Fourth Quarter Key Metrics and Highlights.
Total revenue increased 8% to $3.4 billion, including organic revenue growth of 7%
Operating margin decreased 920 basis points to 23.1%, and operating margin, adjusted for certain items, increased 60 basis points to 33.8%
EPS decreased 21% to $2.47, and EPS, adjusted for certain items was flat at $3.89
Repurchased 2.3 million class A ordinary shares for approximately $0.8 billion
Announced definitive agreement to acquire leading broker NFP to unlock fast-growing middle market with Aon Business Services-enhanced distribution and further accelerate our Aon United strategy
Full Year Key Metrics and Highlights
Total revenue increased 7% to $13.4 billion, including organic revenue growth of 7%
Operating margin decreased 110 basis points to 28.3%, and operating margin, adjusted for certain items, increased 80 basis points to 31.6%
EPS increased 3% to $12.51, and EPS, adjusted for certain items, increased 6% to $14.14
Cash flows from operations increased 7% to $3,435 million and free cash flow increased 5% to $3,183 million
Repurchased 8.4 million class A ordinary shares for approximately $2.7 billion
Aon plc (NYSE: AON) today reported results for the three and twelve months ended December 31, 2023.
Net income per share attributable to Aon shareholders in the fourth quarter decreased 24%, or $2.47 per share on a diluted basis, compared to $3.14 per share on a diluted basis, in the prior year period. Net income per share attributable to Aon shareholders, adjusted for certain items, was flat at $3.89 on a diluted basis for the quarter, including a favorable impact of $0.03 per share if prior year period results were translated at current period foreign exchange rates ('foreign currency translation'). Certain items that impacted fourth quarter results and comparisons with the prior year period are detailed in 'Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings Per Share' on page 10 of this press release.
'In the fourth quarter and full year, our colleagues delivered 7% organic revenue growth, highlighted by double-digit growth in Reinsurance Solutions and Health Solutions. This top line growth contributed to full year adjusted margin expansion of 80 basis points, adjusted operating income growth of 10%, and $3.2 billion of free cash flow.' said Greg Case, Chief Executive Officer. 'This strong performance demonstrates how we are going further, faster with our 3x3 plan, which is an acceleration of our proven Aon United strategy. Our Risk Capital and Human Capital structure has unlocked new opportunities to grow, and Aon Business Services is a catalyst for innovation delivering new products and tools at scale across client segments and geographies.'
FOURTH QUARTER 2023 FINANCIAL SUMMARY
Total revenue in the fourth quarter increased 8% to $3.4 billion compared to the prior year period reflecting 7% organic revenue growth, a 2% favorable impact from foreign currency translation, and a 1% favorable impact from fiduciary investment income, partially offset by a 2% unfavorable impact from acquisitions, divestitures and other.
Total operating expenses in the fourth quarter increased 23% to $2.6 billion compared to the prior year period due primarily to an increase in expense associated with 7% organic revenue growth, investments in long-term growth, a $197 million charge in connection with certain accrued actual or anticipated legal settlement expenses, and a $40 million unfavorable impact from foreign currency translation.
Foreign currency translation in the fourth quarter had a $6 million, or $0.03 per share, favorable impact on U.S. GAAP net income and a $7 million, or $0.03 per share, favorable impact on adjusted net income. If currency were to remain stable at today's rates, the Company would expect a favorable impact of approximately $0.03 per share, or an approximately $9 million increase in adjusted operating income, in the first quarter of 2024, and a favorable impact of approximately $0.02 per share, or an approximately $6 million increase in adjusted operating income, for full year 2024.
Effective tax rate for the fourth quarter was 16.7%, compared to 6.1% in the prior year period, primarily driven by changes in the geographical distribution of income and a lower net favorable impact from discrete items than in the prior year period. After adjusting to exclude the applicable tax impact associated with certain non-GAAP adjustments, the adjusted effective tax rate for the fourth quarter of 2023 was 18.2% compared to 9.0% in the prior year period. The primary drivers of the change in the adjusted tax rate were the geographical distribution of income and a lower net favorable impact from discrete items than in the prior year period. These adjustments are discussed in 'Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings Per Share' on page 10 of this press release.
Weighted average diluted shares outstanding decreased to 202.0 million in the fourth quarter compared to 209.3 million in the prior year period. The Company repurchased 2.3 million class A ordinary shares for approximately $0.8 billion in the fourth quarter. As of December 31, 2023, the Company had approximately $3.3 billion of remaining authorization under its share repurchase program.
