The operator welcomes everyone to the WTW Fourth Quarter and Full Year 2023 Earnings Conference Call and reminds listeners to refer to the company's website for information and disclosures. The CEO discusses the company's strong performance in 2023 and the momentum going into 2024, highlighting the execution of their strategic priorities. The company saw strong organic revenue growth and improved margins and earnings per share due to their transformation program and expense discipline.

WTW's performance in 2023 improved steadily, with 6% organic revenue growth in the fourth quarter and a 180 basis point increase in adjusted operating margin. For the full year, they achieved 8% organic revenue growth and 110 basis points of margin expansion. This was attributed to their strong global client model, strategic investments in talent and technology, and their team's focus on delivery. The company's specialization strategy in Risk & Broking was a key driver of growth, with higher growth in their specialty businesses. This growth was fueled by improved client retention, expansion of existing client relationships, and the ability to attract new clients. Specialization will continue to be the company's primary focus in R&B to create value for clients.

The company is utilizing digitization, data and analytics to improve efficiency and provide better insurance services. They have successfully implemented a specialized industry model in North America and plan to expand it to other regions. They have also launched a new managing general underwriter and plan to expand it to other geographies. The company is investing in their people to win new business and has seen strong organic revenue growth in the second half of 2023. They plan to continue investing in talent to further grow their business.

The company plans to invest in areas with high potential for growth and profitability. They expect to see continued new business growth due to the complex risk environment. The company has made progress by focusing on core businesses, making connections across the organization, and simplifying their processes. They have maintained high client retention rates and added new clients for their signature package solutions. The company's focus on cross-selling and making it easier to do business with them has resulted in more clients using their full suite of solutions. For example, a software development firm has chosen WTW for global benefits consulting, brokerage, and employee experience support.

The company has had success with a global financial corporation and a leading regional health system, providing them with solutions for talent attraction and retention, total reward programs, and changes to their health and benefits program. The company's holistic, integrated, and consultative approach has helped them capitalize on the increasing complexity in the human capital landscape. Two trends that are expected to drive growth in 2024 are the need for more effective healthcare management and derisking of pension plans through annuity buy-ins and buy-outs. The company also expects continued momentum with smart connections and cross-selling between their two segments.

The company has been successful in expanding its services and finding cross-segment opportunities. This has led to two major client wins in the fourth quarter. The company's focus on productivity and cost discipline has also contributed to increased margin expansion. The transformation program has resulted in significant savings and the company is raising its cumulative savings target. The company is confident in its ability to achieve its 2024 targets and attributes its success to its efforts to grow, simplify, and transform the business.

The speaker is proud of the progress and excited about future opportunities. They thank their colleagues for their dedication and commitment to clients. The company saw strong financial results, with 6% organic revenue growth in the fourth quarter and 8% for the full year. They also drove margin expansion and had adjusted diluted earnings per share of $7.44 for the quarter and $14.49 for the year. The Health, Wealth and Career segment saw 4% revenue growth in the fourth quarter and 6% for the full year. They expect similar positive results in 2024. Health revenue increased 6% for the quarter.

In the fourth quarter, the company saw solid growth in all regions, driven by increased brokerage income and the expansion of their Global Benefits Management client portfolio. Wealth, retirement, investments, career, and benefits delivery and outsourcing all contributed to this growth. The company's operating margin also increased significantly, thanks to transformation savings. In addition, Risk & Broking saw exceptional growth of 12% organically in the fourth quarter and 10% for the full year. The company plans to continue investing in talent and platforms to drive mid-single digit or better organic revenue growth for the segment in 2024.

Corporate Risk & Broking had a strong quarter with 12% growth, driven by new business, client retention, and rate increases. Specialty lines, particularly in natural resources, facultative, and financial solutions, were major contributors to the growth. Europe, North America, and international regions all saw exceptional organic growth. Revenue for Insurance Consulting & Technology was up 8%, driven by increased sales in technology solutions. The operating margin for CRB increased by 460 basis points in the fourth quarter, driven by hiring efforts, productivity, transformation, and expense discipline. The full year operating margin increased by 60 basis points and the company plans to continue investing in talent and strategic initiatives in the segment.

In 2024, the company expects to see margin expansion on a full year basis, but the scale of the expansion may vary from quarter-to-quarter due to business seasonality and uncertain investments. The company saw a 180 basis point increase in adjusted operating margin for the quarter and a 110 basis point improvement for the full year, driven by the transformation program which has resulted in $337 million in savings since its inception. The company is raising its transformation savings target to $425 million by the end of 2024, with additional savings coming from technology modernization and process optimization. The total cost to achieve this is estimated at $1.125 billion. The company also recorded $296 million in unallocated net for the full year, and expects a $0.02 headwind from foreign exchange on adjusted EPS for 2024. Pension income for 2024 is expected to be $88 million, a decrease from 2023 due to market performance and interest rate movements.

In the fourth quarter of 2023, the GAAP tax rate was 15.7%, while the adjusted tax rate was 19.1%. For the full year, the GAAP tax rate was 16.8% and the adjusted tax rate was 20.9%. Non-recurring items in the fourth quarter resulted in a one-time tax benefit and an adjusted tax rate of 22.4%. The company returned $1.4 billion to shareholders through share repurchases and dividends in 2023 and plans to continue repurchasing shares in 2024. Free cash flow improved in 2023 and the company expects mid-single digit organic revenue growth and an increase in adjusted operating margin for 2024.

The company expects to meet its targets for adjusted diluted earnings per share and free cash flow margin for 2023. The CEO is pleased with the company's performance and expects the momentum to continue into 2024. The company's Risk & Broking line will not be significantly affected by rate increases or decreases in the market, as their focus on specialization sets them apart from others in the industry. The Health, Wealth and Career line had a weaker fourth quarter, but the company is confident in its outlook for BD&O.

