Willis Reports ‘Non-Operating’ Items Reduce Q2 Net Income to $47 Million

Willis Group Holdings reported net income of $47 million, or $0.26 per diluted share, in the second quarter of 2014 compared to $105 million, or $0.59 per diluted share in Q2 2013. The bulletin explained that “earnings in the second quarter of 2014 were reduced by $0.23 per diluted share related to non-operating items, adverse foreign currency movements, and the Operational Improvement Program, as detailed below:
–  $0.12 per diluted share from an increase in the valuation allowance on deferred tax assets;
–  $0.07 per diluted share from the devaluation of the Venezuelan currency;
– $0.03 per diluted share from adverse foreign currency movements; and
– $0.01 per diluted share from the Operational Improvement Program.

Willis said “underlying diluted EPS, which excludes the items above, was $0.49 per diluted share in the current quarter, a decrease of $0.10 per diluted share compared to the second quarter of 2013.

The decrease relative to the prior year resulted from the following:
– $0.05 per diluted share of non-cash tax adjustments;
– $0.01 per diluted share from increased share count; and
– $0.04 per diluted share from the performance of the business.

Willis reported total revenues for the period, which include commissions and fees, investment income and other income of $935 million, an increase of 5.1 percent from $890 million in the second quarter of 2013. Total revenue on an underlying basis, which excludes $5 million of favorable foreign currency movements, increased 4.5 percent over the prior period.

Total reported commissions and fees improved 5.1 percent to $930 million in the second quarter of 2014, from $885 million in the prior year quarter.

Organic commissions and fees grew 4.5 percent in the second quarter of 2014 compared to the same quarter in 2013.

Willis also reported total expenses of “$787 million in the second quarter of 2014, an increase of 8.9 percent from $723 million in the second quarter of 2013. Total underlying expenses increased 6.1 percent to $784 million in the second quarter of 2014 after adjusting for $16 million of unfavorable foreign currency movements and $3 million of restructuring charges related to the Operational Improvement Program.”

Willis Group CEO Dominic Casserley commented: “Willis grew revenues strongly in many of its businesses and even saw modest growth in reinsurance where the market faces significant rate pressure. This is testament to our diversified strength across geographies, sectors and business lines and reflects the cumulative investments for growth we have made, including in the second half of last year, in revenue-producing talent and client service and risk management capabilities.

“We will continue to invest selectively in talent but expect salary and benefit expense growth, excluding acquisitions, to moderate during the second half of the year as the comparisons to prior year periods begin to reflect both the higher base levels in the second half of 2013 and also our lower headcount growth in 2014,” he continued.

Casserley also noted that a “number of non-cash and non-operating items significantly reduced our reported earnings this quarter but that should not detract from the performance of our business. We have maintained our first half underlying EBITDA at a level consistent with last year against a backdrop of more challenging market conditions and significant investments for growth by us over the past twelve months. This is a good indicator of what we have achieved and can achieve, going forward.”

Source: Willis Group Holdings