident in the team and their capabilities and are investing in content and capability. They expect transactions to eventually pick up and are optimistic about the future. The CEO also discussed their savings program, which aims to save $350 million by 2026.

Christa Davies, the CFO of Aon, confirms that the company expects the $350 million in savings to drop to the bottom line. However, they are still investing in the business, particularly in technology, which is reflected in their increased technology expense and CapEx. The $900 million in savings is expected to come primarily from technology expense and workforce optimization, but specific details have not been provided. In terms of organic growth, the company has not quantified the impact of slower M&A and transaction-related activity on their growth compared to peers.

The speaker states that M&A activity has decreased by 30% year-on-year, but they are still invested in the team and maintaining relationships with clients. They expect long-term free cash flow growth and are monitoring the impact of the West fallout on their business.

The Aon United program is expected to continue evolving as the company goes through its bankruptcy process. The company is not making any changes to its mid-single digit or greater organic growth outlook, but the program is expected to contribute to accelerated growth. The focus of the program is on client relevance and innovation, and the company is confident in its ability to achieve mid-single digit or greater organic revenue growth, margin expansion, and double-digit free cash flow growth. The program is an acceleration of the Aon United strategy that was implemented several years ago.

The speaker is discussing the impact of the Aon United program on the company's growth. They mention that they track this and have decided to invest more in the program due to its relevance to clients and the increasing demand for risk management. They also mention the importance of being a connected firm and how Aon United allows them to innovate and deliver on client demands. The speaker does not quantify the impact of the program, but sees it as a fundamental aspect of the company's operations.

The speaker discusses the impact of Aon United on their business services, which was made possible by the leadership of Eric and the team. They are excited about the potential for innovation and growth under Christa's leadership of Aon Business Services. The speaker also mentions a new cost savings program that will contribute to their long-term margin expansion goals.

The company is investing in client-facing innovation, content, and data analytics to provide better solutions to clients and drive long-term productivity. They are committed to the M&A space and will redeploy talent to work on new products and opportunities. There is no specific guidance on the impact of revenue pressure on margins.

The speaker, Christa Davies, responds to a question about the company's free cash flow growth in 2022 and 2023. She clarifies that the double-digit growth will be based on the 2023 baseline and that the company is excited about its long-term free cash flow growth. The company has a history of strong free cash flow growth and plans to continue driving mid-single-digit or greater organic revenue growth, margin expansion, and double-digit free cash flow growth in the future. The call ends with a thank you from CEO Greg Case.

This summary was generated with AI and may contain some inaccuracies.