FULL YEAR 2023 CASH FLOW SUMMARY
The full year 2023 cash flow summary provided below includes supplemental information related to free cash flow, which is a non-GAAP measure that is described in detail in 'Reconciliation of Non-GAAP Measures - Organic Revenue Growth and Free Cash Flow' on page 9 of this press release.
Cash flows provided by operations for 2023 increased $216 million, or 7%, to $3,435 million compared to the prior year period, reflecting strong operating income growth and overall working capital optimization, partially offset by a negative impact to working capital due to temporary invoicing delays associated with the implementation of a new system, and higher cash tax payments.
Free cash flow, defined as cash flow from operations less capital expenditures, increased 5%, to $3,183 million in 2023 compared to the prior year, reflecting an increase in cash flows from operations, partially offset by a $56 million increase in capital expenditures, due primarily to ongoing investments in Aon Business Services-enabled technology platforms and technology to drive long-term-growth.
FOURTH QUARTER 2023 REVENUE REVIEW
The fourth quarter revenue reviews provided below include supplemental information related to organic revenue, which is a non-GAAP measure that is described in detail in 'Reconciliation of Non-GAAP Measures - Organic Revenue Growth and Free Cash Flow' on page 9 of this press release.
Three Months Ended
December 31,
(millions)
2023
2022
%
Change
Less:
Currency
Impact
Less:
Fiduciary
Investment
Income
Less:
Acquisitions,
Divestitures &
Other
Organic
Revenue
Growth
Revenue
Commercial Risk Solutions
$ 1,906
$ 1,822
5 %
1 %
1 %
(1) %
4 %
Reinsurance Solutions
332
281
18
1
6
(3)
14
Health Solutions
763
678
13
1
-
1
11
Wealth Solutions
377
353
7
3
-
(1)
5
Elimination
(3)
(4)
N/A
N/A
N/A
N/A
N/A
Total revenue
$ 3,375
$ 3,130
8 %
2 %
1 %
(2) %
7 %
Total revenue increased $245 million, or 8%, to $3,375 million, compared to the prior year period, including organic revenue growth of 7% driven by ongoing strong retention, net new business generation, and management of the renewal book, a 2% favorable impact from foreign currency translation, and a 1% favorable impact from fiduciary investment income, partially offset by a 2% unfavorable impact from acquisitions, divestitures and other.
Commercial Risk Solutions organic revenue growth of 4% reflects solid growth across most major geographies driven by strong retention, management of the renewal book, and net new business generation. Growth in retail brokerage was highlighted by double-digit growth in Asia and the Pacific, driven by continued strength in core P&C. The U.S. grew modestly driven by strength in property, casualty, and construction, partially offset by the impact of external M&A and IPO markets. On average globally, exposures and pricing were positive, resulting in modestly positive market impact.
Reinsurance Solutions organic revenue growth of 14% reflects strong growth in treaty, driven by strong retention and continued net new business generation, as well as strong growth in facultative placements and investment banking. Market impact was modestly positive on results in the quarter. The majority of revenue in our treaty portfolio is recurring in nature and is recorded in connection with the major renewal periods that take place throughout the first half of the year, while the second half of the year is typically driven by facultative placements, capital markets activity, and advisory work that is more transactional in nature.
Health Solutions organic revenue growth of 11% reflects strong growth globally in core health and benefits brokerage primarily from net new business generation and management of the renewal book. Strength in the core was highlighted by double-digit growth in most major geographies. Results also reflect double-digit growth in Consumer Benefit Solutions and modest growth in Talent.
Wealth Solutions organic revenue growth of 5% reflects strong growth in Retirement, driven by advisory demand and project-related work related to pension de-risking and ongoing impact of regulatory changes. In Investments, a modest increase in AUM-based delegated investment revenue was offset by a decline in advisory.
FOURTH QUARTER 2023 EXPENSE REVIEW
Three Months Ended
December 31,
(millions)
2023
2022
$ Change
% Change
Expenses
Compensation and benefits
$ 1,671
$ 1,539
$ 132
9 %
Information technology
131
138
(7)
(5)
Premises
77
73
4
5
Depreciation of fixed assets
48
36
12
33
Amortization and impairment of intangible assets
19
26
(7)
(27)
Other general expense
521
306
215
70
Accelerating Aon United Program expenses
129
-
129
100
Total operating expenses
$ 2,596
$ 2,118
$ 478
23 %
Compensation and benefits expense increased $132 million, or 9%, compared to the prior year period due primarily to an increase in expense associated with 7% organic revenue growth and a $32 million unfavorable impact from foreign currency translation.