The company has specialized businesses with national or global P&L's that are accountable for their performance. This has resulted in faster growth for the global lines. The company is confident in its pipeline and expects mid-single digit revenue growth for HWC in 2024. The current human capital landscape is complex, but the company sees trends such as rising healthcare costs and changing interest rates as tailwinds for 2024. The company also expects increased cross-selling opportunities through its smart connection strategy to contribute to HWC revenue growth. The company is targeting a 16% free cash flow margin in the long-term and expects incremental improvement in 2024 and beyond through greater profitability, margin expansion, and other factors.

The company plans to improve its business mix and reduce transformation-related expenses in order to increase cash conversion. However, these efforts may be temporarily offset by investments in product development. The company reaffirmed its EPS guidance for 2024, but may potentially exceed the high end of the range due to favorable factors such as pension.

The company expects to see a decrease in operating income due to reduced pension income and increased interest expense and adjusted tax rates, but still feels confident about meeting their guidance range. They plan to buy back $750 million in shares in 2024, which is lower than the $1 billion bought back in 2023, but they may increase this amount if market conditions allow.

The company is evaluating different options for capital allocation, including share buybacks, internal investment, and strategic M&A, to maximize value for shareholders. The next question is about free cash flow and the potential for upside to the 16% long-term margin target. The speaker confirms that the math is correct, but there may be headwinds such as transact that could impact the margin. The following question is about expense savings in the Risk & Broking business, and the speaker mentions that they have implemented some cost-cutting measures in the previous quarter.

The company's sustainable savings are not just limited to the transformation program, but also due to ongoing expense discipline and focus on revenue growth. The heavy investment in talent has been a significant factor in expenses, but as the talent base is now back to full strength, the company is focusing on strategic hires for profitable growth. The expected increase in the CapEx ratio may be slightly higher than previous years due to the recent years' depressed spending.

The speaker notes that there has been a significant increase in transformation spend and CapEx, but BAU CapEx will still be a modest offset to the tailwinds mentioned earlier. They also mention the growth of the retirement business in the near term due to the economic environment and the company's investments in this area. The speaker also mentions the success of the transact BDO business this quarter.

Carl Hess, CEO of the business, explains that their organic growth was below average but they only pursue profitable growth opportunities that make economic sense. They made sensible choices given the conditions they were facing. The strategic client engagement, specifically the large complex account team, is motivated by the company's global footprint, specialization approach, and industry leading analytics offer. They believe they can help clients manage challenges in the current macroeconomic environment and ensure the best return for their premium dollar. The team focuses on natural disasters, social inflation, and geopolitical conflicts.

During a conference call, David Motemaden from Evercore ISI asked about the impact of Transact on free cash flow margins and when the business is expected to become free cash flow positive. Andrew Krasner, the company's CFO, stated that there was a 60 basis point improvement in the free cash flow margin drag from Transact in the past year and that they are focused on balancing the product portfolio to achieve profitability. Carl Hess, the company's CEO, added that their specialty businesses, which make up half of the CRB business, have a higher growth rate compared to the rest of the segment. He did not provide specific numbers but mentioned that the growth rate is nearly twice that of the overall segment.

The operator introduces a question from Andrew Kligerman about the exceptional R&B growth of 12%. Kligerman asks about the plans for new hires and how strategic client engagement will affect the specialty groups. Carl Hess responds that they will continue to focus on strategic and opportunistic hiring and that they are always on the lookout for talent. He also explains that the strategic client engagement will not slow down the specialty groups, but rather help attract talent and add value to the business.

The company is committed to providing excellent service to its clients by understanding their risks and engaging with them. They are focusing on Fortune 1000 clients and expect to see cost-savings from restructuring. The EPS and margin guidance remains unchanged, but there may be some conservatism involved. The main driver for reaching the upper end of the guidance will be organic growth.

The speaker discusses the growth of specialty lines in the company and attributes it to their strategic focus and organization around these businesses. They do not see this growth slowing down in the near future. They also mention the potential boost in the pension and retirement business due to changes in rates and the potential impact of IBM's recent policy shift.

Carl Hess discusses the macroeconomic environment and how it is stimulating demand for buy-ins and buyouts. He also mentions that there is interest in examining defined benefit plans among other plan sponsors, and that the company is well positioned to help with evaluations. He then answers a question about the company's 12 industry verticals and their coverage across corporate America. Lastly, he mentions that Adams has brought back staffing to full levels.

In response to a question about the productivity of a particular group, Carl Hess explains that while they are happy with the progress made by both existing and newer colleagues, there is still room for increased productivity. The next question asks about the volatility of segment growth rates, to which Andrew Krasner responds that some parts of the business are seasonal and there may be timing differences between quarters. Overall, the company focuses on full year growth rates and there may be some unusual factors affecting growth throughout the year.

The company expects to see a return to normal levels of book sales and attrition, with potential for increased margins due to cost savings and future growth opportunities. The current quarter saw some fluctuations in book sales, but this is not expected to have a significant impact going forward. The company is making investments for future growth and operating leverage, which will continue to benefit margins beyond 2024. Attrition levels are currently within the company's historical range and are not expected to be a major factor in the future.

Carl Hess, CEO of WTW, discusses the company's 10% organic growth in R&B for the year and attributes it to new business and client retention. He is proud of the team's efforts and is optimistic about the future. He also mentions that the company's 2024 outlook is based on the current economic and geopolitical climate. The call ends with Hess thanking all those who have contributed to the company's success.

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