Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Aon PLC (AON, Financial) delivered 6% total organic revenue growth in Q2 2024, with all solution lines achieving 6% or greater growth.
- The company reported 18% total revenue growth and 19% adjusted operating income growth, with margins increasing to 27.4%.
- Aon PLC (AON) successfully integrated NFP, contributing to mid-single-digit organic revenue growth and strong client and colleague retention.
- The company made significant progress in priority talent acquisitions, particularly in areas like energy and construction, which are expected to drive future growth.
- Aon PLC (AON) is on track to deliver long-term double-digit free cash flow growth, supported by strong operational performance and strategic investments.
Negative Points
- The tax rate increased to above 22% in Q2, driven by geographic mix of income and unfavorable discrete tax items, which could impact future earnings.
- The company faces challenges in the competitive market for talent acquisition, particularly in the middle market segment.
- Aon PLC (AON) has elevated credit ratios due to recent acquisitions, which may take 12 to 18 months to bring back in line with desired levels.
- The integration of NFP is still in early stages, with only two months of performance data, making it difficult to fully assess long-term impacts.
- The company noted that the market environment for certain lines, such as cyber and financial lines, remains challenging, with pricing pressures and evolving risks.
Q & A Highlights
Q: My first question is on commercial risk. Would the overall organic growth statement also hold true for commercial risk? And can you expand on what turned in the quarter for you to see a doubling of growth within that segment?
A: Yes, the 6% organic growth and all solution line results would have been the same without NFP. In commercial risk, 6% growth was driven by strong net new business generation and retention across all major geographies. The mix of external factors from Q1 did not repeat, and we saw growth in exposures and generally flat pricing.
Q: The tax rate in the quarter went above 22%. Is your tax rate structurally higher with NFP, or is there something one-off to consider?
A: The Q2 tax rate was driven by a geographic mix of income and unfavorable discrete tax items. Discretes can be favorable or unfavorable in any quarter, making the rate lumpy. We think about it over the full year, and historically, the rate has been accurate.
Q: Could you elaborate on net producer staffing in 2Q? Was it positive or negative, and how do you see it playing out in the second half of the year?
A: We have the highest engagement we've had in almost forever, with low voluntary attrition. We see priority opportunities in areas like construction and energy. The new hires are not just about numbers but about capability, supported by unique analytics and tools.
Q: On NFP, you mentioned $45 million to $60 million of EBITDA in M&A. Is it more back-half weighted in terms of transactions?
A: Yes, the pipeline looks incredibly strong in the back half of the year. NFP slowed down a bit during negotiations, but they are on track to deliver $45 million to $60 million of EBITDA in 2024.
Q: How do you see the balance between adding headcount and productivity improvement going forward?
A: We are doubling down on capability and delivering one client at a time. The three by three plan involves significant investments in analytics and talent, which will drive productivity and effectiveness. This combination of capability and additional talent will strengthen our firm.
Q: How much of the commercial risk business is middle market now with NFP?
A: There is still significant room for growth in the middle market. The independent and connected philosophy with NFP is resonating well, and we see a lot of runway in this $31 billion market.
Q: How have you found competition for talent in the middle market versus where you've historically played?
A: There is a war for talent everywhere. The independent and connected philosophy with NFP is valuable to colleagues, providing better content and tools while maintaining strong personal relationships. This approach is resonating well and attracting high-quality talent.
Q: The wealth organic growth was higher than usual. Is there anything unusual this quarter, and are these results sustainable?
A: The 9% growth reflects ongoing strength in pension risk transfer and regulatory changes. NFP has strong capabilities in this area, and the results are sustainable. The Aon results are strong even without NFP.
Q: Are legacy NFP producers already using the new tools from Aon, or will it take longer?
A: We have started connecting them with products and capabilities, and we are laying the plans to provide analytic capabilities. The process is ongoing, and we are making good progress.
Q: Do clients with cyber insurance have the right amount and type of protection in case of systemic outages or software glitches?
A: It's hard to answer on a macro basis, but system outages create new risk exposures. The insurance market will look at scope and price of coverage. Clients are re-evaluating their risk platforms, and we are investing in capabilities to provide better insights and protection.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