Information technology expense decreased $7 million, or 5%, compared to the prior year period due primarily to lower cloud costs and elevated technology investments in the prior year period.
Premises expense increased $4 million, or 5%, compared to the prior year period.
Depreciation of fixed assets increased $12 million, or 33%, compared to the prior year period due primarily to ongoing investments in Aon Business Services-enabled technology platforms to drive long-term growth.
Amortization and impairment of intangible assets decreased $7 million, or 27%, compared to the prior year period due primarily to a decrease associated with assets held for sale as part of ongoing portfolio management and assets fully amortized in the prior year period.
Other general expense increased $215 million, or 70%, compared to the prior year period primarily due to a $197 million charge in connection with certain accrued actual or anticipated legal settlement expenses and $17 million of transaction costs associated with the expected acquisition of NFP.
Accelerating Aon United Restructuring Program expenses were $129 million, relating to workforce optimization, asset impairments, and technology and other costs.
FOURTH QUARTER 2023 INCOME SUMMARY
Certain noteworthy items impacted adjusted operating income and adjusted operating margins in the fourth quarters of 2023 and 2022, which are also described in detail in 'Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings Per Share' on page 10 of this press release.
Three Months Ended
December 31,
(millions)
2023
2022
% Change
Revenue
$ 3,375
$ 3,130
8 %
Expenses
2,596
2,118
23 %
Operating income
$ 779
$ 1,012
(23) %
Operating margin
23.1 %
32.3 %
Operating income - as adjusted
$ 1,141
$ 1,038
10 %
Operating margin - as adjusted
33.8 %
33.2 %
Operating income decreased $233 million, or 23%, and operating margin decreased 920 basis points to 23.1%, each compared to the prior year period. Operating income, adjusted for certain items detailed on page 10 of this press release, increased $103 million, or 10%, and operating margin, adjusted for certain items, increased 60 basis points to 33.8%, each compared to the prior year period. The increase in adjusted operating income and margin reflects organic revenue growth and increased fiduciary investment income, partially offset by increased expenses and investments in long-term growth.
Interest income increased $9 million compared to the prior year period, reflecting higher interest rates. Interest expense increased $14 million to $124 million compared to the prior year period, reflecting an overall increase in total debt and higher interest rates.
Other income (expense) decreased $138 million compared to the prior year period, primarily due to a $170 million non-cash pension settlement charge in the prior year period that did not repeat in the fourth quarter of 2023. Other income (expense) - as adjusted increased $32 million compared to the prior year period, primarily due to an increase in non-cash net periodic pension cost.
Net income attributable to Aon shareholders in the fourth quarter decreased 24% to $498 million compared to $657 million, in the prior year period. Net income attributable to Aon shareholders, adjusted for certain items, in the fourth quarter decreased 4% to $785 million compared to $815 million, in the prior year period.
2023 FULL YEAR SUMMARY
Total revenue in 2023 increased 7% to $13.4 billion compared to the prior year reflecting 7% organic revenue growth and a 2% favorable impact from fiduciary investment income, partially offset by a 2% unfavorable impact from acquisitions, divestitures and other.
Net income attributable to Aon shareholders decreased to $2,564 million, or $12.51 per share on a diluted basis, compared to $2,589 million, or $12.14 per share, in the prior year. Net income per share, adjusted for certain items, increased 6% to $14.14 on a diluted basis, including an unfavorable impact of $0.17 per share from foreign currency translation, compared to $13.39 in the prior year. Certain items that impacted full year results and comparisons against the prior year are detailed in 'Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings Per Share' on page 10 of this press release.
During 2023, the Company repurchased approximately 8.4 million class A ordinary shares for approximately $2.7 billion at an average price of $321.52 per share. As of December 31, 2023, the Company had approximately $3.3 billion of remaining authorization under its share repurchase program.
Conference Call, Presentation Slides and Webcast Details
The Company will host a conference call on Friday, February 2, 2024 at 7:30 a.m., central time. Interested parties can listen to the conference call via a live audio webcast and view the presentation slides at www.aon.com
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About Aon
Aon plc (NYSE:AON) exists to shape decisions for the better - to protect and enrich the lives of people around the world. Our colleagues provide our clients in over 120 countries and sovereignties with advice and solutions that give them the clarity and confidence to make better decisions to protect and grow their business.
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